Advance Auto Parts’ (AAP) second-quarter revenue rose slightly but earnings sank as price increases could not offset higher product costs and supply chain deleverage.
For the quarter ended July 15, Advance reported net sales growth of 0.8% to $2.7 billion, which beat analysts’ expectations, and diluted earnings per share down 39.9% to $1.43, which missed expectations.
The sales increase was primarily driven by new store openings but was partially offset by comparable-store sales declining 0.6%, the company said.
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“Profitability in the quarter was below expectations, primarily related to our inability to price to cover inflation,” Advance CEO Tom Greco said in a statement. “However, we began to see early signs that the strategic investments we are making are beginning to drive an improvement in top-line sales and transactions. This is evidenced by positive comparable store sales growth in the final four weeks of the second quarter, which has continued into the third quarter.”
The automotive aftermarket parts provider serves both professional installer and do-it-yourself customers.
The company updated its full-year guidance, “which considers a modest step up in net and comparable store sales growth driven by strengthening of our professional business,” said Tony Iskander, interim CFO.
Lowered outlook
Iskander added, however, that the company has lowered its outlook for operating income margin rate, diluted earnings per share and free cash flow to reflect “additional headwinds anticipated in the back half of the year driven by our ongoing commitment to maintain competitive price targets, impacts from a shift in channel mix and investments in our team to help retain top talent.”
The new outlook calls for net sales of $11.25 billion to $11.35 billion, comparable-store sales of down 0.5% to up 0.5%, an operating income margin rate of 4% to 4.3%, diluted EPS of $4.50 to $5.10, and free cash flow of $150 million to $250 million.
The company had previously guided to net sales of $11.2 billion to $11.3 billion, comparable store sales of down 1% to flat, an operating income margin rate of 5% to 5.3%, diluted EPS of $6.00 to $6.50, and free cash flow of $200 million to $300 million.
In other news, Advance announced that Shane O’Kelly, who most recently served as CEO of Home Depot’s HD Supply, will succeed Greco as president and CEO on Sept. 11. Greco announced plans for retirement earlier this year.
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