Advance Auto Parts experienced a significant decline in its fiscal second-quarter earnings, reporting an unexpected drop that has raised concerns among investors. The automotive parts retailer announced a cut to its full-year outlook while unveiling the decision to sell its Worldpac wholesale business to Carlyle for a hefty sum of $1.5 billion in cash. In terms of earnings per share, Advance Auto Parts saw a drop to $0.75, down from $1.32 year-over-year, missing the average analyst estimate on Capital IQ, which stood at $0.91 for GAAP EPS.
This disappointing performance led to a stark 16% plunge in the company's share price during Thursday's trading session. As for revenue, the company recorded $2.68 billion for the three months that ended on July 13, slightly down from $2.69 billion a year ago. However, this figure did exceed the expected market view of $2.67 billion.
Moreover, comparable store sales saw a marginal increase of 0.4%, which aligned with expectations that had predicted a 0.4% decline. In a statement, Chief Executive Shane O'Kelly expressed that the team managed to achieve positive comparable sales growth amidst challenging demand conditions that characterized the second quarter.
The financial forecast for fiscal 2024 has been revised as Advance Auto Parts lowered its revenue guidance to a range between $11.15 billion and $11.25 billion, a reduction from the previous forecast of $11.3 billion to $11.4 billion. The company now anticipates comparable sales to decline by 1% to remain flat, whereas it previously projected flat growth or up to a 1% increase.
For its earnings per share, Advance Auto Parts is now projecting a figure between $2 and $2.50, compared to an earlier estimate range of $3.75 to $4.25. The consensus from Capital IQ estimates revenue and GAAP EPS at $11.24 billion and $3.11, respectively. The strategic decision to divest Worldpac, described as a "critical milestone" in the turnaround strategy of Advance Auto Parts by O'Kelly, aims to strengthen the company’s balance sheet and streamline its operational focus.
The Worldpac division reportedly generated around $2.1 billion in revenue and $100 million in earnings before interest, taxes, depreciation, and amortization in the 12 months leading to the end of the second quarter. Following the sale, Advance Auto Parts expects to secure net proceeds of approximately $1.2 billion after accounting for taxes and transaction fees. By selling this division, the company aims to enhance its sales trajectory and operational productivity, with a view to delivering stronger returns for shareholders, O'Kelly noted.
This transaction is projected to close before the conclusion of the year. Commenting on the agreement, Wes Bieligk, a partner at Carlyle, along with Katherine Barasch, a senior member of Carlyle's global industrial investing team, expressed their enthusiasm about partnering with Worldpac, emphasizing its strong market presence.
In summary, while Advance Auto Parts grapples with unexpected earnings challenges, the sale of Worldpac to Carlyle represents a pivotal opportunity to reposition and strengthen its market standing moving forward. Current stock metrics indicate a price of $52.14, reflecting a change of -9.79, which translates to a percent change of -15.80..