Advance Auto Parts (NYSE: AAP) stock tumbled 15.8% through 10:35 a.m. ET after the company beat on sales but missed on earnings in its latest earnings release Thursday morning.
Heading into the fiscal second-quarter results, analysts forecast the automotive parts retailer would earn $0.94 per share on just under $2.7 billion in sales in the period ended July 13. Advance Auto Parts nailed the sales target, but whiffed on profits, reporting just $0.75 per share.
Advance Auto Parts' Q2 earnings
How did that happen? Well, starting on the top line, things didn't look too bad. Sales declined year over year, but only by a fraction of 1%.
Even tiny single-digit-percentage increases in cost of goods sold, and selling, general, and administrative expenses, however, were enough to turn those relatively flat sales into a dramatic 43% plunge in operating income. And despite big savings on taxes paid on that income, this decline held true all the way to the bottom line, where net profit fell 43% as well.
What's next for Advance Auto Parts?
So Q2 wasn't great. The quarterly loss, however, isn't the only thing weighing on Advance Auto Parts stock today. As part of his plan to turn around the business, CEO Shane O'Kelly announced the company will be selling its Worldpac wholesale business for $1.5 billion, "to strengthen our balance sheet and streamline our focus" on the retail business.
That sale should close before the end of the year, and management subtracted $150 million (about 1%) from its sales guidance for the year, probably to account for lost Worldpac revenue. It cut its earnings forecast by much more, however -- from a $3.75-to-$4.25 range to somewhere closer to $2.25 per share, a 44% reduction. Problem is, Worldpac generates about $2.1 billion of Advance Auto Parts' annual sales, so the drop in sales and earnings next year could be even more significant.
Long story short: Q2 was bad, all of 2024 will be just as bad, and 2025, while still not certain, probably isn't going to look great either. No wonder investors are abandoning Advance Auto Parts stock today.
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Rich Smith has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
Why Advance Auto Parts Stock Just Crashed 16% was originally published by The Motley Fool