Advance Auto Parts (NYSE:AAP) shares are down over 13% in pre-market trading Wednesday morning following the company’s reported worse-than-expected Q3 results Tuesday after the close, especially on the profitability side.
EPS came in at $2.84, below the consensus estimate of $3.32. Revenue was $2.6 billion (up 0.8% year-over-year), compared to the consensus estimate of $2.64 billion. The growth was primarily driven by strategic pricing and new store openings.
“Our deliberate move to increase owned brand penetration, which carries a lower price point, reduced net sales by approximately 80 basis points and comp sales by approximately 90 basis points," said Tom Greco, president and CEO of Advance Auto Parts.
For fiscal 2022, the company expects EPS in the range of $12.60-$12.80, compared to the consensus of $13.02, and revenue in the range of $11-11.2 billion, compared to the consensus of $11.1 billion.
Morgan Stanley (NYSE:MS)'s note on the report highlighted questions over expenses and whether AAP can deliver on Q4 EBIT guidance given FX headwinds and a negative comparable sales forecast.
Their analyst wrote, "While the gross margin beat in Q3'22 is somewhat encouraging given AAP's focus on supply chain initiatives, it's being overshadowed by what appears to be elevated expenses against an anticipated/in-line sales backdrop. This is important because expense leverage is an integral part of the path to 10.5%-12.5% EBIT margins over time. If AAP can manage SG&A to hit the Q4 guide, it may restore some confidence. But overhangs remain in place, including 1) what will likely be a sizeable LIFO headwind in '23, and 2) the ongoing balancing act between using price to boost margins and taking share to drive leverage on top-line."
At 6:11am ET, AAP was trading around $158.55/share, 13.8% off of Tuesday's close and 34% lower for the year, and just above 52-week lows.
By Davit Kirakosyan and Daniel Shvartsman