Why We Aren't Optimistic About Advance Auto (AAP) Q3 Earnings
Advance Auto Parts AAP is slated to release third-quarter 2023 results on Nov 15, before market open. The Zacks Consensus Estimate for the to-be-reported quarter’s earnings per share and revenues is pegged at $1.42 and $2.68 billion, respectively.
For the third quarter, the consensus estimate for AAP’s earnings per share has moved down by 1 cent in the past seven days. The bottom-line estimate implies a deterioration of 50% from the year-ago reported number. The Zacks Consensus Estimate for its quarterly revenues suggests a year-over-year increase of 1.44%.
Over the trailing four quarters, AAP surpassed earnings estimates once and missed on three occasions, the average negative surprise being 21.03%. This is depicted in the graph below.
Advance Auto Parts, Inc. Price and EPS Surprise
Advance Auto Parts, Inc. price-eps-surprise | Advance Auto Parts, Inc. Quote
Q2 Highlights
Advance Auto delivered adjusted earnings of $1.43 per share for second-quarter 2023, down 62% from the year-ago quarter's figure. The reported figure also fell short of the Zacks Consensus Estimate of $1.72 per share. It generated net revenues of $2,686 million, which topped the Zacks Consensus Estimate of $2,671 million on lower-than-expected comps decline. Comparable store sales dropped 0.6%. We projected a decline of 0.7%. The top line increased 0.8% year over year.
Factors to Shape Q3 Results
Intensive expansion efforts have forced Advance Auto Parts to bear the brunt of high selling, general and administrative (SG&A) costs, which are limiting the firm’s margins. During the last reported quarter, SG&A expenses were 37.8% of net sales, up from 36.9% of net sales reported in the year-ago period. The trend of increasing expenses is expected to have continued in the third quarter of 2023 as well, weighing on margins. We anticipate adjusted SG&A costs to inch up 2% year over year. High labor costs are also likely to have played spoilsport.
Moreover, rising investments to develop technology platforms and digital initiatives are set to dent the firm’s margins in the to-be-reported quarter. The company continues to deploy capital to pursue new growth opportunities through investments, partnerships and acquisitions. Amid rising expenses, our projections call for adjusted operating income to decline 50% in the third quarter of 2023.
The trimmed 2023 guidance sparks pessimism for the upcoming results. AAP expects adjusted operating income margin in the range of 4-4.3%, down from the previous guidance of 5-5.3%. It projects free cash flow in the band of $150-$250 million, down from the prior guided range of $200-$300 million. Earnings per share are forecast to be between $4.50 and $5.10, down from the prior estimate of $6-$6.50 per share.
Earnings Whispers
Our proven model does not conclusively predict an earnings beat for Advance Auto Parts for the quarter to be reported, as it does not have the right combination of the two key ingredients. A combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat.
Earnings ESP: AAP has an Earnings ESP of -1.60%. This is because the Most Accurate Estimate is 2 cents lower than the Zacks Consensus Estimate. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Zacks Rank: It currently carries a Zacks Rank #4 (Sell).
You can see the complete list of today’s Zacks #1 Rank stocks here.
Key Releases From the Same Space
O’Reilly Automotive ORLY reported third-quarter 2023 results on Oct 25. Adjusted earnings per share of $10.72 beat the Zacks Consensus Estimate of $10.36. The bottom line increased from $9.17 in the prior-year quarter. The automotive parts retailer registered quarterly revenues of $4,203.4 million, crossing the Zacks Consensus Estimate of $4,070 million. The top line increased 10.6% year over year. During the quarter, comps grew 8.7%. The company opened 40 new stores in the United States and Mexico. The total store count was 6,111 as of Sep 30, 2023.
ORLY had cash and cash equivalents of $82.6 million at the end of the reported quarter, down from $108.6 million recorded as of 2022-end. Its long-term debt was $5,102.3 million, higher than $4,371.6 million as of Dec 31, 2022.
Lithia Motors LAD reported third-quarter 2023 results on Oct 25. It posted adjusted earnings of $9.25 per share for third-quarter 2023, which declined from the prior-year quarter’s $11.08 and missed the Zacks Consensus Estimate of $9.97 per share. Total revenues jumped 13.5% year over year to $8,277 million, outpacing the Zacks Consensus Estimate of $8,151 million.
Cost of sales jumped 15.5% year over year in third-quarter 2023. SG&A expenses were $850.8 million, up 12.8% from $754.2 million in the year-ago quarter. Adjusted SG&A as a percentage of gross profit was 62.7%. Pretax and net profit margins declined from the year-ago levels. Lithia had cash/cash equivalents/restricted cash of $256.2 million as of Sep 30, 2023, up from $246.7 million as of Dec 31, 2022. Long-term debt was $5,152.8 million as of Sep 30, 2023, up from $5,088.3 million as of Dec 31, 2022.
Group 1 Automotive GPI reported third-quarter 2023 results on Oct 25. It reported third-quarter 2023 adjusted earnings per share of $12.07, which beat the Zacks Consensus Estimate of $11.32. The bottom line also increased from the prior-year quarter’s earnings of $12 per share. The automotive retailer registered net sales of $4,705.1 million, beating the Zacks Consensus Estimate of $4,554 million. Also, the top line rose from the year-ago quarter’s $4,163.4 million.
SG&A expenses were up 10.1% year over year to $496.7 million. Group 1 Automotive had cash and cash equivalents of $52.9 million as of Sep 30, 2023, up from $47.9 million as of 2022-end. Total debt was $2,118.2 million as of Sep 30, 2023, up from $2,082.5 million recorded on Dec 31, 2022.
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O'Reilly Automotive, Inc. (ORLY) : Free Stock Analysis Report
Advance Auto Parts, Inc. (AAP) : Free Stock Analysis Report
Group 1 Automotive, Inc. (GPI) : Free Stock Analysis Report
Lithia Motors, Inc. (LAD) : Free Stock Analysis Report
