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What Could Be Hurting Advance Auto Parts Stock

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Sep. 6 2017, Updated 8:05 a.m. ET

Advance Auto Parts

Advance Auto Parts (AAP) is one of the largest auto part retailers in the US market. As discussed previously in this series, AAP stock has underperformed that of peers O’Reilly Automotive (ORLY) and AutoZone (AZO) in calendar 2017. Advance Auto Parts stock has fallen significantly over the last nine months. As of August 28, its stock had lost ~15.5% on a month-to-date basis. Let’s take a look at what might be hurting Advance Auto Parts stock.

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Advance Auto Parts’ recent earnings

Advance Auto Parts released its 2Q17 earnings results on August 15, covering the 12 weeks up to July 15, 2017. The company’s adjusted EPS (earnings per share) were $1.58, ~16.8% lower than its EPS of $1.90 in the same quarter of the previous year. Advance Auto Parts also missed Wall Street analysts’ estimate of $1.67 per share.

In 2Q17, Advance Auto Parts’ revenue was flat at $2.3 billion, and its gross profit margin contracted to 43.9% from 44.8% a year prior. With its 2Q17 earnings announcement, the company warned investors of possible sales weakness in the second half of 2017.

These factors affected investor sentiment, and on the day of Advance Auto Parts’ 2Q17 earnings release, its stock fell sharply, by 20.3%. Overall, the company’s dismal 2H17 outlook could restrict any near-term recovery in its stock.

Despite recent declines, auto part retailers, including Advance Auto Parts, maintain much wider gross profit margins than automakers (IYK) such as General Motors (GM) and Ford Motor (F). In the next part, we’ll explore key factors auto investors should track in 3Q17.

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