Advance Auto Parts: Turnaround Story Intriguing, but Years of Operational Miscues Tough to Overcome

Despite serving as a leading auto parts retailer across North America, we do not think Advance Auto Parts benefits from a durable competitive edge and thus lacks confidence in its ability to outearn its cost of capital over the following decade. After suffering from operational mismanagement and poor supply chain integration, the retailer is set to embark on its third turnaround attempt in 15 years with Shane O’Kelly at the helm. While we look favorably upon management’s plans to cut unnecessary corporate costs and improve distribution speed, we find it increasingly difficult for the auto parts retailer to close the wide operational gap that exists between it and its most prodigious competitors, such as wide-moat firms AutoZone and O’Reilly, and narrow-moat Genuine Parts (Napa).