Advance Auto Parts Earnings: Shares Plunge on Weak Guidance; Competitive Standing Looks Precarious

We anticipate lowering our $64 per share fair value estimate for no-moat Advance Auto Parts by more than 10% following its uninspiring second-quarter earnings and its announced sale of Worldpac. The firm’s results, while comparable sales growth of 0.4% slightly outperformed our expectations, an operating margin of 2.7% (down 230 basis points from the prior year) came in well below our 3.5% forecast primarily due to continued price cuts and increased wage investments. Management also proceeded to slash its full-year guidance, calling for comp growth of flat to down 1% (from flat to up 1%), earnings per share of $2.00-$2.50 (from $3.75-$4.25), and free cash flow of at least $100 million (from $250 million).