Advance Auto Parts, Inc. (NYSE:AAP) said it is taking “decisive action” to position itself for long-term success and create meaningful value for shareholders after swinging to a surprise third-quarter loss.
In a statement, recently appointed CEO Shane O’Kelly commented: “Since joining Advance, I have partnered with the board and management team to move with speed in conducting a comprehensive review of the business.
“Today we are announcing initial actions from our review process that will allow us to capitalize on significant opportunities ahead.”
Chief among the actions outlined is a new cost reduction program that it expects to generate at least $150 million in savings on an annualized basis. It will reinvest up to $50 million of the savings on team members to improve the retention of frontline team members.
The company also announced a strategic decision to focus on its blended box business and said it was initiating separate sale processes for wholesale distributor Worldpac as well as its Canadian business.
“We are committed to stabilizing the company and returning Advance to profitable growth, and our frontline team’s passion and extensive knowledge is integral to how we succeed,” O’Kelly added.
The Raleigh-based auto parts supplier posted a 2.9% rise in sales to $2.72 billion for the three months ended October 7, 2023, above analysts’ consensus of $2.68 billion, while same-store sales grew by 1.2%.
Its gross profit margin declined to 36.3% of net sales, down from 44.6% in 3Q 2022. It attributed this primarily to a change in estimate for inventory reserves that resulted in a one-time impact of approximately $119 million, as well as higher product and supply chain costs.
It reported a loss of $0.82 per share for the quarter, down from earnings of $1.92 per share a year earlier and below the $1.42 expected by analysts polled by Zacks Investment Research.
The company has cut its full-year sales guidance to between $11.25 and $11.3 billion, lowering the top end of the range from its previous guidance of $11.35 billion.
Full-year earnings are likely to be between $1.40 and $1.80, down from $4.50 and $5.10 previously.
After declining more than 6% in premarket trading, the company’s shares were up 0.8% at $59.05 shortly before midday in New York.
Contact the author at stephen.gunnion@proactiveinvestors.com