Stock Meltdown

Advance Auto Parts Inc., a top auto parts seller, saw its stock prices decline on Wednesday due to disappointing Q1 earnings, reduced dividend, and lowered full-year outlook amidst intense pricing competition.

Stock Performance and Trading Volume

During active morning trading, Advance Auto Parts' shares plummeted by 30.0%, reaching the lowest price since March 2020. The trading volume surged to 3.3 million shares, more than triple the daily average of 1.0 million shares. The stock emerged as the top decliner listed on the New York Stock Exchange (NYSE) and was poised to surpass the previous record one-day selloff of 20.3% on August 15, 2017.

CEO's Statement

Outgoing Chief Executive Officer Tom Greco emphasized the company's commitment to improving inventory availability and maintaining competitive pricing to enhance sales. Greco acknowledged that the competitive dynamics experienced in the first quarter would persist, resulting in a shortfall compared to the company's 2023 expectations.

Financial Performance

Q2 net income dropped to $42.7 million ($0.72/share), down from $139.8 million ($2.26/share) YoY. Operating margin rate fell to 2.6% from 6.0% YoY due to increased investments. Sales grew 1.3% to $3.42 billion, slightly missing consensus. Same-store sales decreased by 0.4%, contrary to expectations.

Cash Flow and Dividend Reduction

The net cash outflow rose to $378.9M from $54.9M YoY due to decreased net income and higher cash used in working capital, specifically in accounts payable. As a result, CFO Jeff Shepherd reduced the company's quarterly cash dividend by 83.3%, from $1.50 to 25 cents per share, to improve financial flexibility.

Revised Guidance

Due to the disappointing first-quarter results, Advance Auto Parts Inc. revised its guidance for fiscal year 2023. The company lowered its expected ranges for EPS from $10.20 to $11.20 to $6.00 to $6.50, for sales from $11.40 billion to $11.60 billion to $11.20 billion to $11.30 billion, and for operating margin from 7.8% to 8.2% to 5.0% to 5.3%.

Analyst Reaction

D.A. Davidson analyst Michael Baker regarded the company's results and outlook as a significant miss and cut, noting that it was one of the most substantial revisions he could recall. Baker reiterated his neutral rating on the stock.