Advance Auto Parts Sees Strong Margin Improvement in 2025-2027 Despite Q3 Miss, Wedbush Says

MT Newswires Live11-16

Advance Auto Parts (AAP) missed Q3 expectations but is expected to post strong margin improvements between 2025 and 2027, Wedbush said in a report Friday.

The automotive aftermarket parts provider reported an adjusted loss of $0.04 per share for fiscal Q3, narrowing from a $1.19 loss a year earlier, with net sales for the quarter falling to $2.15 billion from $2.22 billion.

The company provided mixed margin guidance, with 2024 operating margins for its RemainCo business at 0.25% to 0.75% due to soft demand and cost pressures, including hurricane disruptions and a Crowdstrike (CRWD) outage, Wedbush said.

Advance Auto Parts plans to close 523 underperforming stores and exit 204 independent locations by Q2 2025, saving $60 million to $80 million, and focusing on more profitable markets, Wedbush said. "We also see risk of operational disruption that can occur leading to sales pressure in other areas, but we believe that [Advance Auto Parts] can manage this risk," it added.

The company expects to improve its profit margins in 2025 by focusing on "merchandising," and plans to achieve this by reducing costs through product reviews, streamlining inventory management, and implementing more effective pricing strategies, Wedbush said, adding it expects an even stronger margin improvement in 2026 and 2027.

Wedbush maintained an outperform rating on Advance Auto Parts with a price target of $55.

The company's shares were down more than 8% in recent Friday trading.

Price: 37.79, Change: -3.41, Percent Change: -8.28

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