May 31, 2023

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Advance Auto Parts, Inc. (AAP), an automotive aftermarket parts provider in North America, released its financial results for the first quarter ended April 22, 2023. Advance Auto Parts reported an increase in net sales but experienced a decline in comparable store sales. Due to lower-than-expected operating income margin and ongoing competitive challenges, Advance Auto Parts has revised its full-year 2023 guidance and made the difficult decision to reduce its quarterly dividend.

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Net Sales Growth and Operating Income Margin

During the first quarter, Advance Auto Parts saw a modest increase in net sales, which grew by 1.3% to reach $3.4 billion. However, Advance Auto Parts faced challenges as its comparable store sales declined by 0.4%. This outcome fell short of Advance Auto Parts's expectations. The operating income for the quarter stood at $90.0 million, resulting in an operating income margin of 2.6%, which was below the anticipated level. The lower-than-expected margin was attributed to higher investments made to close competitive price gaps in the professional sales channel and unfavorable product mix.

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Adapting to Competitive Dynamics

Despite the challenges faced in the first quarter, Advance Auto Parts remains committed to improving inventory availability and maintaining competitive pricing to drive sales growth. However, Advance Auto Parts expects the competitive dynamics to persist throughout the year, leading to a shortfall in its 2023 expectations. In response to these circumstances, Advance Auto Parts has revised its full-year guidance.

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Dividend Reduction and Leadership Transition

To enhance financial flexibility and support the company's operational performance improvements, Advance Auto Parts' board of directors made the decision to reduce the quarterly cash dividend. Advance Auto Parts declared a dividend of $0.25 per share to be paid on July 28, 2023, to common stockholders of record as of July 14, 2023.

Additionally, with the impending retirement of Tom Greco, the current president and chief executive officer, the board's independent chair, Gene Lee, will assume an expanded role as interim executive chair. This transition aims to facilitate a seamless CEO succession and provide additional operational oversight and support to the management team. Greco acknowledged Lee's significant contributions during his tenure and expressed optimism about working together to improve Advance Auto Parts's business trajectory in the coming months.