Why Advance Auto Parts Crashed Today – A Brutal Market Reality Check

Another day, another corporate wreck on Wall Street. Advance Auto Parts just joined the club—here's why the wheels came off.

Earnings Miss: The Nail in the Coffin

Numbers don't lie, and neither do angry shareholders. When guidance gets slashed harder than a budget sports car, you know management's sweating.

Supply Chain Potholes

Even the 'just-in-time' inventory crowd got caught with their pants down. Turns out 'resiliency' was just another buzzword on the earnings call bingo card.

Retail's Slow-Motion Car Crash

Another brick-and-mortar story, another reminder that Amazon ate everyone's lunch. Who needs physical stores when you can get wiper blades delivered by drone?

Memo to CEOs: maybe stop blaming 'macro conditions' and start fixing your business models. The market's patience has a shorter fuse than a discount alternator.

Image source: Getty Images.

Advance Auto stock Q2 earnings

But not all the news was good. Revenue beat estimates, for example, but was still down 9% year over year. Gross profit margin slipped 10 basis points, and selling, general, and administrative costs got 130 basis points more expensive.

This all naturally ate into profits, with operating margin falling by more than half to just 1.1%. On the bottom line, the company's earnings as calculated according to generally accepted accounting principles (GAAP) were just $0.25 per share -- barely 36% of the company's adjusted profit -- and less than half the $0.51 per share Advance Auto Parts earned in last year's Q2.

Yes, you read that right: Profits got cut in half. Worse, the company reported negative free cash FLOW of $201 million in the quarter -- 4 times worse than last year.

Is Advance Auto Parts stock a buy?

These numbers were objectively terrible, and yet CEO Shane O'Kelly insisted "the Advance team delivered solid second-quarter results," which kind of defies common sense.

Management did forecast positive same-store-sales growth this year, about 1% year over year, and promised positive profits and improved (but still negative) free cash flow. With the stock still trading for roughly 29 times current-year earnings, however, I just can't bring myself to recommend buying Advance Auto Parts stock.