Advance Auto Parts announced plans to close over 700 locations on Thursday, November 14th, including 500 corporate-owned and 200 independently operated stores, in an effort to stabilize its finances. This restructuring comes in response to declining demand for car repair parts, a sluggish macroeconomic climate, and another underwhelming earnings report.
The closures are part of a broader strategic plan aimed at simplifying operations and returning to profitability. The company recently sold Worldpac, an automotive parts wholesaler, for $1.5 billion. Despite these efforts, Advance Auto Parts continues to face challenges from inflation, stiff competition from affordable Chinese automakers, and consumer reluctance to spend on non-essential items. “Consumers continue to feel the weight of an uncertain macroeconomic climate,” executives said during a recent earnings call.
The automotive parts retailer has been hit hard by reduced vehicle production and a shift in consumer behavior. Rising interest rates and economic pressures have discouraged large purchases, including cars and their associated repairs. Advance Auto Parts reported a third-quarter adjusted loss of 4 cents per share, a slight improvement from the $1.19 loss recorded in the same period last year but still below analysts’ expectations.
In addition to the store closures, the company plans to shutter four distribution centers and implement job cuts. It has yet to disclose the full extent of headcount reductions. Advance Auto Parts anticipates incurring $350 million to $750 million in restructuring costs but aims to improve its operating income margin by over 500 basis points by fiscal 2027. The revised earnings outlook for 2024 predicts losses of up to 60 cents per share or a break-even scenario.
The company’s restructuring reflects a larger trend of store closures in the retail sector. Data from Coresight Research indicates that 2024 is on track to see the highest number of store closures since 2020. Advance Auto Parts has been particularly vulnerable as consumers prioritize essentials over discretionary spending, compounding the pressure on the nearly century-old retailer.
Advance Auto Parts shares have fallen 32% this year, closing at $41.20 on the day of the announcement. While the company remains committed to its turnaround plan, analysts warn that navigating the challenges of a competitive market and changing consumer priorities will require more drastic and innovative measures.
