One of these auto parts retailers is not like the other… 🤔
The troubles at Advance Auto Parts continue, with S&P Global Ratings downgrading the retailer’s credit rating to ‘junk’ status. The rating agency cut its issuer-credit rating to BB+, the highest speculative-grade rating. The downgrade from BBB- was accompanied by its outlook being cut from stable to negative. ⚠️
As for why it downgraded the company, S&P cited inconsistent execution in improving its inventory and product availability. Its ‘misguided strategic decision’ to try to preserve and expand its margins while competitors cut prices caused the company to lose already dwindling market share. Its revenue growth is flat YoY, while its peers have seen low-teen percentage growth.
Overall, its competitive standing in the industry has weakened due to major operational missteps that will take several quarters (or years) to address properly. 🗓️
While the downgrade pressured the stock further today, it likely didn’t come as a major surprise to anyone following the auto parts retailer space. Advance Auto Parts has lagged competitors AutoZone and O’Reilly Automotive for about eight years, with performance really diverging at the beginning of 2022. 😮
The news sent $AAP shares down 8% to 12-year lows as market participants look to salvage what’s left of their ‘junky’ investment. Today’s move brings the stock’s year-to-date return to -60%, with no turnaround in sight. 😬
