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Advance Auto Parts Idea Proposal

Mar 10 2016 Automotive, Idea Proposals
Advance Auto Parts Idea Proposal
 

Is Advance Auto Parts executing the right moves to catch up to its peers in 2016 and beyond?

Report Available: April 14, 2016

 

Blueshift’s initial research shows AAP in the throes of remaking its business to capture more share of the commercial customer mechanic and repair shop business. The company has struggled to match its peers with its inventory and distribution supply chain operations, resulting in disappointing performance and lower margins. However, industry trends showing more miles being driven and by older cars point to more repair and maintenance needs which can benefit AAP should it solve its operational deficiencies.

 

Observations

  1. AAP was the target in the fall of 2015 of activist investor Starboard Value, which is looking to unlock value in the company with a reshuffling of leadership and management including the ouster of its CEO, a focus on improving margins, reshaping its distribution centers, and making strategic acquisitions.
  2. AAP’s Q4 results showed the turnaround will not be a quick fix. Revenue fell 9% compared to the prior year, while profit dropped 35%. Same store sales for the quarter were down 2.5% from a year ago, the first such decline since Q3 2013 and far below industry-leading ORLY’s 7.7% Q4 same-store sales growth.
  3. AAP relies more substantially on its commercial business (also known as the Do It For Me (DIFM) market) than competitors ORLY and AZO, where it derives nearly 60% of its revenue, while about 40% comes from its retail business. This lean creates potential for AAP to see a jump in its business in 2016 and beyond as industry trends favor DIFM. Encouraged partly by low gas prices, there is significant growth in the number of miles being driven, resulting in more repair and maintenance needs. Infotainment and other functions are increasingly reliant on technology, sending DIYers into DIFM mode. And the average age of cars continues to increase, hovering around 12 years old and pushing older cars into repair shops with greater regularity.

 

Will AAP improve its inventory and distribution business such that mechanics and repair shops will choose it over ORLY and AZO, or at least give it a fair shake? Is AAP taking share from mom-and-pop auto parts suppliers? Is AAP doing anything to compete on price? Are ORLY and AZO so far ahead of AAP that any steps to improve operations will nonetheless yield minimal results in the DIFM market? To answer these and other questions, Blueshift will gather data and issue a market research report from independent sources in the following areas: Mechanics/Repair shops, Independent auto parts stores/suppliers, National auto parts retailer competitor executives, Industry specialists, and Online consumer survey.

 

Companies: Advance Auto Parts (AAP), O’Reilly Automotive (ORLY), AutoZone (AZO), Pep Boys (PBY)

 

Research Begins: March 28, 2016