Advance Auto Parts announced on Thursday the sale of its Worldpac unit to private equity firm Carlyle Group for $1.5 billion in cash. The decision comes as the automotive afterparts provider faces increasing pressure from activist investors and struggles with lagging financial performance compared to its competitors.
The sale of Worldpac, a wholesale parts distribution business, marks a strategic shift for Advance Auto Parts as it seeks to refocus its core business amid a challenging market environment. The transaction, expected to close by the end of the year, was advised by Centerview Partners on the financial front and Hogan Lovells US as legal counsel.
Despite the cash infusion from the sale, the company also announced a downward revision of its annual sales and profit forecasts, signaling ongoing difficulties in the auto parts sector. Shares of Advance Auto Parts tumbled by 13% in premarket trading, reflecting investor concerns over the company's future prospects.
Advance Auto Parts now anticipates its net sales for 2024 to be in the range of $11.15 billion to $11.25 billion, down from the previous forecast of $11.3 billion to $11.4 billion. Moreover, the company slashed its expected annual profit per share to between $2 and $2.50, a significant reduction from the earlier estimate of $3.75 to $4.25. The revised profit expectations also fall short of analysts' predictions, which had projected earnings of $3.54 per share.
The disappointing outlook follows a tough second quarter, where Advance Auto Parts reported earnings of just 75 cents per share, missing the consensus estimate of 93 cents as tracked by FactSet. While the company's sales for the quarter reached $2.68 billion, slightly above expectations, comparable-store sales saw only a modest increase of 0.4%.
"Our team delivered positive comparable sales growth while navigating a challenging demand environment during the second quarter," CEO Shane O'Kelly said in a statement. However, the tepid growth was overshadowed by the broader concerns over the company's ability to maintain profitability in a competitive and volatile market.
The sale of Worldpac, which generated approximately $2.1 billion in revenue for the year ended June 30, 2024, was driven in part by pressure from activist investors who had urged Advance Auto Parts to offload the unit as part of a broader strategy to improve its financial standing. The company acquired Worldpac in 2014 as part of its purchase of General Parts International, but in recent years, the North Carolina-based firm has struggled to keep pace with industry rivals like AutoZone and O'Reilly Automotive.
The financial underperformance and stock price decline have made Advance Auto Parts a target for investor activism. By divesting Worldpac, the company aims to simplify its operations and concentrate on its retail and commercial businesses, though the success of this strategy remains to be seen.
