The stock of Advance Auto Parts sank 8% after the Raleigh-based retailer said higher prices stemming from tariffs are creating uncertainty about consumer spending. It lowered its full-year profit forecast, also citing higher net interest expenses related to a recent offering of notes.
The company has intensified negotiations with vendors to share rising costs due to tariffs, while it’s also seeking to buy from countries less impacted by President Donald Trump’s trade policies. It’s also monitoring whether higher prices in its more than 4,000 Advance Auto and Carquest stores will derail recently improving sales to professionals and do-it-yourselfers, CEO Shane O’Kelly told analysts.
“We anticipate that tariffs will have a more pronounced impact in the second half of the year,” O’Kelly said on a conference call Thursday following the company’s second-quarter earnings report. He cited “the potential for recalibration in purchasing habits, especially in our DIY business. We believe it is prudent to take a caution approach in planning for the remainder of the year.”
Advance Auto is grappling with the impact of tariffs as it makes progress in a turnaround plan, resulting in the closure of more than 500 stores. It’s seeking to improve operations at its remaining stores, its supply chain and merchandising.
Advance Auto shares fell $4.96 to $56.85. Even with Thursday’s losses, the stock is up 20.2% this year, spurred by the company’s decision in May to boost its full-year profit forecast. The shares reversed course today despite O’Kelly’s assertion that more than 90% of the company’s business is “nondiscretionary,” requiring purchases for parts and accessories for the growing and aging U.S. vehicle fleet.
“Consumers are still adjusting to an evolving landscape of higher prices,” the CEO said. While Advance Auto hasn’t witnessed a “significant” shift in recent buying trends, he added, “The dynamic tariff environment has certainly presented challenges across the industry.”
Advance Auto maintained its full-year forecast for sales ranging from $8.4 billion to $8.6 billion, according to a presentation. It projected adjusted EPS of $ 1.20 to $2.20, down from its May forecast of $1.50 to $2.50.
The lower profit forecast “mainly” reflects higher net interest expense related to the company’s offering of nearly $2 billion in senior notes last month, CFO Ryan Grimsland told analysts.
Subsequently, the company entered a new $1 billion asset-backed revolving credit facility, replacing an existing one.
“The new debt capital structure helps us preserve financial flexibility, allows us to focus on execution of our turnaround plan and serves as a bridge to a reattainment of an investment-grade credit rating in the future,” Grimsland said.
