Advance Auto Parts (AAP) Hits the Junkyard as Credit Rating Drops to BB+, Shares Decline

Advance Auto Parts, Inc. (AAP) hit more than just a bump in the road as shares experienced a significant decline, eyeing their weakest finish in over ten years. This downtrend occurred after S&P Global Ratings demoted the company’s credit rating, pushing it into junk status.

S&P Global took out their ratchet and adjusted the credit rating of Advance Auto down a level from BBB-minus to BB-plus on Tuesday. This change shifts the company’s standing to what’s typically regarded as below investment grade. The downgrade stemmed from “continual underperformance due to challenges in strategic execution,” which has affected the firm’s competitive standing and put pressure on its creditworthiness, according to an S&P Global press release.

While most of AAP’s competitors are whizzing by in the left lane and witnessing a sales increase, Advance Auto’s sales have remained mostly stagnant over the preceding 18 months. Consequently, the company has lost some of its market share and has seen a weakening in its competitive position, S&P Global noted. On a greener note, the ratings agency maintained a stable outlook for Advance Auto, anticipating a slow but steady improvement in the company’s sales and profitability. We shall see what happens as slow and steady is supposed to win the race…

This past August, Advance Auto reported second-quarter earnings that failed to reach the finish line and meet expectations. The company experienced a 0.6% decline in same-store sales compared to the previous year, a dip slightly larger than the 0.4% decrease observed in its first quarter. In the wake of these developments, Advance Auto’s stock price dropped by 6.4%, settling at $58.52 during afternoon trade. Furthermore, the company announced a pit crew change as Shane O’Kelly took hold of the driver’s seat as President and CEO, on Monday.

This price trajectory could result in its weakest closing since October 2011, as per data from Dow Jones Market.

S&P Global also pointed out issues with Advance Auto’s overarching business strategy, stating, “Efforts to enhance inventory and product accessibility have been hampered by inconsistent implementation. Moreover, we perceive the firm’s decision to prioritize margin expansion, at a time when competitors were focusing on pricing, as a miscalculated strategic move that has undermined its value proposition.”

Hopefully, the downgrade from S&P will give Advanced Auto the drive to shift gears and tune up their operations so they can compete in the investor race, boost profits and drink a cold glass of milk at the finish.