Advance Auto Reverses

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Despite decent performance in the second quarter, Advance Auto Parts (NYSE: AAP) continues to worry investors with its ongoing strategic adjustments and lowered outlook.

Earnings at Advance Auto increased 8.7% to $68.4 million, or $0.64 per share. Although it made positive gains, the company had anticipated per-share earnings of $0.65 to $0.68, so it was obviously disappointed by its performance. Elsewhere, its sales improved 5.6% to $1.2 billion with comps gaining just 1.3%, which was at the low end of company guidance.

In an effort to generate a spark, Advance Auto continued to fine-tune its business operations in the quarter. It reduced its staff by 250 employees and lowered its planned 2007 store openings to a range of 190 to 200. It also jump-started its initiative to improve parts availability in its stores and renewed its focus on growing its commercial business.

However, it's still unclear when Advance Auto will benefit from these changes. It expects comps to be down 2% or flat in the third quarter and flat to 2% higher in the fourth quarter. Earnings in the third quarter are expected to be $0.53 to $0.57 per share, compared to last year's $0.56. It also lowered full-year guidance to a range of $2.24 to $2.32 per share from previous guidance of $2.38 to $2.48 per share.

In the meantime, its competition continues a slow but steady push forward. O'Reilly Automotive (Nasdaq: ORLY) is ramping up its expansion efforts, and Pep Boys (NYSE: PBY) has updated its management team (though that move has yet to translate to improved performance). It also must contend with industry leader AutoZone (NYSE: AZO).

To be perfectly honest, I'm not sure what to make of Advance Auto these days. Its earnings are advancing nicely, but it lowered its full-year guidance and its comps growth is disappointing. Meanwhile, it continues to update its strategic plans. I'll feel more comfortable once these adjustments are over, but its long-term potential intrigues me and will have me following its advances closely.

For more on the adjustments being made in the auto parts business, read:

• Foolish Forecast: Shifting Gears at Advance Auto
• Advance Auto Parts Inches Forward

Fool contributor Mike Cianciolo welcomes feedback and doesn't own shares of any of the companies in this article. The Fool has a disclosure policy.