What happened
Shares in auto parts retailer AutoZone (AZO 1.19%) were down 3.3% at noontime today. The move comes in conjunction with a similar decline at its peer, O'Reilly Automotive (ORLY 0.57%), with both stocks driven down by a shocking set of first-quarter earnings from another peer, Advance Auto Parts (AAP 4.25%).
Naturally, when a peer in a highly competitive industry misses its quarterly guidance and slashes its full-year outlook, the read-across is a cause for concern.
Advance's Q1 earnings report wasn't pretty. Its comparable-store sales declined by 0.4% year over year, and its 2.6% operating margin was "well below expectations due to higher than planned investments to narrow competitive price gaps in the professional sales channel as well as unfavorable product mix," according to Advance's CEO Tom Greco. Moreover, Greco now expects full-year comparable-store sales to be in the range of a decline of 1% to flat in 2022 compared to previous guidance for a 1% to 3% increase.
So what
While Advance's problems are a worry, it's probably a good idea to take a step back and consider some key points. First, AutoZone reported a week earlier; despite suffering a weak March, its domestic same-store sales growth was 1.9% in the quarter. Meanwhile, O'Reilly's comparable-store sales growth was a whopping 10.8% in the quarter finishing at the end of March.
Second, as the chart below demonstrates, Advance has long been the laggard in sales growth and operating margin in the auto parts sector.
Data by YCharts.
As previously noted, even the intervention of a well-respected activist hedge fund manager wasn't enough to improve its operational metrics.
Now what
This looks like an Advance Auto Parts problem, not one related to AutoZone. As such, don't be surprised if the latter's stock gains back ground after the initial negative surprise at one of its rivals.
