What happened
Shares of performance automotive parts company Holley (HLLY -1.72%) were up 23% as of 11:01 a.m. ET on Thursday after the company reported earnings results for the second quarter. Investors were pleased to see improving sales and profit trends after a rough outing in 2022. The stock has soared year to date, up 261%.
So what
Sales fell 2.3% year over year to $175 million. Gross profit fell further, which dropped the company's profit to $13 million, down from $40.6 million in the year-ago quarter. But weak sales trends have been baked in now for over a year, especially coming out of one of the worst years for the auto industry in over a decade.
Investors were more focused on what's coming down the road. The seller of performance aftermarket auto parts reported earnings before interest, taxes, depreciation, and amortization (EBITDA) in line with management's long-term targets. Adjusted EBITDA improved slightly year over year to a margin of 21.6%, up from 20.7% last year.
CEO Matthew Stevenson said, "We are just scratching the surface of unlocking the potential of this business." Management is in the process of streamlining operations and realizing cost savings from recent acquisitions, as Holley tries to gain market share in a highly fragmented industry.
Now what
With inventory coming down more in line with demand, management now sees a better profit picture unfolding for 2023. Full-year guidance now calls for adjusted EBITDA to be $118 million to $128 million. That's a noticeable upward revision from the previous outlook calling for $108 million to $122 million.
Moreover, sales are trending in a more positive direction, as management slightly upgraded the lower end of its sales guidance. It now sees full-year sales between $635 million and $675 million, down from $692 million in 2022.
The stock has almost completely recovered after crashing to new lows in the middle of last year. Gains might be more limited from here, as the stock's valuation is also now more expensive.