Advance Auto Parts, a prominent player in the automotive aftermarket parts industry, has recently come under the spotlight due to activist investors, Third Point and Saddle Point, pressuring for change. With a stock market value of $4.19B and a recent earnings miss in Q1 of 2023, Advance Auto Parts is at a crossroads. The company, which operates thousands of stores across the United States, Canada, Puerto Rico, and the U.S. Virgin Islands, must address underlying issues to unlock its true potential.
Third Point, led by Dan Loeb, is known for its aggressive strategies in shareholder activism. By securing board representation at companies like Baxter and Disney, Loeb has proven his ability to drive change. In their recent agreement with Advance Auto Parts, Third Point and Saddle Point appointed three new directors to the board. These industry executives bring valuable expertise in areas such as retail, supply chain, and automotive industry, essential for the company’s turnaround.
One of the primary opportunities for Advance Auto Parts to create value is by selling off its wholesale auto parts distribution business, Worldpac. This move could potentially fetch the company $2 billion, significantly improving its financial position and allowing management to focus on enhancing the core retail business. By addressing supply chain and stocking issues that have plagued the company’s sales and margins, Advance Auto Parts can align itself more closely with industry peers like O’Reilly and AutoZone.
With the appointment of Shane O’Kelly as CEO in September 2023, Advance Auto Parts has a chance to steer the company in the right direction. O’Kelly, with a solid retail background and strong leadership skills, has the potential to lead the company towards growth and profitability. However, industry expertise and support at the board level are crucial for his success. The recent settlement with Third Point and Saddle Point, bringing in industry veterans to the board, is a step in the right direction.
As Advance Auto Parts navigates its way through a challenging period, the company must focus on executing strategic initiatives to drive value creation. By leveraging the expertise of its new board members, optimizing its supply chain, and enhancing customer experience, Advance Auto Parts can position itself for long-term success in a competitive market landscape. With the right combination of leadership, strategy, and execution, Advance Auto Parts has the potential to unlock its true value and deliver sustainable growth for its shareholders.