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The firm’s analysts said the company’s ongoing weak performance is indicative of structural challenges and significant share losses. AAP shares are down over 52% in 2023. Premarket Monday, it has declined almost 3% to $67.36 per share.
“With AAP having failed to identify and remedy these fundamental issues, we believe the revised strategy will be insufficient to drive the necessary H2 acceleration required to meet Street expectations,” the analysts wrote.
“We see FY23 margins 100bps and EPS 25% below guidance. Furthermore, we expect FCF challenges to continue which is important given AAP is already close to debt covenant ratios,” they added.
The analysts also noted that while it’s not their base case, the loss of an investment grade rating would “dramatically weigh” on AAP’s working capital given its reliance on supplier finance programs.
“With a new (but as of now, unknown) CEO likely to reset the bar even further, negative EPS revisions will continue,” they concluded.
