Advance Auto Drops After Disappointing Results, CEO Change

  • Auto-parts chain forges truce with activist investor Starboard
  • Company's president to take reins as interim leader in January

Advance Auto Parts Inc., which has been under pressure from activist investor Starboard Value, fell the most in more than three years after announcing the retirement of its chief executive officer in the wake of weak third-quarter results.

Earnings were $1.95 a share in the period, excluding some items, the Roanoke, Virginia-based company said Thursday in a statement. Analysts had estimated $2.09 on average. CEO Darren Jackson will step down on Jan. 2 after eight years at the helm, Advance Auto said. He’ll be succeeded on an interim basis by President George Sherman. The board will consider Sherman, along with external candidates, for the permanent role.

The auto-parts chain has been facing scrutiny from Starboard since late September, when the hedge fund disclosed a 3.7 percent stake in the retailer. The retailer announced a truce with Starboard Thursday, saying it’s bringing the investment firm’s CEO, Jeffrey Smith, onto its board. Advance Auto also will add two independent directors chosen by the hedge fund "as soon as practical."

The changes could improve results at Advance Auto, but the payoff may be slow to come, said Bret Jordan, an analyst at Jefferies LLC.

“If you ask me how long until things get better, I’d say it’s going to be quarters not weeks or months,” he said.

Advance Auto fell 15 percent to $164.64 at the close in New York, the biggest one-day decline since May 2012. Shares of Advance Auto have gained 3.4 percent this year.

Starboard’s Pressure

Starboard has said Advance Auto should reduce its overhead costs, improve product sourcing, get more value out of its Worldpac distribution business, return capital to shareholders, and pursue more acquisitions of smaller, regional auto-parts chains.

As part of its agreement Thursday, Starboard will vote all of its shares in favor of the company’s nominees at its 2016 annual meeting. Smith, whose appointment is effective immediately, will be chairman of nominating and corporate governance committees and serve on the compensation and finance committees.

Advance Auto is working to integrate its distribution network after adding the Carquest chain last year. As the company updates its supply chain to keep pace with competitors including O’Reilly Automotive Inc. and Genuine Parts Co., store sales may suffer, Jordan said.

“The big picture is it’s not an easy fix when the problem is the distribution network,” he said. “You’re integrating two completely disparate systems.”

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