Advance Auto Parts Sale of Worldpac Is Part of a Long Decline

Advance Auto Parts has announced the sale of Worldpac, its automotive parts wholesale distribution business, to global investment firm Carlyle for $1.5 billion in cash.

Chief executive and president Shane O’Kelly said in prepared remarks that the move would allow the company to sharpen focus “on decisive actions to turn around the Advance blended box business.” The money is intended to support efforts to improve the company’s performance.

Advance Auto Parts has had a challenging time over the last few years, going from $11.2 billion in revenue and $464.4 million in net income in 2022 to $11.3 billion in revenue and $29.7 million in profit in the following year. Share prices went from $241.91 in November 2021 to $49.11, as of Monday, August 26, 2024.

The reason for the financial dip is its impact on net lease. According to new data provided by Avison Young, Advance Auto, with an average cap rate of 6.6%, is sitting behind AutoZone (5.5% cap) and O’Reilly’s (6% cap).

“If you’re a seller of an Advanced Auto today, there’s going to be an impact on the cap rate that affects your proceeds,” Jonathan Hipp, head of the U.S. net lease group at Avison Young, told GlobeSt.com. “They’re clearly taking on water. It’s a question of whether it’s enough water to sink it.

“This used to be one of the darling stocks in the US. It was in big expansion mode, with preferred developers building new ones around the country,” he said. The company has close to 7,000 stores with almost 5,000 in North America.

The financials are important for net lease investors and developers because they have a significant impact on cap rates and the ability of property owners to make a sale.

“Investors like the auto parts business, and clearly it’s not like the whole auto resale market is crashing,” Hipp said. “It just seems this company is not being run as efficiently as it used to. If they’re selling off divisions to create cash, surely it’s not to do with special dividends. It’s for operations. It gives people options.”

But it also raises concerns among the net lease market. Typically, one of the large factors in selling a property is having enough of a lease commitment for a buyer to feel comfortable in investing. With financial conditions being a question, the calculus of buyers changes.

Hipp questioned: “Will they last another five years? Or will they start closing stores like many other companies to cut expenses or shore up operations?”

Store shutters, if they happen, could leave property owners in trouble.