Advance Auto Parts is a well-known automotive aftermarket parts provider with a wide customer base. The company operates numerous stores and branches across the United States, Canada, Puerto Rico, and the U.S. Virgin Islands. With a stock market value of $4.19B and activist commentary from Third Point and Saddle Point, there is a spotlight on the company’s potential for growth and improvement.

One of the key areas for potential value creation at Advance Auto Parts is the sale of Worldpac, the company’s wholesale auto parts distribution business. While Worldpac is considered the company’s crown jewel, selling it could unlock significant financial benefits. By divesting this business, management could reduce debt, stabilize the balance sheet, and focus more on the core retail business. Estimates suggest that Worldpac could fetch at least $2 billion at a conservative 10x multiple, which would have a positive impact on the overall financial health of the company.

Another critical aspect that impacts Advance Auto Parts’ performance is its supply chain and stocking issues. The company has struggled to keep parts in stock, leading to customers seeking products elsewhere. This has resulted in lower sales and margins compared to its peers like O’Reilly and AutoZone. Resolving these supply chain challenges could not only increase revenue but also improve EBITDA margins significantly. With a strong focus on enhancing stocking efficiency, Advance Auto Parts can better meet customer demands and boost profitability.

The appointment of a new CEO, Shane O’Kelly, in September 2023 brings fresh leadership to the company. O’Kelly’s retail background and leadership skills position him well for the role. However, to address industry-specific challenges, having industry expertise at the board level is crucial. The recent settlement with Third Point and Saddle Point resulted in the appointment of industry executives Thomas Seboldt, Gregory Smith, and Brent Windom to the board. Their automotive industry and supply chain experience complement O’Kelly’s leadership, setting the stage for strategic decision-making and operational improvements.

Activist investors like Third Point have a track record of creating value for portfolio companies through strategic interventions. By securing board seats and aligning the board composition with the company’s strategic goals, activists can drive positive changes that benefit shareholders. In the case of Advance Auto Parts, the addition of industry experts to the board enhances the company’s ability to navigate industry challenges and capitalize on growth opportunities. With a focus on operational efficiency, supply chain optimization, and strategic divestitures, Advance Auto Parts has the potential to unlock significant shareholder value.

Advance Auto Parts stands at a critical juncture where strategic decisions and operational improvements can drive long-term growth and profitability. By addressing supply chain issues, optimizing stocking efficiency, and leveraging industry expertise at the board level, the company can unlock hidden value and enhance shareholder returns. With the support of activists like Third Point and Saddle Point, Advance Auto Parts is well-positioned to capitalize on its strengths and overcome its challenges, paving the way for a brighter future in the automotive aftermarket industry.


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