Advance Auto Parts to shut down West Coast operations

A plan by Advance Auto Parts to stem deepening losses by closing hundreds of stores will result “in a complete exit of certain markets on the West Coast” as the company shutters California locations, its chief executive said.

The national auto supply chain plans to close more than 725 locations around the country as well as four distribution centers on the West Coast, Chief Executive Shane O’Kelly said in an earnings call last week.

Although he didn’t specify which stores would close, O’Kelly signaled that the downsizing would focus heavily on California and the Pacific Northwest, saying that stores supplied by the four distribution centers marked for closure will also be shut down.

“Our four distribution centers on the West Coast serve a lower concentration of stores,” O’Kelly said in the earnings call. “We believe that investing in other core areas of the business will help deliver stronger profitability.”

Advance Auto Parts currently has 139 locations in California, according to its website. The North Carolina-based company operates about 4,700 stores along with 1,100 independently operated locations, which are primarily in the U.S. but also in Canada, Mexico and the Caribbean islands. Operations in Canada will not be affected, O’Kelly said.

The automotive aftermarket is a roughly $300-billion industry, said Bret Jordan, a research analyst at Jeffries. Supply chain efficiency is key for auto part retailers, he said, something Advance Auto Parts has struggled with. Whereas Advance Auto generally receives shipments from distribution centers about once a week, competitor O’Reilly Auto Parts gets shipments once a day, Jordan said.

“What they’re doing on the West Coast is getting out of regional markets where they don’t have an effective supply chain or the density to build an effective supply chain,” he said. “They’re trying to improve company wide profitability by cutting out the least profitable regions.”

The reduction in its footprint is part of the company’s “strategic plan to improve business performance,” according to a statement released as part of its recent quarterly earnings report. The company also plans to increase the pace of new store openings in higher-performing regions, the release said.

The car parts seller, which stocks batteries, motor oil and more, posted underwhelming third-quarter results this month, reporting a net loss of $6 million on revenue of $2.1 billion. The figures marked an improvement compared with the $62-million loss it posted for the same period last year on $2.2 billion in revenue. The company’s stock closed Thursday at $38.69, down more than 37% this year.

Advance Auto Parts closed a $1.5-billion sale of Worldpac, its car parts wholesale distribution business, to investment firm Carlyle this month.

O’Kelly did not comment on the number of employees expected to be affected.