Starboard takes stake in Advance Auto, urges changes
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E-mail(Reuters) - Activist investor Starboard Value LP disclosed a 3.7 percent stake in automotive parts retailer Advance Auto Parts Inc on Wednesday and urged the company consider steps including a "substantial" dividend or buyback.
Advance Auto shares could be worth more than $350 each if the company took steps to improve margins, Starboard said in a letter to Chief Executive Darren Jackson. Advance Auto's shares jumped 10.4 percent to $188.34 in early trading.
The company, though well-positioned, has "materially underperformed" peers AutoZone Inc and O'Reilly Automotive Inc, Starboard said in a presentation that it planned to make at an investor conference in Toronto later in the day.
"Advance Auto has substantially underperformed peers on almost any measure, including operating margins, revenue growth, and total shareholder return," Starboard said.
The company should also consider "pursuing further industry consolidation" and working capital improvements that could generate $1 billion or more, Starboard said.
The hedge fund, run by Jeffrey Smith, urged Advance Auto to increase margins by 600 to 750 basis points and focus on driving commercial sales.
Starboard's holding makes it Advance Auto's sixth biggest shareholder, according to Thomson Reuters data.
Roanoke, Virginia-based Advance Auto's sales have missed market expectations in four of the past six quarters.
The company, which sells car accessories, batteries and replacement parts, makes more money from service stations than from sales directly to consumers at its more than 5,000 stores.
Advance Auto's stock has fallen about 11 percent since touching a record high in August, when it reported better-than-expected quarterly profit.
Starboard, which revealed a 4.5 percent stake in Media General Inc on Tuesday, also pushed for changes at the regional TV broadcaster and warned that it was prepared to nominate an alternative slate of directors.
The hedge fund successfully replaced the entire board of restaurant operator Darden Restaurants Inc last year.
The Wall Street Journal first reported that Starboard had bought a stake in Advance Auto.
(Reporting by Richa Naidu in Bengaluru; Editing by Anil D'Silva and Ted Kerr)
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