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Advance Auto Parts Hid Problems with Integrating Acquisition Securities Class Action

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According to the complaint for this class action, Advance Auto Parts, Inc. was reluctant to admit to problems in integrating its new acquisition, and in failing to do so, it violated the Securities Exchange Act of 1934.

The class for this action is all purchasers of the securities of Advance Auto who acquired Advance Auto securities between November 14, 2016 and August 15, 2017.

Advance Auto provides aftermarket parts to professional installers, independent operators, and do-it-yourself retail customers. Its stores sell replacement parts, accessories, batteries, and maintenance items from original manufacturers and private labels.

In January 2014, Advance Auto announced that it had completed acquisition of General Parts, Inc., which sold original equipment and aftermarket parts under the Carquest and Worldpac brands. The acquisition added 38 general parts distribution centers, 1,248 company-owned Carquest locations in the US and Canada, and the servicing of about 1,400 independently-owned Carquest locations, and Worldpac locations, which imports aftermarket parts for import specialists in North America and Puerto Rico.

The company’s CEO touted the acquisition as making Advance “the largest automotive aftermarket provider of parts, accessories, batteries, and maintenance items in North America.” The company’s August 25, 2016 Form 10-Q filing spoke of a “multi-year” plan to integrate the businesses and consolidate and convert stores.

At the beginning of the class period, on November 14, 2016, the company reported its third-quarter 2016 results. It claimed that “the industry continues to benefit from an increase in vehicles in operation, an increase in the average age of vehicles, an increase in older vehicles, and an increase in miles driven per year” and that the company was “well positioned to gain market share” and “very focused on driving at what the customer wants.”

Statements in February 2017 on fourth-quarter and full-year 2016 spoke of “the sequential improvement in our sales performance and positive comparable sales for the quarter.” The company claimed to anticipate opening 75 to 85 new stores, and continued to talk about putting the customer first. The associated conference call promised “comparable store sales of 0% to 2%...”

However, the complaint claims that these statements were misleading, because they did not disclose the fact that issues related to the integration of Carquest were resulting in “systemic inefficiencies and cannibalization of sales” and also that increased competition was have a negative impact on sales.

The complaint claims that the truth only began to emerge in May 2017, with a press release on first-quarter 2017 earnings, but that the company’s disclosures were only partial.

The company’s August 15, 2017 press release was more revealing, with lower projected figures (such as 60-65 new store openings). Guidance for 2017 was revised downward, to “down 3% sales comp on the low end to down 1% comp on the high end.”

At the news, the company’s stock price fell by over 20%.

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