UPDATE 2-Advance Auto warns on slowing sales growth

(Recasts, adds analyst's remarks, stock activity, byline)

By David Bailey

DETROIT, Oct 7 (Reuters) - Retailer Advance Auto Parts Inc (AAP.N) warned that third-quarter sales growth slowed more than expected from the second quarter due to volatile financial and credit markets and hurricanes, sending its shares down as much as 17 percent.

The company also said on Tuesday that it expected the trend to continue the rest of its fiscal year.

The warning does not bode well for the auto parts retail sector overall in the short-term with the credit constraints that have pressured consumer confidence, said Cid Wilson, director of research at Kevin Dann & Partners LLC.

"The group will likely be weak for the remainder of the year, but as we get to winter months, we could start to see some acceleration in same-store sales as customers who put off purchases start to do maintenance," Wilson said.

Shares of AutoZone Inc (AZO.N), the largest U.S. auto parts retailer, were down 7 percent, and O'Reilly Automotive Inc (ORLY.O), the No. 3 retailer, stock was down about 4 percent.

Even so, Wilson said he is positive in the long-term on Advance Auto, AutoZone and O'Reilly.

Advance Auto said on Tuesday it expects third-quarter revenue growth of 2.6 percent driven by new stores and flat sales at existing stores.

Advance Auto expects third-quarter earnings per share to be about flat with the 57 cents it reported a year earlier, while analysts on average expected it to report earnings of 66 cents, according to Reuters Estimates.

Sales at existing stores, the key measure of retail performance known as same-store sales, rose 2.9 percent in the second quarter, but Advance Auto expected some slowdown due to the lack of federal stimulus payments in the current quarter.

Sales to repair shops from existing stores rose about 10.9 percent in the third quarter, but sales to retail customers declined 4.2 percent in the quarter.

"In this environment, customers are putting off working on their vehicles unless it becomes absolutely crucial," Wilson said, noting consumers have deferred buying nonurgent items that retailers have been stocking in increasing amounts.

The summer months in the United States also were not especially harsh, reducing the number of parts that needed to be replaced, he said. The next major potential period for weather-related sales comes in January and February.

The impact of hurricanes and related gasoline shortages in the Southeast also tempered sales, Advanced Auto said.

Also on Tuesday, smaller retailer Monro Muffler Brake Inc (MNRO.O) backed its outlook for fiscal second-quarter earnings of 36 cents to 38 cents per share and same-store sales growth of 3 percent to 5 percent.

Advance Auto had 3,352 stores at the end of it fiscal third quarter on Oct. 4. It plans to release results on Oct. 29.

Its shares were down $4.63, or 13.5 percent, at $29.74 on the New York Stock Exchange. The shares had fallen to as low as $28.50 during the session.

AutoZone shares were down $8.41, or 7 percent, at $110.69; O'Reilly shares down 85 cents, or 3.4 percent, at $23.93; and Monro shares were up 63 cents, or 3.2 percent, at $20.52. (Reporting by David Bailey, editing by Dave Zimmerman, Brad Dorfman)