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ADVANCE AUTO PARTS INC (AAP)·Q1 2026 Earnings Summary

Executive Summary

  • Latest reported quarter: Q3 2025 delivered adjusted EPS of $0.92, comparable store sales of +3.0%, and adjusted operating margin of 4.4%, marking the strongest operating margin in over two years .
  • FY 2025 guidance updated: net sales $8.55–$8.60B, comps +0.7–1.3%, adjusted operating margin 2.4–2.6%, adjusted EPS $1.75–$1.85; capex cut to ~$250M; free cash flow guided to -$90M to -$80M; market hub openings raised to 14 .
  • Liquidity strengthened via $1.95B senior notes and new $1.0B ABL; cash ended Q3 at $3.17B and long-term debt at $3.41B, supporting supply chain finance programs as the company bridges back to investment grade .
  • Near-term swing factors: tariff-driven price inflation and LIFO (Q4 LIFO expected ~$70M), DIY elasticity pressure, assortment rollout across top 50 DMAs, market hub expansion to 33 by year-end, and store operating model launch beginning Q4 .
  • Q1 2026 Wall Street consensus: EPS ~$0.45*, revenue ~$2.62B*, EBITDA ~$141M* (16 EPS estimates; 14 revenue estimates). Values retrieved from S&P Global.

What Went Well and What Went Wrong

What Went Well

  • “We delivered our strongest quarterly performance in over two years… adjusted operating margin 4.4%” driven by footprint optimization savings and strategic sourcing .
  • Pro channel strength: “Pro comps grew by just over 4%… fifth consecutive quarter of positive performance,” supported by improved hard parts coverage and faster time-to-serve (30–40 minutes) .
  • Liquidity/capital structure: raised nearly $2B cash, instituted new $1B ABL, and ended Q3 with over $3B in cash, reinforcing supply chain finance stability and a path back to investment grade .

What Went Wrong

  • Transactions declined with DIY softness; management highlighted consumer elasticity risk amid rising prices and potential volatility in Q4 .
  • LIFO expense and inventory capitalization dynamics: Q3 LIFO was $33M, with Q4 LIFO expected ~$70M, pressuring gross margins even as capitalized inventory benefits persist .
  • Free cash flow was negative year-to-date (-$277M), including ~$130M restructuring cash charges; management guided FY FCF to -$90M to -$80M .

Financial Results

Income Statement and Margin Profile

MetricQ3 2024Q2 2025Q3 2025
Revenue ($USD Billions)$2.148 $2.010 $2.036
Diluted EPS - Continuing Ops ($)$(0.42) $0.25 $(0.02)
Adjusted Diluted EPS ($)$(0.05) $0.69 $0.92
Gross Margin (%) GAAP42.3% 43.5% 43.3%
Gross Margin (%) Adjusted42.3% 43.8% 44.8%
Operating Margin (%) GAAP0.0% 1.1% 1.1%
Operating Margin (%) Adjusted0.7% 3.0% 4.4%
Comparable Store Sales (%)—+0.1% +3.0%

KPIs and Balance Sheet

KPIQ2 2025Q3 2025
Cash & Equivalents ($USD Billions)$1.657 $3.174
Free Cash Flow YTD ($USD Millions)$(201) $(277)
Total Debt ($USD Billions)$1.792 $3.411
Store Count (Company-operated)4,292 4,297

Guidance Changes

MetricPeriodPrevious Guidance (Aug 14, 2025)Current Guidance (Oct 30, 2025)Change
Net Sales from Continuing Ops ($USD Billions)FY 2025 (53 wks)$8.40–$8.60 $8.55–$8.60 Raised low-end
Comparable Store Sales (%)FY 2025 (52 wks)+0.5–1.5 +0.7–1.3 Narrowed; raised low-end
Adjusted Operating Margin (%)FY 20252.0–3.0 2.4–2.6 Narrowed to midpoint
Adjusted Diluted EPS ($)FY 2025$1.20–$2.20 $1.75–$1.85 Raised; narrowed
Capital Expenditures ($USD Millions)FY 2025~300 ~250 Lowered
Free Cash Flow ($USD Millions)FY 2025$(85)–$(25) $(90)–$(80) Shifted downward
Market Hub OpeningsFY 202510 14 Raised

Earnings Call Themes & Trends

TopicPrevious Mentions (Q2 2025)Previous Mentions (Q3 2025)Current Period (Q1 2026)Trend
AI/technology initiativesAccelerated assortment using AI; SKU additions; pricing tools; Palantir partnership Generative AI content; AI-based apps for merchandising and demand forecasting —Building capabilities
Supply chain/DC consolidationProgress to 16 U.S. DCs; improved lines/hour; reduced errors On track to end year with 16 DCs; productivity improvements —Consolidation progressing
Tariffs/macro elasticityLow-to-mid single digit inflation H2; cautious DIY Same SKU inflation ~3% in Q3, ~4% in Q4; DIY elasticity risk —Pricing vs elasticity
Market hubs rolloutTarget 10 in 2025; 100 bps comp uplift 14 in 2025; end year with 33 hubs; 75–85k SKUs per hub —Accelerating
Store operating modelTesting in 2025 Launch in Q4; full implementation in 2026 —Rollout begins

Management Commentary

  • “We delivered our strongest quarterly performance in over two years… Our initiatives are geared toward delivering sustained, profitable growth” – Shane O’Kelly, CEO .
  • “Adjusted gross margin expanded ~260 bps YoY to 44.8%… driven by footprint optimization and strategic sourcing” – CFO commentary .
  • “We raised nearly $2,000,000,000 in cash… providing enhanced liquidity and a path to return to an investment grade credit rating” – CFO .
  • “We will end the year with 33 market hubs… a hub typically carries 75,000–85,000 SKUs” – CEO .
  • “We are launching a refreshed store operating model in Q4… to improve transaction velocity and labor utilization” – CEO .

Q&A Highlights

  • Consumer elasticity and DIY pressure: management expects Q4 volatility as same-SKU inflation rises and DIY transactions face pressure; pro remains positive but moderating .
  • LIFO and margin cadence: Q3 LIFO $33M; Q4 LIFO expected ~$70M, net headwind of 80–100 bps to gross margin; turnaround progression is nonlinear across 2025–2026 .
  • Supply chain finance stability: company emphasized cash-supported SCF program and undrawn $1B ABL; vendors continue receiving early payments via reputable banks .
  • Inventory strategy: prioritized breadth/depth to support hard parts coverage and Main Street pro accounts; expect mix management rather than big incremental investment in 2026 .
  • Path to ~7% adjusted operating margin by 2027: largest lift from merchandising (first cost/pricing/promo) and supply chain productivity; SG&A operating model benefits to follow .

Estimates Context

MetricQ1 2026
Primary EPS Consensus Mean ($)0.45254*
Revenue Consensus Mean ($USD)2,617,445,620*
EBITDA Consensus Mean ($USD)140,802,790*
Primary EPS - # of Estimates16*
Revenue - # of Estimates14*

Values retrieved from S&P Global.
Context: With management highlighting pricing-driven inflation and elasticity risks plus higher LIFO, investors should scrutinize margin assumptions versus revenue growth in consensus ahead of the store operating model roll-out and hub expansion .

Key Takeaways for Investors

  • Margin inflection is underway: adjusted operating margin reached 4.4% in Q3, aided by sourcing and footprint optimization; the cadence remains nonlinear through 2026 .
  • Pro channel momentum supported by hard parts coverage and faster time-to-serve; Main Street accounts are a key share opportunity .
  • DIY remains the pressure point; monitor elasticity in Q4 and any spillover into early 2026 amid higher prices .
  • Expect gross margin headwinds near term from LIFO ($33M in Q3; ~$70M in Q4), partially offset by capitalized inventory and merchandising gains .
  • Liquidity and capital structure de-risked (over $3B cash; new $1B ABL), stabilizing supply chain finance and vendor relations .
  • FY25 guide narrowed and raised at the midpoints (EPS, operating margin), with capex trimmed and hubs accelerated—watch execution on hubs and store model .
  • For Q1 2026, consensus embeds sales growth and modest EPS; margin delivery will be the key swing factor given near-term cost dynamics*. Values retrieved from S&P Global.

Additional Notes

  • Prior two quarters read for trend analysis: Q2 2025 and Q3 2025 earnings materials and 8-Ks (including full non-GAAP reconciliations and balance sheet/cash flow data) were reviewed and cross-referenced .
  • No Q1 2026 company documents are available yet; latest available materials are through Q3 2025 (press release and 8-K) and FY25 guidance update .