Executive Summary

AAP’s Q2 2026 (twelve weeks ended July 12, 2025) returned to profitability on improving mix and cost actions: net sales $2.01B (vs. $2.18B prior year), GAAP EPS $0.25, and adjusted EPS $0.69, driven by footprint optimization savings and early tariff pass‑through, partly offset by reversals of previously capitalized inventory costs .
Comparable sales were +0.1%, with Pro positive and DIY down low‑single digits; management emphasized >90% non‑discretionary demand, improving “time to serve” to 30–40 minutes, and availability gains from assortment and market hubs .
Guidance: the company reaffirmed FY25 sales ($8.4–$8.6B), comps (0.5%–1.5%), and adjusted operating margin (2%–3%), but lowered adjusted EPS to $1.20–$2.20 on higher net interest from its $1.95B notes; later (Q3) it tightened FY25 sales to $8.55–$8.60B, adjusted EPS $1.75–$1.85, adjusted OI margin 2.4%–2.6% and reduced capex to ~$250M .
Capital structure: AAP completed $1.95B senior notes (7.00% 2030; 7.375% 2033) and a new $1.0B ABL; up to ~$2.5B of cash plus other assets support the ABL and the $3B supply chain finance (SCF) program, aiming to stabilize vendor financing and bridge back to investment grade .
vs. S&P Global consensus: Q2 2026 revenue $2.01B vs. $2.06B consensus* (slight miss) and adjusted EPS $0.69 vs. Primary EPS consensus $0.74* (slight miss); management flagged tariff elasticity risk near-term but reiterated FY27 ~7% adjusted operating margin objective .
Values retrieved from S&P Global.*

What Went Well and What Went Wrong

What Went Well

Returned to profitability; adjusted operating income $61M (3.0% of sales) vs. $62M (2.8%) LY, showing margin progress despite lower sales .
Pro channel growth continued, supported by faster parts availability, improved assortment (60k+ new SKUs YTD) and “time to serve” now 30–40 minutes: “Pro customers are gaining further confidence… we have… time to serve… in the target range of thirty to forty minutes” .
Supply chain/assortment execution: closed/converted 9 DCs YTD (on track for 12 by year‑end); market hubs (target 60 by mid‑2027) delivering ~100 bps comp uplift across supported stores; store availability KPI moved to mid‑90s .

What Went Wrong

Top line contracted y/y: net sales $2.01B vs. $2.18B (DIY softness; low‑single digit decline; transactions down low single digits despite late‑quarter improvement) .
Gross margin headwinds included reversal of previously capitalized inventory costs and rising LIFO pressure; management expects more pronounced tariff effects in 2H and is cautious on DIY elasticity .
FY25 adjusted EPS guidance cut to $1.20–$2.20 (from $1.50–$2.50) primarily on higher interest from the $1.95B notes; free cash flow remains negative for FY25 with store optimization cash costs weighing on near‑term FCF .

Financial Results

Headline metrics (oldest → newest)

Metric	Q2 2024	Q1 2025	Q2 2026 (current)
Net Sales ($B)	$2.18	$2.58	$2.01
GAAP Diluted EPS ($)	$0.51	$0.40	$0.25
Adjusted Diluted EPS ($)	$0.62	$(0.22)	$0.69
Gross Margin (%)	43.6%	42.9%	43.5%
Adjusted Gross Margin (%)	43.6%	—	43.8%
Operating Income ($M)	$54	$(131)	$22
Operating Margin (%)	2.5%	(5.1)%	1.1%
Adjusted Operating Income ($M)	$62	$(8)	$61
Adjusted Operating Margin (%)	2.8%	(0.3)%	3.0%
Comparable Store Sales (%)	—	(0.6)%	0.1%

Notes: Q2 2026 refers to the twelve weeks ended July 12, 2025 as reported.

Channel & Operating KPIs

Pro channel comps: positive low single digits; DIY: low‑single‑digit decline (sequentially stable; improved late in quarter) .
Market hubs: ~100 bps comp uplift for supported stores; 10 planned in 2025 (target 60 by mid‑2027) .
Store availability KPI: mid‑90s (≈ +100 bps vs. Q1); time to serve 30–40 minutes .
Store footprint: 4,292 stores at Q2 end after 514 closures YTD as part of footprint optimization .

Guidance Changes

Metric	Period	Previous Guidance	Current Guidance (Q2 release)	Change
Net sales	FY 2025 (53 wks)	$8.4–$8.6B (May 22)	$8.4–$8.6B	Maintained
Comparable store sales	FY 2025 (52 wks)	0.5%–1.5%	0.5%–1.5%	Maintained
Adjusted operating income margin	FY 2025	2.0%–3.0%	2.0%–3.0%	Maintained
Adjusted diluted EPS	FY 2025	$1.50–$2.50	$1.20–$2.20 (reflects higher interest)	Lowered
Capital expenditures	FY 2025	~ $300M	~ $300M	Maintained
Free cash flow	FY 2025	$(85) – $(25)M	$(85) – $(25)M	Maintained

Subsequent update (Q3 2025): FY25 net sales $8.55–$8.60B, comps 0.7%–1.3%, adjusted OI margin 2.4%–2.6%, adjusted EPS $1.75–$1.85, capex ~ $250M, FCF $(90)–$(80)M .

Earnings Call Themes & Trends

Topic	Previous Mentions (Q4 2024, Q1 2025)	Current Period (Q2 2026)	Trend
Tariffs & pricing	Tariffs creating dynamic backdrop; FY25 guidance assumed tariffs remain; reaffirmed guidance in Q1 .	~40% of COGS exposed at blended ~30% duty; industry rational on pricing; cautious on DIY elasticity .	Cautious; pass‑through progressing
Supply chain/DC consolidation	Plan to consolidate to ~12 large DCs by end‑2026; 500+ store closures announced in 2024 .	9 DCs closed/converted YTD; on track for 12 in 2025; improved DC productivity and fill rates .	Executing, improving metrics
Market hubs & availability	Market hubs part of multi‑echelon strategy; FY27 target 60 hubs .	10 2025 hubs planned; ~100 bps comp uplift; opened 3 in Q2; targeting 60 by mid‑2027 .	Positive, accelerated roll‑out
Merchandising & assortment	Focus on faster access to parts; cost reductions; 2027 margin ambition .	60k+ new SKUs YTD; store availability KPI mid‑90s; AI tools in assortment planning .	Improving availability, tech-enabled
AI/technology	Tech roadmap referenced broadly in 2024 .	AI in assortment and pricing; central price management being rolled out .	Building capabilities
Capital structure & SCF	End‑2024 held strong liquidity; focused on investment‑grade trajectory .	Issued $1.95B notes; new $1.0B ABL; up to ~$2.5B cash supporting SCF program to stabilize vendor finance .	Liquidity bolstered; IG path

Management Commentary

“Q2 also marked an important milestone with Advance returning to profitability… Our comparable sales performance was fueled by growth in the Pro business, and we are encouraged by the early signs of stabilization in our DIY business.”
“Approximately 40% of our reported cost of goods is exposed to tariffs at a blended rate of approximately 30%… We have been able to navigate… thanks to our much improved price management capabilities.”
“We… reorganized our debt capital structure… raised $1,950,000,000… and entered a new $1,000,000,000 asset‑backed revolving credit facility… up to $2,500,000,000 of this cash plus other assets… will be used to support… the… supply chain financing program.”
“We remain on track to open a total of 10 market hubs this year… we continue to see an average estimated comparable sales uplift of 100 basis points… Market Hubs carry 75,000 to 85,000 SKUs.”
“Our time to serve [is] in the target range of thirty to forty minutes… Pro customers are gaining further confidence in our ability to serve as a reliable parts provider.”

Q&A Highlights

Tariff elasticity and DIY: Management expects low‑to‑mid single‑digit inflation in 2H; key uncertainty is demand elasticity for the DIY customer; guidance incorporates a range of outcomes .
Capital structure/SCF: No spread widening observed; structure provides stability; objective is to bridge back to investment grade to unlock better terms over time .
Store investments: Large portion of the fleet required lifecycle upgrades (HVAC, roofs, parking); stepped‑up maintenance capex across >1,000 stores YTD to enhance customer/team experience .
Margin path: Turnaround described as “non‑linear”; cost saves (merchandising, supply chain) and SG&A operating model re‑design expected to build through 2026 toward ~7% adjusted OI margin by 2027 .
Inventory/LIFO: Reversal of capitalized inventory costs as inventory normalizes is a headwind; higher LIFO expense expected into 2H .

Estimates Context

Metric	Q2 2026 Consensus	Actual	Surprise
Revenue ($B)	$2.06*	$2.01	Miss (~$0.05B)
Primary EPS ($)	$0.74*	Adj. EPS $0.69	Miss (~$0.05)

Values retrieved from S&P Global.*

Context: Consensus expected modest y/y EPS expansion on stable revenue; AAP delivered margin progress (adjusted OI margin 3.0%), but revenue undershot and adjusted EPS slightly lagged consensus amid inventory capitalization reversals and early‑stage tariff pass‑through .

Key Takeaways for Investors

Margin trajectory improving: Adjusted operating margin rose to 3.0% despite lower sales, supported by footprint optimization and early merchandising gains; focus remains on gross margin (sourcing, pricing, promotion discipline) and SG&A model in 2H/2026 .
Pro-led stabilization: Pro comps positive with faster service and better hard parts availability; management continues to emphasize Main Street Pro accounts for mix and margin upside .
DIY elasticity is the swing factor: Tariff‑driven price inflation (low‑to‑mid single digit) could pressure DIY transactions near‑term; monitoring elasticity is critical for 2H outcomes .
Liquidity and vendor stability: $1.95B notes + $1.0B ABL underpin SCF and working capital; reduced funding risk for vendors supports service continuity during the turnaround .
Guidance now more achievable: EPS guide trimmed for higher interest expense at Q2 and later raised midpoints in Q3 on stronger 2H expectations; investors should watch LIFO expense, capitalized inventory reversals, and comp cadence against updated ranges .
Structural initiatives (market hubs, DC consolidation, AI‑enabled assortment/pricing) are multi‑year levers; progress and KPI disclosure (availability, time to serve, hub uplift) should be tracked for sustained margin expansion toward FY27 targets .
Near‑term trading: Modest revenue/adjusted EPS miss vs. S&P Global consensus*, offset by improving margins and clearer liquidity posture, suggests shares may be sensitive to DIY demand prints and tariff headlines.
Values retrieved from S&P Global.*

Sources: 
- Q2 2026 (twelve weeks ended July 12, 2025) press release and 8‑K: net sales, EPS/margins, comps, guidance **[1158449_c5da35af797f4ade952de9ccf75c63b1_0]** **[1158449_c5da35af797f4ade952de9ccf75c63b1_1]** **[1158449_c5da35af797f4ade952de9ccf75c63b1_2]** **[1158449_c5da35af797f4ade952de9ccf75c63b1_6]** **[1158449_c5da35af797f4ade952de9ccf75c63b1_11]** **[1158449_c5da35af797f4ade952de9ccf75c63b1_12]** **[1158449_c5da35af797f4ade952de9ccf75c63b1_13]** **[1158449_c5da35af797f4ade952de9ccf75c63b1_14]** **[1158449_0001158449-25-000268_aap-20250812.htm:2]**. 
- Q2 2026 earnings call transcript: Pro/DIY color, tariffs, assortment, market hubs, supply chain, SCF/debt, capex/store refresh, LIFO/inventory **[1158449_2078623_1]** **[1158449_2078623_2]** **[1158449_2078623_3]** **[1158449_2078623_4]** **[1158449_2078623_5]** **[1158449_2078623_6]** **[1158449_2078623_7]** **[1158449_2078623_8]** **[1158449_2078623_12]** **[1158449_2078623_14]**. 
- Prior quarters: Q1 2025 PR (sales, comps, margins, guidance) **[1158449_b88f1f3f99574776ac5c04befc35be98_0]** **[1158449_b88f1f3f99574776ac5c04befc35be98_1]** **[1158449_b88f1f3f99574776ac5c04befc35be98_2]** **[1158449_b88f1f3f99574776ac5c04befc35be98_6]** **[1158449_b88f1f3f99574776ac5c04befc35be98_11]** **[1158449_b88f1f3f99574776ac5c04befc35be98_14]**; Q3 2025 PR/8‑K (trend and updated FY25 guidance) **[1158449_eeae663e4a7c451095dfff7adc283356_0]** **[1158449_eeae663e4a7c451095dfff7adc283356_1]** **[1158449_eeae663e4a7c451095dfff7adc283356_2]** **[1158449_0001628280-25-047275_aap-20251030.htm:1]** **[1158449_0001628280-25-047275_aapexhibit991_q3x2025.htm:2]**. 
- Capital markets actions: $1.95B notes pricing PR; ABL/SCF details in 8‑K **[1158449_adb01c40311c417491ab999833cc86c7_0]** **[1158449_0001158449-25-000268_aap-20250812.htm:1]**. 
- Consensus estimates (S&P Global): Q2 2026 revenue and EPS means and counts.*

ADVANCE AUTO PARTS INC (AAP)·Q2 2026 Earnings Summary