Advance Auto Parts Q2 Results Under Pressure as DIY Demand Stays Weak

Advance Auto Parts Inc. reported mixed second-quarter results on Thursday and maintained its below-consensus fiscal 2026 sales guidance.

Adjusted earnings per share of $1.03 beat the consensus estimate of 81 cents. Meanwhile, sales of $2 billion missed the $2.039 billion expectation.

The stock plunged 25% on Thursday, closing at $42.39.

Business Performance

Comparable sales rose approximately 1% in the first eight weeks of the second quarter, before softening in the final four weeks.

Comparable sales declined 0.5% in the quarter. Professional customer sales grew low single digits as expected, while DIY sales declined low single digits.

Main Street Pro continued to outperform, with comparable sales exceeding overall professional customer comparable sales by more than 200 basis points, supporting market share growth.

DIY demand was pressured by tight household budgets, weaker discretionary spending, deferred big-ticket projects, and weather-related softness, creating a comparable sales headwind of approximately 100-150 basis points.

In the DIY segment, maintenance and failure categories such as filters, oil, and batteries performed better, while hard parts lagged as customers deferred larger projects.

In the professional customer segment, hard parts categories such as brakes and chassis continued to perform well, benefiting from improved parts availability and more consistent delivery times.

Same-SKU inflation rose to approximately 4% from 3% in the first quarter, driven by market pricing and higher commodity costs, particularly for oil and petroleum products.

Lower transaction counts were partially offset by higher units per transaction on both a one-year and two-year basis.

The company added 80,000 SKUs in the first half of 2026, compared with 100,000 added in 2025, with merchandising initiatives contributing approximately 100 basis points to product gross margin expansion. Distribution center consolidation reduced the network from nearly 40 facilities to 15.

Five Market Hubs opened in the first half, bringing the total to 38, with plans for 15-20 more in 2026 and a target of 60 by mid-2027.

Gross Margin and Cash Flow

Adjusted gross margin expanded 240 basis points, supported by tariff refunds and stronger product gross margins, partially offset by higher freight and fuel costs.

Adjusted operating income rose to $112 million from $61 million in the same period last year.

Adjusted operating margin reached 5.6%, up approximately 260 basis points year over year, reflecting significant expansion from strategic initiatives despite unfavorable channel mix and higher commodity costs.

Year-to-date free cash flow reached $120 million, marking a return to positive cash generation after two years of outflows, with $30 million used to repurchase outstanding debt. The company ended the quarter with approximately $3.1 billion in cash.

Advance Auto Parts completed its distribution center consolidation, reducing the network from nearly 40 facilities to 15.

Outlook

The company raised its fiscal 2026 adjusted EPS guidance to $2.60-$3.30 from $2.40-$3.10, versus the $2.92 estimate, while maintaining its sales outlook of $8.085 billion-$8.575 billion, versus the $8.581 billion estimate.

Advance Auto reaffirmed its full-year comparable sales growth outlook of 1%-2%, while continuing to focus on merchandising, supply chain, and store operations.

Adjusted operating margin remains at 3.8%-4.5%, while gross margin is expected to expand 110-150 basis points this quarter to approximately 45%.

Tariff refunds are expected to add 30 basis points to gross margin, offset by sales mix and higher freight and fuel costs.

Advance plans to open 30-35 stores and 15-20 Market Hubs in 2026, with five opened in the first half and nine planned for the third quarter.

The company plans to accelerate Market Hub openings to reach 60 locations by mid-2027 to improve same-day parts availability.

Management remains confident in achieving its medium-term target of 7% adjusted operating margin.

AAP stock performance: Advance Auto Parts shares rose 0.59% in premarket trading on Friday to $42.64.