Key Highlights

● Second-quarter net sales were US$2,000 million, with comparable sales down 0.5%.

● Adjusted EPS was US$1.03, including about US$0.31 of tariff refunds.

● GAAP gross margin rose to 46.2% from 43.5%.

● Adjusted EPS guidance was raised to US$2.60 to US$3.30.

Advance Auto Parts, Inc. (NYSE:AAP), the US automotive aftermarket retailer and parts distributor, reported second-quarter 2026 results on 20 August 2026. The 12 weeks ended 18 July 2026 produced net sales of US$2,000 million, marginally below US$2,010 million in the comparable 12 weeks of 2025. Comparable store sales fell 0.5%.

Profitability nonetheless improved. GAAP gross profit rose to US$923 million, a margin of 46.2% against 43.5%, while selling, general and administrative expenses fell to US$822 million, or 41.1% of sales, from US$852 million. GAAP operating income was US$101 million versus US$22 million, and GAAP net income was US$55 million, or US$0.90 per diluted share, compared with US$15 million, or US$0.25.

Adjusted Figures and Tariff Refunds

On the company's adjusted basis, operating income was US$112 million, a 5.6% margin, up from US$61 million and 3.0%. Adjusted diluted earnings per share were US$1.03 against US$0.69. The company said adjusted gross profit included US$26 million of refunds relating to IEEPA-era import duties, worth about US$0.31 of adjusted earnings per share.

Without the refunds, adjusted earnings per share would have been nearer US$0.72, based on the stated US$0.31 benefit. Management said the remaining margin gain stemmed mainly from merchandising-led product margin expansion, so the underlying improvement appears real but smaller than the headline suggests.

Strategy, Channels and Cash

Chief executive Shane O'Kelly said sales in the professional channel grew by a low-single-digit percentage, with the independent Main Street Pro customers outpacing the wider professional trend. He blamed the overall shortfall on the do-it-yourself channel, saying tighter household budgets constrained spending more than expected.

For the 28 weeks to 18 July 2026, operating cash flow was US$252 million compared with an outflow of US$106 million, and free cash flow was US$120 million versus an outflow of US$201 million, the first positive year-to-date figure after two years of outflows. Capital expenditure was US$132 million. Net leverage was 2.1 times, down from 2.4 times in the first quarter, and the company retired about US$30 million of debt principal during the quarter.

Guidance and Shareholder Returns

The 2026 outlook was largely reaffirmed. Net sales are expected at US$8,485 million to US$8,575 million, comparable store sales growth of 1.0% to 2.0%, an adjusted operating margin of 3.8% to 4.5%, capital expenditure near US$300 million and free cash flow near US$100 million. Adjusted diluted earnings per share guidance was raised to US$2.60 to US$3.30 from US$2.40 to US$3.10, reflecting roughly US$100 million of expected pre-tax interest income set against about US$210 million of interest expense.

Year to date, net sales were US$4,614 million versus US$4,593 million, while GAAP operating income was US$170 million compared with a loss of US$109 million a year earlier. Adjusted diluted earnings per share for the 28 weeks were US$1.82 against US$0.50, showing turnaround progress from a low base, although sales barely grew.

Store openings were cut to 30 to 35 from 40 to 45, while planned market hub openings rose to 15 to 20. At 18 July 2026 the group had 4,311 stores, comprising 4,072 Advance Auto Parts and 239 Carquest locations, and cash of US$3,120 million. A dividend of US$0.25 per share is payable on 23 October 2026 to holders of record on 9 October 2026.

Margin Gains Are Real but Smaller Once Refunds Are Removed

The trend in the do-it-yourself channel and the durability of margin gains remain the main uncertainties.