Key Highlights

● Net sales were US$2,000 million, with comparable store sales down 0.5%.

● Adjusted operating margin rose to 5.6% from 3.0% a year earlier.

● Tariff refunds of US$26 million contributed about US$0.31 to adjusted diluted EPS.

● Adjusted EPS guidance rose to US$2.60 to US$3.30 from US$2.40 to US$3.10.

Advance Auto Parts, Inc. (NYSE:AAP), the US automotive parts retailer, reported second-quarter 2026 results on 20 August 2026 for the 12 weeks ended 18 July 2026. Net sales were US$2,000 million, marginally below US$2,010 million in the prior-year quarter, and comparable store sales fell 0.5%. The story was therefore profitability rather than growth. Adjusted operating income was US$112 million, or 5.6% of sales, compared with US$61 million, or 3.0%, a year earlier. Adjusted diluted earnings per share were US$1.03, against US$0.69, and GAAP diluted earnings per share were US$0.90, against US$0.25.

What drove the gross margin

Gross profit was US$923 million on a GAAP basis, or 46.2% of sales, compared with 43.5% a year earlier. The company said adjusted gross profit included US$26 million of refunds of tariffs imposed under the International Emergency Economic Powers Act (IEEPA), which contributed about US$0.31 to adjusted diluted earnings per share. According to the earnings call, adjusted operating margin excluding those refunds would have been about 4.3%. Because refunds are not necessarily repeatable, the underlying improvement is smaller than the headline figure suggests.

Selling, general and administrative expenses excluding restructuring fell to US$812 million from US$823 million. Restructuring and related charges were US$10 million, compared with US$29 million a year earlier. Interest expense rose to US$48 million from US$19 million, while other income was US$22 million.

Cash, debt and the balance sheet

Free cash flow for the 28 weeks to 18 July 2026 was US$120 million, compared with an outflow of US$201 million in the same period of 2025, helped by operating cash flow of US$252 million against capital expenditure of US$132 million. Cash and equivalents were US$3,120 million, and long-term debt was US$3,387 million. Inventories were US$3,844 million, up from US$3,646 million at the start of the fiscal year.

Adjusted net debt to adjusted EBITDAR, a lease-adjusted leverage measure, was 2.1 times, down from 2.4 times in the first quarter. The company repurchased and retired about US$30 million of principal debt in the quarter. It also declared a quarterly dividend of US$0.25 per share, payable on 23 October 2026 to holders of record on 9 October 2026.

Management guidance for fiscal 2026

Management raised its adjusted diluted earnings per share guidance to US$2.60 to US$3.30, from US$2.40 to US$3.10, citing higher pre-tax interest income. Net sales guidance of US$8,485 million to US$8,575 million, comparable sales growth of 1% to 2%, an adjusted operating margin of 3.8% to 4.5%, capital expenditure of about US$300 million and free cash flow of about US$100 million were unchanged. Store openings guidance was reduced to 30 to 35 from 40 to 45, while market hub openings were increased to 15 to 20 from 10 to 15. These are management projections and not analyst forecasts.

On the call, management reiterated a medium-term adjusted operating margin ambition of 7% and at least 100 basis points of margin expansion in 2027, although no formal 2027 guidance has been given. It also described a supply chain overhaul, with distribution centres consolidated from nearly 40 to 15, and the addition of about 80,000 new product lines in the first half. Those operational points come from the earnings call rather than the press release.

Interest Costs and Tariff Refunds Complicate the Margin Picture

Comparable sales were slightly negative. Results cover only part of the fiscal year. Interest costs have risen sharply, and interest income on a large cash balance currently offsets part of that burden, which may fade if rates or cash levels change. Tariff-related refunds add uncertainty to year-on-year comparisons.