Second Quarter 2026
Filed Aug 20, 2026Q2 2026 adjusted operating income margin expanded by over 250 basis points year-over-year as gross-margin improvement and lower SG&A more than offset a 0.5% comparable-store-sales decline; the company reaffirmed sales, adjusted operating income margin and free-cash-flow guidance.
Profitability improved substantially, including adjusted operating income margin of 5.6% versus 3.0% in the prior year, and year-to-date free cash flow turned positive. However, net sales declined to $2,000 million from $2,010 million, comparable store sales decreased 0.5%, and management said DIY demand weakened particularly during the final four weeks of the quarter.
Key metrics
as reported| Metric | Value | q/q | y/y |
|---|---|---|---|
| Net salesGAAP | $2,000 million | – | – |
| Comparable store salesother | decreased 0.5% | – | decreased 0.5% |
| Gross profitGAAP | $923 million, or 46.2% of net sales | – | – |
| Adjusted gross profitnon-GAAP | $924 million, or 46.2% of net sales | – | – |
| Selling, general and administrative expensesGAAP | $822 million, or 41.1% of net sales | – | – |
| Adjusted selling, general and administrative expensesnon-GAAP | $812 million, or 40.6% of net sales | – | – |
| Restructuring and related expensesGAAP | $10 million | – | – |
| Operating incomeGAAP | $101 million, or 5.1% of net sales | – | – |
| Adjusted operating incomenon-GAAP | $112 million, or 5.6% of net sales | – | Adjusted operating income margin expands by over 250 basis points year-over-year |
| Interest expenseGAAP | $(48) million | – | – |
| Other income, netGAAP | $22 million | – | – |
| Income tax expenseGAAP | $20 million | – | – |
| Net incomeGAAP | $55 million | – | – |
| Adjusted net incomenon-GAAP | $63 million | – | – |
| Diluted earnings per shareGAAP | $0.90 | – | – |
| Adjusted diluted earnings per sharenon-GAAP | $1.03 | – | – |
| Tariff-refund contribution to adjusted diluted earnings per sharenon-GAAP | approximately $0.31 | – | – |
| Year-to-date net salesGAAP | $4,614 million | – | – |
| Year-to-date operating income (loss)GAAP | $170 million, or 3.7% of net sales | – | – |
| Year-to-date adjusted operating incomenon-GAAP | $210 million, or 4.6% of net sales | – | – |
| Year-to-date net incomeGAAP | $80 million | – | – |
| Year-to-date diluted earnings per shareGAAP | $1.31 | – | – |
| Year-to-date adjusted diluted earnings per sharenon-GAAP | $1.82 | – | – |
| Year-to-date net cash provided by operating activitiesGAAP | $252 million | – | – |
| Year-to-date capital expendituresGAAP | $(132) million | – | – |
| Year-to-date free cash flownon-GAAP | $120 million | – | – |
| Net leverage rationon-GAAP | 2.1 | Net leverage moved lower to 2.1x in Q2 2026 from 2.4x in Q1 2026 | – |
Full Year 2026 outlook
- Revenue$8,485 million to $8,575 million
- NoteComparable store sales (52 weeks): 1.00% to 2.00%
- NoteAdjusted operating income margin: 3.80% to 4.50%
- NoteAdjusted diluted EPS: $2.60 to $3.30
- NoteCapital expenditures: Approx. $300 million
- NoteFree cash flow: Approx. $100 million
- NoteStore openings: 30 - 35
- NoteMarket hub openings: 15 - 20
- NoteAdjusted diluted EPS guidance includes pre-tax interest expense of approximately $210 million and pre-tax interest income of approximately $100 million.
Capital returns
- During the second quarter of 2026, the Company repurchased and retired approximately $30 million of principal outstanding debt.
- On August 18, 2026, the Company declared a regular cash dividend of $0.25 per share, payable on October 23, 2026 to stockholders of record as of October 9, 2026.
- During the twenty-eight weeks ended July 18, 2026, dividends paid were $30 million, compared with $30 million in the prior-year period.
- During the twenty-eight weeks ended July 18, 2026, repayment of long-term debt was $29 million.
What drove it
- Low-single-digit growth in the Pro channel performed in line with expectations, with Main Street Pro trends outpacing overall Pro trends.
- Gross-profit expansion excluding tariff refunds was primarily driven by product-margin expansion supported by merchandising initiatives.
- Second-quarter 2026 adjusted gross profit included $26 million in refunds related to tariffs previously paid under the International Emergency Economic Powers Act.
- Adjusted SG&A expense was 40.6% of net sales, compared with 40.7% in the prior-year quarter.
- During the twenty-eight weeks ended July 18, 2026, nine stores were opened and three stores were closed, resulting in 4,311 stores.
Concerns
- Comparable store sales decreased 0.5% in the second quarter of 2026.
- Total enterprise sales performance was impacted by the DIY channel as tighter household budgets constrained spending more than anticipated, especially during the last four weeks of the quarter.
- Second-quarter net sales were $2,000 million compared with $2,010 million in the prior-year quarter.
- Interest expense was $(48) million in the second quarter of 2026, compared with $(19) million in the prior-year quarter.
- The company revised its full-year new-store-opening schedule to 30 - 35 from prior guidance of 40 - 45.
What to watch
- Whether Pro-channel low-single-digit growth and Main Street Pro outperformance continue.
- The trajectory of DIY spending following the late-quarter pressure from tighter household budgets.
- The durability of gross-margin expansion excluding the $26 million tariff refunds.
- Delivery against full-year comparable-store-sales guidance of 1.00% to 2.00% and adjusted operating-income-margin guidance of 3.80% to 4.50%.
- Execution of the revised opening plan for 30 - 35 stores and 15 - 20 market hubs.
- Progress toward the company's goal to re-establish an investment grade rating and its net leverage ratio.
Balance sheet and cash flow
- Cash and cash equivalents were $3,120 million as of July 18, 2026, compared with $3,123 million as of January 3, 2026.
- Long-term debt was $3,387 million as of July 18, 2026, compared with $3,412 million as of January 3, 2026.
- Inventories, net were $3,844 million as of July 18, 2026, compared with $3,646 million as of January 3, 2026.
- Total current assets were $7,473 million and total current liabilities were $4,276 million as of July 18, 2026.
- Year-to-date net cash used in investing activities was $188 million, including $55 million of investing activities of discontinued operations.
- Adjusted net debt was $2,482 million and adjusted EBITDAR was $1,171 million for the four quarters ended July 18, 2026.
- Debt to net income was 31.1 and adjusted net debt to adjusted EBITDAR was 2.1 for the four quarters ended July 18, 2026.
Analysis
Advance Auto Parts delivered a marked profitability improvement despite softer sales. Second-quarter net sales were $2,000 million versus $2,010 million in the prior-year quarter, while comparable store sales decreased 0.5%. Management attributed the sales pressure to the DIY channel, where tighter household budgets constrained spending, particularly in the final four weeks of the quarter. Pro channel comparable sales delivered low-single-digit growth, and Main Street Pro outpaced overall Pro trends, but no channel revenue or channel-specific comparable-sales figures were reported.
Gross margin was the principal earnings driver. GAAP gross profit margin rose to 46.2% from 43.5%, while adjusted gross profit margin rose to 46.2% from 43.8%. The quarter included $26 million in IEEPA tariff refunds, which contributed approximately $0.31 to adjusted diluted EPS. Excluding those refunds, management said the gross-profit-rate improvement was primarily driven by product-margin expansion from merchandising initiatives. This distinction is important because the reported adjusted EPS of $1.03 includes a material benefit that management separately identified as tariff-related.
Cost control complemented the gross-margin recovery. GAAP SG&A was 41.1% of sales versus 42.4%, and adjusted SG&A was 40.6% versus 40.7%. GAAP operating income reached $101 million, or 5.1% of sales, compared with $22 million, or 1.1%, while adjusted operating income was $112 million, or 5.6%, compared with $61 million, or 3.0%. GAAP diluted EPS was $0.90 versus $0.25 and adjusted diluted EPS was $1.03 versus $0.69. Higher interest expense of $(48) million versus $(19) million remained a meaningful non-operating cost.
Cash generation and leverage improved over the first twenty-eight weeks. Net cash from operating activities was $252 million compared with cash use of $(106) million, and free cash flow was $120 million compared with $(201) million. Cash and cash equivalents were $3,120 million, long-term debt was $3,387 million, and the company repurchased and retired approximately $30 million of debt principal during the quarter. Net leverage moved to 2.1 from 2.4x in Q1 2026. The company also declared a $0.25 per-share dividend.
Full-year sales, comparable-store-sales, adjusted operating-income-margin, capital-expenditure and free-cash-flow guidance were reaffirmed. The adjusted diluted EPS range was raised to $2.60 to $3.30 from $2.40 to $3.10, reflecting higher pre-tax interest income. The company revised its opening schedule, lowering store openings to 30 - 35 from 40 - 45 and raising market hub openings to 15 - 20 from 10 - 15. The second-half setup therefore centers on whether Pro momentum and merchandising-led margin gains can offset constrained DIY demand while the company delivers its reaffirmed full-year operating and cash-flow targets.
Management, verbatim
Our second quarter comparable sales results reflected low-single-digit growth in the Pro channel, which performed in line with expectations along with Main Street Pro trends outpacing overall Pro trends. However, total enterprise sales performance was impacted by the DIY channel as tighter household budgets constrained spending more than we anticipated, especially during the last four weeks of the quarter.
Shane O'Kelly, president and chief executive officer
The focus on executing our initiatives helped Advance achieve a significant milestone with the return to positive year to date free cash flow, following two years of outflows.
Shane O'Kelly, president and chief executive officer
Not in the filing
stated, not guessed- Quarterly operating cash flow and quarterly free cash flow were not reported.
- Revenue, comparable sales, profitability, and cash flow by Pro and DIY channel were not reported.
- A GAAP full-year revenue, operating income, EPS, tax-rate, or free-cash-flow outlook was not provided.
- A full-year gross-margin or operating-expense outlook was not provided.
- A previous quarterly release outlook was not provided for formal comparison with reported results.
AlphaAI analysis generated from the company’s SEC earnings filing (Form 8-K Item 2.02, or Form 6-K for a foreign private issuer). Every figure was cross-checked against the filing text; consensus estimates, price targets and share-price reactions are not shown because they are not in the filing. AI-generated research, not investment advice.