What Advance Auto Parts (AAP) Said on Its Q3 Earnings Call

Key Points

• Third-quarter sales trends improved: Comparable sales declined 1.2% overall, but turned positive in the final four weeks. Pro sales grew in the low single digits, while DIY shoppers remained pressured by household budgets and deferred larger repairs.
• Outlook mixes modest growth with ongoing cost pressure: Advance forecast 2026 sales of about $8.5 billion and adjusted EPS of $2.75–$3.10, while raising its free cash flow forecast to roughly $150 million. Gross margin fell to 44.7%, and management expects some cost pressure to continue into the first half of 2027.
• Investment is focused on Pro customers and availability: Advance plans to expand its market hub network to 60 by mid-2027, broaden inventory and invest in stores and technology. Main Street Pro customers continued to outperform the overall Pro channel.

Advance Auto Parts NYSE: AAP reported a decline in third-quarter comparable sales but said trends improved as the period progressed, with professional customers providing growth while household budget pressures continued to weigh on do-it-yourself shoppers.

The auto parts retailer reported net sales of $2 billion and a 1.2% decline in comparable sales for the third quarter of 2026. Adjusted diluted earnings per share fell to $0.79 from $0.92 a year earlier, while adjusted operating margin expanded by approximately 10 basis points to 4.5%.

The company revised its full-year sales and earnings outlook and raised its free cash flow forecast. President and CEO Shane O’Kelly said the operating environment remained volatile, but sales trends stabilized after a slowdown late in the second quarter.

Sales Trends Improved During the Quarter

Comparable sales fell approximately 2% during the first eight weeks of the third quarter before turning positive in the final four weeks, O’Kelly said. DIY sales declines narrowed from mid-single digits early in the quarter to low single digits in the final four weeks. Pro comparable sales rose in the low single digits for the quarter and accelerated to approximately 3% in the final four weeks.

CFO Ryan Grimsland said the improvement reflected both better industry trends and stronger execution in stores. Advance also improved its value messaging to customers after falling behind competitors in that area, he said.

Sales were strongest in maintenance and failure categories, including motor oil, batteries, fluids, filters and wipers. Hard parts categories, including engine and undercar products, remained soft as consumers deferred larger repairs, Grimsland said.

Early in the fourth quarter, DIY trends were “a little bouncy” and overall roughly flat, while Pro sales continued to accelerate in the low- to mid-single digits, according to Grimsland.

Guidance Reflects Consumer and Cost Pressures

Advance projected full-year 2026 net sales of approximately $8.5 billion and comparable sales growth of approximately 1%. It narrowed its adjusted operating margin forecast to 4% to 4.3%, reaffirming the midpoint of its prior range, and revised its adjusted diluted EPS outlook to $2.75 to $3.10.

The company raised its free cash flow forecast to approximately $150 million, which it said would represent more than $400 million of year-over-year improvement. Through the third quarter, free cash flow was $109 million, compared with an outflow of approximately $280 million in the prior-year period.

Grimsland cautioned that fourth-quarter weather and year-end consumer spending could cause variability. The prior-year fourth quarter included an extra week that generated $132 million in sales. Excluding that week, the company expects fourth-quarter 2026 net sales to grow around 1% year over year.

Third-quarter adjusted gross margin contracted 16 basis points to 44.7%, reflecting pressures from sales mix and supply chain costs. Same-SKU inflation was approximately 4%, driven largely by commodity costs and market-related price adjustments. Grimsland said the company had not passed along all of its higher costs and expected some pressure to persist into the first half of 2027.

Market Hubs and Pro Customers Remain Priorities

Advance opened 13 market hubs through the third quarter, bringing its network to 46. The company plans to open 15 to 20 hubs for the full year and reach 60 by mid-2027. Market hubs carry a broader assortment of hard parts and support same-day availability for nearby stores.

O’Kelly said Advance had added 100,000 stock-keeping units year to date and was using assortment tools to better match inventory with local demand. The company also plans to complete the rollout of a centralized pricing and promotion platform.

Main Street Pro customers, which account for approximately 80% of Pro sales, continued to drive growth. Their comparable sales outperformed the overall Pro channel by approximately 100 basis points in the third quarter, O’Kelly said. The company is seeking both new accounts and higher spending from existing customers.

Optimization of the national account portfolio created an approximately 100-basis-point headwind to Pro sales during the quarter. Grimsland said that headwind should largely diminish after some overlap early in the first quarter of 2027.

Looking Ahead to 2027

Advance plans to provide formal 2027 guidance in February. Grimsland said capital spending would be at or above the approximately $300 million planned for 2026, with investment directed toward stores, market hubs and technology. He also said the company expects to maintain positive free cash flow next year.

Management continues to target productivity gains from merchandising, labor and supply chain initiatives. Grimsland said those initiatives could support 100 basis points of margin improvement, but cautioned that investors should consider the effect of tariff refunds that will not recur and continuing cost pressures when assessing the base for that improvement.

About Advance Auto Parts (NYSE:AAP)

Advance Auto Parts, Inc is a specialty retailer and distributor of automotive aftermarket parts, accessories, and maintenance products. The company serves both do-it-yourself customers and professional repair shops, offering products such as replacement parts, batteries, engine and drivetrain components, filters, fluids, tools, and other automotive supplies.

The company operates through a network of stores, distribution centers, and online channels under the Advance Auto Parts and Carquest brands.

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