Auto parts and accessories retailer Advance Auto Parts (NYSE:AAP) reported Q2 CY2025 results topping the market’s revenue expectations, but sales fell by 7.7% year on year to $2.01 billion. The company expects the full year’s revenue to be around $8.5 billion, close to analysts’ estimates. Its non-GAAP profit of $0.69 per share was 18.3% above analysts’ consensus estimates.
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Advance Auto Parts (AAP) Q2 CY2025 Highlights:
- Revenue: $2.01 billion vs analyst estimates of $1.99 billion (7.7% year-on-year decline, 1% beat)
- Adjusted EPS: $0.69 vs analyst estimates of $0.58 (18.3% beat)
- Adjusted EBITDA: $116.3 million vs analyst estimates of $132.3 million (5.8% margin, 12.1% miss)
- The company reconfirmed its revenue guidance for the full year of $8.5 billion at the midpoint
- Management lowered its full-year Adjusted EPS guidance to $1.70 at the midpoint, a 15% decrease
- Operating Margin: 1.1%, down from 2.4% in the same quarter last year
- Locations: 4,292 at quarter end, down from 4,776 in the same quarter last year
- Same-Store Sales were flat year on year, in line with the same quarter last year
- Market Capitalization: $3.40 billion
StockStory’s Take
Advance Auto Parts’ Q2 results were met with a strongly negative market reaction, as management attributed the performance to continued margin pressures and a challenging operating environment. CEO Shane O’Kelly noted that while the Pro business showed positive comparable sales growth and DIY sales stabilized, the company is still in the early stages of its turnaround. O’Kelly highlighted, “We are closely monitoring consumer behavior and the potential for recalibration in purchasing habits, especially within our DIY business.” Management acknowledged ongoing operational challenges, including the impact of tariffs and higher costs, contributing to a cautious outlook for the remainder of the year.
Looking forward, Advance Auto Parts’ guidance is shaped by a mix of cautious optimism and recognition of persistent risks. Management reconfirmed revenue expectations but lowered adjusted EPS guidance, citing higher interest expense from recent debt restructuring and uncertainty around tariff pass-throughs. CFO Ryan Grimsland emphasized, “We are planning cautiously in a dynamic macro backdrop and closely monitoring consumer behavior.” The company expects the benefits of its cost-saving and assortment initiatives to materialize gradually, while acknowledging that consumer response to price increases and elasticity remains a significant unknown.
Key Insights from Management’s Remarks
Management attributed Q2’s performance to ongoing store optimization, tariff-related pricing actions, and early traction in turnaround programs, with particular strength in the Pro segment and operational efficiencies from supply chain initiatives.
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Pro business outperformance: The Pro segment delivered positive comparable sales, driven by improved inventory availability and targeted assortment efforts in key hard parts categories. Management credited faster SKU expansion and improved time-to-serve metrics for increased Pro customer confidence.
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DIY segment stabilization: Although the DIY (do-it-yourself) business recorded a low single-digit sales decline, management observed emerging signs of stabilization. Efforts to improve in-store experience through upgraded facilities and enhanced product training were cited as key focus areas.
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Tariff management challenges: The company reported that approximately 40% of cost of goods is exposed to tariffs at a blended rate of 30%. Management is responding with selective price increases, active vendor negotiations, and supply diversification, but noted that full consumer impacts are still unfolding.
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Store footprint and supply chain optimization: Advance Auto Parts continued to close or convert underperforming distribution centers (DCs) and stores, aiming for a leaner supply network. These changes have led to operational efficiencies, such as a 33% reduction in shipment errors and improved fill rates.
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Debt restructuring for flexibility: The recent $1.95 billion debt offering and establishment of a new asset-backed revolving credit facility were executed to support supply chain financing and preserve liquidity. Management stated this structure is a “bridge” to regaining investment-grade status and maintaining vendor relationships during the turnaround.
Drivers of Future Performance
Advance Auto Parts’ outlook is shaped by ongoing cost pressures, tariff-related pricing actions, and execution of turnaround initiatives, with margin recovery and consumer demand elasticity as key uncertainties.
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Tariff pass-through and pricing: Management expects low to mid-single digit inflation from tariffs in the second half, with ongoing efforts to negotiate vendor cost sharing and adjust retail prices. The company remains cautious about the potential impact of higher prices on DIY consumer demand.
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Assortment and supply chain initiatives: Continued rollout of the new assortment framework and market hub expansions are expected to enhance parts availability and boost comparable sales, especially in the Pro segment. Management believes these initiatives will drive more meaningful benefits over 12 to 18 months as inventory turnover improves.
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Cost structure and margin targets: The company’s path to its 2027 margin goal relies heavily on gross margin expansion through merchandising discipline and supply chain productivity, while maintaining SG&A discipline. Management acknowledged that the pace of margin recovery could be nonlinear, and that macroeconomic headwinds may delay some expected benefits.
Catalysts in Upcoming Quarters
In upcoming quarters, our analyst team will closely monitor (1) the pace at which tariff-related price increases are absorbed by DIY customers, (2) measurable improvements in gross margin and operating efficiency from supply chain and assortment initiatives, and (3) progress on store upgrades and market hub expansions. The trajectory of Pro segment growth and consumer behavior in response to inflation remain critical variables for ongoing performance.
Advance Auto Parts currently trades at $57.25, down from $61.81 just before the earnings. In the wake of this quarter, is it a buy or sell? Find out in our full research report (it’s free).
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