AAP - NYSE

Advance Auto Parts, Inc.

Advance Auto Parts, Inc.

AAP·NYSE

$57.12

+1.5%
Consumer CyclicalSpecialty Retail

Advance Auto Parts, Inc. provides automotive replacement parts, accessories, batteries, and maintenance items for domestic and imported cars, vans, sport utility vehicles, and light and heavy duty trucks. The company offers battery accessories; belts and hoses; brakes and brake pads; chassis and climate control parts; clutches and drive shafts; engines and engine parts; exhaust systems and parts; hub assemblies; ignition components and wires; radiators and cooling parts; starters and alternators; and steering and alignment parts. It also offers air conditioning chemicals and accessories; air fresheners; antifreeze and washer fluids; electrical wires and fuses; electronics; floor mats, seat covers, and interior accessories; hand and specialty tools; lighting products; performance parts; sealants, adhesives and compounds; tire repair accessories; vent shades, mirrors and exterior accessories; washes, waxes and cleaning supplies; and wiper blades. In addition, the company offers air filters; fuel and oil additives; fuel filters; grease and lubricants; motor oils; oil filters, part cleaners and treatments; and transmission fluids for engine maintenance. Further, it offers battery and wiper installation; engine light scanning and checking; electrical system testing; video clinic; oil and battery recycling; and loaner tool program services. Additionally, the company sells its products through its website. It serves professional installers and do-it-yourself customers. The company operates stores under the Advance Auto Parts, Autopart International, and Carquest brands, as well as branches under the Worldpac name. As of April 23, 2022, it operated 4,687 stores and 311 branches in the United States, Puerto Rico, the U.S. Virgin Islands, and Canada; and served 1,318 independently owned Carquest branded stores in Mexico, Grand Cayman, the Bahamas, Turks and Caicos, and the British Virgin Islands. The company was founded in 1929 and is based in Raleigh, North Carolina.

StatementsValue Model

At a Glance

Live Snapshot
Market Cap$3.45B
EPS0.7300
P/E Ratio78.25
Earnings Date08/13/2026

Earnings Call Transcript

AAP • 2025 • Q2

Operator
Welcome to the Advance Auto Parts Second Quarter 2025 Earnings Conference Call. I would now like to turn it over to Lavesh Hemnani, Vice President of Investor Relations.
Operator
[Operator Instructions] And with that, our first question comes from Bret Jordan from Jefferies.
Bret David Jordan
Great. And then on the CapEx, you're talking about doing a sort of an upfit of 1,000 stores. What percentage of the store base do you think needs CapEx to sort of bring it up to market standard?
Operator
The next question comes from Simeon Gutman from Morgan Stanley.
Simeon Ari Gutman
My first question, trying to keep it high level and simple. Just achieving the pickup in comp in the second half of the year, what gives you confidence in it? Can you just think us through the drivers? And then my follow-up, I'll test you on some of those assumptions.
Ryan Grimsland
Yes. A couple of things on the back half of the year. One is we start to see some benefit from some of the work that we've been doing. But we also have some easier comparisons in the back half of the year. Just in Q3 alone, think of we had a CrowdStrike incident, we had the hurricane impact. So we've got some back half of the year impacts to our sales that make the comparisons a little easier, but we also saw improving trends. So we saw improving 2-year comp trends coming out of Q1 into Q2. And also the later part of Q2, we saw improving trends moving into the back half of the year. So I feel like the scenarios we've got right now play within our guidance. And you can tell like if you look at 50 to 150 basis points on the full year, there is a step-up in the back half. But I'd say on a 2-year basis, it's not a material difference.
Simeon Ari Gutman
Okay. So it's more comparison than it is underlying change. And I think that's fair. One of the assumptions, it looks to us that the DIFM business would probably need to comp in at least the mid-single digits to get there. Is that too the comparison? And then I don't know if tariff pricing is more pronounced in do-it-for-me versus do-it-yourself. But can you talk about how that -- the nuance between the 2 -- I guess, your assumptions between the 2 divisions lay out through the back half of the year?
Operator
The next question comes from Michael Lasser from UBS.
Michael Lasser
Super helpful. My follow-up question is, in light of that and in light of what is a very dynamic environment, as you guys had rightfully pointed out, how should we as outsiders think about the linearity of the progress from here? And obviously, I ask because most Street models are anticipating 100 to 150 basis points of margin expansion for 2026, and this would be a great opportunity to help calibrate those expectations to say, hey, if indeed it will be the case, think more of the progress is going to come in 2027, especially in light of, I don't know, A, B and C, tariffs, consumer, whatever it might be.
Operator
The next question comes from Chris Horvers from JPMorgan.
Ryan Grimsland
I would just say, Christian, that it's been a rational environment. What we've seen from our peers, we haven't seen significant deviation in our CPI from any price actions we've taken. Competitors have taken price actions as well, and we followed suit. We are following, and that is our strategy is to follow and be a competitive price every single day.
Christian Justin Carlino
Got it. That's helpful. And you mentioned maintaining gross margin rate where you can, but prioritizing profit dollar expansion. So are you embedding a discrete headwind, amongst other things, in gross margin from the tariffs in the back half? And if so, could you quantify that?
Ryan Grimsland
Yes. So we're expecting about low to mid-single-digit inflation in the back half of the year. Obviously, some of that is price related to the tariffs. We are expecting -- there's obviously multiple scenarios, and it's still kind of early to predict exactly how it all plays out. But even the changes that have happened, we're still at a blended rate of roughly 30% on tariff impacts even with the latest changes. Those prices are just starting to make it into the market. So the biggest unknown will be the demand elasticity and how that might play out in the back half of the year. But within our guidance range, those scenarios all fall within there. And it really depends on what is the elasticity, what's the impact, how does the consumer respond, how do they react, will have an impact on the range outcome.
Operator
The next question comes from Scot Ciccarelli from Truist.
Scot Ciccarelli
So my question is, it looks like you guys are planning for low single-digit comps over the next, call it, 2 to 3 years. We have a natural SG&A inflation rate in the, call it, 2% to 3% store range. So it seems like your medium-term target of 7% is really dependent on gross margin. A, is that a fair assessment? And b, assuming it's correct, can you help size the different buckets of where that gross margin expansion should come from? It just seems like it's a lot given the comp environment.
Operator
The next question comes from Seth Sigman from Barclays.
Seth Ian Sigman
I wanted to go back to the DIY business. You talked about the performance in Q1 -- I'm sorry, in Q2 being similar to Q1. It seems like you had more inflation in the second quarter. So I'm not sure if that implies that transactions may have slowed sequentially. Maybe you could just clarify that because you also talked about signs of maybe some stabilization with that consumer. So if we can reconcile all that, I think, would be helpful.
Seth Ian Sigman
Got it. All right. That's super helpful. And then I just wanted to clarify on the operating margin guidance, you didn't change it for the full year. Did you actually change the composition of gross margin versus SG&A? And then more specifically, this quarter, you had the reversal of some costs that were capitalized into inventory. I'm just curious what's driving that reversal now? And if you could quantify the impact either on the quarter or the full year, what's embedded in the guidance, that would be helpful.
Ryan Grimsland
Yes. So on the capitalization costs, it's really inventory coming down. If you recall, Q1, we made a forward buy of inventory ahead of tariffs and also our assortment work. That obviously provides a benefit from a capitalization, because we capitalize more cost to that inventory. And as you work that inventory down, there's less inventory to capitalize against. So you see the reversal of that in the quarter. That happened in this quarter. And we expect that to actually continue through the back half of the year, and that's embedded in our guidance. So the benefits of the work we've done from cost out. Also keep in mind, the store optimization work, a lot of that impact is in COGS. Think of our supply chain nodes that we closed down that were burdening our margin rates. That $70 million that we talked about, you'll see in the back half, that's offsetting a lot of that as well, along with the work that the merchandising team has done to get cost out and improve our pricing promotion strategy. So we're able to offset that, plus we were able to do that in Q2. But I would expect that pressure. It's in our guidance for the back half of the year. From a difference between our margin rate and SG&A, our SG&A is the same. I would expect the dollars to be similar to Q2 for the rest of the year by quarter. And our margin rate, obviously, would be the plug to get back to the rate. So the rate not significantly changed. The geography between gross margin and SG&A not significantly changed.
Operator
The next question comes from Michael Montani from Evercore ISI, the final question of today's Q&A.
Michael David Montani
It's Mike Montani on for Greg Melich. I just wanted to ask, with the 2 half comp assumption implied at around 2% to 3%, should we be thinking about that as 3 to 4 points of pricing and then a point or 2 of offset from elasticity? Is that kind of what you're seeing in July? And then I just had a follow-up on your Main Street commercial accounts.
Ryan Grimsland
Okay. Yes. So just from an inflationary standpoint, I would say it's low to mid-single-digit inflationary. There is some elasticity impacts embedded in there as well. But keep in mind, there's a wide range of outcomes that can happen as we think about the tariffs, price changes that go in, elasticity. So I think the full range that we've provided is a good assumption. In Q2, we had about 2% price elastic -- sorry, price inflation impact. So it's not fully -- demand elasticity was relatively similar. We did see improving trends in transaction in the later part of the quarter. So as some price increases a little bit off of Q2, we'll be cautious around what the consumer -- how the consumer behaves and what the demand elasticity looks like.
Ryan Grimsland
I think a couple of things that we're really excited about in the back half of the year. The work on the Pro team has done with our Main Street, but also maintaining the relationships with our national accounts. But also the way they've worked across the organization, merchandising and the hard part work, we're really excited about how our hard parts are performing with the Pro, but also our inventory replenishment team. A lot of the assortment work we've done was more indexed towards hard parts, and that really has a benefit for our Pro customers. But that cross collaboration across the organization, we're really excited about the work that they've done there and the improvement we're seeing in hard parts.
Transcript from August 14, 2025

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