Advance Auto Parts recently reported a dramatic improvement in second-quarter profitability despite essentially flat revenue, although tariff refunds provided a meaningful boost to earnings.
Net sales were $2 billion, compared with $2.01 billion in the prior-year quarter, while comparable-store sales declined 0.5%. Operating income nevertheless increased to $101 million from $22 million, representing an increase of approximately 359%.
Operating margin expanded to 5.1% from 1.1%, while adjusted operating income rose to $112 million from $61 million. Adjusted operating margin increased to 5.6% from 3%, an improvement of more than 250 basis points.
Gross margin was a major contributor. Gross profit increased to $923 million from $874 million, while gross margin rose to 46.2% from 43.5%.
The quarter, however, included $26 million of refunds for tariffs previously paid under the International Emergency Economic Powers Act. Those refunds contributed approximately $0.31 to adjusted diluted EPS.
Adjusted EPS increased to $1.03 from $0.69, while GAAP diluted EPS climbed to $0.90 from $0.25.
Even excluding the tariff refund, Advance said gross-margin improvement was driven primarily by stronger product margins resulting from its merchandising initiatives.
The company continued to see mixed consumer demand. Its professional business produced low-single-digit comparable-sales growth, while tighter household budgets weighed more heavily than expected on DIY spending, particularly during the final four weeks of the quarter.
Advance also returned to positive year-to-date free cash flow following two years of outflows and repurchased approximately $30 million of outstanding debt during the quarter.
For fiscal 2026, Advance reaffirmed net sales guidance of $8.485 billion to $8.575 billion, comparable-store sales growth of 1% to 2% and free cash flow of approximately $100 million. Adjusted EPS guidance was raised to $2.60 to $3.30 from $2.40 to $3.10.
KEY QUOTES:
“The focus on executing our initiatives helped Advance achieve a significant milestone with the return to positive year to date free cash flow.”
Shane O’Kelly, President and CEO of Advance Auto Parts
