Advance Auto Parts (AAP) Q1 2026 Earnings Report
On May 21st AAP released their Q1 2026 earnings.
The stock popped ~14% on the strong results.
They are reducing costs, improving efficiency, and bringing the brand back to life.
Lets get into the details of what happened during the quarter, where they are headed, and end with how much upside they still have to go. (Its a lot.)
Financials & Data
Revenue came in up 1.2% YoY with same store sales up 3.5% YoY beating estimates of only 1.9% and measuring the highest in 5 years.
Growth came from both Pro at mid single digits and DIY customers at low single digits reversing softness we have seen in recent quarters.
In both channels they also saw improving transaction volumes and units per transaction.
Gross Margins improved by 2.13% YoY hitting 45.1%.
Margin improvements came from better merchandising, how they buy, price, promote, and assort. And shifting customers to higher margin items like their ARGOS oil which is already a top selling name in its category. It has done so well they plan to expand the brand to hydraulic oils, antifreeze, performance chemicals, and washer fluids.
SG&A Expense Margin declined by 1.97% YoY to 41.3%.
Adjusted Operating Margins improved by 4.1% YoY hitting 3.8%.
Adjusted EPS came in at $0.77 beating expectations by ~75% and up from -$0.22 last year.
FCF was -$75M in the quarter vs -$198M last year. (Q1 is their typical FCF trough.)
Balance Sheet is still strong with $2.95B in cash against $3.4B in debt leaving them at 2.4x net debt to Adjusted EBITDAR, within their 2x-2.5x target.
Looking Forward
Management reaffirmed 2026 full year guidance during the quarter expecting solid improvement YoY inclusive of potential headwinds from consumer softness and tariffs.
Interestingly the tariff picture has actually improved since they gave guidance.
In February the Supreme Court overturned the IEEPA tariffs. Like all companies affected AAP has applied for refunds on what they already paid but nothing has been recognized in the financials. Any recovery is upside to the guide.
As the year progresses their comparable quarters from last year get more difficult which is why despite stronger than guided performance in Q1 no shift up in full year expectations was made.
In 2026 AAP expects Pro to outperform DIY despite winding down some national pro accounts as they focus more on main street.
Their market hub strategy is supporting that Pro outperformance. Regions with a hub are running 1% higher comparable sales growth than regions without. They have 35 today and plan to add 10-15 more this year on the way to 60 by 2027.
On the customer side, in Q1 they launched their updated loyalty program which fixed the common problems with the old system like flexibility in when they could use the rewards and better exclusive offers.
They are already seeing that change result in “strong early engagement” from new and existing customers.
Margins should be strongest in Q2-Q3 2026.
Medium term 7% adjusted operating margins is still the target with improvement starting from supply chain starting next year with continued help from store operation efficiency and merchandising improvements.
Merchandising
Merchandising is expected to be the “primary catalyst for margin improvement” through the rest of the year being the main contributor to the guided 1.1%-1.5% gross margin improvement. That improvement comes from better vendor relationships, removing unrelated costs, and closer front line collaboration.
Using customer data they continue to improve product placement and keep available a larger number of SKUs.
Supply Chain
Their supply chain keeps getting better with additional improvements found that will be implemented in 2026 leading to gross margin improvements during the year and into 2027.
T hey recognized that the receiving methods at each DC were not uniform costing workers time to adapt to each one. Fixing that will improve efficiency and reduce lost time.
They are also targeting close to perfect shipment accuracy getting the parts needed on time. As they improve this will reduce the hours needed to verify the parts they need got there.
On the vendor side they plan to simplify their order volumes and methods to lower costs for both AAP and vendors creating a simpler relationship.
Investment here will partially offset improvements from merchandising.
Store Operations
In their store operations productivity continues to improve as tasks get simplified and scheduling gets better. To help this improvement continue they are upgrading their training and making performance metrics clearer.
AAP continues to invest to refresh their stores and recently redesigned a wash and wax section that is better aligned with what customers are actually buying.
YoY reduction of SG&A expenses will result in 0.2%-0.5% of margin improvement.
Every one of the changes they make is driven by customer data, and they are seeing measurable improvement in their best metric of customer satisfaction, net promoter score.
Here is a quick map of what to expect based on managements guidance over the coming years.
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