Advance Auto Parts Inc. (NYSE:AAP) shares dropped more than 15% in premarket trading after the automotive parts retailer reported second-quarter earnings above expectations but missed revenue forecasts, while its full-year outlook failed to impress investors.
Adjusted earnings came in at $1.03 per share, comfortably ahead of the analyst consensus of $0.81. Revenue, however, was $2.0 billion, below expectations of $2.04 billion and broadly unchanged from $2.01 billion in the same quarter last year.
Comparable store sales declined 0.5%, highlighting continued pressure on customer spending despite progress in profitability.
Margin improves as tariff refunds boost earnings
Advance Auto Parts reported a substantial improvement in its adjusted operating margin, which expanded by more than 250 basis points year on year to 5.6%.
The quarter benefited from $26 million of tariff refunds, which contributed approximately $0.31 to adjusted earnings per share.
Excluding that support, investors remained focused on the underlying sales environment, particularly weakness among do-it-yourself customers.
“Our second quarter comparable sales results reflected low-single-digit growth in the Pro channel, which performed in line with expectations,” said Shane O’Kelly, president and chief executive officer. “However, total enterprise sales performance was impacted by the DIY channel as tighter household budgets constrained spending more than we anticipated, especially during the last four weeks of the quarter.”
DIY weakness offsets growth from professional customers
The company’s professional customer channel delivered low-single-digit comparable sales growth during the quarter, broadly matching management’s expectations.
That performance was offset by weaker demand from DIY customers as household budget pressures reduced discretionary spending on automotive products.
The slowdown became particularly pronounced during the final four weeks of the quarter, according to management, contributing to the overall 0.5% decline in comparable store sales.
FY26 revenue guidance falls short of expectations
Advance Auto Parts maintained its fiscal 2026 revenue forecast of between $8.485 billion and $8.575 billion.
The midpoint of approximately $8.53 billion remains below the analyst consensus of $8.58 billion, contributing to the negative market reaction.
Management did increase its adjusted EPS forecast to between $2.60 and $3.30, compared with its previous range of $2.40 to $3.10. The new midpoint of $2.95 sits only slightly above the market forecast of $2.93.
The combination of unchanged revenue expectations and only modest upside to consensus earnings forecasts appears to have disappointed investors despite the second-quarter EPS beat.
Cash flow and leverage show improvement
Advance Auto Parts nevertheless made meaningful progress in strengthening its financial position.
The company generated approximately $120 million of positive free cash flow during the first 28 weeks of fiscal 2026, representing a substantial turnaround from negative free cash flow of $201 million in the comparable period last year.
Net leverage also improved to 2.1 times from 2.4 times at the end of the first quarter.
Advance Auto Parts additionally declared a quarterly dividend of $0.25 per share, payable on October 23, 2026.
While stronger margins, improved cash generation and lower leverage provide evidence of progress in the company’s turnaround, the revenue miss, weaker DIY demand and below-consensus full-year sales outlook dominated investor attention, driving the sharp premarket decline.