Holley Q2 2026 Earnings: Core Sales Rise as a Divestiture Charge Drives a GAAP Loss

Holley (NYSE: HLLY) reported Q2 2026 net sales of $172.0 million for the 13 weeks ended June 28, up 3.2% from $166.7 million, while diluted EPS fell to $(0.02) from $0.09. Core business sales rose 4.9%, but a $28.3 million loss on the sale of non-core assets pushed the company to a GAAP net loss; free cash flow nevertheless increased to $40.9 million.

Core earnings data

Reported sales returned to growth, with core business sales rising faster than total sales because the core measure excludes divested businesses and the portfolio rebalancing initiative. Gross profit increased only 1.4% as cost of goods sold rose 4.5%, reducing gross margin to approximately 41.0% from 41.7%.

GAAP profitability was significantly affected by the asset-sale loss. On a non-GAAP basis, adjusted diluted EPS increased to $0.20, supported in part by lower interest expense, but adjusted EBITDA declined 7.3% and its margin contracted by 230 basis points.

Adjusted EBITDA, adjusted diluted EPS, and free cash flow are non-GAAP measures.

Business and division performance

Holley said three of its four divisions produced double-digit core growth, while 27 brands grew across direct-to-consumer and business-to-business channels. The release did not provide division-level sales figures, so the relative contribution of each division and the performance of the fourth division cannot be quantified from the disclosed data.

The company also said its long-term strategic initiatives contributed $13.4 million in revenue and generated $8.3 million in cost savings. During the quarter, Holley completed the sale of non-core Restoration brands, including Scott Drake and Brothers Trucks, as part of an effort to simplify operations and concentrate resources on higher-priority businesses.

The divestiture charge drove the GAAP loss but did not explain all margin pressure

The $28.3 million loss on the sale of assets was the primary reason operating income dropped to $2.8 million and net income moved into negative territory despite higher sales. Because Holley excludes this loss from adjusted results, adjusted net income reached $24.0 million and adjusted diluted EPS rose to $0.20.

However, the divestiture charge does not fully explain the decline in underlying profitability. Adjusted EBITDA still fell to $33.8 million, and its margin narrowed to 19.6%. Management said the prior-year quarter included a one-time, non-cash benefit from capitalizing tariff costs that did not recur; excluding that comparison item, Holley estimates adjusted EBITDA was approximately flat year over year.

Selling, general and administrative expenses also increased 22.7% to $40.4 million. Lower net interest expense, which declined 38.7% to $8.2 million, provided a partial offset below the operating-income line.

Cash flow and balance sheet

Cash generation remained positive despite the GAAP loss. Operating cash flow rose to $47.1 million, while free cash flow increased to $40.9 million even as quarterly capital expenditures rose to $6.2 million from $4.8 million. The cash flow statement included $34.6 million of adjustments reconciling the net loss to operating cash flow and a $15.0 million contribution from changes in operating assets and liabilities.

Cash and cash equivalents increased to $69.0 million at June 28 from $37.2 million at the end of 2025. Inventory fell by $25.5 million over the same period to $180.2 million. Net indebtedness under Holley’s credit agreement decreased to $482.8 million from $492.3 million, although the leverage ratio improved only slightly to 3.74x from 3.75x.

After quarter-end, Holley made a $15.0 million voluntary debt prepayment, bringing cumulative voluntary repayments since September 2023 to $115.0 million. The company continues to target a leverage ratio below 3.5x by year-end. It also spent approximately $2.0 million on share repurchases during the quarter.

Full-year 2026 guidance

Holley reiterated its full-year outlook following its first-half performance. The unchanged ranges call for positive core business growth and adjusted EBITDA of $127 million to $137 million, making second-half product launches, new retail placements, cost control, and continued cash generation important to delivery.

Management expects new national retailer placements, upcoming product launches, and a greater focus on brand activation and enthusiast engagement to support the second half. Portfolio rebalancing is intended to reduce complexity, but its effectiveness will depend on Holley converting that narrower focus into sustained sales growth and better expense leverage.

Risks investors should monitor

• Adjusted margin pressure: Adjusted EBITDA margin declined by 230 basis points, showing that higher sales did not translate into comparable adjusted profit growth.
• Tariff and cost exposure: The prior-year tariff capitalization benefit did not recur, while changing trade policies and tariff costs could continue to affect product costs and period-to-period comparisons.
• Expense growth: SG&A increased 22.7%, creating a need for stronger operating leverage as the company implements its marketing and growth initiatives.
• Portfolio rebalancing: Divestitures produced a sizable GAAP loss and can cause reported sales to diverge from the company’s core growth measure, complicating comparisons during the transition.
• Leverage target execution: The quarter-end leverage ratio of 3.74x remained above Holley’s year-end target of below 3.5x, leaving continued debt repayment dependent on cash generation and operating performance.

Summary

Holley returned to reported and core sales growth in Q2 2026, but a divestiture-related loss drove a GAAP net loss while adjusted EBITDA margin also weakened. Cash flow, lower inventory, and post-quarter debt repayment supported balance-sheet progress. The main issues for the second half are whether new retail placements and product launches can sustain core growth, whether expenses can be controlled, and whether Holley can reach its leverage target while maintaining its reiterated full-year outlook.