Advance Auto Parts Q3 Sales Fall, Free Cash Flow Outlook Rises

Advance Auto Parts (AAP) reported lower fiscal third-quarter 2026 sales but a modest improvement in adjusted operating profitability, while increasing its full-year free cash flow forecast and narrowing several earnings guidance ranges. The results reflected continued pressure on revenue even as management said sales trends among both do-it-yourself and professional customers improved through the quarter.

Net sales declined 1.2% year over year to $2.0 billion, matching a 1.2% decrease in comparable-store sales. Adjusted diluted earnings were $0.79 per share.

Adjusted gross margin fell 16 basis points to 44.7%. That decline was more than offset by a 26-basis-point reduction in adjusted selling, general and administrative expenses as a percentage of sales, to 40.2%. As a result, adjusted operating margin increased 10 basis points to 4.5%.

The company ended the period with a net leverage ratio of 2.2 times adjusted net debt to trailing-12-month adjusted EBITDAR. Management views the non-GAAP measure as an important indicator for debt investors and rating agencies and said its goal is to re-establish an investment-grade rating.

Sales and operating priorities

Management said DIY and Pro sales trends improved through the third quarter, though total comparable sales remained lower than a year earlier. The company identified assortment availability, supply-chain productivity, store execution and Pro sales as its principal operating priorities.

Its assortment initiatives include expanding SKU coverage, securing competitive product costs and strengthening coordination with field teams. Supply-chain work is focused on distribution-center operations, transportation and inventory management.

At the store level, Advance Auto Parts plans to emphasize its selling culture, labor allocation and technology tools intended to improve frontline productivity. Its Pro strategy centers on growth with Main Street customers and capturing a larger share of existing professional customers’ spending.

Full-year outlook tightened

For fiscal 2026, Advance Auto Parts now expects net sales of approximately $8.5 billion, compared with its previous range of $8.485 billion to $8.575 billion. Comparable-store sales growth is projected at approximately 1%, versus the prior 1% to 2% range.

The company narrowed its adjusted operating margin forecast to 4.0% to 4.3% from 3.8% to 4.5%. Adjusted diluted EPS is expected to be between $2.75 and $3.10, compared with the earlier range of $2.60 to $3.30. The EPS outlook includes approximately $210 million of pre-tax interest expense and about $105 million of pre-tax interest income.

Advance Auto Parts increased its expected free cash flow to approximately $150 million from about $100 million. Capital expenditures remain projected at approximately $300 million.

The company continues to plan 30 to 35 new-store openings and 15 to 20 market-hub openings during the fiscal year. It did not provide GAAP reconciliations for the forward-looking non-GAAP measures because certain adjustments could not be predicted with reasonable accuracy.

Third-quarter non-GAAP adjustments included expenses associated with location closures, $36 million of impairment charges for property, equipment and right-of-use assets, net of gains on sale, and $2 million of accelerated depreciation and amortization.

Advance Auto Parts cautioned that its outlook remains subject to risks involving restructuring and asset-optimization plans, leverage and credit ratings, store-opening execution, macroeconomic conditions, tariffs and trade restrictions, competition, product demand, supply-chain complexity, technology implementation and its broader business transformation. The company also noted that a deterioration in its credit rating or perceived creditworthiness could restrict access to funding and limit growth opportunities.