With a combined revenue of $21 trillion and $2.1 trillion in profits, the 2026 Fortune 500 is the definitive list of America's largest companies.

Fortune 500

Almost $20 trillion in revenue—and a record-breaking $1.87 trillion in profits. Introducing the 2025 Fortune 500, the definitive list of the biggest companies in America.

Industries included in the sector are automotive retail, general merchandisers, internet retail, and specialty retail.

Fortune Sector Leaders: Retailing

The Fortune 500, in its 70th year in 2024, ranks the biggest U.S. companies by revenue.

The Fortune 500, in its 69th year in 2023, ranks the biggest U.S. companies by revenue.

This year’s Fortune 500 marks the 68th running of the list.

This year’s Fortune 500 marks the 67th running of the list.

F500-2021-301-Advance Auto Parts

As one of the leading aftermarket auto parts retailers, the company serves professional installers and vehicle owners with automotive goods and services at over 4,000 locations.

This year's Fortune 500 marks the 66th running of the list.

F500-2020-330-Advance-Auto-Parts

The automotive retailer sells aftermarket parts, accessories, and maintenance items to both professional installers and do-it-yourself customers.

This year's Fortune 500 marks the 65th running of the list.

This year's Fortune 500 marks the 64th running of the list.

This year's Fortune 500 marks the 63rd running of the list.

This year's Fortune 500 marks the 62nd running of the list.

This year's Fortune 500 marks the 61st running of the list. Wal-Mart claims the top spot again. See who made the list.

Wal-Mart stayed on top as its sales crept closer to half-a-trillion dollars. Apple moved into the top five. And UnitedHealth Group continued its steady climb. 

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Advance Auto Parts is an automotive aftermarket parts provider. Founded in 1929, the company offers replacement parts, accessories, batteries, and maintenance items for a variety of vehicles including cars, vans, SUVs, and trucks. The company operates over 4,200 stores and serves more than 800 Carquest-branded stores across these locations.

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Advance Auto Parts (AAP): Company Profile, Stock Price, News, Rankings

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Advance Auto Parts

advance auto parts

Welcome to the Advance Auto Parts second quarter 2026 earnings conference call. I would now like to turn it over to Lavesh Hemnani, Vice President, Investor Relations.

Good morning and thank you for participating in today's call. I am joined by Shane O'Kelly, President and Chief Executive Officer, and Ryan Grimsland, Executive Vice President and Chief Financial Officer. During today's call, we will be referencing slides, which have been posted to our investor relations website. Before we begin, please be advised that management's remarks today will contain forward-looking statements.

All statements other than statements of historical fact are forward-looking statements, including but not limited to statements regarding initiatives, plans, projections, goals, guidance, and expectations for the future. Actual results could differ materially from those projected or implied by the forward-looking statements. Additional information can be found under forward-looking statements in our earnings release and risk factors in our most recent Form 10-K and subsequent filings made with the SEC.

Shane will begin today's call with an update on the business and progress on our strategic priorities for 2026. Later, Ryan will discuss results for the second quarter and provide an update on the guidance for full year 2026. Following management's prepared remarks, we will open the line for questions. Now, let me turn over the call to our CEO, Shane O'Kelly. Shane?

Thank you, Lavesh, and good morning, everyone. I would like to start by expressing my appreciation for our frontline team for their hard work and dedication to serving our customers. During the second quarter, the team navigated a volatile demand environment, which contributed to a slight decline in comparable sales. This included low single-digit sales growth in the Pro channel, which performed in line with our expectations.

Within Pro, the Main Street business continued to outpace overall growth, supporting share gains in that segment. In the DIY channel, sales declined more than we anticipated, particularly during the last four weeks, as tighter household budgets weighed on consumer spending during the quarter. Against this backdrop, the Advance team continued to prioritize actions across our strategic initiatives, which contributed to solid profitability in Q2 with an adjusted operating margin of 5.6%.

Excluding the benefit of IEEPA refunds received in the quarter, adjusted operating income margin expanded by nearly 130 basis points to 4.3%. We maintained focus on executing actions within our control, which has translated to sequential improvement in core operational KPIs, including NPS, time to serve, and attachment rates.

The second quarter marked an inflection point for Advance with a return to positive free cash flow as we generated $120 million year to date compared to an outflow of cash during the last two years. During the quarter, we also repurchased approximately $30 million of outstanding debt, which along with improved profitability, supported further de-leveraging of the balance sheet while we continued to allocate more capital to investments to grow the business.

Based on our first half performance and updated projections for the remainder of the year, we are reaffirming our full year sales, operating margin, and free cash flow guidance. This includes comparable sales growth in the 1%-2% range, which considers continued spending pressure in the DIY channel, offset by ongoing strength in the Pro channel, along with higher same-SKU inflation due to increased commodity costs.

We are also implementing a focused action plan aimed at strengthening execution across our operational KPIs and driving higher customer engagement to deliver better transaction performance in the second half compared to trends during Q2. Our margin outlook balances the tailwind from recent tariff refunds with incremental headwinds stemming from shifts in channel mix and increased commodity costs. We will continue to prioritize efforts to make progress on our strategic objectives as we work to create long-term value for our shareholders.

Let's turn to an update on our strategic priorities for 2026. Our strategy remains unchanged and is built on three pillars, merchandising, supply chain, and store operations, supported by targeted initiatives to drive sustainable, profitable growth over the long term. We remain committed to executing actions under our 2026 strategic priorities as we make progress on our journey towards a medium-term 7% adjusted operating margin target.

Let's begin with merchandising. We are focused on ensuring reliable product availability, which supports the efforts of our store team to enhance customer service and drive growth in unit sales per transaction. Our new assortment framework, launched last year, is helping us increase the breadth of products we carry in each store and broadening availability across our network of DCs, hubs, and stores.

Halfway through this year, we have added approximately 80,000 new SKUs to our assortment catalog, building upon the 100,000 new SKUs we introduced last year. Through comprehensive category reviews, we are strengthening relationships with existing vendors and identifying opportunities to improve margins, while also partnering with new vendors to further expand our selection of parts.

In the near term, our merchandising team is refining communication within the DIY channel to enhance brand awareness and deliver value-driven offerings aimed at increasing customer engagement. We are collaborating with vendors on targeted media campaigns, leveraging Advance Rewards, providing store incentives, and optimizing online paid search to stimulate transaction growth and improve conversion in stores.

Moving to an update regarding our pricing and promotions management initiatives. We are on schedule to complete the full deployment of a new pricing framework for both DIY and Pro segments by year end. Our pricing philosophy remains unchanged. We aim to offer everyday competitive prices and operate rationally in the market.

The new framework is expected to enhance visibility of competitive pricing actions and enables the execution of precise market-based pricing strategies. The early results from the Pro channel have shown an increase in team member and customer confidence, which we expect to support efforts to grow share among Main Street Pros.

Alongside the implementation of more sophisticated pricing models, we are also improving discipline around the management of store-based promotional activities. We expect to offer everyday competitive prices along with seasonally relevant promotions and plan to deploy marketing dollars on offers that yield an improvement in sales or profitability. On a year-to-date basis, our merchandising initiatives have contributed approximately 100 basis points to product margin expansion.

We anticipate building upon this growth in the second half of the year to support our margin improvement goals for the year. Turning to supply chain. In the second quarter, we completed our distribution center consolidation. This initiative commenced more than two years ago when we operated nearly 40 DCs across the U.S. utilizing multiple warehouse management systems.

As of today, we operate 15 DCs supported by a unified warehouse system, marking a key milestone in our efforts to enhance asset productivity throughout our supply chain. Along with consolidating our DC network, we also launched market hubs that improve same-day parts availability for our customers. Areas equipped with market hub locations consistently outperform those without market hubs, which reaffirms the strategic value of these locations. Year to date, we have opened five market hubs, bringing the total to 38 locations.

Our real estate team has done a great job in expanding our capabilities, and I am pleased to share that we are accelerating the pace of market hub openings for this year. We now plan to open 15-20 market hub locations this year and remain on track to achieve our goal of operating 60 locations by mid-2027.

Regarding DC productivity, our team is concentrating on key process improvements aimed at streamlining and standardizing operations within our distribution centers. We anticipate that these actions will yield greater operational efficiency and facilitate improved product flow into and out of the DCs. During the second quarter, we completed 25% of the identified process improvements and remain on track to systematically implement the remaining process changes by mid-2027.

These actions are aimed at increasing labor productivity within our DCs and provide visibility into cost reductions per unit shipped, which is expected to contribute to margin expansion starting next year. Our strategy is focused on minimizing redundant product handling, improving shipment accuracy, reducing inventory lead times, and transitioning to a more variable cost structure.

For example, we have now standardized the DC receiving process across our facilities, eliminating a significant number of variations, which is expected to deliver better productivity through higher processing volumes per labor hour. Another critical component of supply chain productivity is transportation optimization. We are currently rebidding all of our carrier contracts, and we expect to consolidate our volume with 70% fewer carriers. This initiative is expected to generate tens of millions of dollars in cost savings, which will support margin expansion in 2027.

Collectively, the DC process changes and transportation initiatives are expected to enhance our ability to operate a more efficient and scalable supply chain. Next, I will conclude with an update on our third strategic pillar, store operations. In our stores, we are holding teams accountable for service execution and measuring the effectiveness of our initiatives through clearly identified KPIs as we strive to increase labor utilization.

The second quarter provided further evidence of progress on our store-based initiatives. NPS, or Net Promoter Scores, have improved to nearly 80 points from the high 60-point range in the same period last year, which suggests that our service enhancements are resonating with customers. In-store attachment rates have improved to nearly 30% from the mid-high 20% range in the same period last year, which contributes to unit share gains.

Average time to deliver Pro orders consistently track below 40 minutes during each week in Q2, which is improving reliability for our Pro customers. In addition to measuring progress through these KPIs, we are also identifying opportunities to better prioritize store tasks, investing in technology to drive operational efficiencies, and enhancing training content to further elevate customer service.

These actions will help us strengthen execution across our primary KPIs in the near term, while our store and merchandising teams partner to drive higher customer engagement and improve conversion in the second half of the year. During the second quarter, we also completed an independent evaluation of store task execution with the objective of updating our store labor standards that were previously unchanged for over a decade.

This activity follows the rollout of our store operating model last year, which determined the allocation of resources such as trucks and drivers based on market demand factors. The study examined time allocated to routine store responsibilities, including picking or stocking products, receiving shipments from distribution centers, and assisting customers with product installations such as batteries and wipers.

We expect to use the findings to identify tasks that deliver the highest value to our customers and simultaneously highlight non-value-added activities that can be reduced to enhance productivity. The next phase of this initiative involves updating our labor allocation systems to align with the newly developed labor standards. We anticipate beginning this implementation later this year, which will enable us to further improve NPS and drive productivity in the years to come. To conclude, I want to reiterate that our strategic plan is unchanged.

Our KPIs are improving, and we have returned to positive free cash flow. We are cognizant of the external macro pressures impacting consumer spending in the near term. We are implementing a focused action plan to support the business in the second half, while we actively manage the execution of our strategic initiatives throughout the year. I will now hand the call over to Ryan to discuss our Q2 financial performance. Ryan?

Thank you, Shane, and good morning, everyone. I want to begin by thanking our frontline associates for their commitment to serving our customers. For the second quarter, we reported net sales of $2 billion with a slight decline in comparable sales. The Pro channel delivered low single-digit growth, which was in line with our expectations.

The strength in Pro was more than offset by a decline in DIY sales in the low double-digit range, as constrained household budgets impacted spending during the quarter. We also experienced milder summer weather in several of our markets, which drove an underperformance in weather-sensitive categories such as cooling and climate control, and fluids and chemicals.

In our view, the combination of a larger than anticipated deceleration in DIY spending with deferral in large-ticket projects, a reduction in discretionary spending compared to last year, and weather-related drivers during Q2 accounted for approximately 100-150 basis points of comps headwind in the quarter.

Turning to the cadence of sales. During the first eight weeks of Q2, comparable sales grew by approximately 1%, including a low single-digit growth in Pro and flattish DIY sales. In the final four weeks, comp growth moderated in both channels as we cycled through difficult comparisons from last year. Also, this timeframe coincided with price changes to reflect movements in commodity costs, which further stretched consumer budgets. In this period, the Pro channel delivered positive comparable sales growth, but DIY volumes slowed further, driving most of the shortfall in sales for the quarter.

For the quarter, average ticket was positive and included same-SKU inflation of approximately 4%. The sequential step-up in inflation from approximately 3% last quarter was driven by market-related price adjustments and increases in commodity costs, which impacted motor oil and other petroleum products. Our team remains committed to enhancing customer service, and these efforts continue to support growth in units per transaction, which grew on both a one and two-year basis, helping partially offset lower transaction volumes.

Diving deeper into category performance. Within DIY, sales were stronger in maintenance and failure categories such as filters, motor oil, and batteries, while hard parts categories lagged, likely indicating selective spending behavior and deferral of larger projects. On the other hand, in the Pro channel, our hard parts business, including brakes and undercar, continued to outperform, supported by an improvement in parts availability and consistency in delivery times.

We maintained our strategic focus on growing share across Main Street Pros, which represents the largest portion of our addressable market. The Pro team carried the momentum from Q1, with transaction performance for this segment outpacing the overall enterprise. The Main Street Pro comp exceeded our total Pro comp by more than 200 basis points, helping offset the headwind created by the optimization of national accounts.

Moving to margins. Adjusted gross profit was $924 million, or 46.2% of net sales, resulting in approximately 240 basis points of gross margin expansion in Q2 compared to the same period last year. Tariff refunds contributed $26 million in gross margin, accounting for 130 basis points of year-over-year change. The balance 110 basis points of margin expansion was primarily driven by an improvement in product margin and included two incremental cost drivers in the quarter.

First, a channel mix shift due to the slowdown in DIY sales resulted in a headwind of approximately 20 basis points. Second, supply chain expenses, including higher freight and fuel costs, drove approximately 20 basis points of deleverage due to the lower than expected sales volume. These headwinds were offset by approximately 40 basis points of tailwind from immaterial LIFO and warehousing expenses in the quarter, compared to a headwind in the same period last year.

Excluding the benefit of IEEPA refunds, we generated a gross margin of approximately 45% for the first half of 2026, highlighting the progress across our merchandising strategies. Shifting to expenses, adjusted SG&A was $812 million or 40.6% of net sales, driving 15 basis points of leverage compared to last year.

Expenses were down approximately 1% year-over-year, reflecting our focus on labor productivity through simplification of store tasks and management of resource allocation, along with reinvestment of savings from indirect spend optimization. Adjusted operating income came in at $112 million, or 5.6% of net sales, resulting in approximately 260 basis points of year-over-year margin expansion.

Adjusted diluted earnings per share was $1.03 compared to $0.69 during the second quarter last year. We generated $120 million of free cash flow year to date, marking a significant improvement from an outflow of $201 million last year. The improvement in free cash flow was driven by improved profitability and working capital management, a reduction in cash expenses related to our store optimization activity last year, and the receipt of tariff refunds.

Our balance sheet continues to be in a solid position as we ended the quarter with a cash balance of approximately $3.1 billion. During the quarter, we utilized approximately $30 million of cash to repurchase a portion of our 2028 senior notes, and we ended the quarter with a net debt leverage of 2.1x compared to 2.4x last quarter, which is in line with our targeted range of 2.0x-2.5x.

We remain committed to repaying debt at or before maturity. Turning to full year guidance, let's start with net sales. For the full year, net sales are projected at approximately $8.5 billion, including comparable sales growth in the 1%-2% range. Based on product cost inflation experienced during Q2, we now expect full year same-SKU inflation of approximately 3%, implying second half inflation of approximately 3%, consistent with the first half of 2026.

The step down in inflation compared to the second quarter reflects the comparison against last year's tariff-driven price adjustments. Based on revised inflation expectations, along with our focused action plan to increase customer engagement, our range of comparable sales growth guidance assumes a recovery in transaction volumes compared to the second quarter.

Regarding Q3, trends during the first four weeks of the quarter are tracking slightly ahead of trends in the final weeks of Q2 and have accelerated on a two-year basis. As a reminder, these first four weeks of Q3 represent our most difficult comparisons to last year, and our comparisons begin to ease significantly over the next eight weeks. Moving to margins. We have reaffirmed full year adjusted operating income margin guidance between 3.8%-4.5%, resulting in 130-200 basis points of year-over-year margin expansion.

We expect full year gross margin to expand in the range of 110-150 basis points to approximately 45%. Most of this margin expansion is expected to be driven by the merchandising initiatives related to strategic vendor sourcing and optimization of pricing and promotions. We expect that the benefits from these merchandising initiatives to be partially offset by investments in supply chain productivity.

As I discussed earlier, we had some moving items within gross margin in Q2. These items have also been factored into our full year guidance. During the second quarter, we received substantially all the IEEPA refund claims by us. These refunds equate to approximately 30 basis points of gross margin contribution for the full year.

However, this benefit is being fully offset by the headwind from changes in sales mix compared to our prior forecast and the incremental impact of higher shipping, freight, and fuel costs in the supply chain. We will continue to work closely with our vendor partners to navigate the evolving geopolitical landscape and mitigate potential supply or cost pressure.

Regarding SG&A, we expect reported full year expenses to be down year-over-year, contributing between 20-50 basis points of leverage. This is largely due to cycling of approximately $90 million in non-recurring expenses from 2025. Adjusting for these expenses, we expect SG&A to grow at a low single-digit rate compared to last year.

We expect to deploy savings generated from better in-store task management, effective resource allocation, and a reduction in indirect spending to fund general wage inflation, new store, and market hub opening expenses, and strategic labor investments in priority markets. As we move forward, we will continue to look for opportunities to streamline tasking operations in stores to dedicate more time to serving customers.

Moving to other items and guidance. We have raised adjusted diluted EPS guidance to a range of $2.60-$3.30. The revised EPS outlook includes approximately $100 million of interest income, which is an increase of $20 million compared to our previous expectations based on trends through Q2. We continue to plan for pre-tax interest expense of approximately $210 million for the full year. The recent debt repurchase does not have a material impact on guidance.

The benefit of higher interest income is being partially offset by a slight increase in tax expectations for the year. Shifting to cash flow. We continue to expect 2026 capital expenditures of approximately $300 million with spending allocated to new stores and greenfield market hub growth, store infrastructure upgrades, and strategic investments.

We have revised our store opening schedule for this year. Our revised guidance includes 30-35 new store openings this year, with six stores opened in the first half of 2026. For market hubs, our guidance now assumes 15-20 new market hubs this year, which exceeds our prior expectations. We opened five market hubs in the first half of 2026 and currently plan to open nine market hubs during Q3.

We are reaffirming our full year free cash flow guidance of approximately $100 million. Our guidance includes the flow-through of tariff refunds received during the second quarter and timing for certain general operating expenses planned for the balance of the year.

The change in free cash flow trend compared to our year-to-date trend of $120 million does not reflect any change in underlying operational progress of the business. To conclude, I want to thank our frontline associates for the continued improvement in the quality of service provided to our customers. Their efforts are supporting improved conversion, NPS, and attachment rates, while our Pro team continues to drive share gains across the Main Street Pro. I will now hand the call back to Shane.

Thank you, Ryan. I would like to close by thanking the Advance team for staying focused on elevating our customer experience and driving operational productivity, which we believe will position us well to create long-term value for our shareholders. Thank you. Operator, we can now open the line for questions.

Thank you. If you would like to ask a question, please press star one on your telephone keypad. If you would like to withdraw your question, simply press star one again. We ask that you please limit yourself to one question and one follow-up. Your first question comes from the line of Steven Forbes from Guggenheim Securities. Your line is open.

Good morning, Shane, Ryan. Shane, I wanted to maybe dig into customer segmentation and whether you are seeing transaction growth among your largest up-and-down-the-street customers, and maybe any comments you can provide that help build conviction around sustainable transaction comp growth into the out-year here as you reap the benefits of the strategic priorities.

Yeah. Hey, good morning, Steve. Thank you for the question. Let me just begin by thanking our team. Important to recognize what they're doing each and every day. Great question. Let's unpack Pro. Think about it in terms of Main Street and think about it in terms of National Accounts. We are excited by what we're seeing with Main Street.

The growth there, 200 basis points above what we're seeing in Total Pro, and that's inclusive of transactions. What we're doing with Main Street, we're getting real traction. Think about this as in the trenches, seeing a local shop. It's somebody with two or three bays, and that's where both our connectivity, our reputation, and the quality of what both our outside and inside sales team members can do is making a difference. Know that inside our Pro numbers, we have National Account headwinds.

Ryan can unpack the numbers a little bit, but the way I think about it is we're starting to lap that. Remember, this is us saying, "Hey, where do we want to be in the Pro segment? Where do we have a right to win? Where is our profitability more attractive?" All of that points to Main Street. National Account's waning, and we're starting to see that diminish over time. Given the success we've had with Main Street, given how we're situated to compete with Main Street, we feel good about that, both in what you've seen here and what we think we can do for the future.

Yeah, Steve, I'll add a couple of things. I'll hit on the Main Street and the National Accounts. The National Account pressure will be about half of what it was in the first half in the second half. We are starting to lap. There'll still be some pressure there, but it'll be about half of what we've seen in the first half of the year. That'll help a little bit on the trends there.

On the Main Street Pro, we're not just seeing accounts that we've had for a while continue to shop with us, buy more transactions. We're seeing accounts on Main Street that hadn't shopped much with us before start to give us some of their business. That's a good sign that our assortment's getting there, the service level is improving.

A couple things to know why we believe that we're making the right moves here. By the end of the year, 70% of our stores will have a Market Hub, and we're bringing more parts closer to the customer, and that allows us to reach other Main Street Pros and provide a better level of service to them. We're excited about the Market Hub acceleration we're able to do here. We still think by the middle of next year, all stores will be at a Market Hub, but being able to accelerate a few more in this year.

By the way, we're going to open up nine in Q3. That acceleration is going to be impactful, bringing more parts closer to the customer. The other thing is our assortment work that we're doing, and we still have opportunity to improve that assortment for the Pro customer, make sure we got the right coverage, but the work we have done is starting to resonate. We're going to continue to do that. We see opportunity to continue to improve that coverage and be more relevant for our Pro customers.

Couple just last additions and then look forward to your follow-up. If you look at how we've played in the Pro space over the years, we have a TechNet program, which has been very successful, and included in that is a warranty program. So say, Steve, you own a small shop somewhere and you fix their car and the customer drives three states away and needs to get that original work repaired. They could do that through an unrelated shop through our warranty program and get that paid for.

We have programs like MotoVisuals, MotoLogic, that help break down what's going on in vehicles. Our credit programs, our tools and equipment programs, our ability to work with your account as you grow. There's a number of things that we do with Main Street that, I'm going to use the word that's specialized or even bespoke relative to what else is out there that helps our level of attractiveness and builds that partnership.

Most recently, and this is just sort of coming out now with Anthony Sarlanis and our Pro team, is Owning the Mile, where he's using both our CRM software, the partnership between the outside sales team member, which is called a CAM, and our inside sales team member, which is a CPP. To really focus on customers who are geographically proximate to our stores. On the plus side, our aggregate total time to serve is under 40 minutes, and we think that's a key threshold.

Now when you think about focusing on customers that are very close to the store, and I'm thinking one, two, three miles, we'll be well under 40 minutes there, and that's a further point of differentiation. So look for us to continue to do that. Net-net, we feel good about what we can do with Main Street Pro.

Appreciate that. Maybe just a quick follow-up, given the commentary around hub growth. I know the transition here was the greenfield growth, I believe this year, over repurposed footage of the distribution footprint. Can you talk about how those greenfield hubs are performing relative to the original cohort of hubs that were more repurposed footage, and if that sort of performance is what sort of supports the acceleration that you're referencing here into the back half?

Yes. I'll jump in here and Shane can add color. The greenfield market hubs, the actual store, because there's a store within the market hub, they actually are performing a little bit better than the other ones. I'll give you just the background on the other ones.

The non-greenfield were actually conversions of old, we called them blue, but Carquest DCs, smaller DCs that we converted. They weren't necessarily in prime retail locations. But they did service the market. They do service the market for parts. So the hub runs help the market. The greenfield ones tend to be in a better retail location area where we can get more retail sales out of that hub as well.

From a volume standpoint, they tend to do a little bit better on the greenfield side than the conversions, just because the nature of the retail business we generate from them. Also, the conversions, those still supplied some parts to the market through what we call PDQ. So there was still some service level. It wasn't as strong or as efficient as the market hubs are. When we put a greenfield in place, that is a lot of parts going to that market that weren't there before. So they tend to perform a little bit better than the conversions.

I'll just add that the market hub paradigm for us, is a key part of how we're going to grow, not just with Pro, but with DIY. We're accelerating what we're doing there. As Ryan touched on, we'll open 9 in Q3. We're sitting at 38 currently. We want to be at 50 by the end of the year.

As a reminder, think about these as having 70,000, 80,000 SKUs, sometimes a little bit more, being able to get parts same day to a radius of stores, think 50+ stores. So, that really changes our ability to compete for parts that people want that day. We're going to continue it. We're going to refine it. We'll talk more about what we'll do as we get to the 50 going forward.

Your next question comes from a line of Simeon Gutman from Morgan Stanley. Your line is open.

Good morning. This may be a slight repeat from the prior question. I missed some of the prepared remarks. Thinking about the core driver of DIFM, if there is temporal pressure in the economy, like gas prices, I would expect DIY to be more sensitive, not DIFM. Can you talk about the trajectory you are on with core DIFM improvements and how much of this quarter was more macro or could be strategy just taking some time to take hold?

Yeah, I will talk about Q2 and then the Q3 trends. In Q2, the deceleration we saw in our P7, the last period of the month, because we were running about flattish on DIY and most single digit positive in Pro for the first eight weeks. We saw really DIY decelerate towards the end of the quarter. That was really the bulk of the lower performance of what we expected.

DIFM, while slight deceleration, was still positive during that time period. I think it was more just a reflection of a little bit of macro pressure there. The Pro was still positive in the quarter and in the final four weeks, still positive. The momentum in Pro has continued into Q3. We like what we are seeing there.

On the DIY side, we have seen a little bit of acceleration from the trend we saw in Q2, and on a two-year basis, we have seen some good acceleration. More importantly, on the trends in Q3, we are seeing transaction growth improve. The transactions have improved versus our Q2 trend where we exited Q2. Some positive things there that give us confidence in our guide for the rest of the year.

Okay, and then a quick follow-up. Again, I apologize if you said this already, but merchandising success or excellence, I forget the terminology for some of the growth margin initiatives. I guess ex tariff, if I got this right, the margin may have come in a little bit worse than we expected. I do not know if that is right or wrong. Some of that I assume was deleverage of distribution expense, or was there any slowdown in just the merchandising success strategy during the quarter?

Actually, good question, Simeon. The rate was impacted a little bit by mix here. So you got about 20 basis points of mix impact from DIY, the lower volumes than we anticipated, and then you had about 20 basis points that is fuel surcharge, just things that were flowing through. So those are really the two that impacted us.

That drove it down. It still was like a 44.9, so close to the 45. Still able to manage close to the 45. The merchandising initiatives still cost out really strong and provided great value for us. 110 basis points year-over-year if you back out the tariff impact on margins. So the real slight decrease versus our expectation of the quarter was driven by fuel supply chain expenses in the channel mix.

Your next question comes from the line of Steven Zaccone from Citi. Your line is open.

Great. Good morning. Thanks very much for taking my question. I want to follow up on the second half here. Clearly the decision to reiterate the same store sales guidance, it does look like the second quarter still missed expectations. So maybe just help us understand some of the phenomenons that can help in the back half. The lost sales due to weather, do you expect them to come back? And then any help on the third quarter versus the fourth quarter, because it seems like you have some work to do and the compares get a bit tougher in the second half of the year.

Hey, Steven, it's Shane. I'll start and then Ryan can unpack it further. Big picture, we cater to the lower and mid-tier consumers. You see this not just in our numbers, but I think you see it broadly in our market and others. That's been a very stressed consumer. From a macro perspective, they've struggled. They've struggled as fuel prices have risen, and those budgets have continued to get tighter as they've gone through. You saw that, by the way, in our Q2.

If you look at the last four weeks of our Q2, we were probably a little slower pivoting to value, given that the consumer said, "Hey, this is what's really important to me." As we look at Q3 and Q4, we're taking a series of actions to be more attractive and to maintain and improve conversion for those consumers as they come and visit us.

Here's what's going on with that. We've got our Advance Rewards program that's been recently launched. We'll continue to reach out to that cohort of customers. We're doing work with paid search optimization to make sure both in terms of what keywords we're using, what geography of customers we're talking to, and how we get them in there. We're going to continue to promote our Good Parts campaign.

We're simplifying tasks inside of stores and communications so that when a customer does come in, that experience is as positive as it can be. By the way, I've seen an uptick in feedback that I personally get from customers about what they're seeing in our stores. We know that value plays are important. We've got ARGOS, which is our private brand of oil, and we're now expanding across a broader line of products that we think will be attractive. We also know that, and this is a good part of what we do from an assortment perspective, is good, better, and best.

In the past, when the consumer's healthier, they'll say, "Hey, tell me more about the better and the best." Now they want to learn a little bit more about, "Tell me about the better," or, "Tell me about the good." We've got those products in. That speaks to what we're doing on conversion. That speaks on what we're doing with units per transaction. We have a series of activities geared towards rekindling what's going on with the DIY customer to do as well as we can. On the Pro side, you heard some of that with how we respond to Steve's earlier comments, but we really like what we're doing with Main Street Pro. We're going to continue to push in there.

Yeah, Steven, I'll just be a little specific around what's driving the back half comp performance expectations. All that Shane talked about, we think will help with the DIY. We're actually seeing on a two-year basis that accelerate a little bit.

You mentioned difficult compares in the back half. The real difficult compare is PA. It tends to ease as we go throughout the rest of the back half of the year. One thing also to note is we had about 50 basis points of impact last year in Q4 due to product transitions. We won't be cycling that in Q4 this year. That was related to first brand groups and other product transitions in our front room that had an impact last year. We won't have that this year. That's kind of a tailwind to cycle over. We're focused on Pro.

Advance Auto Parts (AAP) Q2 2026 Earnings Call Transcript

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