We use cookies to improve your experience, analyze site usage, and show relevant ads. Go to our Privacy Policy for details.
The call conveyed constructive operational momentum and a clear path to improved profitability: comparable sales accelerated (3.5% in Q1), gross margin and adjusted operating margin expanded materially, EPS turned positive, and strategic initiatives (ARGOS brand, Advance Rewards, assortment framework, market hubs, DC standardization) are showing early traction. Management reaffirmed full-year guidance and maintained a strong cash and leverage position. Key risks include modest top-line growth, near-term consumer pressure (inflation and elevated gas prices), temporary headwinds from national Pro account optimization, and the fact that significant supply chain productivity benefits are expected in 2027 and beyond. Overall, positive execution on merchandising and service improvements appears to outweigh the near-term uncertainties.
Management reaffirmed full‑year 2026 guidance calling for about $8.5 billion of net sales with comparable‑store sales growth of 1%–2% (each quarter positive, first half stronger), same‑SKU inflation of 2%–3%, adjusted operating income margin of 3.8%–4.5% (130–200 bps YoY improvement) and gross margin expansion of 110–150 bps to roughly 45%, driving adjusted diluted EPS of $2.40–$3.10; they expect reported SG&A to provide 20–50 bps of leverage (adjusted SG&A up low single digits excluding ~$90M of 2025 nonrecurring items), capex of ~ $300M, 40–45 new stores and 10–15 market hubs, and full‑year free cash flow of ~ $100M (Q1 outflow was $75M). Balance sheet targets include about $3.0 billion of cash and net debt leverage near 2.4x (target 2.0–2.5x). Management noted Q2/Q3 are seasonally higher margin periods (with Q2 comps expected to moderate from Q1), gross margin to finish around ~45% (mix pressure in Q4), merchandising as the primary near‑term margin driver, and supply‑chain productivity contributing more meaningfully in 2027 and beyond.
Comparable sales grew 3.5% in Q1 — the company's strongest quarter of growth in five years, driven primarily by the Pro channel (mid-single-digit monthly growth) and a rebound in DIY (low single-digit growth).
Reported net sales of $2.6 billion, up 1% year-over-year. Pro channel was the primary driver with Main Street Pro outperformance (~200 basis points above overall Pro comps); DIY returned to positive growth (low single digits).
Adjusted operating margin expanded by over 400 basis points to 3.8% in Q1. Adjusted gross profit was ~$1.2 billion (45.1% of net sales), representing ~210 basis points of gross margin expansion versus prior year. Adjusted operating income was $99 million (3.8% of net sales).
Adjusted diluted earnings per share were $0.77 in Q1 compared to a loss of $0.22 in the year-ago quarter, reflecting a meaningful profitability turnaround.
Strong liquidity with approximately $3.0 billion in cash at quarter-end. Net debt leverage held steady at 2.4x, within the targeted 2x–2.5x range.
Q1 free cash flow outflow improved to $75 million versus a $198 million outflow in the prior-year period, driven by stronger operating performance, improved working capital, and lower restructuring cash expenses.
Launched owned oil brand ARGOS (performed to expectations and expanded into additional product lines). Rolled out modernized Advance Rewards loyalty program with early strong engagement (higher sign-ups, penetration and member transactions). Updated assortment framework driving improved parts availability and higher transaction volumes, particularly in hard parts (brakes, undercar) supporting Main Street Pro growth.
Distribution center consolidation is nearing completion; focus shifted to standardizing DC workflows and improving productivity (expected benefits in 2027+). Opened 2 market hubs in Q1 to reach 35 total; market hubs show ~100 basis points lift vs. markets without hubs and support same-day hard parts availability. Plan to open 10–15 market hubs and 40–45 new stores in 2026.
Management reaffirmed full-year 2026 guidance: net sales ~ $8.5 billion with comparable sales +1% to +2%; adjusted operating margin 3.8%–4.5% (130–200 bps expansion); gross margin up ~110–150 bps to ~45%; adjusted diluted EPS $2.40–$3.10; capex ~ $300 million; full-year free cash flow ~ $100 million.
Service and store metrics improved: consistent Pro delivery times under 40 minutes, improvements in customer Net Promoter Score (NPS), increased units per transaction, and productivity gains from in-store technology (Zebra devices, AIM) and server modernizations.
Welcome to the Advance Auto Parts First 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'm 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 first quarter and guidance for the year. Following management's prepared remarks, we will open the line for questions. Now let me turn the call over to our CEO, Shane O'Kelly.
Thank you, Lavesh, and good morning, everyone. I want to begin by thanking our frontline team for their hard work, which delivered a solid start to 2026. Comparable sales gr...