Advance Auto Parts Inc (AAP) Q4 2025 Earnings Report

- Revenue (Q4 2025): $1.973 billion from continuing operations, down 1% YoY; Q4 comparable sales +1.1% as of the quarter end; extra week contributed $132 million in net sales and $9 million in adjusted operating income.
- Gross profit and margins (Q4 2025): Adjusted gross profit $873 million, 44.2% of net sales, up about 530 bps YoY; specific Q4 headwinds from restructuring (~280 bps) partly offset by footprint savings and strategic sourcing benefits; LIFO expense for the quarter was $56 million.
- Operating leverage (Q4 2025): Adjusted SG&A $800 million, 40.5% of net sales; approximately 340 bps of leverage; Adjusted operating income $73 million (3.7% of net sales); incremental margin benefit from the extra week contributed $9 million to adjusted operating income.
- Earnings (Q4 2025): Adjusted diluted EPS from continuing operations $0.86; the extra week added ~$0.08 to Q4 EPS; reported net income in Q4 was $6 million (0.30% net margin).
- Full-year 2025: Net sales from continuing operations $8.6 billion, down 5% YoY; comps just under +1% for the year; Pro channel grew low-single digits while DIY declined in the low single digits; same-SKU inflation contributed ~140 bps to ticket growth; adjusted gross profit $3.8 billion (43.9% gross margin); adjusted SG&A $3.6 billion (41.4% of net sales); adjusted operating income $216 million (2.5% margin) with ~210 bps YoY margin expansion; adjusted diluted EPS $2.26 vs. a loss in 2024; free cash flow negative at $-298 million driven by ~$140 million store optimization cash costs and other timing effects; net debt leverage improved to 2.4x end of year.
- Balance sheet and liquidity: Cash and cash equivalents ~$3.123 billion; total debt $5.224 billion; net debt ~$2.101 billion; undrawn revolver ~$1.0 billion; stockholder equity positive but constrained by goodwill/intangible assets; supplier financing program usage reduced to $2.5 billion from $2.7 billion in prior quarter.
- 2026 guidance highlights: Underlying net sales growth of 1–2% (excluding 2025 nonrecurring items: liquidation sales and the extra week); comp growth 1–2%; same-SKU inflation 2–3%; Pro outperformance vs. DIY; Adjusted operating margin target 3.8–4.5% (130–200 bps expansion); gross margin 44–45% (about 20 bps YoY headwind from nonrecurring 2025 items); SG&A down 20–50 bps on an annual basis with some year-one investments in labor and technology; Q1 SG&A down 3–4% year-over-year; CapEx ~$300 million; free cash flow ~$100 million; interest expense ~$210 million offset by ~$80 million interest income.
- Selected color from the call: Management emphasized the margin expansion opportunity and consistency across the three pillars, noting a path toward a 7% operating margin with mid-40s gross margin over the medium term and highlighting progress in merchandising, DC consolidation, and labor productivity initiatives.