All statements other than statements of historical fact are forward-looking statements, including but not limited to statements regarding initiatives, plans, projections, guidance, and expectations for the future. 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. Later, Ryan will discuss results for the third quarter and provide an update on full year guidance. For the third quarter, we reported comparable sales growth of 3% with both Pro and DIY channels delivering growth.
Adjusted operating margin expanded by 370 basis points year-over-year to 4.4%, demonstrating progress on the execution of our strategic plan. During the quarter, we also strengthened our balance sheet by proactively reorganizing our debt capital structure. We raised nearly $2 billion in cash, which provides enhanced liquidity for the business as well as a path to return to an investment-grade credit rating in the future. Based on our performance to date and expectations for the remainder of Q4, we have updated our full-year guidance.
We have reaffirmed the midpoint of our prior comparable sales growth and adjusted operating margin guidance, which implies approximately 200 basis points of margin expansion for the year. To recap, our turnaround goals are built on three pillars, each supported by targeted initiatives that we believe will position us to deliver profitable growth. Throughout the year, we have taken deliberate and strategic actions to position Advance Auto Parts as a trusted long-term growth partner for our vendors. We expect this initiative to deliver incremental growth over and above the initial 50 basis point uplift as these markets mature over the next 12-18 months.
| Metric | Period | Current guidance |
|---|---|---|
| Full-year net sales | FY2025 | $8.55B-$8.6B |
| Full-year comparable sales growth | FY2025 | 0.7%-1.3% |
| Full-year adjusted operating income margin | FY2025 | 2.4%-2.6% (implies ~200 bps expansion for the year) |
| Full-year adjusted diluted EPS | FY2025 | $1.75-$1.85 |
| Full-year capital expenditures | FY2025 | ~$250M (about half the change is a net-neutral PP&E/other-asset reclass; balance is timing shift into next year) |
| Full-year free cash flow | FY2025 | -$90M to $80M |
| Full-year store-optimization cash expense | FY2025 | ~$150M (unchanged) |
| Q4 gross margin | Q4 FY2025 | slightly below 44% |
| Q4 same-SKU inflation | Q4 FY2025 | ~4% |
| Q4 LIFO expense | Q4 FY2025 | ~$70M |
| Operating margin target | FY2027 | 7% (goal unchanged) |
| Metric | YoY | Note |
|---|---|---|
| Net sales from continuing operations | -5% to $2.0B | Store-optimization/footprint reduction completed in Q1 (prior Worldpac divestiture); comparable sales were positive. |
| Comparable sales | +3% | Both Pro and DIY grew; brakes, undercar components, and engine management led performance; positive weekly performance throughout the quarter. |
| Pro comparable sales | +4% (just over) | Fifth consecutive quarter of positive Pro performance, cycling prior-year softness on a two-year basis. |
| DIY comparable sales | positive low single-digit | Improved sequentially on a two-year basis despite consumer budget pressure late in the quarter. |
| Adjusted gross margin | +260 bps to 44.8% ($913M) | Footprint-optimization savings and strategic-sourcing product-cost reductions; +50 bps from capitalized inventory costs and cycling ~70 bps of prior-year atypical headwinds. |
| Adjusted operating margin | +370 bps to 4.4% ($90M) | Gross-margin expansion plus SG&A reduction from operating fewer stores; strongest operating margin in over two years. |
| Adjusted SG&A | 40.4% of net sales ($823M), lower YoY | Primarily operating fewer stores versus last year; in line with expectations. |
| Adjusted diluted EPS (continuing ops) | $0.92 vs -$0.05 | Margin expansion from gross-margin gains and lower store-count SG&A. |
| GAAP diluted EPS / operating margin | -$0.02 EPS; 1.1% operating margin | $28M non-cash supplier credit-loss charge and continuing turnaround/store-optimization costs; excluded from adjusted results. |
| Same-SKU inflation | ~3% (vs ~2% prior quarter) | Tariff-related price increases accelerating across the auto aftermarket, with the industry responding rationally. |
| LIFO expense | $33M in Q3 | Cost inflation moving product costs higher, as anticipated. |
| Year-to-date free cash flow | -$277M | Payments for inventory purchased in Q3 last year (normal payables cadence), strategic inventory build, and ~$130M of store-optimization cash costs incurred through the year. |
| Topic | Previous mention | Current period | Trend |
|---|---|---|---|
| Turnaround / three strategic pillars | Strategy set across merchandising, supply chain, and store operations | 2025 and 2026 framed as non-linear 'build years'; proof points emerging (comps, margin) on the path to a 7% operating margin by mid/full 2027 | — |
| Tariffs and same-SKU inflation | ~2% same-SKU inflation in the prior quarter | ~3% in Q3, guided to ~4% in Q4 with a slight further rise in Q1; industry pricing rationally, but risk of temporary sales volatility as consumers manage budgets | — |
| Market hubs | Originally planned 29 hubs for the year; 28 open at Q3 end | Raised full-year target to 33 (10 conversions + 4 greenfields, incl. an Atlanta greenfield model); ~100 bps lift to supported stores; path to 60 hubs by mid-2027 | — |
| Balance sheet / debt reorganization | Elevated leverage constraining flexibility | Reorganized capital structure raising nearly $2B cash, enhanced liquidity, path to investment-grade, and a stabilized supply-chain-finance program backed by balance-sheet cash | — |
| Hard-parts assortment and availability | Rolling out a new assortment framework | Rollout complete across top 50 DMAs (~70% of sales) ahead of schedule; initial 50 bps uplift; focus shifting to breadth of coverage and speed to market (tens of thousands of new SKUs added) | — |
| Store operating model | In testing; paused to test longer to get the model right | Launching in Q4 as phase one, with full implementation anticipated in the first half of 2026 to better align labor and vehicles with demand | — |
| AI / technology roadmap | Early multi-year technology roadmap | Partnering with Palantir on AI initiatives; testing an AI-powered pricing matrix and installing a centralized price-management system; gen-AI in merchandising SKU placement and supply-chain demand forecasting | — |
| Supplier bankruptcy / industry concern | Not previously a topic | Framed as an isolated one-off; supplier is under 2% of COGS after 12-18 months of vendor diversification; $28M non-cash charge taken; supply-chain-finance program unaffected | — |