Advance Auto Parts, Inc. Q4 2025 Earnings Call Summary Moby Intelligence Sat, February 14, 2026 at 5:31 AM GMT+8 3 min read In this article: - AAP +1.08%
Advance Auto Parts, Inc. Q4 2025 Earnings Call Summary - Moby Strategic Transformation and Operational Recovery
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Returned to positive comparable sales growth in 2025 after three years of declines, driven by a renewed focus on the 'blended box' model for Pro and DIY customers.
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Successfully rationalized the asset footprint by exiting over 500 corporate and 200 independent locations, resulting in approximately $70 million in operating cost savings.
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Substantially completed a massive supply chain overhaul, consolidating the U.S. distribution center network from nearly 40 locations in 2023 to 16 currently.
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Improved parts availability to the high 90% range by expanding assortment by 100,000 new SKUs and implementing a data-driven assortment framework.
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Enhanced Pro channel service levels by reducing average delivery times by over 10 minutes through a new store operating model and optimized labor allocation.
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Attributed margin expansion to 'merchandising excellence,' specifically strategic sourcing, product cost reductions of 70 basis points, and smarter pricing intelligence.
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Strengthened the leadership team with key internal promotions and external hires to oversee supply chain efficiency and store transformation initiatives.
2026 Outlook and Medium-Term Targets
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Targets 2026 comparable sales growth of 1% to 2%, assuming Pro continues to outperform DIY while both channels contribute positively.
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Expects adjusted operating income margin expansion to the 3.8% to 4.5% range, supported by a gross margin target of approximately 45%.
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Projects a return to positive free cash flow of approximately $100 million in 2026, despite a $300 million capital expenditure plan for new stores and hubs.
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Revised the timeline for the 7% operating margin target, now expecting at least 100 basis points of expansion in 2027 rather than reaching the full target that year.
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Plans to launch ARGOS, a new owned brand for oil and fluids, to capture value-conscious customers and improve category margins.
Risk Factors and Non-Recurring Dynamics
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Identified a softer consumer spending environment and macro economic factors as primary reasons for top-line momentum lagging original expectations.
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Noted that 2026 net sales will face a 200 basis point headwind due to cycling 2025 liquidation sales and an extra operating week.
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Anticipates 50 basis points of headwind from LIFO expense in 2026, with approximately $30 million expected in the first quarter alone.
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Lowered supplier financing usage to $2.5 billion, reflecting a strategic rebalancing of payables based on new purchase volumes and vendor negotiations.
Q&A Session Highlights
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Story Continues Inflation dynamics and pricing strategy relative to industry peers-
Management clarified that lower reported inflation in 2025 was due to cycling prior-year price investments and ongoing tariff negotiations.
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Stated they remain a 'rational player' in the market, using AI-driven tools to optimize promotions rather than pricing below competitors.
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Attributed the reduction in supplier financing to the mix of purchases and strategic sourcing work rather than a lack of program capacity.
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Confirmed that moving vendors off the program is only done when it makes economic sense for the P&L through improved cost of goods.
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Acknowledged that while merchandising initiatives are ahead of schedule, supply chain and store productivity gains are in earlier, investment-heavy stages.
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Emphasized that 2026 is a 'pivotal investment year' for labor and technology that will inform the trajectory for 2027 and beyond.
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