Advance Auto Parts, Inc. Q2 FY2025 earnings call

• Shane thanked the team for hard work and mentioned return to profitability in Q2, supported by store footprint optimization and strategic initiatives. Comparable sales flat, Pro business strong, DIY showing stabilization. - Work with vendors on tariffs and price adjustments. - Strategic pillars: Merchandising team working on line reviews and cost reductions, assortment management with new framework and AI use, supply chain with DC closures and efficiency improvements, market hubs with 10 opened this year. - Pro business had sequential comp improvement, DIY with training and store upgrades.

For the second quarter, net sales from continuing operations were $2 billion, an 8% decline compared to the prior year. Comparable sales growth was positive 0.1% for the quarter. The Pro business grew in the low single-digit range and accelerated compared to Q1. The DIY business underperformed with a low single-digit sales decline but was stable compared to Q1. Adjusted gross profit from continuing operations was $880 million or 43.8% of net sales, resulting in gross margin expansion of about 16 basis points y-o-y. Adjusted SG&A from continuing operations was $819 million or 40.7% of net sales, about flat y-o-y. Adjusted operating income from continuing operations was $61 million or 3.0% of net sales.

• Full year net sales expected $8.4B-$8.6B, comps 50-150bps growth. Q3 and Q4 positive low single-digit comp growth. - Adjusted operating income margin 2%-3%, Q3 above 4%. - Adjusted diluted EPS range $1.20-$2.20. - Free cash flow target negative $85M to negative $25M. - Tariff-related price actions expected to contribute to low to mid-single-digit same SKU inflation in H2.

• Tariff-related cost increases and impact on retail prices. - Uncertainty in DIY consumer response to higher prices and market dynamics. - Competition and potential secondary impacts on consumer wallets from other tariff categories.

Q: On the revised capital structure, are you expecting cost savings given the risk spread in the factoring program has likely come down for you?

A: Shane and Ryan discussed that the supply chain financing program is in a better place with one-for-one asset support, but early days with no specific savings implied yet. Biggest impact would be regaining investment-grade credit rating.

Q: As part of your transformation, how close is Advance Auto to achieving visibility in near-term and short-term outlook?

A: Shane said they're comfortable with 2027 operating income target, with a mix of linear and nonlinear progress in initiatives. Ryan added they track KPIs tightly but some areas are nonlinear.

Q: What are you seeing in terms of peers reacting to tariff costs?

A: Shane and Ryan noted the industry is rational, peers taking similar actions, and Advance following with competitive pricing.

Q: On the DIY business, how are you reconciling Q2 performance and stabilization signs?

A: Ryan and Shane discussed training, store upgrades, and granular initiatives like short videos, planogram changes, and loyalty program engagement to support DIY performance.

Q: How should we size gross margin expansion for 2027?

A: Ryan said it comes from merchandising excellence, supply chain productivity, and SG&A optimization, with merchandising being the biggest bucket currently.