0001158449-25-000272
SEC filingAAP's Q2 2025 results were driven by a 7.7% net sales decline from store closures under its 2024 Restructuring Plan, partially offset by a 0.1% comparable store sales increase.
For the twelve weeks ended July 12, 2025, Advance Auto Parts reported net sales of $2.0 billion, a decrease of 7.7% compared with the second quarter of fiscal 2024. This decline was primarily driven by lower sales resulting from store closures executed under the 2024 Restructuring Plan during the first quarter of fiscal 2025. Partially offsetting this decline, comparable store sales increased by 0.1% for the quarter. For the twenty-eight weeks ended July 12, 2025, net sales declined 7.2% to $4.6 billion, with comparable store sales decreasing 0.3%.
Gross profit for the second quarter was $874 million, or 43.5% of net sales, compared with $950 million, or 43.6% of net sales, in the prior year period. The 14 basis point decrease in gross profit margin was attributed to the amount of lower-margin liquidation sales associated with the 2024 Restructuring Plan. Total gross profit also decreased due to the lower net sales from store closures.
Selling, general and administrative (SG&A) expenses, exclusive of restructuring and related expenses, were $823 million, or 40.9% of net sales, compared with $889 million, or 40.8% of net sales, in the prior year. The decrease in overall SG&A dollars was a result of reduced overhead and operating costs from store closures, though SG&A as a percentage of sales increased by 13 basis points.
Restructuring and related expenses were $29 million, or 1.4% of net sales, compared to $7 million, or 0.3% of net sales, in the prior year. This significant increase relates to the 2024 Restructuring Plan and includes costs for lease terminations, professional services, and severance.
Operating income was $22 million, or 1.1% of net sales, compared to $54 million, or 2.5% of net sales, in the prior year. Diluted earnings per share from continuing operations were $0.25, compared with $0.51 in the prior year. Net income was $15 million compared to $31 million in the prior year. Other income, net, increased to $18 million from $9 million, driven by higher interest income from elevated cash balances following the Worldpac sale and income from transition services agreements.
The MD&A does not provide a breakdown of performance by operating segment. The narrative focuses on the consolidated results and the impact of the 2024 Restructuring Plan, which involved closing 514 stores during the twenty-eight weeks ended July 12, 2025, reducing the total store count to 4,292 from 4,788 at year-end 2024. The company operates within the automotive aftermarket industry and is influenced by general macroeconomic factors.
The company continues to make progress on its business plan focused on improving the customer experience, margin expansion, and driving consistent execution. The 2024 Restructuring Plan, designed to improve profitability and growth potential, is expected to be substantially completed by the end of fiscal 2025, with an estimated $35 million to $50 million in additional expenses to be incurred through the remainder of the year. Of this, approximately $20 million to $30 million is expected to be cash expenses.
Subsequent to the quarter-end, the company completed significant financing transactions, including the issuance of $1.95 billion in Senior Unsecured Notes and the termination of its existing credit agreement, replaced by a new $1.0 billion asset-based revolving credit facility. These actions are intended to strengthen the company's financial condition and provide additional liquidity. The company expects to incur an additional $25 to $30 million in net interest expense during the second half of fiscal 2025 as a result of the new debt issuance. Management believes its cash, cash equivalents, and sources of liquidity will satisfy its working and other capital requirements for at least the next 12 months and for the foreseeable future. The ultimate impact of new global trade tariffs on the company's business remains uncertain, though the impact of supplier price increases to-date has not been material.
As of July 12, 2025, Advance Auto Parts held $1.657 billion in cash and cash equivalents, a decrease from $1.869 billion at year-end 2024. Total long-term debt, including the current portion, stood at $1.792 billion, with $300 million classified as current due to the maturity of the 5.90% Senior Unsecured Notes in March 2026. Stockholders' equity was $2.203 billion. Inventory levels increased slightly to $3.692 billion from $3.612 billion at year-end. The Company had no outstanding borrowings under its $1 billion revolving credit facility as of the balance sheet date, with $817 million in borrowing availability and $183 million in letters of credit outstanding. The Company was in compliance with all financial covenants under the 2021 Credit Agreement.
Subsequent to the quarter end, a major refinancing occurred. On August 4, 2025, the Company issued $1.95 billion in Senior Unsecured Notes (split between 7.000% notes due 2030 and 7.375% notes due 2033). Net proceeds were approximately $1.920 billion. A portion was used to redeem the $300 million 2026 Notes. On August 12, 2025, the 2021 Credit Agreement was terminated and replaced by a new five-year $1 billion asset-based revolving credit facility (ABL Facility). The Company expects to incur an additional $25 to $30 million in net interest expense during the second half of fiscal 2025 due to the new debt.
The Company participates in supplier finance programs where suppliers may sell their receivables to third-party financial institutions. As of July 12, 2025, confirmed obligations outstanding under these programs totaled $2.9 billion, a decrease from $3.2 billion at year-end 2024. These obligations are recorded within accounts payable. The Company does not provide guarantees or pledge assets for these arrangements. Additionally, the Company guarantees loans to independently-owned Carquest-branded stores totaling $80 million, collateralized by approximately $160 million in inventory. The Company believes the likelihood of performance under these guarantees is remote.
During the twenty-eight weeks ended July 12, 2025, the Company paid $30 million in dividends ($0.50 per share) and repurchased $3 million of common stock. Capital expenditures totaled $95 million, or 2.1% of net sales. The major capital allocation event occurred post-quarter with the $1.95 billion debt issuance, the proceeds of which are available for general corporate purposes, with approximately $2.3 billion of cash designated as qualified cash for the new ABL Facility's borrowing base.
Following significant restructuring activities, the Company now operates under a single operating and reportable segment: "Advance Auto Parts/Carquest." This replaces the previous two operating segments that were aggregated. The Chief Executive Officer reviews financial information on a consolidated basis. For the twenty-eight weeks ended July 12, 2025, net sales were $4.593 billion, with cost of sales of $2.609 billion and selling, general and administrative expenses of $1.875 billion (excluding restructuring and depreciation). Restructuring and related expenses were $148 million, leading to an operating loss of $109 million. Geographic information is not disclosed quarterly as it is not a key component of performance reviews.
For the twenty-eight weeks ended July 12, 2025, Advance Auto Parts, Inc. reported a significant deterioration in cash generation, with net cash used in operating activities of $106 million compared to $88 million provided in the prior year period. This negative swing of $194 million occurred despite net income from continuing operations of $39 million, highlighting a substantial disconnect between reported earnings and cash flow.
The primary driver of the cash flow deficit was working capital. The company saw a $90 million use of cash from accounts payable and an $83 million use from accrued expenses. Additionally, a $109 million reduction in operating lease liabilities further pressured cash flow. These outflows were partially offset by a $54 million source from receivables and $62 million from operating lease right-of-use assets. Non-cash adjustments, including $146 million in depreciation and amortization, were not sufficient to offset the working capital drain.
Investing activities used $75 million in cash, with capital expenditures of $95 million representing the primary outflow. This capex level exceeded the prior year's $87 million, indicating continued investment in the business despite the negative operating cash flow. Financing activities used $32 million, driven by $30 million in dividend payments and $3 million in share repurchases. The company's capital returns of $33 million were entirely funded by existing cash reserves, as operating cash flow was negative. The net decrease in cash and cash equivalents for the period was $212 million, reducing the cash balance to $1,657 million from $1,869 million at the beginning of the period.