Advance Auto Parts (AAP 1.65%) is a value stock opportunity. Then again, it’s been that way for over a decade. The fundamental case for the stock remains the same: improve operational performance to levels close to those of peers like O’Reilly Automotive and AutoZone, and the upside potential is massive. Unfortunately, that’s proven easier said than done over the years. However, based on recent evidence, CEO Shane O’Kelly is making progress, and that’s why the stock rose 22.9% this week.
Advance Auto Parts’ turnaround plan
O’Kelly’s plan involves fundamentally restructuring the company by closing 700 underperforming stores and gradually opening new stores in geographies where it has a strong market position. The recent results saw management confirm its plan to open 40 to 45 stores in 2026.
Today’s Change
(-0.92%) $-31.68
Current Price
$3406.50
Key Data Points
Market Cap
$56B
Day’s Range
$3382.46 – $3496.76
52wk Range
$3210.72 – $4388.11
Volume
512K
Avg Vol
201.3K
Gross Margin
51.88%
Equally importantly, O’Kelly plans for 10 to 15 so-called “market hub” store openings. They represent larger stores with a broader inventory of parts from which it can also serve local stores. The strategy seeks to address the single most important part of the auto parts industry: ensuring the right inventory is available in time for the customer, notably the professional customer in the do-it-for-me (DIFM) market.
CFO Ryan Grimsland noted that the stores in regions with market hubs were performing “about 100 basis points better than markets without that ecosystem”. For reference, 100 basis points (bps) equals 1%.
Image source: Getty Images.
Advance Auto Parts advances
This week’s results confirmed progress on the plan, with comparable same-store sales growth of 3.5% and 410 bps expansion in adjusted operating margin to 3.8% in the quarter. It’s good progress and led management to confirm its full-year guidance for earnings per share (EPS) in the range of $2.40 to $3.10.
That said, investors need to keep an eye out for inventory, which rose to $3.82 billion from $3.65 billion in the same quarter last year. The inventory growth and capital expenditures ($300 million planned for 2026) support growth, inventory availability, and the restructuring plan, but at some point, Advance Auto Parts should start improving free cash flow generation. Something to keep an eye out for.
Lee Samaha has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
