Here's Why You Should Retain Advance Auto Stock in Your Portfolio

Advance Auto Parts, Inc.’s AAP selective expansion, stronger Main Street Pro sales, distribution efficiencies and improving product margins support profitability. However, weaker DIY demand, inflation, national-account challenges and elevated capital spending could constrain near-term sales growth, margins and cash flow.

Let’s dig deeper and see why this Zacks Rank #3 (Hold) stock is worth retaining in your portfolio.

Selective Expansion, Margin Improvement Aid Advance Auto

After completing planned location closures in the first quarter of 2025, Advance Auto is returning to selective expansion. It plans 30 to 35 new store openings in fiscal 2026 and uses population, vehicle profiles, competition and real-estate economics in site selection. This supports measured network growth after the footprint reset.

Advance Auto continues to gain traction with Main Street Pro customers, its preferred professional segment. In the second quarter of fiscal 2026, Pro sales grew at a low-single-digit rate, while Main Street Pro comparable sales exceeded total Pro growth by more than 200 basis points. The growth is coming from both existing accounts and customers that previously gave Advance Auto limited business. Broader assortment, market hubs and delivery times below 40 minutes are helping the company compete for first-call status. 

Advance Auto completed its distribution-center consolidation in the second quarter of fiscal 2026 and now operates 15 DCs on one warehouse system. The company opened five market hubs in the first half, reaching 38, and raised fiscal 2026 hub-opening plans to 15 to 20 from 10 to 15. It still targets 60 hubs by mid-2027. About 25% of identified DC process changes are complete, with the remainder planned by mid-2027. It also expects to consolidate volume with 70% fewer carriers, generating tens of millions of dollars in transportation savings that support margin expansion in 2027.

Strategic sourcing, better assortment and tighter pricing are improving product economics. Adjusted gross margin rose 240 bps year over year to 46.2% in the second quarter of 2026, including a 130-bps benefit from tariff refunds. Merchandising initiatives added around 100 bps to product margins in the first half, with further gains expected. Full-year adjusted operating margin is expected to expand 130-200 bps, while gross margin is guided near 45%, supporting the medium-term 7% operating margin target.

Reduced Consumer Budget, Higher Capital Requirement Ail AAP

Tighter household budgets reduced DIY spending in the second quarter of fiscal 2026. DIY sales declined at a low-single-digit rate, with weaker large-ticket projects and discretionary purchases contributing to a 100 to 150 basis-point drag on comparable sales together with milder weather. The company still expects full-year comparable sales growth of 1% to 2%, but that outlook assumes transaction volumes recover from second-quarter levels. If value-focused behavior persists, DIY traffic and mix could continue to constrain sales growth and profitability.

Cost inflation remains another important pressure on AAP’s profitability. Higher oil and commodity prices are pressuring margins, and elevated freight and fuel costs are expected to continue affecting margins during the second half. These costs are particularly challenging because the company is simultaneously trying to maintain competitive pricing. The company expects gross margin of approximately 44-45% in the second half, with freight, fuel and channel mix acting as offsets to merchandising gains.

Although Main Street Pro is performing well, AAP continues to face headwinds from national accounts. The company is transitioning its Pro mix toward Main Street customers, creating some noise in reported results. Main Street is viewed as a larger addressable opportunity, but winning these customers is relationship-driven and can take weeks of repeated interactions before AAP becomes the customer’s first call. This means the benefits from market hubs, better assortment and improved service may take time to fully translate into revenues. While the company remains confident in the strategy, the transition creates near-term uncertainty around Pro growth and the pace at which share gains can offset national-account weakness. 

Advance Auto still expects about $300 million of capital expenditures in fiscal 2026. Although free cash flow reached $120 million through the second quarter, the company maintained full-year guidance of about $100 million because of planned operating expenses and timing. Spending on stores, market hubs and infrastructure therefore continues to constrain near-term cash generation.

Price Performance, Valuation and Estimates  

AAP has underperformed the Zacks Automotive - Retail and Wholesale – Parts industry in the last six months. Its shares have lost 19.7% compared to the industry’s decline of 9.7%. 

Image Source: Zacks Investment Research

From a valuation perspective, AAP appears undervalued. Going by its price/sales ratio, the company is trading at a forward sales multiple of 0.3, lower than the industry’s 3.33. 

Image Source: Zacks Investment Research

 
The Zacks Consensus Estimate for AAP’s 2026 and 2027 EPS has improved 3 cents and fallen 14 cents, respectively, in the past 30 days.

Image Source: Zacks Investment Research

Stocks to Consider

Some better-ranked stocks in the auto space are China Yuchai International Limited CYD and Garrett Motion Inc. GTX, each carrying a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The Zacks Consensus Estimate for CYD’s 2026 sales and earnings implies year-over-year growth of 58.6% and 68.6%, respectively. 

The Zacks Consensus Estimate for GTX’s 2026 sales and earnings implies year-over-year growth of 7.2% and 25.7%, respectively. The EPS estimate for 2026 and 2027 has improved 5 cents and 4 cents, respectively, over the past 30 days.

Research Chief Names "Single Best Pick to Double"

From thousands of stocks, 5 Zacks experts each have chosen their favorite to skyrocket +100% or more in months to come. From those 5, Director of Research Sheraz Mian hand-picks one to have the most explosive upside of all.

This company targets millennial and Gen Z audiences, generating nearly $1 billion in revenue last quarter alone. A recent pullback makes now an ideal time to jump aboard. Of course, all our elite picks aren’t winners but this one could far surpass earlier Zacks’ Stocks Set to Double like Nano-X Imaging which shot up +129.6% in little more than 9 months.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

This article originally published on Zacks Investment Research (zacks.com).

Zacks Investment Research