Advance Auto Parts (AAP) Stock: A Turnaround Play Worth Watching

The Setup: Advance Auto Parts is restructuring aggressively. The company just wrapped its store footprint optimization in March 2025 and is now expanding—planning 100+ new stores over two years in markets where it already dominates (top 1-2 store density). Supply chain consolidation is also underway: closing 12 DCs this year, building 12 large DCs by 2026, and opening 60 market hubs by mid-2027.

The Promise: Numbers are improving. Q3 2025 adjusted operating income hit $90M (up 370 bps YoY) despite consumer DIY weakness. Management is guiding 2025 operating margin at 2.4-2.6% vs. losses in 2024, with a bold 7% margin target for 2027. New operating model rolling out Q4 2025 optimizes labor and inventory—should boost professional accounts with a 30-40 minute delivery commitment.

The Risk: Here’s the catch—debt exploded from $1.8B (Dec 2024) to $3.4B (Oct 2025). Long-term debt-to-capital sits at 0.61 vs. auto sector average of 0.18. CapEx is ramping hard ($250M in 2025 vs. $180.8M in 2024) to fund all this expansion, squeezing near-term cash flow. DIY segment is also getting crushed by consumer financial stress.

Bottom Line: AAP is betting big on supply chain efficiency and market consolidation to hit that 7% margin. If the turnaround lands, there’s upside. But leverage is heavy and DIY pressure is real—make sure you can stomach the volatility.