QS Research · Michael Burry's Scion Capital analyst template · 2006
ADVANCE AUTO PARTS INC (AAP)
As of 2026-11-09 · 12/15 boxes filled from SEC filings and market data
Conclusion: WATCH
Conviction low · base case none · downside -28% · upside +37%
At 6.0x TTM EBITDA of $508M [N28,N15], AAP's EV is $3.05B; less $303M net debt [N24] gives $2.75B equity, or $45.48 on 60.40M shares [N5,N9], essentially today's $45.50 [N1], so the base case is 0%. The equity is not cheap on earnings—27.5x TTM P/E [N31] on $100M net income [N16] and a 3.2% FCF yield [N32]—while the enterprise multiple looks low only before $2.25B of leases [N23], which lift EV/EBITDA to about 10.4x. The 2026-11-05 guidance raised FY2026 FCF to ~$150M and Q3 2026 comps turned positive in the final four weeks [S5,S31], but Q3 sales still fell 1.2% and adjusted EPS fell to $0.79 from $0.92 [S31], so a re-rate to LKQ's 8.0x EV/EBITDA [S1] is possible but not yet proven. Downside at 19.9x P/E on $100M net income gives $1.99B market cap / 60.40M = $32.95 (-27.6%) [N16,N5,S1], while upside at 8.0x $508M EBITDA gives $4.06B EV less $303M net debt = $3.76B / 60.40M = $62.27 (+36.9%) [N15,N24,N5,S1]. That leaves a balanced risk/reward and a watch, not a long or short.
Key numbers
- Share price: $45.50
- Market cap: $2.75B
- Latest financial period: TTM to Oct 10, 2026
- Revenue (TTM): $8.60B
- EV / EBITDA (TTM): 6.0x
- P/E (TTM): 27.5x
- Price / book: 1.22x
The 15 boxes
- ✓ 1. Long-form business notes
Advance is a single blended-box aftermarket parts chain: at January 3, 2026 it ran 4,305 stores plus 19 distribution centers and 33 market hubs, selling to professional installers (about 50% of sales in each of FY2025, FY2024 and FY2023) and DIY customers, with no separate segment reporting in these sources. FY2025 (53 weeks) revenue was $8.60B versus $9.09B in FY2024 and $9.21B in FY2023, and operating income was -$43.0M after -$713.0M in FY2024; the $44.0M FY2025 net income sits on top of a -$91.0M pre-tax loss, so it is not evidence of operating profitability. Between the FY2020 10-K and the FY2025 10-K the business was reshaped: Worldpac was sold in November 2024 for about $1.44B net, 522 stores were closed in 2025, distribution centers fell from 51 to 19, and the independently owned Carquest network fell from 1,277 to 809 stores.
- ✓ 2. Competitive advantage
Advance reads as a scale retailer without a demonstrated durable edge. Fiscal 2025 (53 weeks ended January 3, 2026) produced a $43 million operating loss (-0.5% of $8.60B net sales) and operating cash flow of -$46 million against $252 million of capex, after a $713 million operating loss (-7.8% of net sales) in fiscal 2024 and only $39.0 million of operating income on $9.21B revenue in fiscal 2023. The structural assets the filings point to are store/DC/hub density, ~23,200 SKUs per Advance store, owned brands (DieHard, Carquest, Driveworks, Wearever) and a ~50% professional mix, none of which has produced returns above breakeven lately. The 10-K names AutoZone, NAPA, O'Reilly and Auto Plus as primary competitors and claims a competitive advantage only for chains versus independent jobbers, not versus those peers.
- ✓ 3. 10-Q takeaways
Q3 2026 (twelve weeks ended Oct 10, 2026) net sales fell 1.2% to $2,012M with comparable store sales down 1.2%, but management says comps were negative low-single-digit in the first eight weeks and positive in the final four, with Pro up low-single-digit and DIY down low-single-digit. GAAP gross margin rose 131 bps to 44.6% and operating income doubled to $47M, yet adjusted gross margin slipped to 44.7% from 44.8% and adjusted diluted EPS fell to $0.79 from $0.92. FY2026 guidance was reset to roughly $8,500M sales, ~1.00% comps, 4.00-4.30% adjusted operating margin and $2.75-$3.10 adjusted diluted EPS, with free cash flow raised to about $150M.
- ✓ 4. Corporate governance
Filled; members read this box.
- ✓ 5. Overview of the prior 3 years of 8-K filings
Filled; members read this box.
- ✓ 6. Other significant filings
Filled; members read this box.
- ✓ 7. Chronology of significant news and events
Filled; members read this box.
- ✓ 8. Comparables valuation interpretation
Filled; members read this box.
- ✓ 9. Insider trading interpretation
Filled; members read this box.
- ○ 10. Earnings-call notes
- ○ 11. Impression of the shareholder letter
- ○ 12. Scuttlebutt overview
- ✓ 13. Valuation and risk/reward summary
Filled; members read this box.
- ✓ 14. Current price suppression and potential catalysts
Filled; members read this box.
- ✓ 15. Conclusions
The call above.
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