AAP 10-K & 10-Q changes, risk factors and insider trading

One should consider carefully the risks and uncertainties described below together with the other information included in this Annual Report on Form 10-K, including without limitation, the Company’s consolidated financial statements and related notes thereto and Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies.Policies, of this Annual Report. The occurrence of any of the following risks could materially adversely affect the Company’s business, financial condition, results of operations, cash flows and future prospects, which could in turn materially affect the price of the Company’s common stock.

The Company recently undertook a comprehensive strategic and operational review to improve its performance of its business and create long-term value. This review resulted in, among other things, narrowed business priorities and initiatives aimed at improving core performance in key areas. The Company ishas currently makingmade and expects to continue to make significant investments to improve its business.business, including through its 2024 Restructuring Plan and initiatives across merchandising, supply chain and store operations. If the Company is unable to implement these and other initiatives efficiently and effectively, the Company’s business, financial condition, results of operations and cash flows could be adversely affected. The Company could also be adversely affected if it has not appropriately prioritized and balanced its initiatives or if the Company is unable to effectively manage change throughout the organization. Implementing strategic initiatives could disrupt or reduce the efficiency of the Company’s operations and may not provide the anticipated benefits, or may provide them on a delayed schedule or at a higher cost.cost than expected. These risks increase when significant changes are undertaken and when multiple projects with interdependencies and shared human resources are pursued simultaneously.

TheIn November 2024, the Company announced the 2024 Restructuring Plan to restructure its operations to improve profitability and growth potential and streamline the Company's operations. As of the January 3, 2026, the closures anticipated in connection with that plan are complete and their associated costs have been incurred. However, the Company expects to incur approximately $30 million to $40 million of additional restructuring charges andthrough undertakefiscal other2026, exit-relatedprimarily activities as a result of such initiatives. For example, execution of the Company’s plan is expectedrelated to resultcosts inassociated with closed stores for the termination ofand certain leases, leading to exitsexit of certain properties over time and the incurrence of expenses, including but not limited to impairment charges and contingent obligations, which could be material.leases. The terms, scope and timing of any additional changes to our lease obligations, as well as any other effects on our landlord relationships or reputation with other real estate owners, are uncertain. As a result of the restructuring plan, the Company currently expects to incur approximately $875 million to $960 million in total charges, which is estimated to include $275 million to $310 million of cash charges and $600 million to $650 million of non-cash charges, primarily as a result of closure sites and the reduction in workforce. The Company’s expectations for charges to be incurred and cash to be expended in connection with the restructuring activities are based on a number of assumptions, and the Company may experience unanticipated consequences, such as higher than anticipated lease termination and facility closure costs, asset impairment or other unforeseen expenses related to the restructuring.

The implementation of the Company’s restructuring efforts, including the potential reduction of the Company’s facilities and workforce, may not improve our operational and cost structure or result in greater efficiency of the Company’s organization; and the Company may not be able to support sustainable profitable growth following the Company’s restructuring actions. Failure to achieve or sustain the expected cost reductions and other benefits related to these restructuring initiatives could have a material adverse effect on the Company’s results of operations, financial condition and cash flows.

We are exposed to risks associated with past and potential divestitures, which may impact our ability to fully realize the anticipated benefits of those transactions.

The Company recently sold its Worldpac business.business in fiscal year 2024. Divestitures are complex transactions involving inherent risks, including the potential for distractions of management from the core remaining business of the Company and the occurrence of events that may impact our ability to fully realize the anticipated benefits of the divestitures. Transactions of this nature carry risks associated towith variation from expectations, including with respect to provision of transition servicesservices, customary final working capital settlements with the buyer and post-closing claims for liability. In January 2026, the Company and Worldpac agreed to a final net working capital adjustment that was $31 million in excess of the Company's original preliminary estimate of working capital, as defined in the agreement. see Note 19. Discontinued Operations, of the Notes to the Consolidated Financial Statements of this Annual Report. Accordingly, there is no guarantee that we will fully realize the anticipated benefits of the Worldpac divestiture.

The Company is dependent on information and technology systems to facilitate the day-to-day operations of the business and to produce timely, accurate and reliable information on financial and operational results. The companyCompany is in the process of designing, implementing and updating various systems.information and technology systems, including replacing older legacy systems with successor systems, maintaining or enhancing legacy systems that are not being replaced, cloud migration and introducing new systems or functionality, including artificial intelligence. These initiatives will require significant investment of human and financial resources, and the Company may experience significant delays,delays or errors, increased costs and other difficulties with these projects. Deficiencies in the design or implementation or maintenance of theseour systems could lead to inaccuracyinaccuracy, loss or corruption of data anddata, disruption to the Company’s business operations.operations or reputational harm. Failure to appropriately prioritize the upgrading or replacement of various technologies and systems could increase risks associated with aging technological infrastructure, including disruptions to operations that could negatively impact sales or damage customer relationships. In addition, the Company is utilizing data analytics and piloting the use of advance technological applications to support various business initiatives. Any inability on our part to properly capture or interpret data may impair our ability to successfully execute our business plans.

The Company’s store inventories are primarily replenished by shipments from its network of distribution centers. The Company’s strategy to improve supply chain efficiency includes developingconversion of distribution centers and stores into a network of market hubs to create economies of scale and enhance service levels for our customers.customers through improved parts availability. The Company’s store inventories are primarily replenished by shipments from its network of distribution centers and market hubs. If the Company is unable to maintain adequate capacity in its supply chain network, or improve the efficiency of its supply chain, through the implementation of its market hub strategy or otherwise, the Company may experience higher inventory costs, lower inventory availability, slower delivery speed and ultimately a lower ability to meet consumer product needs and channel preferences. The Company plans to further invest in its distribution center infrastructure to help ensure safety, reliability and efficiency across its operations, which will require capital investments. The Company is also working to improve product lifecycle management and address slower-moving inventory in its network. The Company’s investments in supply chain may not provide the anticipated benefits, and experiencing sub-optimal inventory levels, inventory availability or increases in its costs could adversely affect its business, financial condition, results of operations and cash flows.

TheDuring Unitedfiscal States2025, hasnew recentlyglobal enactedtrade tariffs were imposed on imports to the U.S., including tariffs on imports from various countries from which the Company directly or indirectly imports and/or sources merchandise, including Canada, China and proposedMexico, among others. In response, several countries imposed, or threatened to enactimpose, significantreciprocal newtariffs tariffs.on imports from the U.S. and other measures. Various modifications and delays to the U.S. tariffs have been announced and further changes are expected to be made in the future, which may include additional sector-based tariffs or other measures. Additionally, the current administration has directed various federal agencies to further evaluate key aspects of U.S. trade policy and there has been ongoing discussion and commentary regarding potential significant changes to U.S. trade policies, enforcement priorities, sanctions, treaties and tariffs. SomeSignificant of the Company’s merchandise is imported from various countries, including Canada, China and Mexico, and newly proposed tariffs and any additional tariffs on products sourced from these or other countries could materially increase our costs. Thereuncertainty continues to exist significant uncertainty about the future economic and political relationship between the U.S. and other countries. The ultimate impact of tariffs on the Company’s business will depend on several factors, including whether additional or incremental U.S. tariffs or other measures are announced, revised, or rescinded, to what extent other countries implement tariffs or other measures in response, and the overall magnitude and duration of these items. These developments, or the perception that any of them could occur, may have a material effect on global economic conditions, the stability of global financial marketsmarkets, or global trade, whichand may inimpact turnthe impactCompany’s product cost, pricing, or competitive conditions, disrupt supply chainschains, impact the broader macroeconomic environment and consumer sentiment or otherwise negatively impact ourthe Company’s business, financial condition and results of operation.operations.

IfThe theCompany's Company is unableability to keepmaintain its desiredstores existing store locations orand open new locations in desirable places onwill favorableimpact terms,its itcompetitive positioning and results of operations, and failure to properly invest in stores could adversely affect its business, financial condition, results of operations and cash flows.

The Company beganrecently undertakingundertook athe restructuring2024 andRestructuring assetPlan, optimizationpursuant planto in late 2024, wherebywhich it targeted closingclosed approximately 500 storesstore locations and 200 independent store locations during the first quarter of 2025. Following the completion of the store footprint optimization portion of the 2024 Restructuring Plan, the Company had the highest or second highest market share by store count in approximately 75% of its markets. However, itsome doesof intendthe Company's competitors are opening new stores at a significantly higher pace than the Company is currently opening new stores, threatening the Company's competitive position in certain markets. The Company intends to continue to open new stores in attractive markets as it improves its business. ThereHowever, there is uncertainty about the profitability of newly opened locations, including whetherand newly opened stores willmay harm the profitability or comparable store sales of existing locations. The profitability of newly opened and existing locations’ will depend on the competition the Company faces as well as its ability to properly stock, market and price the products desired by customers in their markets. The actual number and format of any new locations to be opened and the success of the Company’s strategy will depend on a number of factors, including, among other things:

•the availability of desirable locations;

•the negotiation of acceptable lease or purchase terms for new locations;

•the availability of financial resources, including access to capital at cost-effective interest rates;

•the Company’s ability to expand its online offerings and sales; and the Company’s ability to manage the expansion and to hire, train and retain qualified team members.

The Company depends on the services of many qualified executives and other team members, whom the Company may not be able to attract, develop and retain.

The Company’s success, to a significant extent, depends on the continued engagement, services and experience of its executives and other team members. The Company’s ability to attract, develop and retain an adequate number of qualified team members depends on factors such as employee morale, the Company’s reputation, competition from other employers, availability of qualified personnel, its ability to offer competitive compensation and benefit packages and its ability to maintain a safe working environment. Failure to recruit or retain qualified team members may impact the Company’s ability to serve its customers, increase its costs and impair its efficiency and ability to pursue growth opportunities. Additionally, turnover in executive or other key positions can disrupt progress in implementing business strategies, result in a loss of institutional knowledge, impair the Company’s ability to execute, distract other team members from their key areas of focus or otherwise negatively impact the Company’s business and results. If the Company is unable to attract and retain personnel with expertise in the required areas, there may be disruptions in its financial processes and reporting, or higher likelihood of control deficiencies or future material weaknesses in internal control over financial reporting.

The Company has established policies and procedures to help maintain the privacy and security of its customers, suppliers, and team members, as well as the security and functioning of its technology (business information, computer systems, website and other online offerings). In the event of a security breach or other cyber security event,incident, the Company could experience adverse operational effects or interruptions and/or become subject to legal or regulatory proceedings, any of which could result in substantial costs and damage to its reputation in the marketplace. To date the Company is not aware that it has experienced a material cyber security incident.

The nature of the Company’s business requires it to receive, retain and transmit certain personal information ("PI") about its customers, suppliers and team members. Some of this PI is managed by or shared with third-party service providers. The Company uses contractual provisions and certain third-party risk management processes to protect such PI and other confidential information and to help ensure that technology functions remain operational.

Despite these efforts, a compromise of the Company’s data security systems or those of businesses or third-party vendors it interacts with is possible. This could result in information being obtained by unauthorized persons, adverse operational effects, interruptions or other failures that could have a material adverse effect on the Company’s business, financial condition, results of operations and cash flows. The Company develops, maintains and updates processes and systems to help reduce the likelihood of an occurrence.

Despite the Company’s efforts, its security measures may be breached due to a cyber attack, computer malware viruses, exploitation of hardware and software vulnerabilities, team member error, malfeasance, fraudulent inducement (including so-called “social engineering” attacks and “phishing” scams) or other acts. The rapid evolution and increased adoption of artificial intelligence technologies may also heighten our cybersecurity risks by making cyber attacks more difficult to detect, contain, and mitigate.

•the Company’s ability to continue to identify and acquire suitable targets or strategic partners, or to acquire additional companies or enter into strategic relationships, at favorable prices and/or with favorable terms;

•the Company’s ability to obtain the full benefits envisioned by strategic transactions or relationships;

•the risk that management’s attention may be distracted;

•the Company’s ability to attract and retain key personnel;

•the Company’s ability to successfully integrate the operations and systems of the acquired companies, and to achieve the strategic, operational, financial or other anticipated synergies of the acquisition or other transaction or relationship;

•the performance of the Company’s strategic partners;

•significant transaction or integration costs that may not be offset by the synergies or other benefits achieved in the near term or at all;

•additional operational risks, such as those associated with doing business internationally or expanding operations into new territories, geographies or channels, that may become applicable to the Company; and loss contingencies that the Company may assume or become subject to, whether known or unknown, of acquired companies, which could relate to past, present or future facts, events, circumstances or occurrences.

The Company is sometimes the subject of complaints or litigation, which may include class action litigation from customers, team members or others for various actions. From time to time, the companyCompany is involved in litigation involving claims related to, among other things, breach of contract, tortious conduct, employment, discrimination, breach of laws or regulations (including The Americans With Disabilities Act), payment of wages, exposure to asbestos or potentially hazardous products, real estate and product defects. The damages sought against the Company in some of these litigation proceedings are substantial. Although the companyCompany maintains liability insurance for some litigation claims, if one or more of the claims were to greatly exceed the Company’s insurance coverage limits or if the Company’s insurance policies do not cover a claim, this could have a material adverse effect on the Company’s business, financial condition, results of operations and cash flows. For instance, the companyCompany is subject to a potential securities class action regarding past public disclosures (See Item 3. Legal ProceedingsProceedings, of this Annual Report on Form 10-K) and to numerous lawsuits alleging injury as a result of exposure to asbestos-containing products (see Note 14. Commitments and Contingencies, of the Notes to the Consolidated Financial Statements includedof hereinthis Annual Report).

Hurricanes,The Company is exposed to risks from hurricanes, tornadoes, winter storms, earthquakes, wildfires or other natural disasters, war or acts of terrorism, civil or geopolitical unrest, public health issues, epidemics or pandemicspandemics. These events or the threat of any of these incidents or others, may have a negative impact on the Company’s ability to obtain merchandise to sell in the Company’s stores, result in certain of stores being closed for an extended periodstore ofclosures time,and/or negativelysignificant affectrepair thecosts, livesimpair ofcustomer thedemand, Company’sadversely customers orimpact team members,members health, safety and availability, or otherwise negatively impact the Company’s operations. Some of the Company’s merchandise is imported from other countries. If imported goods become difficult or impossible to import into the United States due to business interruption (including regulation of exporting or importing), and if the companyCompany cannot obtain such merchandise from other sources at similar costs and without an adverse delay, sales and profit margins may be negatively affected.

•a decrease in the total number of vehicles on the road or in the number of annual miles driven or significant increase in the use of ride sharing services, because fewer vehicles means less maintenance and repairs, and lower vehicle mileage, which decreases the need for maintenance and repair;

•the economy, because as consumers reduce their discretionary spending by deferring vehicle maintenance or repair, sales may decline and as new car purchases increase, the number of cars requiring maintenance and repair may decrease;

•the weather, because milder weather conditions may lower the failure rates of automobile parts while extended periods of rain and winter precipitation may cause the Company’s customers to defer elective maintenance and repair of their vehicles; additionally, overall climate changes could create greater variability in weather events, which may result in greater volatility for the Company’s business, or lead to other significant weather conditions that could impact the Company’s business;

•the average duration of vehicle manufacturer warranties and average age of vehicles driven, because newer cars typically require fewer repairs and will be repaired by the manufacturers’ dealer networks using dealer parts pursuant to warranties (which have gradually increased in duration and/or mileage expiration over the recent past), while vehicles that are seven years old and older are generally no longer covered under manufacturers’ warranties and tend to need more maintenance and repair;

•an increase in internet-based retailers, because potentially favorable prices and ease of use of purchasing parts via other websites on the internet may decrease the need for customers to visit and purchase their aftermarket parts from the Company’s physical stores and may cause fewer customers to order aftermarket parts on the Company’s website;

•technological advances, including the rate of adoption of electric vehicles, hybrid vehicles, ride sharing services, alternative modes of transportation, autonomously driven vehicles and future legislation related thereto, and the increase in the quality of vehicles manufactured, because vehicles that need less frequent maintenance or have lower part failure rates will require less frequent repairs using aftermarket parts and, in the case of electric and hybrid vehicles, do not require or require less frequent oil changes; and the refusal of vehicle manufacturers to make available diagnostic, repair and maintenance information to the automotive aftermarket industry that the Company’s professional and DIY customers require to diagnose, repair and maintain their vehicles, because this may force consumers to have a majority of diagnostic work, repairs and maintenance performed by the vehicle manufacturers’ dealer networks.

The sale of automotive parts, accessories and maintenance items is highly competitive and influenced by a number of factors, including name recognition, location, price, quality, product availability and customer relationships and service. The Company competes in both the professional and DIY categories of the automotive aftermarket industry, primarily with: (i) national and regional chains of automotive parts stores, (ii) internet-based retailers, (iii) discount stores and mass merchandisers that carry automotive products, (iv) wholesalers or jobbers stores, including those associated with national parts distributors or associations, (v) independently owned stores and (vi) automobile dealers that supply parts. These competitors and the level of competition vary by market. Some of the Company’s competitors may have greater resources than the Company and otherwise possess advantages over the Company in certain markets the Company shares, including with respect to the level of marketing activities, number of stores, store locations, store layouts,layouts or technologies (including the use of generative AI), operating histories, name recognition,recognition or reputation, established customer bases, vendor relationships, distribution network, product availability, employee staffing,staffing or expertise, prices and product warranties. Internet-based retailers may possess cost advantages over the Company due to lower overhead costs, time and travel savings and ability to price competitively. In order to compete favorably, the Company may need to increase availability, change inventory assortment, change store layouts, technologies or assets (including the use of generative AI), increase delivery speeds, incur higher shipping costs orcosts, lower prices, invest further in employees, any of which could adversely impact the Company’s financial results. Consolidation among the Company’s competitors could enhance their market share and financial position, provide them with the ability to achieve better purchasing terms and allow them to provide more competitive prices to customers for whom the Company competes.

For the portion of the Company’s inventory manufactured and/or sourced outside the United States, geopolitical changes, macroeconomic and inflationary changes, changes in trade regulations or tariff rates, currency fluctuations, work stoppages, labor strikes, unionizing activity, port delays, shipping disruptions, civil unrest, natural disasters, pandemics and other factors beyond the Company’s control may increase the cost of items the Company purchases, lead to lengthy delays in acquiring products or create shortages that could have a material adverse effect on the Company’s sales and profitability. In addition, unanticipated changes in consumer preferences or any unforeseen hurdles in meeting the Company’s customers’ needs for automotive products (particularly parts availability) in a timely manner could undermine the Company’s business strategy.

Deterioration in macroeconomic conditionsconditions, inflationary pressures or an increase in fuel costs or proposed or additional tariffs may have a negative impact on the Company’s customers’ net worth, financial resources, disposable income or willingness or ability to pay for accessories, maintenance or repairs for their vehicles, resulting in lower sales. An increase in fuel costs may also reduce the overall number of miles driven by the Company’s customers, resulting in fewer parts failures and a reduced need for elective maintenance.

•affect the Company’s liquidity by limiting the Company’s ability to obtain additional financing for working capital;

•limit the Company’s ability to obtain financing for capital expenditures and acquisitions or make any available financing more costly;

The following discussion and analysis of financial condition and results of operations should be read in conjunction with the Company’s consolidated historical financial statements and therelated notes to those statements that appear elsewhere in this report.Annual Report. The Company’s discussion contains forward-looking statements based upon current expectations that involve risks and uncertainties, such as the Company’s plans, objectives, expectations and intentions. Actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of a number of factors, including those set forth under the section titled “Part 1.I. Item 1A. Risk Factors” elsewhere inof this report.Annual Report. The discussion of the Company’s financial condition and changes in the Company’s results of operations, liquidity and capital resources for the fiscal year ended December 30,28, 20232024 (“20232024”) compared with the fiscal year ended December 31,30, 20222023 (“20222023”) has been omitted from this Form 10-K, but are included in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” of the Company’s Annual Report on Form 10-K for 2023,2024, filed with the Securities and Exchange Commission (“SEC”) on MarchFebruary 12,26, 2024, and the amended Annual Report on Form 10-K/A filed with the SEC on May 30, 2024 (collectively the “2023 Form 10-K”).2025. Amounts are presented in thousands,millions, except per share data, unless otherwise stated.

•Net sales from continuing operations during 2024fiscal 2025 were $9.1$8.6 billion, a decrease of 1.2%5.4% compared with 2023,fiscal 2024, driven by lower sales as a decreaseresult inof pricestore andclosures volumeexecuted under the 2024 Restructuring Plan, partially offset by athe favorableimpact productof mix.the 53rd week. Comparable store sales declinedincreased 0.7%.0.8%.

•Gross profit margin from continuing operations for 2024fiscal 2025 was 37.5%43.4% of net sales, aan decreaseincrease of 444592 basis points compared with 2023,fiscal 2024, primarily due to the adverse impact on gross profit margin in fiscal 2024 from inventory-related charges attributable tounder the location closures and streamlining product assortment resulting from the Board-approved restructuring and asset optimization plan (“2024 Restructuring Plan”).Plan.

•Operating loss from continuing operations for 20242025 was $713.3$43 million, aan decreaseimprovement of $752.2$670 million fromas 2023.compared to fiscal 2024. As a percentage of net sales, operating loss was 7.8%,(0.5)%, aan decreaseimprovement of 827734 basis points compared with 2023.fiscal 2024. This decreasechange was primarily attributable to grosslower margin declinerestructuring and therelated impairmentexpenses ofin long-livedfiscal assets2025 duecompared to 2024, including inventory-related charges related to the 2024 Restructuring Plan.

•Cash flows providedused byin operating activities from continuing operations was $140.5$46 million during 2024,fiscal 2025, a decrease of 0.9%132.6% compared with 2023,fiscal 2024, primarily attributable to ana increasereduction in netour workingaccounts capital offset by lower net incomepayable and provisioncash forcharges deferredrelated incometo taxesthe compared2024 withRestructuring 2023 prior year.Plan.

•Diluted earnings per share (“Diluted EPS”) from continuing operations wasresulted ain lossearnings of $9.80$1.13 during 20242025 compared with a loss of $0.50$9.80 in 2023.2024.

Refer to “Results of Operations” and “Liquidity and Capital Resources” of this Annual Report for further details on the Company’s results.

•CompletingPerformed an assessment ofand began initiatives to improve the productivity of all assets, including company-ownedCompany-owned stores and Carquest Independents, to achieve merchandising excellenceIndependents;

•Reducing costs to remain competitive while reinvesting in the frontline;

•Making organizational changes to position the Company for success; and

On November 1, 2024, the Company completed the sale of the Worldpac business for net proceeds of approximately $1.44 billion (excluding the impact of taxes) after transaction costs and application of the final working capital adjustment recorded in the fourth quarter of fiscal 2025. On November 13, 2024, the Company’s Board of Directors approved the 2024 Restructuring Plan which is designed to improve the Company’s profitability and growth potential and streamline its operations. This plan is supplemental to other ongoing initiatives to simplify the Company's business and improve profitable growth and entails,included, among other items, certain store and independent location closures, streamlining product assortment and headcount reductions and organizational design changes to align the Company’s workforce to the expected needs of the Company's business. The Company is also pursuing efficiencies in procurement, pricing and professional and outside services, in addition to operational efficiencies. Refer to "Liquidity and Capital Resources" herein and Note 3. RestructuringRestructuring, of the Notes to the Consolidated Financial Statements of this Annual Report for further details.

•Inflationary pressures, including logistics and labor

•Global supply chain disruptions

•Cost of fuel

•Miles driven

•Unemployment rates

•Interest rates

•Consumer confidence and purchasing power

•Competition

•Changes in new car sales

•Economic and geopolitical uncertainty

•Increased foreign currency exchange volatility

The following table sets forth certain of the Company’s operating data from continuing operations expressed as a percentage of net sales for the periods indicated.indicated:

Comparable store sales for the fourth quarter and year ended January 3, 2026 excludes net sales for the 53rd week. For example, our comparable sales results for 2025 compares weeks 1 through 52 in fiscal 2025, to the 52-week period reported for fiscal 2024. The Company calculates comparable store sales based on the change in store sales starting once a location has been open for approximately one year and by including e-commerce sales and excluding sales fulfilled by distribution centers to independently owned Carquest locations. Acquired stores are included in the Company’s comparable store sales one year after acquisition. The Company includes sales from relocated stores in comparable store sales from the original date of opening. Closed stores and stores in process of closing under the 2024 Restructuring Plan are not included in the comparable store sales calculation. Comparable store sales is intended only as supplemental information and is not a substitute for Netnet sales presented in accordance with accounting principles generally accepted in the United States of America (“GAAP”).

InterestFor the fifty-three weeks ended January 3, 2026, interest expense forincreased 2024 was $81.0 million, a decrease of $7.0 millionas compared withto 2023.the Thisfifty-two decreaseweeks wasended attributableDecember 28, 2024, due to an increase in the principal amount of interest incomebearing duelong-term todebt higher investment balances compared within the priorthird year.quarter Referof tofiscal 2025. For further information see Note 7. Long-term Debt and Fair Value of Financial InstrumentsInstruments, of the Notes to the Consolidated Financial Statements includedand hereinLiquidity forand furtherCapital details.Resources of this Annual Report.

“Management’s Discussion and Analysis of Financial Condition and Results of Operations”Operations, includes certain financial measures not derived in accordance with GAAP. Non-GAAP financial measures, including Adjusted NetOperating income, Adjusted EPS,Net income (loss), Adjusted Cost of sales, Adjusted Diluted Earnings (Loss) Per Share ("Adjusted EPS"), and Adjusted Selling, general and administrative ("Adjusted SG&A Margin, and Adjusted Operating Income,"), should not be used as a substitute for GAAP financial measures, or considered in isolation, for the purpose of analyzing operating performance, financial position or cash flows.

The Company has presented these non-GAAP financial measures as the Company believes that the presentation of the financial results that exclude (1) transformation expenses under the Company’s turnaround plans, inclusive of the Worldpac divestiture (2) other significant expenses and (3) nonrecurring tax expense are useful and indicative of the Company's base operations because the expenses vary from period to period in terms of size, nature and significance. The income tax impact of these non-GAAP adjustments is adjusted for using the estimated tax rate in effect for the respective non-GAAP adjustments. These measures assist in comparing the Company’s current operating results with past periods and with the operational performance of other companies in the industry. The disclosure of these measures allows investors to evaluate the Company’s performance using the same measures management uses in developing internal budgets and forecasts and in evaluating management’s compensation. Included below is a description of the expenses the Company has determined are not normal, recurring cash operating expenses necessary to operate the Company’s business and the rationale for why providing these measures is useful to investors as a supplement to the GAAP measures.

Transformation Expenses — Expenses incurred in connection with the Company's turnaround plansplan and specific transformative activities related to asset optimization that the Company does not view to be normal cash operating expenses. These expenses primarily include:

•Restructuring and other related expenses —: Expenses relating to strategic initiatives, including severance expense, retention bonuses offered to store-level employees to help facilitate the closing of stores, incremental reserves related to the collectibility of receivables resulting from contract terminations with certain independents associated with the 2024 Restructuring Plan and fees for third-party professionals assisting in the development and execution of the strategic initiatives.

•Inventory write-down —: Expenses relating to the incremental write-down of inventory to net realizable value due to liquidation sales and streamlining inventory assortment due to store and distribution center closures associated with the 2024 Restructuring Plan.

The following discussion and analysis of financial condition and results of operations should be read in conjunction with the audited consolidated financial statements and notes included in the Company’s Annual Report on Form 10-K for the year ended January 3, 2026 (filed with the SEC on February 13, 2026) which the Company refers to as the “2025 Form 10-K”), and the Company’s unaudited condensed consolidated financial statements and the notes to those statements that appear elsewhere in this report. The results of operations for the interim periods are not necessarily indicative of the operating results to be expected for the full year. Consistent with the previous fiscal year, the Company’s first quarter of the year contained sixteen weeks. The Company’s remaining three quarters each consist of twelve weeks.

FirstSecond Quarter Fiscal 2026 Management Overview

The Company’s financial results for the firstsecond quarter of 2026 includes:

Net sales during the firstsecond quarter of fiscal 2026 were $2.6$2.0 billion, ana increasedecrease of 1.2%0.5% compared with the firstsecond quarter of fiscal 2025. Comparable store sales increaseddecreased by 3.5%.0.5%.

Gross profit margin for the firstsecond quarter of fiscal 2026 was 45.1%46.2% of net sales, an increase of 221267 basis points compared with the firstsecond quarter of fiscal 2025.

Selling, general and administrative ("SG&A") expenses, exclusive of restructuring and related expenses for the firstsecond quarter of fiscal 20262026, were 41.3%40.6% of net sales, a decrease of 21635 basis points compared with the firstsecond quarter of fiscal 2025.

The Company generated a diluted earnings per share of $0.39$0.90 during the firstsecond quarter of fiscal 2026, compared with a diluted earnings per share of $0.40$0.25 for the comparable period of 2025.

On February 20, 2026, the U.S. Supreme Court overturned certain U.S. tariffs imposed under the International Emergency Economic Powers Act ("IEEPA") Act.. During fiscal 2025, the Company incurred product costs directly related to the IEEPA tariffs. Tariffs directly paid by the Company are subject to direct refund via the IEEPA tariff refund process. Given the significant uncertainty around the recovery of tariffs that were previously paid, the Company has not recognized any amounts related torecognizes IEEPA tariff recoveriesrefunds withinif itsand when received. During the twelve weeks ended July 18, 2026, the Company recognized $26 million in IEEPA tariff refunds, which are reflected as a benefit to cost of sales on the condensed consolidated financialstatement statementsof operations as of AprilJuly 25,18, 2026. The Company will continue to assess the recoverability of these tariffs, and will recognize any future recoveries when realized or realizable, the amountsmagnitude of which couldin future periods is not expected to be material to the Company’sCompany's condensed consolidated financial statements.

The recent geopolitical events in the Middle East have causedcontinued to cause significant disruption in the normal flow of oil, refined petroleum products and related commodities, which has increased the variability of the price of oil and non-petroleum products. Although the length and impact of these events are highly unpredictable, they could lead to market disruptions, including significant volatility in prices, supply, credit and capital market, consumer behavior and supply chain disruptions. These items, along with actual or perceived weakness in the economic and business climate, could have an adverse impact on our financial condition and results of operations in future periods.

The key factors used in selecting sites and market locations in which the Company operates include population, demographics, traffic count, vehicle profile, number and strength of competitors’ stores and the cost of real estate. During the sixteentwenty-eight weeks ended AprilJuly 25,18, 2026, fournine stores were opened and onethree storestores waswere closed, resulting in a total of 4,3084,311 stores as of the end of the firstsecond fiscal quarter compared with a total of 4,305 stores as of January 3, 2026.

For the sixteentwelve weeks ended AprilJuly 25,18, 2026 and AprilJuly 19,12, 2025, gross profit was $1.2$0.9 billion, or 45.1%46.2% of net sales, and $1.1$0.9 billion, or 42.9%43.5% of net sales, respectively. For the twenty-eight weeks ended July 18, 2026 and July 12, 2025, gross profit was $2.1 billion, or 45.6% of net sales, and $2.0 billion or 43.2% of net sales, respectively. The increase in gross profit as a percentage of net sales compared to the prior comparative periodperiods was driven by expansion in product margin and the recognition of tariff refunds in the second quarter of fiscal 2026. The twenty-eight weeks ended July 18, 2026 also benefited from the impact of lower margin liquidation sales related to our 2024 Restructuring Plan, which negatively impacted gross profit margin in the sixteentwenty-eight weeks ended AprilJuly 19,12, 2025.

For the sixteentwelve weeks ended AprilJuly 25,18, 2026, SG&A expenses, exclusive of restructuring and related expenses, were $1.1relatively flat as compared to the prior comparative period. For the twenty-eight weeks ended July 18, 2026, SG&A expenses, exclusive of restructuring and related expenses, were $1.9 billion, or 41.3%41.0% of net sales, compared with $1.1$1.9 billion, or 43.4%42.3% of net sales, for the sixteentwenty-eight weeks ended AprilJuly 19,12, 2025. OverallOverall, SG&A expenses decreased in the sixteentwenty-eight weeks ended AprilJuly 25,18, 2026, as compared to the prior comparative periods,period, as a result of operating costs eliminated for stores closed during the sixteen weeks ended April 19, 2025 as a result of our 2024 Restructuring Plan.

For the sixteentwelve weeks ended AprilJuly 25,18, 2026, restructuring and related expenses were $32$10 million, or 1.2%0.5% of net sales compared to $29 million, or 1.4% of net sales for the twelve weeks ended July 12, 2025. For the twenty-eight weeks ended July 18, 2026, restructuring and related expenses were $41 million, or 0.9% of net sales, compared to $118$148 million, or 4.6%3.2% of net sales, in the prior year comparable period. The decrease in expenses as compared to the same periodperiods in fiscal 2025,2025 relates to timing of the Company’s 2024 Restructuring Plan which was announced during the fourth quarter of fiscal 2024, with the majority of costs being incurred byduring fiscal 2024, and during the end of first quarterhalf of fiscal 2025 following the closure of all stores under the Plan.Plan in the first quarter of fiscal 2025. Substantially all of the costs under the restructuring plans have been incurred as of AprilJuly 25,18, 2026. The Company estimates that it will incur additional expenses of approximately $20$10 million to $30$20 million through the remainder of fiscal 2026 related to the active restructuring plans. See Note 11. Restructuring, of the Notes to the Condensed Consolidated Financial Statements included in Part I, Item 1.

For the sixteentwelve weeks and twenty-eight weeks ended AprilJuly 25,18, 2026, interest expense increased as compared to the same periods in fiscal 2025, due to an increase in the principal amount of interest bearing long-term debt from the debt issuance completed in the third quarter of fiscal 2025.

For the sixteentwelve weeks and twenty-eight weeks ended AprilJuly 25,18, 2026, other income, net increased as compared to the same period in fiscal 2025, due to higher interest income earned from higher cash and cash equivalent balances held due to the net proceeds received from the issuance of $1.95 billion in Senior Unsecured Notes in the third quarter of fiscal 2025. This was partially offset by lower interest rates and a reduction in income recognized from the transition services (“TSA Services”) agreement with Worldpac.

For the sixteentwelve weeks ended AprilJuly 25,18, 2026, the Company's provision for income taxes reflected an expense of $20 million as compared to an expense of $6 million for the same period during 2025. For the twenty-eight weeks ended July 18, 2026, the Company’s provision for income taxes reflected an expense of $11$30 million compared with an income tax benefit of $155$149 million for the same period in 2025. The income tax benefit in fiscal 2025 resulted from a net discrete tax benefit in the first quarter of fiscal 2025 of $126 million, related to an internal legal entity restructuring event completed in the fiscal year treated as a taxable stock disposition for U.S. federal income tax purposes. As a result, the Company recognized a capital loss deduction which was utilized against capital gain income.

The Company’s principal sources of liquidity are cash and cash equivalents and borrowing availability under the asset-based loan revolving credit facility (the "ABL facility.facility"). The Company’s primary cash requirements necessary to maintain the Company’s current operations include payroll and benefits, inventory purchases, contractual obligations, capital expenditures, payment of income taxes, funding of initiatives and other operational priorities, such as restructuring and asset optimization plans. In addition, cash is required to pay the Company’s dividends and to pay interest and principleprincipal on the Company’s long-term debt when due. The following table presents selected financial information related to the Company’s liquidity (in millions):

The decrease in cashCash and cash equivalents was primarilyrelatively dueflat, toas net cash provided by operating activities of $252 million was offset by $131 million used for purchases of property and equipment, net of proceeds from sales; the final working capital payment made related to the Company's sale of Worldpac totaling $55 million, $55 million used for purchases of property and equipment, net of proceeds from sales,; the payment of $30 million in dividends; and netthe cash used in operating activitiesrepayment of $19$29 million, primarily as a resultmillion of changeslong-term in net working capital.debt.

For the sixteentwenty-eight weeks ended AprilJuly 25,18, 2026, cash usedprovided inby operating activities changed favorably by $137$358 million compared with the same period of prior year. The increase as compared to the comparative period was due to lower cash charges related to the 2024 Restructuring Plan and other changes in net working capital.

For the sixteentwenty-eight weeks ended AprilJuly 25,18, 2026, cash flows used in investing activities of continuing operations increased by $30$58 million compared with the sixteentwenty-eight weeks ended AprilJuly 19,12, 2025, with higher spend on property and equipment in the current period, partially offset by lower proceeds from the sale of property and equipment.

Net cash used in investing activities of discontinued operations for the sixteentwenty-eight weeks ended AprilJuly 25,18, 2026, increased by $55 million compared with the sixteentwenty-eight weeks ended AprilJuly 19,12, 2025, due to the timing of the final working capital payment made related to the Company's sale of Worldpac.

For the sixteentwenty-eight weeks ended AprilJuly 25,18, 2026, cash flows used in financing activities wasincreased $37by million, an increase of $20$34 million as compared with sixteenthe twenty-eight weeks ended AprilJuly 19,12, 2025. The increase in cash used in financing activities was due to twothe dividendrepurchase paymentsof beingoutstanding madeprincipal duringrelated to the sixteen2027 weeksNotes endedand April2028 25, 2026 as compared to one dividend payment made during the sixteen weeks ended April 19, 2025.Notes.

The Company’s Board of Directors has declared a cash dividend every quarter since 2006. Any payments of dividends in the future will be at the discretion of the Company’s Board of Directors and will depend upon the Company’s results of operations, cash flows, capital requirements and other factors deemed relevant by the Board of Directors. The Company’s ABL Facility has certain restrictions that may limit the Company’sits ability to increase the amount of the Company’s cash dividends above its current levels.

As of AprilJuly 25,18, 2026 and January 3, 2026, the Company had outstanding principal of long-term debt totaling $3.4 billion and $3.5 billion.billion, respectively.

In accordance with the ABL Facility, the Company is required to hold cash and cash equivalents in designated accounts with lenders, referred to as Qualified Cash Accounts as defined in the ABL Facility. As of AprilJuly 25,18, 2026 and January 3, 2026, approximately $2.3 billion of cash and cash equivalents was designated as qualified cash and are subject to customary “springing” control agreements, as described in the ABL Facility Agreement.

As of AprilJuly 25,18, 2026 and January 3, 2026, the Company had no outstanding borrowings,borrowings under its ABL Facility. As of July 18, 2026 and January 3, 2026, the Company had $894 million and $896 million of borrowing availability, respectively, and $106 million and $104 million letters of credit outstandingoutstanding, respectively, under the ABL Facility. The Company was in compliance with its covenants related to the ABL Facility in all periods presented.

As of AprilJuly 25,18, 2026 and January 3, 2026, the Company had no bilateral letters of credit issued separately from the ABL Agreement.

For further details, see Note 5. Long-term Debt and Fair Value of Financial InstrumentsInstruments, of the Notes to the Condensed Consolidated Financial Statements included in Part I, Item 1., respectively.1.

Expected working and other capital requirements, including Contractual and Off-Balance Sheet Obligations are described in the Company’s 2025 Form 10-K in “Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.” As of AprilJuly 25,18, 2026, other than for the changes disclosed in the “Notes to the Condensed Consolidated Financial Statements”, and “Liquidity and Capital Resources” in this Quarterly Report, there have been no other material changes to the Company’s expected working and other capital requirements described in the Company’s 2025 Form 10-K.