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Item 2. Management’s Discussion and Analysis

2025-07-22 compared with 2025-04-22 · 172 added, 129 removed, 137 unchanged (69% of the section changed)

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The following discussion should be read in conjunction with the unaudited Condensed Consolidated Financial Statements and accompanying notes contained herein and with the audited Consolidated Financial Statements, accompanying notes, related information and Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the year ended December 31, 2024.

The results of operations for the three months ended March 31, 2025 are not necessarily indicative of results for the year ended December 31, 2025.

The results of operations for the three and six months ended June 30, 2025 are not necessarily indicative of results for the year ended December 31, 2025.

Forward-Looking Statements

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Actual results or events may differ materially from those indicated as a result of various important factors.

Such factors may include, among other things, changes in general economic conditions, including unemployment, inflation (including the direct and indirect impact of tariffs and other similar measures, as well as the potential impact of retaliatory tariffs and other actions) or deflation, financial institution disruptions and geopolitical conflicts such as the conflict between Russia and Ukraine, the conflict in the Gaza strip and other unrest in the Middle East;

Such factors may include, among other things, changes in general economic conditions, including unemployment, inflation (including the direct and indirect impact of tariffs and other similar measures, as well as the impact of retaliatory tariffs and other actions) or deflation, financial institution disruptions and geopolitical conflicts such as the conflict between Russia and Ukraine, the conflict in the Gaza strip and other continuing unrest in the Middle East;

volatility in oil prices;

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changes in national and international legislation or government regulations or policies, including changes to import tariffs, environmental and social policy, infrastructure programs and privacy legislation, and their direct and indirect impact to us, our suppliers and customers;

changes in tax policies;

changes in tax policies, including those included in the One Big Beautiful Bill Act;

volatile exchange rates;

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the uncertainties and costs of litigation;

disruptions caused by a failure or breach of our information systems, as well as other risks and uncertainties discussed in our 2024 Annual Report on Form 10-K and from time to time in our subsequent filings with the SEC.

disruptions caused by a failure or breach of our information systems, as well as other risks and uncertainties discussed in our 2024 Annual Report on Form 10-K, our Quarterly Report on Form 10-Q for the quarter ended March 31, 2025 and from time to time in our subsequent filings with the SEC.

Forward-looking statements speak only as of the date they are made, and we undertake no duty to update any forward-looking statements except as required by law.

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Over nearly a century, we’ve built a reputation for delivering excellent customer service, profitable growth, leading distribution capabilities and strong cash flow.

For the three months ended March 31, 2025, we conducted business in North America, Europe and Australasia from more than 10,700 locations.

Our Automotive business operated in the U.S., Canada, Mexico, France, the U.K., Ireland, Germany, Poland, the Netherlands, Belgium, Spain, Portugal, Australia and New Zealand and accounted for 62% of total revenues for the three months ended March 31, 2025.

As of June 30, 2025, we conducted business in North America, Europe and Australasia from more than 10,700 locations.

Our Automotive business operated in the U.S., Canada, Mexico, France, the U.K., Ireland, Germany, Poland, the Netherlands, Belgium, Spain, Portugal, Australia and New Zealand and accounted for 63% of total revenues for the six months ended June 30, 2025.

Our Industrial business operated in the U.S., Canada, Mexico, Australia, New Zealand, Indonesia and Singapore and accounted for 37% of total revenues during this period.

Our mission is to be the employer, supplier, and investment of choice, while also being a valued corporate citizen in the communities we serve.

This mission drives our strategic financial objectives:

outpacing market revenue growth, improving operating margins, maintaining a strong balance sheet and cash flows, and allocating capital effectively.

As we look to the future, we are leaning into modernizing our supply chain and technology through digital innovation, and data-driven strategies to enhance our competitive edge.

By leveraging technology and optimizing supply chains, we are empowering our teams with cutting-edge tools to focus on delivering exceptional customer service and driving sustainable growth.

At the heart of it all is our commitment to excellence, supported by a culture of continuous improvement and a legacy of strong leadership that has guided us for nearly 100 years.

Key Performance Indicators

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Results of Operations

Our performance in the first quarter of 2025 reflects continued sales growth while navigating a challenging operating environment.

Our first quarter net sales of $5.9 billion increased 1.4% year-over-year, despite having one less selling day in the U.S.

compared to the prior year quarter.

Automotive segment sales increased primarily due to the benefit of prior year acquisitions.

Industrial segment sales declined due primarily to one less selling day in the U.S., partially offset by modest improvements in market conditions.

The Purchasing Managers’ Index ("PMI"), a measure of U.S.

manufacturing trends, showed sequential improvement in the early stages of the first quarter of 2025 compared to the contractionary levels we experienced during most of 2024.

PMI contracted in March, indicative that the overall operating environment remains uncertain.

First quarter net income declined 21.9% year over year, primarily due to lost profit from one less selling day in the U.S., higher depreciation and interest expenses from planned investments, lower pension income due to a change in our investing strategy related to our planned U.S.

pension plan termination, and certain foreign currency headwinds.

These factors were partially offset by a 120 basis point gross margin improvement year-over-year, driven by the continued execution of our strategic pricing and sourcing initiatives as well as contributions from prior-year acquisitions.

These factors were also offset by $27 million in benefits in the quarter from the ongoing execution of our global restructuring to improve business efficiency.

First quarter restructuring and other costs totaled $55 million, a decrease from $83 million in the prior year period, which included a voluntary retirement program.

tariffs implemented in March 2025 did not materially impact our first quarter results.

While the long-term effects remain uncertain, we continue to closely monitor the evolving tariff policy environment which presents a mix of impacts, with the potential for higher pricing, as well as higher product and operating costs.

We have not updated our outlook for 2025 given the lack of clarity in the external environment with respect to the implementation of tariffs globally.

Risk Factors for a discussion regarding tariff-related risks.

Our first quarter results of operations are summarized below for the three months ended March 31, 2025 and 2024.

Three Months Ended March 31,

Our second quarter results reflect ongoing weakness in market conditions and persistent cost inflation.

The operating environment across all of our geographies has several challenges, including recently enacted tariffs in the U.S., ongoing trade uncertainty, high interest rates and cautious customers.

Despite these headwinds, execution of our strategic initiatives and cost actions has allowed us to partially mitigate the negative impact of these factors on our results for the quarter.

Net sales increased 3.4% year-over-year to $6.2 billion.

Growth in Automotive sales was driven primarily by contributions from acquisitions and foreign exchange benefits.

Industrial achieved modest sales growth despite the Purchasing Managers’ Index ("PMI"), a measure of U.S.

manufacturing trends, signaling contraction and an overall weak industrial backdrop throughout the quarter.

Second quarter net income declined 13.8% compared to the same prior year period.

This was primarily driven by higher depreciation and interest expense from planned investments and lower pension income due to a change in our investing strategy related to our planned U.S.

pension plan termination.

Additionally, we experienced higher SG&A expenses resulting from planned salary and merit increases and increased rent from lease renewals in a higher interest rate environment.

Lastly, restructuring and other costs totaled $46 million in the second quarter, up slightly from $37 million in the prior year period, primarily driven by costs associated with facility closures and additional severance costs.

These factors were partially offset by successful execution of our ongoing strategic pricing and sourcing initiatives and acquisitions completed in the prior year, which contributed to the 110 basis point improvement in gross margin.

Additionally, disciplined cost management and the continued rollout of our global restructuring program yielded $33 million in operational savings, underscoring our commitment to enhancing business efficiency and adaptability amid a challenging economic environment.

During the first half of 2025, new global trade tariffs were announced on imports into the U.S., including additional tariffs on merchandise inventories sourced directly or indirectly from several countries, such as Canada, China, and Mexico.

Since then, various modifications and delays to these tariffs have been implemented, with further changes anticipated, potentially including additional sector-specific tariffs or other measures.

Our results were not materially impacted by this tariff activity during the first half of 2025.

However, because the long-term effects remain uncertain, we continue to closely monitor the evolving tariff policy environment and the impact it may have on our operations.

See Part II, Item 1A.

Risk Factors in the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2025 for further discussion regarding tariff-related risks.

Our second quarter results of operations are summarized below for the three and six months ended June 30, 2025 and 2024.

Three Months Ended June 30,

(in thousands) $ % of Sales $ % of Sales $ Change % Change

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Net income $ 254,880 4.1 % $ 295,544 5.0 % $ (40,664) (13.8) %

Three Months Ended March 31,

Three Months Ended June 30,

(in thousands, except per share data) 2025 2024 $ Change % Change

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Total adjusted EBITDA margin 8.9 % 9.5 %

Our first quarter 2025 net sales increased 1.4% compared to the first quarter of 2024.

We experienced a 3.0% benefit from acquisitions, partially offset by a 0.8% decrease in comparable sales and a net unfavorable impact of foreign currency and other of 0.8%.

The overall decrease in comparable sales was primarily driven by one less selling day in the U.S.

compared to the first quarter of 2024.

First quarter net sales for Automotive were $3.7 billion, an increase of 2.5% from 2024.

The increase consisted of a 4.1% benefit from acquisitions, partially offset by a 0.8% decrease in comparable sales and 0.8% net unfavorable impact of foreign currency and other, primarily due to the stronger U.S.

Our comparable sales decrease was primarily driven by one less selling day in the U.S.

compared to the first quarter of 2024.

We experienced a strong contribution from our prior year U.S.

acquisitions in Automotive, which enhanced our ability to serve customers.

First quarter net sales for Industrial were $2.2 billion, a decrease of 0.4% compared to 2024.

The decrease in sales reflects a 0.7% decrease in comparable sales, and a 1.0% unfavorable impact of foreign currency.

These were partially offset by a 1.3% benefit from acquisitions.

The decline in comparable sales was primarily due to one less selling day in the U.S.

compared to the first quarter of 2024, which impacted sales by 150 basis points, and was partially offset by improvements in market conditions.

Although conditions in the industrial market remained challenging, the Purchasing Managers’ Index (PMI) data showed sequential improvement from the contractionary levels at the end of 2024 to a level approaching expansionary territory in the early stages of the first quarter of 2025 before declining in March.

The impact of this shift on our sales results remains uncertain.

Six Months Ended June 30,

(in thousands) $ % of Sales $ % of Sales $ Change % Change

Net sales $ 12,030,494 100.0 % $ 11,746,198 100.0 % $ 284,296 2.4 %

Cost of goods sold 7,532,422 62.6 % 7,491,240 63.8 % 41,182 0.5 %

Gross profit 4,498,072 37.4 % 4,254,958 36.2 % 243,114 5.7 %

Operating expense:

Selling, administrative and other expenses 3,480,874 28.9 % 3,222,383 27.4 % 258,491 8.0 %

Depreciation and amortization 238,453 2.0 % 189,812 1.6 % 48,641 25.6 %

Provision for doubtful accounts 13,480 0.1 % 11,889 0.1 % 1,591 13.4 %

Restructuring and other costs 100,482 0.8 % 112,802 1.0 % (12,320) (10.9) %

Total operating expense 3,833,289 31.9 % 3,536,886 30.1 % 296,403 8.4 %

Non-operating (income) expense:

Interest expense, net 77,427 0.6 % 39,611 0.3 % 37,816 95.5 %

Other (2,838) — % (32,921) (0.3) % 30,083 (91.4) %

Total non-operating (income) expense 74,589 0.6 % 6,690 0.1 % 67,899 1014.9 %

Income before income taxes 590,194 4.9 % 711,382 6.1 % (121,188) (17.0) %

Income taxes 140,922 1.2 % 166,944 1.4 % (26,022) (15.6) %

Net income $ 449,272 3.7 % $ 544,438 4.6 % $ (95,166) (17.5) %

Six Months Ended June 30,

(in thousands, except per share data) 2025 2024 $ Change % Change

Diluted EPS $ 3.23 $ 3.89 $ (0.66) (17.0) %

Adjusted diluted EPS $ 3.84 $ 4.66 $ (0.82) (17.6) %

Automotive segment EBITDA $ 623,499 $ 682,545 $ (59,046) (8.7) %

Industrial segment EBITDA $ 566,849 $ 563,947 $ 2,902 0.5 %

Corporate EBITDA $ (169,757) $ (160,620) $ (9,137) 5.7 %

Total adjusted EBITDA $ 1,020,591 $ 1,085,872 $ (65,281) (6.0) %

Automotive segment EBITDA margin 8.2 % 9 %

Industrial segment EBITDA margin 12.7 % 12.7 %

Corporate EBITDA margin (1.4) % (1.4) %

Total adjusted EBITDA margin 8.5 % 9.2 %

For the three months ended June 30, 2025, net sales increased 3.4% compared to 2024.

The increase was driven by a 2.6% benefit from acquisitions and a net favorable impact of foreign currency and other of 0.6%.

Comparable sales were essentially flat when compared to 2024.

For the six months ended June 30, 2025, net sales increased 2.4% compared to 2024.

We experienced a 2.8% benefit from acquisitions, slightly offset by a net unfavorable impact of foreign currency and other of 0.1%.

Comparable sales were essentially flat when compared to 2024.

Our net sales for the three and six months ended June 30, 2025 were impacted by the challenging macroeconomic environment.

Net sales for the six months ended June 30, 2025 were also impacted by one less selling day in the U.S.

compared to the prior period.

Net sales for the three months ended June 30, 2025 for Automotive were $3.9 billion, an increase of 5.0% from 2024.

The increase is attributable to a 3.4% benefit from acquisitions and a 1.2% net favorable impact of foreign currency and other.

Net sales for the six months ended June 30, 2025 for Automotive were $7.6 billion, an increase of 3.8% from 2024.

The increase is attributable to a 3.7% benefit from acquisitions and a 0.3% net favorable impact of foreign currency and other.

Our sales growth was driven by the strong contribution from our stores that were acquired over the last twelve months, which enhanced our ability to reach and serve our customers, and, to a lesser extent, the favorable impact resulting from the strength of the Euro relative to the U.S.

Comparable sales were essentially flat for the three and six months ended June 30, 2025, nonetheless they demonstrated sequential improvement for the three months ended June 30, 2025 relative to the preceding quarter.

Net sales for the three months ended June 30, 2025 for Industrial were $2.3 billion, an increase of 0.7% compared to 2024.

The increase in sales reflects a 1.3% benefit from acquisitions, partially offset by a 0.5% unfavorable impact of foreign currency.

Comparable sales were essentially flat when compared to 2024.

Net sales for the six months ended June 30, 2025 for Industrial were $4.5 billion, an increase of 0.2% compared to 2024.

The increase in sales reflects a 1.3% benefit from acquisitions.

This was partially offset by a 0.7% unfavorable impact of foreign currency.

Comparable sales were essentially flat when compared to 2024.

This modest sales growth was achieved despite the Purchasing Managers’ Index ("PMI") signaling contraction and an overall weak industrial backdrop throughout the quarter.

Gross Profit and Gross Margin

Gross profit increased $99 million, or 4.8%, during the first quarter of 2025 compared to last year, and gross margin increased 120 basis points to 37.1% compared to that same period of the previous year.

These increases primarily reflect the benefit of acquired businesses and our ongoing pricing and sourcing initiatives.

Gross profit increased $144 million, or 6.6%, during the three months ended June 30, 2025 and gross margin increased 110 basis points to 37.7% compared to the prior year period.

Gross profit increased $243 million, or 5.7%, during the six months ended June 30, 2025 and gross margin increased 120 basis points to 37.4% compared to the prior year period.

These increases primarily reflect the benefit of successful execution of our ongoing strategic pricing and sourcing initiatives and acquisitions completed in the prior year.

Selling, Administrative and Other Expenses

SG&A expenses increased $135 million, or 8.6%, during the first quarter of 2025 compared to the first quarter of 2024.

Of the 8.6% increase, 6.0% was from acquisitions and 2.6% was from other cost increases.

We incurred higher SG&A expenses due to acquisitions, primarily increased personnel and rent costs from operating the U.S.

automotive stores we acquired in 2024.

Additionally, we incurred $14 million of lease and other exit costs related to the ongoing integration of those stores.

We expect the SG&A impact of acquired stores to diminish over time as we realize the anticipated synergies from these acquisitions.

The remaining SG&A increase is primarily due to planned salary and merit adjustments and increased rent from lease renewals in a higher rate environment, partially offset by $27 million in benefits from our global restructuring.

We have taken extensive actions to adjust our cost structure through our global restructuring.

SG&A expenses as a percentage of sales increased to 29.1% of sales in the first quarter of 2025 compared to 27.2% last year, but improved sequentially from the fourth quarter of 2024.

The 190 basis point increase was primarily driven by increased SG&A expenses from acquisitions and other items, as discussed above, and cost deleveraging from lower organic sales growth.

SG&A expenses increased $124 million, or 7.5%, during the three months ended June 30, 2025 compared to the prior year period.

The 7.5% increase comprised 4.3% from acquisitions and 3.2% from other cost increases.

SG&A expenses increased $258 million, or 8.0%, during the six months ended June 30, 2025 compared to the prior year period.

The 8.0% increase comprised 4.8% from acquisitions and 3.2% from other cost increases.

We incurred higher SG&A expenses due to our recent acquisitions, driven largely by additional personnel and rent costs from acquiring more of our U.S.

automotive stores from our independent owners.

We expect the SG&A impact from acquiring these stores to diminish over time as we realize the impact of anticipated synergies.

The remaining increase in SG&A is primarily due to planned salary and merit adjustments and increased rent from lease renewals in a higher interest rate environment.

We are managing the impact of higher SG&A through our global restructuring initiatives, which we estimate had a $59 million benefit to SG&A for the six months ended June 30, 2025.

SG&A expenses as a percentage of sales increased to 28.7% of sales in the three months ended June 30, 2025 compared to 27.6% last year, but improved sequentially from 29.1% of sales during the first quarter of 2025.

SG&A expenses as a percentage of sales increased to 28.9% of sales in the six months ended June 30, 2025 compared to 27.4% last year.

The increases in percentage for both periods in 2025 was primarily driven by increased SG&A expenses from acquisitions and other items, as discussed above, and cost deleveraging from comparable sales that were essentially flat.

Restructuring and Other Costs

We incurred $55 million of restructuring and other costs during the first quarter of 2025 as part of our global restructuring which was approved and initiated in February 2024 and remains on track to deliver an improved overall cost structure.

Restructuring and other costs decreased $28 million compared to the prior year period, reflecting the completion of certain initiatives in 2024, including a voluntary retirement program.

We incurred $46 million and $100 million of restructuring and other costs during the three months and six months ended June 30, 2025, respectively, as part of our global restructuring plan which was approved and initiated in February 2024 and remains on track to deliver an improved overall cost structure.

Restructuring and other costs increased by $8 million compared to the prior period, reflecting costs associated with facility closures and additional

severance costs.

For additional details, refer to the Restructuring Footnote in the Notes to Condensed Consolidated Financial Statements.

Depreciation and Amortization

Depreciation and amortization expenses increased $25 million related to planned investments in technology and supply chain initiatives.

Depreciation and amortization expenses increased $24 million and $49 million for the three and six months ended June 30, 2025, respectively, related to planned investments in technology and supply chain initiatives.

Non-Operating Expenses and Income

We incurred $36 million in net non-operating expenses for the three months ended March 31, 2025, a $42 million change from $5 million in net non-operating income in the prior year period.

This category primarily includes net interest expense, pension and investment income, foreign currency gains and losses, and fees associated with our Accounts Receivable Sales Agreement ("A/R Sales Agreement").

The $42 million expense increase includes the effects of a $20 million increase in net interest expense in 2025, due to increased borrowings, and a $13 million decrease in pension income as a result of changes in expected returns due to the planned termination of our U.S.

We incurred $38 million in net non-operating expenses for the three months ended June 30, 2025, a $26 million change from $12 million in net non-operating expense in the prior year period.

The $26 million expense increase primarily includes the effects of an $18 million increase in net interest expense in 2025, due to increased borrowings, as well as a $14 million decrease in pension income as a result of changes in expected returns due to the planned termination of our U.S.

pension plan.

Our effective income tax rates were 22.7% and 23.5% for first quarter 2025 and 2024, respectively.

The rate decrease from 2024 is primarily due to a shift in the mix of earnings across our businesses due to one-time U.S.

pension transaction costs partially offset by routine tax position adjustments.

For the six months ended June 30, 2025, we incurred $75 million in net non-operating expenses, a $68 million change from the prior year period.

The $68 million expense increase primarily includes the effects of a $38 million increase in net interest expense in 2025, due to increased borrowings, and a $27 million decrease in pension income as a result of changes in expected returns due to the planned termination of our U.S.

pension plan.

Our effective income tax rates were 24.7% and 23.5% for three months ended June 30, 2025 and 2024, respectively.

Our effective income tax rates were 23.9% and 23.5% for six months ended June 30, 2025 and 2024, respectively.

The rate increase for both the three and six month periods are primarily due to a reduction of excess tax stock compensation benefits and comparative restructuring costs.

Net Income and Adjusted Net Income

First quarter 2025 net income was $194 million, a decrease of 21.9% compared to net income of $249 million for the same three month period of the prior year.

Net income was $255 million, for the three months ended June 30, 2025, a decrease of 13.8% compared to net income of $296 million for the prior year period.

On a per share diluted basis, net income was $1.83, a decrease of 13.3% compared to $2.11 in the prior year period.

These decreases are primarily due to lost profit from one less selling day in the U.S.

compared to the prior year period, higher depreciation and interest expenses from ongoing investments, lower pension income due to a change in our investing strategy related to our planned U.S.

pension plan termination, and certain foreign currency headwinds.

First quarter 2025 adjusted net income was $243 million, a decrease of 21.8% compared to the prior year period.

On a per share basis, first quarter 2025 adjusted net income was $1.75, a decrease of 21.2% compared to $2.22 in the prior year period.

First quarter 2025 adjusted EBITDA was $473 million, a decrease of 8.4% from the prior year period.

The decreases in these measures are primarily the result of softer market conditions and one less sales day in the first quarter of 2025 compared to the same period last year.

For the six months ended June 30, 2025 net income was $449 million, a decrease of 17.5% compared to net income of $544 million for the prior year period.

On a per share diluted basis, net income was $3.23, a decrease of 17.0% compared to $3.89 in the prior year period.

Adjusted net income was $292 million for the three months ended June 30, 2025, a decrease of 14.6% compared to the prior year period.

On a per share basis, the three months ended June 30, 2025 adjusted net income was $2.10, a decrease of 13.9% compared to $2.44 in the prior year period.

Adjusted net income was $535 million for the six months ended June 30, 2025, a decrease of 18.0% compared to the prior year period.

On a per share basis, the six months ended June 30, 2025 adjusted net income was $3.84, a decrease of 17.6% compared to $4.66 in the prior year period.

In line with our expectations, these decreases are primarily due to continued soft market conditions, planned investments in the business generating higher depreciation and interest costs, lower pension income due to a change in our investing strategy related to our planned U.S.

pension plan termination, and increased personnel and rent expenses.

The decrease for the six month period was also impacted by lost profit from one less selling day in the U.S.

compared to the prior year period.

These factors were partially offset by a 110 basis point gross margin improvement driven by the continued execution of ongoing strategic pricing and sourcing initiatives and acquisitions completed in the prior year.

Segment EBITDA

Automotive EBITDA decreased $34 million, or 10.7%, in the first quarter compared to the prior year period, and Automotive EBITDA margin decreased to 7.8% compared to 8.9% in the prior year period, driven by the following factors.

Automotive segment sales grew $91 million, or 2.5%, in the first quarter of 2025 due to contributions from prior year strategic acquisitions of independent stores in our U.S.

business, partially offset by one less selling day.

Gross profit increased $96 million, or 7%, and gross margin improved 160 basis points primarily due primarily to the acquisitions in our U.S.

business and strategic sourcing initiatives.

Our gross profit improvement was offset by rising operating expenses.

Operating expenses increased $130 million, mainly driven by increased personnel and rent costs, which increased primarily from operating the U.S.

stores we acquired in 2024.

We expect the expense impact of acquired stores to diminish over time as we realize the anticipated synergies from these acquisitions.

The increase in operating expenses was primarily due to acquisitions, however declines in Automotive EBITDA and EBITDA margin largely were driven by loss of expense leverage due to lower organic sales growth in our existing businesses.

Industrial EBITDA and EBITDA margin both remained flat in the first quarter compared to 2024.

Industrial segment sales declined $8 million, or 0.4%, primarily driven by a decline of 0.7% in comparable sales due to one less selling day in the U.S.

compared to the prior year period, partially offset by a 1.3% benefit from acquisitions.

Gross profit and operating expenses in our Industrial segment remained largely unchanged compared to the prior year.

These results highlight continued benefits of our global restructuring efforts within the Industrial segment, enabling effective cost management in an uncertain economic environment.

Automotive net sales increased 5.0% in the three months ended June 30, 2025, mainly driven by acquisitions and the favorable foreign currency effects primarily with our European operations.

While gross margin improved due to store acquisitions and strategic pricing and sourcing initiatives, profitability declined due to inflation driven increases in the costs of salaries and wages, rent, and freight, along with loss of fixed cost leverage from essentially flat comparable sales.

As a result, Automotive EBITDA declined 6.9%, and EBITDA margin decreased to 8.6%, down from 9.7% in the prior year period.

Automotive EBITDA decreased $59 million, or 8.7%, in the six months ended June 30, 2025 compared to the prior year period, and Automotive EBITDA margin decreased to 8.2% compared to 9.3% in the prior year period.

The increase in operating expenses and declines in Automotive EBITDA and EBITDA margin were driven by the factors detailed above.

Despite a challenging macroeconomic environment and contracting PMI, our Industrial results reflect steady execution of our long-term strategic initiatives.

Industrial net sales increased 0.7% in the three months ended June 30, 2025, primarily driven by a 1.3% benefit from acquisitions, partially offset by an unfavorable 0.5% impact of foreign currency translation.

Industrial EBITDA increased 1.1%, with EBITDA margin improving slightly to 12.8% compared to 12.7% in the prior year period.

For the six months ended June 30, 2025, Industrial sales grew 0.2%, primarily driven by a 1.3% benefit from acquisitions, partially offset by an unfavorable 0.7% impact of foreign currency translation.

EBITDA increased $3 million, or 0.5%, with EBITDA margin holding steady at 12.7%.

Gross profit and operating expenses in our Industrial segment remained largely unchanged over both periods compared to the prior year.

Corporate EBITDA and Other Segment Reconciling items

Corporate EBITDA amounted to a loss of $91 million, or 1.6% of net sales, for the three months ended March 31, 2025, compared to a loss of $82 million, or 1.4% of net sales, in for the three months ended March 31, 2024.

Corporate EBITDA amounted to a loss of $79 million, or 1.3% of net sales, for the three months ended June 30, 2025, compared to a loss of $78 million, or 1.3% of net sales, for the three months ended June 30, 2024.

Corporate EBITDA amounted to a loss of $170 million, or 1.4% of net sales, for the six months ended June 30, 2025, compared to a loss of $161 million, or 1.4% of net sales, in the prior year period.

We continue to consolidate certain back-office functions at Corporate to streamline operations and drive improvements.

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Other unallocated costs represent restructuring and other costs and acquisition and integration related costs and other.

These decreased year-over-year due to the aforementioned decrease in costs related to the global restructuring initiative that was approved in February 2024.

EBITDA was $404 million for the three months ended March 31, 2025, a decrease of 6.7% from $433 million during the prior year period.

Adjusted EBITDA was $473 million in the first quarter of 2025, a decrease of 8.4% from $517 million during the prior year period.

Decreases in adjusted EBITDA were primarily driven by lost profit from one less selling day in the U.S.

compared to the prior year period, higher depreciation and interest

expenses from planned investments, lower pension income due to a change in our investment strategy related to our planned U.S.

pension plan termination, and certain foreign currency headwinds.

EBITDA was $502 million for the three months ended June 30, 2025, a decrease of 1.1% from $507 million during the prior year period.

Adjusted EBITDA was $547 million for the three months ended June 30, 2025, a decrease of 3.8% from $569 million during the prior year period.

EBITDA was $906 million for the six months ended June 30, 2025, a decrease of 3.7% from $941 million during the prior year period.

Adjusted EBITDA was $1.0 billion for the six months ended June 30, 2025, a decrease of 6.0% from $1.1 billion during the prior year period.

In line with our expectations, the decreases in EBITDA and adjusted EBITDA are primarily due to continued soft market conditions, lower pension income due to a change in our investing strategy related to our planned U.S.

pension plan termination, and increased personnel and rent expenses.

These factors were partially offset by a 110 and 120 basis point gross margin improvement for the three and six months ended June 30, 2025, respectively, driven by the continued execution of our strategic pricing and sourcing initiatives as well as contributions from prior-year acquisitions.

Additionally, sales were impacted by one less sales day in the six months ended June 30, 2025.

Adjusted net income, adjusted diluted EPS, EBITDA and adjusted EBITDA are non-GAAP measures (see table below for reconciliations to the most directly comparable GAAP measures).

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We consider these metrics useful to investors because they provide greater transparency into management’s view and assessment of our ongoing operating performance by removing items management believes are not representative of our operations and may distort our longer-term operating trends.

For example, for the three months ended March 31, 2025, certain of the non-GAAP metrics contained herein exclude costs relating to our global restructuring initiative and acquisition of acquired independent automotive stores, which are one-time events that do not recur in the ordinary course of business.

We believe the non-GAAP metrics included herein also enhance the comparability of our results from period to period and with our competitors, as well as to show ongoing results from operations distinct from items that are infrequent or not associated with our core operations.

For example, certain of the non-GAAP metrics contained herein exclude costs relating to our global restructuring initiative and acquisition of acquired independent automotive stores, which are one-time events that do not recur in the ordinary course of business.

We believe the

non-GAAP metrics included herein also enhance the comparability of our results from period to period and with our competitors, as well as to show ongoing results from operations distinct from items that are infrequent or not associated with our core operations.

We do not, nor do we suggest investors should, consider such non-GAAP financial measures in isolation from, or as a substitute for, GAAP financial information.

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

(in thousands) 2025 2024 2025 2024

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The table below represents amounts per common share assuming dilution:

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

(in thousands, except per share data) 2025 2024 2025 2024

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(3) We determine the tax effect of non-GAAP adjustments by considering the tax laws and statutory income tax rates applicable in the tax jurisdictions of the underlying non-GAAP adjustments, including any related valuation allowances.

For the three months ended March 31, 2025, we applied the statutory income tax rates to the taxable portion of all of our adjustments, which resulted in a favorable tax impact of $20 million.

For the three and six months ended June 30, 2025, we applied the statutory income tax rates to the taxable portion of all of our adjustments, which resulted in a favorable tax impact of $9 million and $29 million, respectively.

The table below represents a reconciliation from GAAP net income to adjusted EBITDA:

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

(in thousands) 2025 2024 2025 2024

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The table below clarifies where the adjusted items are presented in the Condensed Consolidated Statements of Income:

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

(in thousands) 2025 2024 2025 2024

Cost of goods sold $ — $ 7,487 $ — $ 7,487

Selling, administrative and other expenses — 24,778 14,035 24,778

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Financial Condition

Our cash and cash equivalents balance was $420 million as of March 31, 2025, a decrease of $60 million from December 31, 2024.

For the three months ended March 31, 2025, we had net cash used in operating activities of $41 million, net cash used in investing activities of $155 million and net cash provided by financing activities of $129 million.

Cash from operations decreased mainly due to lower net income and working capital changes primarily driven by seasonal sales and purchasing trends.

We had $155 million in net cash used for investing activities primarily consisting of capital expenditures and acquisitions of $194 million, partially offset by $23 million in cash inflows from settling net investment hedges.

The financing activities consisted primarily of $772 million in net proceeds of commercial paper, partially offset by $500 million in commercial paper borrowings to repay the principal amount of our 1.75% Unsecured Senior Notes due February 1, 2025 and $134 million for dividends paid to our shareholders.

Our cash and cash equivalents balance was $458 million as of June 30, 2025, a decrease of $22 million from December 31, 2024.

For the six months ended June 30, 2025, we had net cash provided by operating activities of $169 million, net cash used in investing activities of $318 million and net cash provided by financing activities of $103 million.

Cash from operations decreased mainly due to lower net income and working capital changes primarily driven by accelerated tax payments as compared to prior year.

Additionally, the decrease was also impacted by the prior year timing and volume of purchases and related payments in connection with our strategic inventory investments that did not repeat in the current year.

We had $318 million in net cash used for investing activities primarily consisting of capital expenditures and acquisitions of $361 million.

We had $103 million in net cash provided by financing activities which comprised of $917 million in net proceeds from our commercial paper program, partially offset by $500 million used to repay the principal amount of our 1.75% Unsecured Senior Notes and $277 million for dividends paid to shareholders.

Accounts receivable increased $418 million, or 19.1%, from December 31, 2024.

Inventory increased $260 million, or 4.7%.

Accounts receivable and inventory were both impacted by first quarter increase in revenues and related product demand.

Accounts receivable and inventory were both impacted by an increase in revenues and related product demand in the six months ended June 30, 2025.

Accounts payable increased $73 million, or 1.2%, from December 31, 2024, in line with the increase in inventory.

Total debt of $4.6 billion at March 31, 2025 increased $305 million, or 7.1%, from December 31, 2024.

Working capital at any point in time is subject to many variables, including seasonality, inventory management and category expansion, the timing of cash receipts and payments, vendor payment terms, and fluctuations in foreign exchange rates.

Total debt of $4.8 billion at June 30, 2025 increased $522 million, or 12.2%, from December 31, 2024.

Liquidity and Capital Resources

As of March 31, 2025, we had $420 million of cash and cash equivalents, as well as $2 billion in undrawn capacity on our Revolving Credit Agreement, before giving effect to commercial paper borrowings.

As of June 30, 2025, we had $458 million of cash and cash equivalents, as well as $2 billion in undrawn capacity on our Revolving Credit Agreement, before giving effect to commercial paper borrowings.

From time to time, we may enter into other credit facilities or financing arrangements to provide additional liquidity and to manage against foreign currency risk.

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qualified defined benefit pension plan, effective September 30, 2024.

In the first quarter of 2025, the change in our investing strategy related to our planned U.S.

pension plan termination resulted in lower pension income given the change in expected asset returns.

Settlement is expected between late 2025 and early 2026.

On March 20, 2025, we amended our Unsecured Revolving Credit Facility to expand the borrowing capacity from $1.5 billion to $2.0 billion and extend the maturity date to March 20, 2030.

We had no outstanding borrowings under the Unsecured Revolving Credit Facility as of March 31, 2025.

On March 27, 2025, we amended our commercial paper program to expand the borrowing capacity from $1.5 billion to $2.0 billion.

We had $775 million outstanding under our commercial paper program as of March 31, 2025, of which $500 million was used to repay the principal amount of our 1.75% Unsecured Senior Notes with a maturity date of February 1, 2025.

The net proceeds of issuances from the remaining outstanding amount have been and are expected to continue to be used for general corporate purposes.

Plan settlement is expected between late 2025 and early 2026.

In connection with the anticipated settlement, we adjusted our investment strategy for our pension assets which resulted in lower pension income.

On February 18, 2025, we announced a 3% increase in the regular quarterly cash dividend for 2025.

Our Board of Directors increased the cash dividend payable to an annual rate of $4.12 per share compared with the prior year dividend of $4.00 per share.

We have paid a cash dividend every year since going public in 1948, and 2025 will mark the 69th consecutive year of increased dividends paid to shareholders.

In March 2025, we amended our Unsecured Revolving Credit Facility to expand the borrowing capacity from $1.5 billion to $2.0 billion and extend the maturity date to March 20, 2030.

We also amended our commercial paper program to expand the borrowing capacity from $1.5 billion to $2.0 billion.

As of June 30, 2025, we had no outstanding borrowings under the Unsecured Revolving Credit Facility.

Outstanding borrowings under our commercial paper program totaled $922 million, of which $500 million was used to repay the principal amount of our 1.75% Unsecured Senior Notes that matured on February 1, 2025.

The net proceeds of the remaining borrowings are expected to be used for general corporate purposes.

We have a strong cash position and solid financial strength to pursue strategic growth opportunities through disciplined, strategic capital deployment.

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We expect to be able to continue to borrow funds at reasonable rates over the long term.

At March 31, 2025, our total average cost of debt was 3.98%, and we remain in compliance with all covenants connected with our borrowings.

At June 30, 2025, our total average cost of debt was 3.98%, and we remain in compliance with all covenants connected with our borrowings.

Any failure to comply with our debt covenants or restrictions could result in a default under our financing arrangements or could require us to obtain waivers from our lenders for failure to comply with these restrictions.

The occurrence of a default that remains uncured or the inability to secure a necessary consent or waiver could create cross defaults under other debt arrangements and have a material adverse effect on our business, financial condition, results of operations and cash flows.

On February 18, 2025, we announced a 3% increase in the regular quarterly cash dividend for 2025.

Our Board of Directors increased the cash dividend payable to an annual rate of $4.12 per share compared with the prior year dividend of $4.00 per share.

We have paid a cash dividend every year since going public in 1948, and 2025 will mark the 69th consecutive year of increased dividends paid to shareholders.

Quantitative and Qualitative Disclosures about Market Risk

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis