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Item 2. Management’s Discussion and Analysis

2025-10-21 compared with 2025-07-22 · 132 added, 126 removed, 183 unchanged (59% 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 and six months ended June 30, 2025 are not necessarily indicative of results for the year ended December 31, 2025.

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

Forward-Looking Statements

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the ability to maintain favorable supplier arrangements and relationships;

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;

possible changes in collections of outstanding receivables due to the bankruptcy or financial difficulties of our customers or vendors;

changes in national and international legislation or government regulations, policies, or actions, including changes to import tariffs, environmental and social policy, infrastructure programs and privacy legislation, the U.S.

federal government shutdown, and their direct and indirect impact to us, our suppliers and customers;

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

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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.

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.

As of September 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 64% of total revenues for the nine months ended September 30, 2025.

Our Industrial business operated in the U.S., Canada, Mexico, Australia, New Zealand, Indonesia and Singapore and accounted for 36% of total revenues during this period.

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Results of Operations

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.

Our third quarter results reflect solid sales growth against a backdrop of weak market conditions, persistent cost inflation and elevated interest rates contributing to cautious customer activity.

Third quarter net sales increased 4.9% to $6.3 billion compared to the same prior year period.

Automotive sales growth was driven by increases in core sales, contributions from acquisitions, and a benefit from foreign currency.

Industrial sales growth was driven by increases in comparable sales and a modest contribution from acquisitions.

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

manufacturing trends, continuing to signal contraction during the quarter and an overall weak industrial backdrop.

In addition to this sales growth, gross profit margin expanded approximately 60 basis points when compared to the prior year period, reflecting the ongoing benefits from our strategic pricing, sourcing initiatives and acquisitions.

Despite sales growth and gross margin expansion, net income remained flat with the prior year period.

This was primarily due to 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.

We also experienced higher SG&A expenses resulting from higher salary and healthcare costs and increased rent from lease renewals in a higher interest rate environment.

Lastly, restructuring and other costs totaled $67 million in the third quarter, up from $41 million in the prior year period, primarily driven by costs associated with facility closures and additional severance costs.

Our global restructuring program yielded $36 million in benefits in the third quarter, underscoring our commitment to enhancing business efficiency and adaptability amid a challenging economic environment.

Impact of Tariffs on Our Business

We continue to monitor the global trade environment, including the tariffs on merchandise inventories sourced directly or indirectly from several countries, such as China, Canada, and Mexico and their impact on our operations.

While the ongoing economic volatility continues to add uncertainty to our operating environment, we expect our balanced portfolio and global diversification will help mitigate potential disruptions.

Although the long-term effects remain uncertain, for the three or nine months ended September 30, 2025, tariffs did not have a material impact on our financial results.

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,

Our third quarter results of operations are summarized below for the three and nine months ended September 30, 2025 and 2024.

Three Months Ended September 30,

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

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Net income $ 226,171 3.6 % $ 226,582 3.8 % $ (411) (0.2) %

Three Months Ended June 30,

Three Months Ended September 30,

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

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Total adjusted EBITDA margin 8.4 % 8.0 %

Six Months Ended June 30,

Nine Months Ended September 30,

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

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Net income $ 675,443 3.7 % $ 771,020 4.4 % $ (95,577) (12.4) %

Six Months Ended June 30,

Nine Months Ended September 30,

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

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Total adjusted EBITDA margin 8.5 % 8.8 %

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.

For the three months ended September 30, 2025, net sales increased 4.9% compared to 2024.

The increase was driven by a 2.3% increase in comparable sales, a 1.8% benefit from acquisitions and a favorable impact of foreign currency and other of 0.8%.

For the nine months ended September 30, 2025, net sales increased 3.2% compared to 2024.

The increase was driven by a 2.5% benefit from acquisitions, a 0.6% increase in comparable sales and a favorable impact of foreign currency and other of 0.1%.

Despite the challenging macroeconomic environment, our net sales for the three and nine months ended September 30, 2025, increased primarily due to growth in comparable sales and contributions from acquisitions.

Additionally, net sales for the nine month period were affected by one fewer selling day in the U.S.

compared to the prior year period.

Net sales for the three months ended September 30, 2025 for Automotive were $4.0 billion, an increase of 5.0% from 2024.

The increase is attributable to a 2.3% benefit from acquisitions, a 1.6% increase in comparable sales and a 1.1% favorable impact of foreign currency and other.

Net sales for the nine months ended September 30, 2025 for Automotive were $11.6 billion, an increase of 4.2% from 2024.

The increase is attributable to a 3.2% benefit from acquisitions and a 0.6% favorable impact of foreign currency and other.

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.

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

Net sales for the three months ended September 30, 2025 for Industrial were $2.3 billion, an increase of 4.6% compared to 2024.

The increase in sales reflects a 3.7% increase in comparable sales and 1.1% benefit from acquisitions, partially offset by a 0.2% unfavorable impact of foreign currency.

Net sales for the nine months ended September 30, 2025 for Industrial were $6.7 billion, an increase of 1.6% compared to 2024.

The increase in sales reflects a 1.2% benefit from acquisitions and a 0.9% increase in comparable sales, partially offset by a 0.5% unfavorable impact of foreign currency.

This sales growth was achieved despite the Purchasing Managers’ Index ("PMI") continuing to signal contraction and an overall soft industrial backdrop throughout the quarter.

Gross Profit and Gross Margin

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.

Gross profit increased $143 million, or 6.5%, during the three months ended September 30, 2025 and gross margin increased 60 basis points to 37.4% compared to the prior year period.

Gross profit increased $386 million, or 6.0%, during the nine months ended September 30, 2025 and gross margin increased 100 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 $124 million, or 7.5%, during the three months ended June 30, 2025 compared to the prior year period.

Selling, Administrative and Other ("SG&A") Expenses

SG&A expenses increased $84 million, or 4.8%, during the three months ended September 30, 2025 compared to the prior year period.

The 4.8% increase comprised 2.4% from acquisitions and 2.4% 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.

SG&A expenses increased $342 million, or 6.9%, during the nine months ended September 30, 2025 compared to the prior year period.

The 6.9% increase comprised 4.0% from acquisitions and 2.9% 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.

We continued to experience higher SG&A expenses primarily due to higher salaries and wages, rising healthcare costs, and increased rent from lease renewals in a higher interest rate environment.

We are managing the impact of the inflationary environment through our global restructuring initiatives, which we estimate had a $96 million benefit to SG&A for the nine months ended September 30, 2025.

SG&A expenses as a percentage of sales remained flat at 28.8% compared to the prior year period.

SG&A expenses as a percentage of sales increased 100 basis points to 28.9% of sales in the nine months ended September 30, 2025 compared to 27.9% last year.

The increase for the nine months ended September 30, 2025 was primarily driven by the items discussed above.

Restructuring and Other Costs

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.

We incurred $67 million and $167 million of restructuring and other costs during the three months and nine months ended September 30, 2025, respectively, as part of our global restructuring plan which was approved and initiated in February 2024 and remains on track to better align our assets and further improve the efficiency of the business.

Restructuring and other costs increased by $26 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 $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.

Depreciation and amortization expenses increased $21 million and $70 million for the three and nine months ended September 30, 2025, respectively, related to planned investments in technology and supply chain initiatives.

Non-Operating Expenses and Income

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").

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.

We incurred $43 million in net non-operating expenses for the three months ended September 30, 2025, a $18 million change from $24 million in net non-operating expense in the prior year period.

The $18 million expense increase primarily includes the effects of a $13 million increase in net interest expense in 2025, due to increased borrowings, as well as a $13 million decrease in pension income as a result of changes in expected returns due to the planned termination of our U.S.

pension plan.

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.

For the nine months ended September 30, 2025, we incurred $117 million in net non-operating expenses, a $86 million change from the prior year period.

The $86 million expense increase primarily includes the effects of a $50 million increase in net interest expense in 2025, due to increased borrowings, and a $40 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.

Our effective income tax rates decreased to 22.5% for the three months ended September 30, 2025 compared to 23.9% for the three months ended September 30, 2024.

Our effective income tax rates were 23.4% and 23.6% for nine months ended September 30, 2025 and 2024, respectively.

The rate decrease for the three and nine month period is primarily due to comparative restructuring costs and expanded investments, which was partially offset by routine tax position adjustments.

The effective tax rates for the three and nine months ended September 30, 2025 consider the enactment of One Big Beautiful Bill Act ("OBBBA") on July 4, 2025, which did not have a material impact to income tax expense.

OBBBA is not expected to materially impact our 2025 annual effective tax rate.

Net Income and Adjusted Net Income

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.

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.

Net income was $226 million for the three months ended September 30, 2025, a decrease of 0.2% compared to net income of $227 million for the prior year period.

On a per share diluted basis, net income was $1.62 for both periods.

For the nine months ended September 30, 2025 net income was $675 million, a decrease of 12.4% compared to net income of $771 million for the prior year period.

On a per share diluted basis, net income was $4.85, a decrease of 12.0% compared to $5.51 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.

Adjusted net income was $276 million for the three months ended September 30, 2025, an increase of 4.8% compared to the prior year period.

On a per share basis, the three months ended September 30, 2025 adjusted net income was $1.98, an increase of 5.3% compared to $1.88 in the prior year period.

Adjusted net income was $810 million for the nine months ended September 30, 2025, a decrease of 11.5% compared to the prior year period.

On a per share basis, the nine months ended September 30, 2025 adjusted net income was $5.82, a decrease of 11.1% compared to $6.55 in the prior year period.

For the three months ended September 30, 2025, net income remained flat with the prior year period despite a 4.9% increase in net sales compared to 2024.

This increase in net sales was largely offset by 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, increased personnel and healthcare costs, and increased rent expenses.

For the nine months ended September 30, 2025, net income declined due to these same factors described above.

The period was further 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.

These factors were partially mitigated by a 60 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 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.

Automotive net sales increased 5.0% in the three months ended September 30, 2025, driven by both acquisitions and comparable sales growth in our North America, Australasia and Canadian businesses.

Net sales also benefited from favorable foreign currency effects within our European operations.

Additionally, gross margin

improved due to ongoing strategic pricing and sourcing initiatives and acquisitions completed in the prior year.

Our gross profit improvement was partially offset by continued inflationary pressures that resulted in operating expenses increasing 8.1%.

As a result, Automotive EBITDA increased 5.9%, and EBITDA margin was 8.4%, an increase of 10 basis points compared to the prior year period.

Automotive EBITDA decreased $40 million, or 4.1%, in the nine months ended September 30, 2025 compared to the prior year period, and Automotive EBITDA margin decreased to 8.3% compared to 9.0% in the prior year period.

The decrease in Automotive EBITDA and EBITDA margin were driven by persistent inflationary cost pressures from salaries and wages, healthcare expenses, rent, and freight.

Industrial net sales increased 4.6% in the three months ended September 30, 2025, primarily driven by a 3.7% increase in comparable sales and 1.1% benefit from acquisitions, partially offset by an unfavorable 0.2% impact of foreign currency translation.

Industrial EBITDA increased 6.6%, with EBITDA margin improving to 12.6% compared to 12.3% in the prior year period.

Our Industrial results reflect solid sales growth and operating discipline despite a challenging macroeconomic environment to offset inflation in costs.

For the nine months ended September 30, 2025, Industrial sales grew 1.6%, driven by a 1.2% benefit from acquisitions and 0.9% increase in comparable sales, partially offset by an unfavorable 0.5% impact of foreign currency translation.

EBITDA increased $21 million, or 2.5%, with EBITDA margin improving to 12.7% compared to 12.6% in the prior year period.

Corporate EBITDA and Other Segment Reconciling items

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.

Corporate EBITDA amounted to a loss of $93 million, or 1.5% of net sales, for the three months ended September 30, 2025, compared to a loss of $107 million, or 1.8% of net sales, for the three months ended September 30, 2024.

Corporate EBITDA amounted to a loss of $263 million, or 1.4% of net sales, for the nine months ended September 30, 2025, compared to a loss of $267 million, or 1.5% of net sales, in the prior year period.

Corporate EBITDA loss increased primarily due to increased personnel costs and ongoing investments in technology.

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

Our operational objective is to maintain Corporate EBITDA within a range of 1.5% to 2.0% of net sales.

Corporate EBITDA loss increased primarily due to increased personnel costs and ongoing investments in technology.

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

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.

EBITDA and Adjusted EBITDA

EBITDA was $460 million for the three months ended September 30, 2025, an increase of 6.5% from $431 million during the prior year period.

Adjusted EBITDA was $526 million for the three months ended September 30, 2025, an increase of 10.4% from $477 million during the prior year period.

EBITDA was $1.4 billion for the nine months ended September 30, 2025, a decrease of 0.5% from $1.4 billion during the prior year period.

Adjusted EBITDA was $1.5 billion for the nine months ended September 30, 2025, a decrease of 1.0% from $1.6 billion during the prior year period.

The increases in EBITDA and adjusted EBITDA for the three months ended September 30, 2025 are driven by core sales growth, despite continued soft market conditions and gross margin improvement driven by the continued execution of our strategic pricing and sourcing initiatives as well as contributions from prior-year acquisitions.

These factors were partially offset by lower pension income due to a change in our investing strategy related to our planned U.S.

pension plan termination, increased personnel and healthcare expenses and increased rent expenses.

The decreases in EBITDA and adjusted EBITDA for the nine months ended September 30, 2025 were primarily driven by lower pension income and the effects of rising costs, as previously described, as well as one less sales day in the current period when compared to the prior year period.

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 also include a reconciliation from net income to adjusted EBITDA.

We believe that the presentation of adjusted net income, adjusted diluted EPS, and adjusted EBITDA, which are not calculated in accordance with GAAP, when considered together with the corresponding GAAP financial measures and the reconciliations to those measures, provide meaningful supplemental information to both management and investors that is indicative of our core operations.

We believe that the presentation of adjusted net income, adjusted diluted EPS, and

adjusted EBITDA, which are not calculated in accordance with GAAP, when considered together with the corresponding GAAP financial measures and the reconciliations to those measures, provide meaningful supplemental information to both management and investors that is indicative of our core operations.

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, 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 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 June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

(in thousands) 2025 2024 2025 2024

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The table below represents amounts per common share assuming dilution:

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

Three Months Ended September 30, Nine Months Ended September 30,

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

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Weighted average common shares outstanding – assuming dilution 139,406 139,599 139,257 139,826

(1) Amount reflects costs related to the global restructuring initiative which includes a voluntary retirement offer in the U.S.

in 2024, and rationalization and optimization of certain distribution centers, stores and other facilities.

(1) Amount reflects costs related to the global restructuring initiative which includes severance, and rationalization and optimization of certain distribution centers, stores and other facilities.

(2) Amount primarily reflects lease and other exit costs related to the ongoing integration of acquired independent automotive stores.

(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 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.

For the three and nine months ended September 30, 2025, we applied the statutory income tax rates to the taxable portion of all of our adjustments, which resulted in an unfavorable tax impact of $17 million and $46 million, respectively.

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

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

Three Months Ended September 30, Nine Months Ended September 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 June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

(in thousands) 2025 2024 2025 2024

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Financial Condition

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.

Our cash and cash equivalents balance was $431 million as of September 30, 2025, a decrease of $49 million from December 31, 2024.

For the nine months ended September 30, 2025, we had net cash provided by operating activities of $511 million, net cash used in investing activities of $488 million and net cash used in financing activities of $94 million.

Cash from operations decreased mainly due to lower net income, accelerated tax payments, higher interest payments and working capital changes compared to prior year.

Working capital was primarily impacted by payments for strategic inventory investments we made in 2024 with deferred payment terms that did not repeat in 2025.

We had $488 million in net cash used for investing activities primarily consisting of capital expenditures and acquisitions of $532 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.

We had $94 million in net cash used in financing activities which comprised primarily of $543 million used to repay the principal amount of our 1.75% Unsecured Senior Notes and $421 million for dividends paid to shareholders, partially offset by $886 million in net proceeds from our commercial paper program.

Accounts receivable increased $457 million, or 20.9%, from December 31, 2024.

Inventory increased $359 million, or 6.5%.

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

Accounts payable increased $177 million, or 3.0%, from December 31, 2024, in line with the increase in inventory.

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.

W orking 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 September 30, 2025 increased $474 million, or 11.1%, from December 31, 2024.

Liquidity and Capital Resources

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.

As of September 30, 2025, we had $431 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.

We currently believe that the existing lines of credit, commercial paper program, and cash generated from operations will be sufficient to fund anticipated operations for the foreseeable future.

On September 29, 2025, a supplier to our global automotive segment filed a voluntary petition for relief under Chapter 11 of the U.S.

Bankruptcy Code.

Purchases from this supplier represent approximately 3% of our global automotive segment SKUs and approximately 3% of our global automotive segment sales on an annualized basis.

As of the date of this report, the supplier is operating and has continued to supply us with products and our focus remains on ensuring our supply chain continuity, and inventory availability for our customers.

In addition, we are assessing our financial exposure related to this supplier, including amounts owed to us for vendor incentive compensation and other receivables outstanding as of the petition date.

Depending on the course of the bankruptcy proceedings, or the changes in operational capabilities of this supplier, we may need to seek alternative partners for inventory, which could result in higher costs, changes in product availability, extended lead times, and potential write‑downs or losses related to prepetition receivables.

While we currently expect to meet customer demand in the near term based on existing inventories and confirmed purchase orders, the bankruptcy proceedings present uncertainties that could adversely affect our operations, financial condition, and results of operations.

As announced in 2024, our Board of Directors approved the termination of the frozen U.S.

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

Plan settlement is expected between late 2025 and early 2026.

Plan settlement will occur in the fourth quarter of 2025.

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

As a result of this transaction, we expect to recognize a one-time pre-tax pension settlement charge in the range of $650 million to $750 million in the fourth quarter of 2025.

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

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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.

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

Outstanding borrowings under our commercial paper program totaled $892 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.

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

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.

At September 30, 2025, our total average cost of debt was 3.93%, 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.

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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