Auto Parts Retailers Benefit from Economy
Shares of automotive parts retailers like AutoZone and O’Reilly Automotive continue to surge to record heights, as consumers who have held off buying new cars spend more to maintain their old models.
From 2000 to 2007, new car sales averaged 16.8 million per year in the U.S., according to Commerce Dept. data. By contrast, on Nov. 3, new data showed cars and light trucks were sold at a seasonally adjusted annual rate of 12.25 million in October, up from 11.73 million in September. The worst of the sales slowdown was a 35 percent drop from 2007 to 2009, when the 10.4 million vehicles sold were the lowest total since 1982.
As Americans buy fewer new cars, they are spending more to maintain existing vehicles, analysts and executives say.
Same-store sales at O’Reilly, the second-largest U.S. parts retailer by number of locations, surged 11.1 percent year-over-year last quarter. The company based in Springfield, Mo., has boosted its store count from 3,415 to 3,536 since a year earlier, when same-store sales were also up handily, rising 5.3 percent year-over-year.
“Our industry clearly continues to benefit from the tailwinds that have been present for some time now,” O’Reilly Chief Executive Officer Gregory Henslee told analysts when those results were announced on Oct. 28. “The average age of vehicles driven in the U.S. continues to increase as new vehicle sales have stalled,” he said in a conference call.
AutoZone, the U.S.’s largest auto parts chain, reported a 9.5 percent rise in its fourth-quarter total sales on Sept. 21. Same-store sales rose 6.7 percent, and 160 stores were added to the 4,389-store chain from a year earlier. Advance Auto Parts, which reports quarterly results on Nov. 10, is expected to post a 7.3 percent increase, according to analysts surveyed by Bloomberg.
O’Reilly’s recent results for the quarter ended Sept. 30—which included a 13.3 percent year-over-year jump in sales—”makes me think we have a little further to go,” Tarver says.
Other investors apparently agree. AutoZone and Advance Auto Parts shares both hit records on Nov. 4, with AutoZone up 51 percent in 2010 and Advance Auto Parts 62 percent higher year-to-date. O’Reilly’s stock hit a record on Oct. 29, and is up 52 percent this year through Nov. 4.
Americans are holding on to new cars for an average of 5 years and 3.9 months, which is 4.5 months longer than a year earlier, according to estimates from researcher R.L. Polk & Co. The firm said in a Nov. 3 announcement that the average length of new-car ownership has risen 14 percent since the end of 2008—”with no signs of slowing down.” More old cars on the road means more need parts replaced. Another factor helping auto parts retailers is the relatively low and stable price of gas, which encourages drivers to put more mileage on their cars. Henslee, the O’Reilly CEO, said he believes Americans have gotten used to driving cars for a longer period of time. Vehicle quality has improved and now many cars can be driven for 200,000 miles or more without major issues. Thus, he said, favorable conditions for the industry “could be long-lasting, as consumers permanently change their behavior, and gain comfort with driving well-maintained vehicles at higher mileage.”
Mark Mandel, an analyst at ThinkEquity, warns that eventually favorable trends could reverse. “If the economy were to accelerate and new car sales were to accelerate, you could get the tailwind becoming a headwind,” Mandel says. That “doesn’t seem to be imminent, but it’s something that bears watching.”
Source Bloomberg News
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