Auto Parts Stores Are Doing Well, Are Shops Next?

June 1, 2010

If the performance of three auto parts retailers is any indication, the doldrums in the auto repair industry may soon be history or maybe not. AutoZone, Advance Auto Parts and O’Reilly Auto Parts have recently performed well based on strong numbers released as they ended their reporting periods.

This good news comes in the midst of an otherwise downer mood in the stock market. It also tends to contradict sentiment coming anecdotally from the auto repairer community. The shops say that the consumer is still reluctant to spend large amounts on their vehicles. Although the stories of customers taking one of the family vehicles out of service or reducing the size of their individual fleet by selling off one car have risen to the level of urban legend, they seem to be supported by repair dealers’ financials and levels of staffing.

Advance Auto Parts reported that quarterly profit rose 17 percent. This translated into a 6 percent rise in the price of its stock on a day when the Dow Jones gave up 376 points. At one point during the session the stock price rose to the highest level since 2005. The company is selling more parts to professional installers as that segment of business accounted for 33 percent of the total, a number the company hopes will rise to 50 percent as reported at The company is based in the Roanoke Valley of Virginia.

The Wall Street Journal reported that sales were up 9.9 percent at AutoZone as “gross margin widened to 50.7 percent from 50.2”. Their third quarter (fiscal year) earnings were up 17 percent as well.

At O’Reilly Auto Parts the story was much the same. Its stock rose last week to a 52 week high of $51.70 before closing at $50.67 which was $17.06 better than its low during the same period. That low was experienced as recently as October 2009.

One possible explanation for the positive experience of these retailers could be the market sector they serve, which is primarily the do-it-yourselfer. O’Reilly for example goes to great lengths to accommodate the backyard mechanic by offering shop services that include loaner tools, component testing and brake drum and rotor resurfacing. It would make sense that as the economy softened, car owners who normally had brought their vehicles to a shop may have taken the leap to self repair.

This share of business shift coupled with the natural consumer tendency to stretch maintenance intervals for everything from oil changes to timing belts in times of economic uncertainty is one possible reason for the angst of auto repair facilities. Unfortunately for the car owner that puts off scheduled maintenance the increased personal cash flow may be short lived.

At any rate, the repair shops are hoping that the surge in parts store sales means that they’re next. The emphasis that Advance Auto Parts is putting on serving the wholesale market may also be an indication that this sector may be the next to feel the bump in sales.                 

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