(By
Zoe Tan) Our Near-Term Outlook is More Optimistic for Auto Parts Retailers.
Starting in late 2008, the nation's three largest auto parts retailers, Advance Auto
(AAP), AutoZone
(AZO)
and O'Reilly Automotive
(ORLY),
delivered record same-store sales growth in the mid- to high
single-digit range (see Exhibit 1), thanks to a surge in demand for
automotive replacement parts.
Given the weak economic environment, consumers have been seeking
ways to extend the lives of their existing vehicles, and to put off
purchasing new ones. This tendency is further underscored by
the well-documented retreat in U.S. light vehicle sales, which posted
sharp declines--in the 30% range--from October 2008 to June 2009.
Additionally, as the number of off-warranty vehicles hit at an
all-time high in 2009, these companies benefited from a larger
proportion of vehicle owners performing do-it-yourself vehicle
maintenance over the past year. Furthermore, given their nationwide
presence, these retailers have been well-positioned to pick up
additional sales, as the difficult economic environment pressures
"mom-and-pop" auto parts stores into going out of business.
However, as new vehicle sales turned the corner in August 2009 (see
Exhibit 2, below, "Monthly New Vehicle Unit Sales"), driven by stimulus
programs like Cash for Clunkers and some pent up demand, we expected
tempered sales for replacement parts beginning in 2010, given fewer
maintenance needs. Yet, all three auto parts retailers have continued
to deliver solid high single-digit comparable-store sales over the past
quarter, despite lapping tough comparisons from the prior year. This
has led us to believe that the negative impact of recovering new car
sales on demand for auto parts will be delayed. While new car sales
have improved from their historical low of 9 million units in early
2009, to about 11 million units (based on seasonally adjusted
annualized rate) in recent quarters, these figures remain well below
the 16 to 18 million units sold on a comparable basis from 2001 to 2008.
Additionally, the average age of vehicles on the road remains high,
at 10.2 years. This provides a positive tailwind for these retailers,
given that older vehicles require more repair and maintenance work.