Auto parts retailers might not pop the champagne when the
economy hits the skids and folks delay buying big-ticket items
like cars and trucks.
But they probably don't mind it a great deal, either. When
people put off buying new cars, it means they put their money
into maintaining and repairing old ones.
This works in the favor of companies likeAutoZone (
). It's the nation's largest auto parts retail chain with nearly
4,800 stores in 49 states, the District of Columbia and Puerto
Rico. It also has 341 stores in Mexico and one in Brazil.
AutoZone sells auto parts and accessories to consumers in the
Do-It-Yourself (DIY) market and repair shops in the Do-It-For-Me
Old Cars, New Parts
Like other auto parts companies, includingO'Reilly Automotive
),Genuine Parts (
) andAdvance Auto Parts (
), AutoZone tends to flourish when the nation's fleet of cars on
the road grows older.
That's been happening for several years now as recession-weary
consumers decided to stick with their old vehicles rather than
trade them in for something newer.
Not coincidentally, AutoZone has delivered a years-long run of
double-digit earnings gains and steady revenue growth.
"Because people are keeping their cars longer, they're doing
more maintenance on them. Cars are also lasting longer because
they're much more durable," said Aaron Lowe, vice president of
government affairs at the Automotive Aftermarket Industry
Association, or AAIA. "This has all been good for the parts
The average age of cars and trucks on the road is at a record
high of 11.3 years, says Ron Rossi, the AAIA's director of market
He points out that over the last five years, the number of
vehicles 11 years and older has grown at a 3.95% compounded
Meanwhile, the number of vehicles less than five years old has
declined 6.5% over the same period, and the number six to 10
years old has dropped 1.3%.
The reason is simple: Younger cars are getting older, and
older cars are staying on the road.
"The 11-year-and-older category is the aftermarket sweet
spot," Rossi said. "It plays well into the DIFM and the DIY
markets, both of which AutoZone is very interested in."
Even so, there are signs that consumers are changing their
buying habits. U.S. auto sales in May rose 8% to an annualized
15.3 million vehicles, according to Autodata, above
It is unclear how these trends will affect the auto parts
New cars typically come with warranties that let consumers get
repairs at dealerships for a certain number of years rather than
having to take them to independent repair shops or fix the cars
themselves. Those trends work against auto parts retailers.
But even with rising sales of new cars, some watchers say
there is still plenty of business left over for the aftermarket
"In the interim, there are enough older vehicles on the road
that the aftermarket should continue to see steady business in
the years ahead," Rossi said.
The aftermarket parts industry is expected to grow at a rate
of 3.4% a year through 2016, according to a report recently
released by the AAIA and Automotive Aftermarket Suppliers
Still, there are signs auto parts retailers are facing more
head winds than they did a couple of years ago.
AutoZone's quarterly earnings growth has decelerated or been
flat in eight of the last nine quarters. Sales growth has
decelerated or been flat nine quarters in a row.
Analysts polled by Thomson Reuters expect annual earnings this
fiscal year to climb 18%, down from 21% growth in fiscal 2012 and
30% in 2011. Yearly earnings are seen rising 13% in both 2014 and
"Certainly, the industry is growing slower than it did in
2010-11," noted Christopher Horvers, an analyst at JPMorgan. "But
we believe results from AutoZone, Genuine Parts and O'Reilly show
that 2013 is positioned to benefit from easier comparisons and a
more normalized winter."
There are certainly far worse problems than dropping from
20%-or-better EPS growth to growth in the low to midteens.
AutoZone has managed to deliver consistent gains because of its
operational prowess, analysts say.
"AutoZone has used the cyclical boom in the category to fund
commercial investments and as a means to buffer any potential
slowdown in sales," Horvers noted. "Strong growth runway in DIFM,
coupled with best-in-class execution in the DIY business, places
AutoZone in a favorable position."
Meanwhile, the company continues to deliver solid financial
results. It reported earnings of $6.27 a share for its fiscal
third quarter, which ended May 5. That was up 16% from the prior
year and 2 cents above analyst views.
Overall sales climbed 4.5% to $2.2 billion -- above estimates
for $2.13 billion -- though same-store sales declined 0.1%.
AutoZone shares rose 6% to a record high of 435.35 on the day
the company reported results. The stock currently trades near