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AUTO: Amid recession, some parts stores say business is up modestly

National chains see sales increases as drivers rediscover maintenance

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Three national chains of auto-parts stores have bucked the recession with announcements of surging revenue and profit, potentially a sign that penny-pinching drivers are doing more of their own maintenance.

Advance Auto Parts Inc., of Roanoke, Va., said last month that same-store sales growth of 3 percent in its most recent quarter helped its 2008 profit rise by nearly 9 percent in 2008. Same-store figures, which measure performance at outlets open at least a year, are closely watched by managers and analysts.

Springfield, Mo.-based O'Reilly Automotive, which owns the Kragen Auto Parts chain in California and several other chains elsewhere in the U.S., reported same-store sales up 4 percent in the fourth quarter of 2008.

And profits at AutoZone Inc., of Memphis, Tenn., in its second fiscal quarter rose 9 percent, boosted by strong demand for its parts and supplies as more customers fixed and maintained their vehicles rather than buy new ones, the company said last week.

The three companies' growth looks less impressive after subtracting out overall consumer inflation of about 1 percent, but it contrasts starkly with the rest of the economy, which shrank at a 6.2 percent rate in last three months the year, and the companies' results soundly beat Wall Street's expectations. Their shares have risen by close to 50 percent in recent months, as other stocks were falling into the tank.

AutoZone chief executive Bill Rhodes said lower gas prices during the quarter helped lead to an increase of 6 percent in second-quarter domestic, same-store sales. His company also got a boost from a 4 percent increase in commercial sales, he said.

"We feel our business may be benefiting from the general slowdown in the economy," Rhodes told analysts and investors on a conference call. "We think a greater number of people may be focusing on maintaining their vehicles."

Passenger cars on America's roads have a median age of 9.4 years, a record, investment researcher Eugene Bukoveczky wrote in an analysis for a Forbes Web site. Taking aging cars into the shop is becoming too expensive for some drivers, Bukoveczky wrote, a trend that is giving a modest boost to parts retailers.

But Bukoveczky also cautioned that some would-be do-it-yourselfers will probably give up once they realize what is involved. Indeed, new do-it-yourselfers were hard to find at three Escondido locations of auto-parts chains earlier this week.

Managers at HDS Auto Parts in Escondido and Rising Sun Import Parts, a small San Diego-based chain, said business was noticeably slower than it was a year ago. Both stores draw about half of their business from independent mechanics, who have said customers are putting off some maintenance problems such as broken air conditioning.

A modicum of essential maintenance could keep parts and repair businesses from going under, however. HDS owner Don White said, for example, that mechanics and do-it-yourselfers alike have been streaming in to buy brake pads.

"They're not buying new cars," White said. "Some things have to be fixed."

Rhodes said he and other AutoZone executives are "very optimistic" about the chain's financial results for the rest of the fiscal year. The company will continue to focus on hiring and training employees, refining its product assortment, increasing the effectiveness of its hub store system and commercial sales growth, he said.

Analysts said AutoZone's results were impressive, given the state of the economy and consumer confidence during the quarter.

"Over the long term, we think AutoZone will benefit from a secular trend of significantly lower car sales and a temporary relief from lower gas prices," Citi Investment Research analyst Kate McShane wrote in a note to investors.

In addition, Gary Balter of Credit Suisse backed his "Outperform" rating for AutoZone and raised his price target by $13 to $175, citing the better-than-expected results and expectations of sales growth in the second half of the fiscal year. AutoZone opened 20 new U.S. stores in the U.S. in the recent three-month period, bringing it nationwide total to 4,141 as of Feb. 14.

The Associated Press contributed to this report. Contact staff writer Chris Bagley at (760) 740-5444 or cbagley@nctimes.com. Read his blogs at http://bizblogs.nctimes.com.

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