Investors in Auto-Parts Retailers Are Tapping the Brakes
August 13 2019 - 4:13PM
Dow Jones News
By Jessica Menton
Shares of auto-parts retailers are tapping the brakes a bit
after ramping higher than the broader market for the past year.
Two big sellers of replacement parts have posted disappointing
sales of late, worrying some investors. Advance Auto Parts Inc. cut
its sales outlook for the year on Tuesday while reporting mixed
second-quarter earnings, sending its stock down 0.7% after sliding
as much as 9.3% in premarket trading. O'Reilly Auto Parts Inc. also
reported mixed earnings last month and gave weaker-than-expected
profit guidance for the year.
Since the end of July, shares of Advance, O'Reilly and AutoZone
Inc. are down 6.3%, 2% and 4%, falling more than the S&P 500's
1.7% decline. AutoZone is expected to report earnings next
month.
Some investors don't expect these companies to thrive with a
backdrop of a slowing global economy, said Brian Sterz, portfolio
manager at Miracle Mile Advisors, which has $1.7 billion in assets
under management.
"The consumer has been resilient, but that looks like the last
leg standing as we begin to see some signs of strain with
credit-card and mortgage defaults beginning to tick up," Mr. Sterz
said. "With record unemployment in the U.S., it's hard to see how
it gets better from here."
Those declines are largely a reversal from how parts sellers
have performed over the past year. They have marched higher,
largely able to avoid the steep declines suffered by traditional
bricks-and-mortar retailers. O'Reilly and AutoZone are up 19% and
48%, respectively, over the past 12 months, outperforming the
S&P 500's 3.8% rise. Advance has fallen 2.6%, including
Tuesday's decline.
One reason parts sellers have done well over the past year,
analysts say, is because Americans are keeping their cars longer,
which has helped service shops and parts makers. The average age of
cars and light trucks in 2019 hit 11.8 years old, according to IHS
Markit. The firm, which collects vehicle-registration data,
estimates a record level of more than 278 million light vehicles
are in operation.
"People are owning their cars longer and that's going to lead to
a trend of self maintenance, whereas new cars are typically handled
through dealers," Mr. Sterz said.
Write to Jessica Menton at Jessica.Menton@wsj.com
(END) Dow Jones Newswires
August 13, 2019 15:58 ET (19:58 GMT)
Copyright (c) 2019 Dow Jones & Company, Inc.
Advance Auto Parts (NYSE:AAP)
Historical Stock Chart
From Aug 2024 to Sep 2024
Advance Auto Parts (NYSE:AAP)
Historical Stock Chart
From Sep 2023 to Sep 2024