O’Reilly Automotive Inc (ORLY), AutoZone, Inc. (AZO): Auto Parts Retailers Are Revving it Up

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Solid results from the likes of O’Reilly Automotive Inc (NASDAQ:ORLY), a retailer, as well as several wholesale auto parts suppliers, jumpstarted the stocks of previously floundering do-it-yourself stores. O’Reilly’s earnings per share rose to $1.38 from $1.14 in the prior-year period. Share repurchases supported the upturn. Same-store sales climbed only 0.6% year over year, though the outlook for mid-single-digit sales growth in the June quarter and for 2013 were greeted positively.

This forecast was likely the fuel that ignited strength in several industry compatriots. Typically tending toward countercyclicality, with parts sales increasing along with slowing auto sales, the sector might well now be poised to benefit from other catalysts. For one, new car sales in the U.S. were up substantially in early 2013.
O'Reilly Automotive Inc (ORLY)Still, in O’Reilly Automotive Inc (NASDAQ:ORLY)’s case, the heightened complexity of new cars and expansion of its sales to professional auto repair shops helped to bolster results.

These factors might well provide a boost to O’Reilly’s competitors/peers as well, and we will find out more when they report earnings within the next month or so.

Do-it-yourself auto parts concept leader AutoZone, Inc. (NYSE:AZO) struggled in its February period, posting a nearly 2% same-store sales decline. Similar to O’Reilly Automotive Inc (NASDAQ:ORLY), it is generating profit gains from new store openings, the buildout of its commercial program, and share repurchases.

As far as the economy and vehicle demand go, AutoZone has historically seen demand climb when the number of aged cars on the road is higher. A chart would show that AutoZone, Inc. (NYSE:AZO)’s same-store sales increases over the years have mirrored increases in unemployment and vice versa. The company’s best performances using this metric in recent years were achieved in 2010 and 2011.

The guidance given by O’Reilly Automotive Inc (NASDAQ:ORLY) may signal that a bounce back is in store for AutoZone. Regardless, AutoZone is positioned to see further upside from a better matching of its inventories to demand. AutoZone, Inc. (NYSE:AZO) remains a good stock to own for the long road ahead. For a more complete look at the company, see my blog published on Dec. 5, 2012.

Next, delving into Advance Auto Parts, Inc. (NYSE:AAP), several of the same issues are at work in terms of soft comps and a growing store base. Notably, Advance’s professional-related business comprises the largest proportion of sales among these retailers. It offers the service at 91% of locations, contributing about 35% of sales. Given the market potential for the business, Advance’s sales should stay aloft. However, the margins on that operation are narrow, restraining bottom-line gains.

Advance Auto Parts watched its per-store results recede in 2012. It experienced lower sales transactions and initiated promotional activity. After a likely tough first quarter, things may be looking up this year, in light of better market conditions on the way. Some of these profit gains are already priced into Advance Auto Parts, Inc. (NYSE:AAP)’s stock, but it remains a good holding for long-term investors.

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