Why AutoZone, Advanced Auto Parts, and O'Reilly Automotive Stand Out in Poorly Performing Retail

Poor weather and an aging US car fleet are boosting auto parts retailers such as Autozone, Advance Auto Parts, and O'Reilly Automotive.

Jun 3, 2014 at 1:30PM

In the face of tough winter weather and sagging consumer spending, finally, there's some good news coming out of the retail sector. In an earnings season awash with complaints over the weather and the effect it had on earnings, it's encouraging to see that some sectors of retail are doing just fine.

Auto parts retailers had an exceptional quarter, posting solid increases in sales and profits. Let's take a look at what's driving the results from major players AutoZone (NYSE:AZO), Advance Auto Parts (NYSE:AAP) and O'Reilly Automotive (NASDAQ:ORLY).Let's take a look at these three parts retailers and see if they represent an opportunity to make some Foolish investments. 

Solid demand
Several factors have been contributing to the increased demand for auto parts. As the economic recovery in the U.S. matures, the initial surge in new auto sales has slowed down. As people buy fewer new cars, there is a greater need to fix and maintain their current vehicles. Furthermore, consumers are keeping their cars longer. Last year, the average age of the U.S. auto fleet hit a record 11.4 years.

The second major factor was the weather. While most retailers suffered due to the harsh winter, it was beneficial to auto parts makers as the cold increased wear and tear on cars, especially the batteries and starters.

While consumers were loath to brave the winter chill for discretionary items such as electronics and fashion items, car repairs are essential to such a degree that they are almost non-negotiable. Salt on the roads and potholes also contributed toward increased demand for repair parts, creating a variety of problems that will need fixing in the spring and summer.

Under the hood
All this has led to a bounce in sales for auto parts retailers. AutoZone's revenue increased by 6.2% for the third quarter, while comp-store sales were up a healthy 4%. Net income rose by 7.4%, while earnings per share were up 16.4% for what is apparently the 31st consecutive quarter of double-digit EPS growth. That's no small feat. Deferrable maintenance categories are expected to continue delivering strong sales going into the summer.

O'Reilly's most recent earnings report was even stronger. EPS increased by 18.4% on a net income increase of 13%. Meanwhile, overall revenue was up 9% and comp-store-sales rose 6.3%. As was to be expected, the company saw cold-weather related categories such as batteries, electrical parts, heating and wiper blades perform particularly well. Also, the harsh winter is expected to lead to a greater demand for parts in the coming months.

Finally, the best performer was Advance Auto Parts, reporting a 36% surge in EPS. Meanwhile, revenue exploded 48% to $2.97 billion, largely due to the acquisition of Genuine Parts, which provided a huge boost to the top line. Before that, the company usually delivered mid-single-digit revenue growth. Comp-store-sales increased 2.4%, reversing a 3.2% decline last year. The company also raised its outlook, now expecting full-year EPS to come in between $7.30 and $7.50 versus a previous projection of $7.20 to $7.40.

The bottom line
While the brutal winter put a drag on results across the retail sector, some industries managed to benefit from it. Auto parts retailers had a great quarter, not only due to the weather, but also as a result of an aging U.S. car fleet and a slowdown in new-car sales. All of the companies mentioned managed to come up with double-digit EPS growth, and expect this strong performance to continue into the summer.

Will this stock be your next multi-bagger?
Give us five minutes and we'll show how you could own the best stock for 2014. Every year, The Motley Fool's chief investment officer hand-picks one stock with outstanding potential. But it's not just any run-of-the-mill company. It's a stock perfectly positioned to cash in on one of the upcoming year's most lucrative trends. Last year his pick skyrocketed 134%. And previous top picks have gained upwards of 908%, 1,252% and 1,303% over the subsequent years! Believe me, you don't want to miss what could be his biggest winner yet! Just click here to download your free copy of "The Motley Fool's Top Stock for 2014" today.

Daniel James has no position in any stocks mentioned. The Motley Fool owns shares of O'Reilly Automotive. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of fool.com.

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to www.fool.com/beginners, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at www.fool.com/podcasts.

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.


Compare Brokers