Shares of the aftermarket automotive products company Advance Auto Parts (AAP -8.27%) were climbing today after a report released this week showed that demand for used vehicles is rising. If Americans continue to hold on to their older vehicles, it could help spur more auto parts sales.
Investors may have also been pleased to see that one of the company's rivals, AutoZone, reported solid same-store sales growth in its first quarter yesterday, indicating a strong demand for auto parts.
Advance Auto Parts stock is up 5.3% as of 1:33 p.m. ET.
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A minor upside of automotive tariffs
Investors may have been responding to a report this week by The Wall Street Journal showing that demand for used vehicles is on the rise because of automotive tariffs. Used car supply at dealer lots is falling fast and hasn't been this low since the COVID pandemic.
Tariffs on imported vehicles and some auto parts have helped push new vehicle prices higher, to an average of about $49,000 in April, according to Cox Automotive. As a result, Americans are looking to buy used cars instead and holding on to existing vehicles longer. That's good news for Advance Auto Parts, which caters to both automotive mechanics and car owners looking to make vehicle repairs.
Advance Auto Parts investors may also be responding to rival AutoZone's recent earnings report, released yesterday, in which the company's same-store sales rose 3.2% in the quarter. The rise in sales shows that demand for auto parts continues to be strong, and Advance Auto Parts investors were likely hoping that the company will be able to tap into that trend.
A long road ahead
Advance Auto Parts is in the midst of a turnaround, and the company still has its work cut out for it, as its sales fell 7% in the first quarter. Still, the company's revenue and earnings were both ahead of analysts' consensus estimates, and the company reiterated its guidance for the full year.
Advance Auto Parts' share price is still down about 25% over the past 12 months, and investors will want to pay close attention to the next few quarters to see if the company can successfully tap into the surge in used car demand. There's plenty of uncertainty in the automotive market right now, which means that investors may want to sit this stock out until the company shows more signs of life.
