This past week was absolutely catastrophic for the retail auto parts industry. It all kicked off when O’Reilly Automotive Inc. (ORLY) provided an update ahead of its second-quarter financial results. But O’Reilly wasn’t the only one that suffered. Advance Auto Parts Inc. (AAP) and AutoZone Inc. (AZO) also saw their shares hit multiyear lows in the wake of this announcement. While the weaker numbers are said to be related to industry headwinds, some might believe that a new entrant to the market might be disrupting these sales.
As a result, analysts took this opportunity to slash their targets for this industry with perhaps one notable exception.
In terms of O’Reilly’s report, the company said that its same-store sales increased only 1.7%, below its previously issued guidance of 3% to 5%. This also fell below the 3.9% consensus estimate at FactSet.
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CEO Greg Henslee commented that the company has faced a more challenging sales environment than it expected for the quarter due to continued headwinds. Henslee closed by saying:
We remain confident in the long-term health of our industry and our team’s ability to provide exceptional customer service and take market share in this challenging demand environment.
Analysts seemed to key off the idea of a challenging demand environment in the industry. Wedbush commented:
The company attributed the slowdown to weak consumer demand and knock-on effects from a second consecutive mild winter … but we also pointed to additional pressures including the slowdown in total miles driven growth, declines in miles driven for “sweet spot” 8+ year old vehicles, muted low-end and minority consumer confidence and rising competition from the online channel. We do not expect a sharp reversal in these factors near-term, leaving us neutral on the sector despite the stock price corrections.
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On the other hand, this “challenging demand environment” could refer to its brick-and-mortar competition in Advance Auto and AutoZone, but it seems more appropriate to consider Amazon’s entrance into this industry as a big headwind for those involved.
Keep in mind that within the past year, Amazon has made deals with the largest auto parts makers in the United States. And at this point, most large auto parts suppliers are selling to Amazon.
Last September, a Jefferies report said that Amazon was offering same-day delivery for auto parts in 40 major U.S. cities. Not only this, but the firm also noted that the prices were on average 23% less than these major chains.