Investors in Auto-Parts Retailers Are Tapping the Brakes -- Update

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. Shares ticked up less than 0.1% 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 5.6%, 1.9% and 3.7%, falling more than the S&P 500's 1.8% 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 3.7% rise. Advance has fallen 1.8%.

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 rose to 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 [e-mail]

(END) Dow Jones Newswires

August 13, 2019 16:52 ET (20:52 GMT)

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