Within the aftermarket, there was some disparity in results by company as well as by level within the supply chain. Looking at professional installers, Monro Muffler Brake posted SSS growth of 5.9 percent for its quarter ending in December, while public peer Midas posted a SSS decline of 4.3 percent. Parts distributors and retailers O'Reilly Automotive, Advance Auto Parts and AutoZone all surpassed expectations from a sales and earnings standpoint. DIY trends appear to have accelerated from last fall, likely because the economy forced some consumers back to DIY repair. With constrained budgets, consumer confidence near all time lows and a shaky at best outlook, most consumers have embraced higher savings and debt reduction efforts, which should result in greater DIY demand simply because of the lower price point.
We think there are two trends emerging that may benefit many aftermarket participants. First, the focus on saving money will likely keep DIY demand relatively high in the coming quarters, so having an entry point line or a product the consumer can "trade down" to will help tap into this growing demand. Second, the lack of new vehicle sales and growing demand for used vehicles should push more business into independent installer bays. Those distributors supplying parts should see a sales boost, but will continue to need a breadth of product due to parts proliferation. It is critical for installers to capitalize on these trends through better technician training, diagnostic system upgrades, or tapping into the flood of dealership technicians that are likely to be seeking a new employer.
Unfortunately, we think the manufacturer group may come under the most pressure. The larger global manufacturers once preoccupied with the OE supply line are perhaps revamping efforts to become a more aggressive competitor in the aftermarket. If OE sales trends are to be tempered for the foreseeable future, why not improve facility utilization and overall productivity by adding new aftermarket lines?
Perhaps the most interesting comment from this earnings season alluded to "commercial customers transitioning from doing just what it takes to keep the car on the road to a mentality of maintaining their cars correctly in order to extend its life." While it may not be a widespread phenomenon at this point, it could signal that some of the estimated $60 billion in unperformed maintenance identified by AAIA may actually be returning to the aftermarket. The question then becomes do these positive trend developments create a tide strong enough to lift all aftermarket participants?
BB&T Capital Markets is a full-service investment banking firm that focuses on specific industries, including the Automotive Aftermarket industry. BB&T Capital Markets is a division of Scott & Stringfellow, LLC NYSE/SIPC. Scott & Stringfellow is a registered broker/dealer subsidiary of BB&T Corporation, one of the nation's largest financial holding companies with $152 billion in assets.
