Are Auto Parts Chains Staging a Recovery in Retail DIY Sales? (Updated 5/26)
According to weekly data from M Science, the top auto parts chain stores are working on a retail comeback during the coronavirus pandemic. M Science is a data-driven research and analytics firm.
M Science tracks credit card transaction data through major retailers including the major auto parts chains. M Science is a subsidiary of Jefferies Financial Group and is a “sister” company to our friends at the Jefferies Automotive Aftermarket Investment Banking team.
Hedges & Company graphed retail data from M Science starting the week of March 1. This is before widespread coronavirus shutdowns were in place. The data shows March and the first week of April had a dramatic reduction in weekly sales volume.
O’Reilly Automotive leading the way: retail sales and DIY sales
O’Reilly Auto Parts (NASDAQ: ORLY) is leading the other auto parts chains so far. They’re showing back-to-back weeks with a strong 22% increase in weekly sales compared to the week of March 1. (April 26-May 2 was revised down from 23%.) O’Reilly Automotive also seemed to recover faster than the others, too, with a 12% increase in the week of April 12-18. (O’Reilly is the dark purple line in the graph above.)
O’Reilly Auto Parts has not said if their recent surge is due to strong DIY sales, or strong DIFM sales from the service repair industry. However, our friends at Edgewater Research point out that credit card data doesn’t measure DIFM transactions. According to Edgewater any recent surge in sales is measuring DIY sales, not DIFM sales.
O’Reilly Automotive is interesting because historically they’re stronger than AutoZone and Advance Auto in the DIFM market. O’Reilly market share of DIFM is strong because they sell to a lot of smaller independent shops. Their strength in DIFM historically has been from better parts coverage and delivery frequency with their stores. We’ll know more when O’Reilly Auto Parts earnings are released.
AutoZone DIY sales up vs. AutoZone commercial sales
AutoZone (NYSE: AZO) is stronger in the DIY market than O’Reilly. For example, Edgewater Research sees AutoZone market share of DIY as strong, and puts their sales mix of DIY sales revenue at 77%-78% of total sales. Conversely AutoZone commercial sales, which serves the DIFM market, is at 22%-23%. It’s interesting to note that the AutoZone annual report for 2019 included the statement they will “…continue to focus on accelerating the growth of our [AutoZone] commercial business” in fiscal 2020.
AutoZone had the biggest drop off in weekly revenue, with a low of 27% (AutoZone is the medium blue line in the graph above). They also seemed slower to recover. The data shows AutoZone is up 8% from March 1-7, the lowest increase of all four auto parts chains.
AutoZone runs on a fiscal year, and fiscal 2019 ended August 31, 2019. The impact of the coronavirus pandemic will significantly affect AutoZone’s fiscal 3rd quarter earnings and 4th quarter earnings.
Advance Auto Parts earnings stronger in DIFM market
Advance Auto Parts (NYSE: AAP) is also strong in the DIFM and DIY markets. Advance Auto dipped as low as -20% (Advance Auto is the light blue line in the graph) and shows back-to-back 14% increases the week of April 26-May 2 and May 3-9. Advance Auto market share for DIFM is strong. Their sales mix for DIFM has historically been about 60%, and about 40% DIY. That mix is not reported in Advance Auto Parts financials but is reported in the industry by research companies like Edgewater.
Edgewater also points out that the historic mix of DIFM/DIY for Advance Auto has probably temporarily shifted to slightly more market share for DIY.
AutoZone or Advance Auto Parts: Who’s winning?
When comparing Autozone or Advance Auto Parts, Advance has the advantage right now, with back-to-back 14% increases, vs. AutoZone’s 10% and 8% increases.
NAPA Auto Parts strong in DIFM sales
NAPA auto parts revenue is strong in DIFM sales. NAPA auto parts are the retail stores of Genuine Parts Company (NYSE: GPC) and operate as franchises. A recent investor presentation shows NAPA sales mix of retail/DIY sales at only 25%-30% of NAPA’s total sales volume (NAPA is the dark blue line above).
Conversely, NAPA auto parts market share of DIFM is stronger than DIY. Their DIFM sales volume is about 70%-75% of total sales.
NAPA auto parts sales dropped as much as 23% down from the first week of March. Most recently, they recovered to an 18% increase.
Advance Auto vs NAPA: Who’s winning?
When comparing Advance Auto vs. NAPA, it’s very close. Advance has back-to-back weeks with 14% increases, vs. NAPA’s 11% and 18% increases.
Coronavirus impact on auto chain earnings and eCommerce
Short-term, there’s no question the coronavirus pandemic hurt retail sales and auto parts chain earnings. Auto parts chains were classified as essential services so they remained open while restaurants and other businesses were shut down.
Retail sales in general suffered in March and April, while eCommerce flourished. We don’t know what the permanent impact will be on DIY and DIFM sales activity, but it appears the auto chains are showing a short-term recovery. Most of that recovery is probably DIY rather than DIFM.
Questions on M Science and the data
Let us know if you have questions on this data and we’ll put you in contact with M Science.
Full disclosure: Hedges & Company principals do not directly own stock in the companies mentioned in this article.
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