Quick Hits …
(A few short items to get us started this week)
• Bendix Brakes from MAT Holdings are now approved by the Automotive Parts Services Group.
• The tire installation partnership between Amazon and Monro has expanded to include all of Monro’s shops, more than 1,200 locations across 32 states. Tire installation at Monro is available to Amazon shoppers who purchase tires from the e-tailer and select the “ship to store” option.
• U.S. Auto Parts Network has changed its corporate name to CarParts.com, reflecting its flagship brand and website. The company’s Nasdaq ticker, “PRTS,” remains the same. Trading under the new name began July 28. This comes shortly after the company redesigned CarParts.com, launched a line of J.C. Whitney-branded accessories and relaunched J.C. Whitney on CarParts.com.
• The Auto Care Association has announced that independent distributors FleetPride, HDA Truck Pride and Vipar Heavy Duty support the association’s Product Information Exchange Standard (PIES). The companies are calling on all suppliers servicing the heavy-duty industry to adopt the product data standard that debuted at HDAW in January.
• New research from IHS Markit indicates that the average age of U.S. light vehicles in operation (VIO) has risen to 11.9 years, which is about a month older than in 2019.
A New Owner For Brake Parts Inc. And Champ Labs
The Cleveland-based First Brands Group (formerly known as the Trico Group) has acquired Brake Parts Inc. (BPI), which manufactures and markets brake products, including the full line of Raybestos-branded brake parts; and Champion Laboratories, a full-line filtration manufacturer whose leading brand is LuberFiner.
BPI and Champ Labs join First Brands’ existing auto parts portfolio, which includes Fram filtration products, Trico wiper blades, Carter fuel and water pumps, Anco wiper blades, StrongArm lift supports, and Autolite spark plugs.
“We are excited to add Raybestos and Luberfiner comprehensive product lines to our market-leading portfolio of aftermarket brands,” Chief Marketing Officer Guy Andrysick said in an announcement dated July 31. “Both Raybestos and LuberFiner are important and natural complements to our current vehicle maintenance and repair product solutions. We have strengthened our supplier position to support all customers with one of the most comprehensive portfolios of replacement products in the North American automotive aftermarket.”
O’Reilly Automotive Reports Record-Breaking Sales, Earnings Despite Pandemic
For the second quarter of 2020, O’Reilly Automotive reported record sales of $3.09 billion (up 19.4%) and record net income of $531.67 million (up 50.3%). Gross profit rose 19.7% to $1.64 billion, while gross margin grew from 52.8% to 53.0% on a year-over-year basis.
Comparable-store sales increased 16.2% on top of 3.4% growth a year ago for a two-year stack of +19.6%.
CEO and Co-President Greg Johnson told analysts on the company’s July 30 quarterly report conference call: “I can safely say we have never seen a quarter like this year’s second quarter.”
“As we announced in our first-quarter press release, the beginning of our second quarter was marked by a significant COVID-19 headwind, which was a continuation of the pressure we saw in our business starting in the middle of March, coinciding with the implementation of stay-at-home recommendations and orders,” Johnson explained. “As we discussed on last quarter’s conference call, this trend continued through the middle of April.
“Sales in the third week of April improved as our customers began to receive economic impact payments under the CARES Act. At that time, we had no way of forecasting the magnitude and the duration of the benefits from these stimulus payments nor could we anticipate what other factors would impact our customers and our business moving forward.”
Then, O’Reilly’s sales performance from the third week in April through the remainder of the quarter exceeded all expectations. “During this time frame, our DIY business was the stronger contributor, coming on quickly in the middle of April, improving in May and staying very strong in June,” Johnson said on the call. “We were also very pleased with the performance of our professional business. Sales on that side of the business also began to see improvement in the middle of April but at a more gradual pace than the immediate turnaround at DIY.
“However, as we progressed through the quarter, professional sales continue to strengthen, generating robust comps above our expectations in May and June as stay-at-home orders began lifting and the broader economy began reopening. As a result of this cadence on both sides of our business, total comparable-store sales were similar for May and June and have remained strong thus far in July.”
According to Johnson, a number of factors drove O’Reilly’s record-setting sales results.
“It’s evident from the sharp turn in DIY business that the receipt of governmental stimulus payments under the CARES Act was the first catalyst supporting our sales growth in the quarter. However, given the degree to which robust sales trends persisted, it’s clear to us that enhanced unemployment benefits have also been a tailwind to the business and were likely more prominent in driving demand as we moved through the quarter,” he said. “We also believe that the reopening of the economy and the partial recovery of miles driven was a positive factor, especially in our professional business.”
Johnson noted that O’Reilly experienced robust ticket count increases during the quarter, as well as a significant increase in average ticket size.
“With average ticket, inflation was in line with our expectations, so the increase in ticket size was being driven primarily by larger jobs or more items on the ticket,” he said. “On a category performance basis, we saw strong performance throughout our product offerings, including especially good results in appearance and accessory categories. These ticket and category dynamics suggest some of the strong demand we realized in the second quarter was a result of our customers having the ability and desire to work on larger projects as they had more time to spend repairing and maintaining their vehicles.”
NETWORK GROWTH … Through the first six months of 2020, O’Reilly opened 123 net new stores, which was in line with management’s original plan to open 180 new stores in 2020. Additionally, the company opened a new distribution facility in Lebanon, TN.
“These new properties were well underway prior to the onset of COVID-19 and the disruption from stay-at-home orders, so we were able to complete development pretty much on schedule,” said COO and Co-President Jeff Shaw. “However, we’ve seen delays in the development schedules for our planned new store openings in the back half of the year, especially as the required approvals for design and permitting have slowed as cities implemented health and safety measures. At the same time, we were very judicious in how we moved forward with both our store expansion plans as well as our other capital project priorities in line with the significant economic uncertainty we were facing.
“As market conditions improved, we began to see local communities open up in May and June, and we were able to resume the pace in our new store development. However, given the delays we experienced in the first half of the year, it is prudent to withdraw our original 2020 new store guidance. We now expect to open between 150 and 165 new stores this year. We have been pleased with our ability to open great new store locations in 2020, but where we ultimately fall within that range will be somewhat out of our control as we anticipate seeing further localized delays in final permitting approvals.”
Shaw added that O’Reilly is making progress converting the hardware that runs its stores and continues to invest in projects to modernize its distribution vehicle fleet, improve the image and appearance of its stores, implement enhanced safety measures in its store vehicle fleet and enhance its omnichannel capabilities.
As of June 30, 2020, the company had 5,562 stores across 47 states, as well as 21 stores in Mexico.
INVENTORY … Inventory per store at the end of the quarter was roughly $632,000, which was even with the beginning of 2020 and up 3.5% from the same period last year. The increase reflects additional inventory investments made in the first quarter of 2020, partially offset by a reduction in inventory balances in the second quarter resulting from strong sales.
The company’s ratio of accounts payable to inventory came in at a record 112%, largely due to extremely strong sales and inventory turns in the second quarter. Management anticipates growth in per-store inventory for the remainder of 2020 as O’Reilly resumes its inventory enhancement initiatives. This is expected to moderate the increase in its AP percentage over time.
BUYBACKS RESUME … In an attempt to conserve liquidity in response to the coronavirus pandemic, O’Reilly suspended its share repurchase program on March 16. The company then resumed the program on May 29. Over the three months ended June 30, 2020, O’Reilly repurchased 200,000 shares of its common stock at an average price per share of $417.79 for a total investment of $77 million.
Subsequent to the end of the second quarter and through July 30, the company repurchased an additional 100,000 shares of its common stock at an average price per share of $423.09 for a total investment of $36 million. O’Reilly had approximately $882 million remaining under its current share repurchase authorization as of July 30.
LOOKING AHEAD … As previously announced, O’Reilly withdrew all previously issued 2020 guidance. And, given the ongoing uncertainty related to the pandemic, management stated that the company would not resume 2020 guidance at this time.
Johnson said management remains cautious in its sales outlook, recognizing that significant uncertainty still exists regarding the duration of the current positive market backdrop. “Ultimately, we expect to see a moderation of the record-setting sales pace at some point in the back half of 2020,” he told analysts on the call. “We feel very confident our company can continue to deliver solid sales growth even if the broader economic conditions deteriorate.”
Analysts with Jefferies LLC expect O’Reilly’s sales to remain strong in the near term but to moderate to high single-digit levels, according to a July 30 report. “We expect DIY demand to outperform, while DIFM also improves,” Bret Jordan, Mark Jordan and Ethan Huntley wrote. “Accordingly, we are modeling Q3 comps of +7.0%.” — Marc Vincent
GPC’s U.S. Automotive Sales Decreased 12% In Q2
For the second quarter of 2020, the Genuine Parts Company’s global automotive group reported $2.50 billion in net sales — an increase of 10.1% as the business was able to rebound from a 30% decline in April sales with strong recovery in both May and June. Segment profit decreased 4.3% to $218.91 million, yet profit margin expanded from 8.2% to 8.8% on a year-over-year basis.
For July, management is forecasting a 6% increase in global automotive group sales.
NORTH AMERICA … U.S. automotive sales declined 12% for the quarter, with comparable-store sales down 13.8%. “Despite the challenging top line, we were pleased to deliver a 60-basis-point improvement in net operating margin,” Chairman and CEO Paul Donahue told analysts on the company’s July 30 earnings call.
The strongest regions for the quarter were the Mountain States and the Midwest, with the hardest-hit areas being the Northeast and Eastern Seaboard.
In Canada, automotive sales were down roughly 13%, with comp-store sales down 15% and net operating margin up 400 basis points. “For perspective, both regions showed similar recovery trends throughout the quarter with sales improving from 25% to 30% declines in April to mid-single-digit declines in June,” Donahue said.
Sales to retail customers outperformed throughout the pandemic, according to Donahue, with positive sales growth in the United States and Canada. “The strength in retail reflects the benefit of stimulus funds and other macro trends, as well as the positive impact of our omnichannel strategy to create an excellent in-store and online customer experience,” he said on the call. “As examples, we continue to refresh our NAPA stores, train our store associates and build on our loyalty program while also enhancing our digital tools to grow our DIY business.
“Enhanced digital capabilities, such as ‘buy online/pickup in store,’ curbside pickup, ship-to-home and deliver-from-store are driving increased traffic to our websites and record online sales in both the U.S. and Canada. We expect to benefit from this positive trend in the future through a continued expansion of our digital offering.”
Donahue stated that commercial sales remained under pressure, as lower demand from professional shop customers led to declines in such hard parts categories as brakes, chassis, ride control and exhaust. “In particular, sales to accounts such as municipalities, state governments and fleets … were especially hard hit,” he said. “Overall, we believe the slowdown in commercial sales reflects a decline in miles driven related to COVID-19; however, we are optimistic that miles driven and other growth drivers will improve as consumers get back on the road for both work and personal travel.”
On the call, Donahue also noted various initiatives designed to streamline its North American automotive organization. “These steps included changes in management structure, further DC rationalization, a sales reorganization, and a continued focus on new delivery strategies and digital tools,” he told analysts. “These actions have already generated incremental cost savings and operational productivity, as evidenced by our improved operating margin in both the U.S. and Canada. We expect these efforts to continue to add value today and over the long term.”
Donahue also expressed confidence in the lasting financial stability of its independently owned NAPA stores and auto care customers in light of their support and current business trends. “We have worked closely with our independently owned NAPA stores and AutoCare customers to help them benefit from the financial aid available to small businesses,” he said. “The vast majority applied for and received [Payroll Protection Plan (PPP)] assistance.”
EUROPE … European automotive sales decreased roughly 3% in the second quarter, reflecting pressure from the coronavirus pandemic, as well as lockdowns in France and parts of the United Kingdom. “While our operations in Germany and the Benelux region held up fairly well through the peak of the pandemic, France and the U.K. drove an approximate 40% total sales decrease for this group in April,” Donahue said. “We had a sharp recovery from the lows of April with the reopening of France in May and the U.K. in June, which produced a surge in demand associated with deferred maintenance and repairs. As a result, total sales in Europe were positive in both months, with high single-digit comp sales growth in June.”
He said the improving business conditions across the company’s European automotive operations are promising. “We look forward to building on the positive sales momentum and expanding our operating margin as we execute on initiatives to drive both top- and bottom-line in the periods ahead. We believe our current footprint in the large and fragmented European marketplace is an important competitive advantage for us,” Donahue told analysts on the call. “In addition, we see growth opportunities in Europe associated with the ongoing rollout of the powerful NAPA brand.
“This year, we have been expanding on the product categories introduced in 2019 with the rollout of several new product categories, including brakes, filtration, oil, and steering and suspension. We are also initiating the development of our omnichannel capabilities in Europe, which will extend the digital platforms already offered in our North American and Australasian operations.”
AUSTRALASIA … Total automotive sales in Australia and New Zealand increased 4.4%, attributable to an approximately 2% core sales increase. “With these sales and continued cost savings, the team produced a 300-basis-point improvement in net profit margin,” Donahue said. “Our team achieved these results despite aggressive steps by the Australian and New Zealand government to prevent the spread of COVID-19, which generally restricted mobility and related demand for auto parts. In fact, these operations have recovered to pre-COVID sales volumes, driven by strong double-digit retail sales growth and solid commercial sales growth in both May and June.”
He added that retail online sales in Australia and New Zealand continue to grow at greater than 300% from pre-pandemic levels. “Through our investment in Sparesbox and other digital capabilities, we are prepared for additional online growth in the future,” Donahue said on the call. “The execution of key initiatives such as the rollout of the NAPA brand across our trade offering, new NAPA store openings in Australia and New Zealand, and optimized global sourcing have been important growth drivers for our commercial business.” — Marc Vincent
Auto Care Association, NHTSA Meet To Discuss Data Access, Massachusetts Vote
Representatives from the Auto Care Association and its members met with NHTSA Deputy Administrator James Owens on July 24 to discuss issues involving Massachusetts Question 1, a November referendum regarding access to vehicle data. A vote in favor of Question 1 would give Massachusetts motorists the ability to access their vehicles’ mechanical data and allow that data to be shared with independent repair shops. The Auto Care Association has been a longtime advocate for this and other “Right to Repair” measures.
According to the association, the July 24 meeting focused on a letter NHTSA sent to Massachusetts state legislators on July 20 raising cybersecurity concerns in regard to access to data by vehicle owners.
NHTSA’s letter, offered in the form of written testimony, concludes that managing vehicles’ lifetime cybersecurity risks is an extremely challenging undertaking and that a cyberattack on one or more motor vehicles has enormous potential safety consequences.
“This is why NHTSA continues to devote significant resources to the development and refinement of best practices and works with industry to identify techniques to harden vehicle systems. Two of the most important techniques — logical and physical isolation of vehicle control systems from external connections and controlling access to firmware that executes vehicle functions — may be rendered impossible by the provisions of this ballot initiative,” NHTSA wrote. “The ballot initiative requires vehicle manufacturers to redesign their vehicles in a manner that necessarily introduces cybersecurity risks and to do so in a timeframe that makes design, proof and implementation of any meaningful countermeasure effectively impossible.”
NHTSA’s letter does acknowledge the need for serviceability access by authorized third parties, noting its guidance recommending that the industry not “unduly restrict access” by authorized alternative third-party repair services. “However, steps proposed to ease access for serviceability cannot be allowed to compromise vehicle cybersecurity and public safety,” NHTSA wrote.
Auto Care Association President and CEO Bill Hanvey took issue with NHTSA releasing the letter without first approaching the association to address its concerns, adding that NHTSA’s letter was being used by vehicle manufacturers to urge voters to go against Question 1.
The association reports that, at its July 24 meeting with NHTSA, Auto Care Association representatives discussed the importance of data access to ensure that motorists continue to have choices regarding where their vehicles are repaired, as well as safeguarding cybersecurity and how data can be shared. This included an outline of standards developed by vehicle engineers around the world, which the association contends would permit owners to control access to their mechanical data.
According to the Auto Care Association, Owens thanked the association and its members for the discussion of the cybersecurity and “declared that the NHTSA supports the right to repair and the need for owner’s access to data.” The association also reports that Owens “offered to work with the association to develop a better understanding of the measures being proposed by the Auto Care Association in order to permit the secure transmission of data.”
“We look forward to continuing discussions with the NHTSA on the need for competition in the vehicle repair industry, and the Auto Care Association is confident that NHTSA will recognize the extensive work being done by expert engineers globally so that vehicle owners can control the mechanical data being transmitted by their vehicle,” Hanvey said in an announcement dated July 27.
The Greensheet reached out to NHTSA for comment on the meeting and the Auto Care Association’s characterization of their discussion. We received the following statement: “NHTSA typically does not comment publicly on meetings with external stakeholders. However, to avoid any misunderstandings, the discussion with the trade association did not resolve NHTSA’s cybersecurity concerns outlined in our written testimony, nor did the agency express support for the Massachusetts ballot initiative in question.”
Aaron Lowe, senior vice president of regulatory and government affairs for the Auto Care Association, responded noting that there is a secure method for controlling access to vehicle data that has been developed by transportation engineers and cybersecurity experts.
“We informally refer to this set of international standards as the Secure Vehicle Interface. Auto Care demonstrated the Secure Vehicle Interface (SVI) at the 2019 AAPEX,” Lowe told The Greensheet. “Car companies are already including network gateway technologies on their vehicles that could support the adoption of SVI standards, but instead, they have chosen to use their own proprietary methods. SVI simply provides a standardized approach that can ensure cost-effective secure access by the aftermarket.”
Lowe called NHTSA’s concerns regarding access to bi-directional capabilities unfounded.
“While access to bi-directional capabilities is critical to a shop’s ability to properly diagnose and repair a vehicle, there is nothing in the ballot question regarding bi-directional access that would prevent a manufacturer from protecting critical vehicle systems from unauthorized intrusions or from ensuring the safe update of a vehicle’s operating system as proscribed by the manufacturer,” he explained. “In fact, SVI standards provide an additional layer of security that protects every module on the vehicle network and supports the delineation of manufacturer proprietary systems and data.
“A standards-based approach to cybersecurity does not mean that vehicles will be more vulnerable to hacking. In fact, the opposite is true. Standards ensure that car companies are using the most optimal solutions for protecting their vehicle from cyberattack.” — Marc Vincent
After Steep Sales Decline In April, SMP Says June Sales Back To Normal
Standard Motor Products’ (SMP) net earnings fell 43.6% to $10.97 million in the second quarter of 2020. Consolidated gross profit declined 27.6% to $64.36 million, while gross margin decreased from 29.1% to 26.0% on a year-over-year basis. The company’s net sales declined 18.8% to $247.94 million, impacted by a sharp decline in miles driven related to coronavirus-related shelter-at-home mandates across the United States.
“When we last spoke to you on our first-quarter earnings call, we were wrapping up April, the worst month our company has seen in decades. The country was in near-complete lockdown, and we reported that our April incoming orders were down 30% to 40%,” President and CEO Eric Sills said on SMP’s July 29 earnings call. “We also told you that there were signs of improvement, especially with our customers’ POS, which is always a leading indicator for us.
“We’re pleased to say that business did in fact begin to bounce back. May saw week-over-week improvements, and by June, sales returned to normal levels. So, while the quarter as a whole was well below 2019, the trend was quite favorable, and we entered Q3 with a very healthy order book.”
According to Sills, customer POS was even more favorable. “We reported that throughout April, our customers’ POS was tracking substantially better than their orders to us, as they reduced their inventory. We also stated that, after bottoming out, their POS had begun to rebound. This trend continues. Within both Engine Management and Temperature Control, customer POS was favorable to last year for the entire quarter and showed sequential improvement month over month.”
ENGINE MANAGEMENT … The company’s Engine Management (EM) segment revenue fell 20.6% to $173.15 million, primarily attributable to a general economic slowdown caused by the pandemic, with the greatest impact seen in April and May. June sales rebounded to a level in line with 2019.
Ignition, emission control, and fuel- and safety-related system product revenue declined 21.5% to $142.79 million. Wire and cable revenue decreased 16.1% to $30.37 million.
EM gross profit dropped 27.5% to $46.23 million, while gross margin declined from 29.3% to 26.7% on a year-over-year basis, attributable to lower sales volumes and unfavorable cost absorption tied to lower production volumes.
Segment operating income fell 36.5% to $16.73 million.
In terms of customer POS, Sills told analysts that EM was down double digits in April but up double-digits in June.
TEMPERATURE CONTROL … SMP’s Temperature Control (TC) segment revenue decreased 14.2% to $72.39 million, primarily because of the pandemic and following the same pattern across the months as the company’s EM segment.
Compressors revenue declined 14.5% to $52.49 million, while all other climate control parts revenue decreased 13.8% to $31.91 million.
TC gross profit fell 26.7% to $16.52 million, while gross margin declined from 26.7% to 22.8% on a year-over-year basis, also attributable to lower sales volumes and unfavorable cost absorption tied to lower production volumes.
Segment operating income fell 44.5% to $3.97 million.
“We entered the third quarter in good shape. Business has picked up substantially, and it has been a hot summer, which is always a good thing for our Temperature Control business,” Sills told analysts on the call.
In terms of customer POS, he said that June was up double digits with that trend continuing into July.
COO Jim Burke pointed out that this year’s pre-season ordering was light following a mild 2019 summer season. “Volume has picked up in June,” he said. “And, based on current ordering patterns, we should have a solid third quarter in our Temperature Control business.”
PANDEMIC IMPACT … To control costs related to the coronavirus pandemic, SMP temporarily suspended its dividend and stock buyback programs and reduced compensation for senior executives and the board of directors. Additional measures included reductions in expenses for travel and entertainment, trade shows, and advertising.
On the call, Sills emphasized that the company did not cut items that would hurt SMP in the long run. “We chose not to lay off any of our salaried staff. We are very pleased that we made that decision,” he said. “For example, while our 200-plus salespeople were unable to call on customers, we kept them productive. We turned our award-winning training department on them, bombarding them with literally over 100 webinars. Now that they are back on the road, they’re equipped with the most extensive knowledge base imaginable.
“We also chose not to reduce spending on capital projects for new equipment and tooling. Our engineers all remained highly engaged throughout, and our pipeline of projects has continued.”
Burke noted that SMP did experience supply chain challenges dealing with an initial 30% to 40% volume reduction in April followed by a significant rebound in customer POS levels in May and June.
“Overall, from a materials perspective, we’re in reasonable shape, as our vendors have been very helpful meeting our needs,” Burke said on the call. “However, business rebounded so quickly that we’re working as fast as we can to build and distribute our products in a timely fashion to match customer demands. We are adding labor with new hires and temporary agency staff in addition to working overtime and weekends to keep up.”
BORROWING … “At the beginning of the second quarter, we took several precautionary measures to increase our cash position and make sure we had ample liquidity. As part of these measures, we made a drawdown of $75 million from our revolving credit facility with the support of our banks and lending partners,” CFO Nathan Iles told analysts on the call. “As we began to see an improvement in our business during the second quarter, the higher sales and improvement in cash flow led us to repay the $75-million drawdown.”
Iles explained that the company’s credit agreement is an asset-based revolver, giving SMP the ability to borrow and repay as businesses conditions warrant.
“As such, we continue to have ample liquidity, and we finished the second quarter with $22 million in cash on hand and $146 million available under our revolving credit facility,” Iles noted. “Finally, while we made the repayment on our revolver, we still remain cautious about the months ahead … and our other cash conservation measures remain in place.” — Marc Vincent
Monro Reports 25.8% Decline In Comp-Store Sales
For the fiscal first quarter ended June 27, 2020, Monro Inc. saw its net income fall 86.8% to $2.99 million due, in large part, to disruptions caused by coronavirus-related stay-at-home orders across the United States. Adjusted net income dropped 78.3% to $5.07 million.
The company’s gross profit declined 31.8% to $87.45 million, and its gross margin decreased 500 basis points to 35.4%, attributable to lower comparable-store sales, which resulted in higher fixed distribution and occupancy costs as a percentage of sales, as well as lower vendor rebates tied to slower inventory turns and a higher sales mix of tires, which resulted in higher material costs as a percentage of sales.
Monro’s sales decreased by $70.00 million, or 22.1%, to $247.06 million. According to management, the drop in sales came from a comp-store sales decline of 25.8% that was partially offset by $12.70 million in sales from new shops, including $11.10 million in sales from recent acquisitions.
The company attributed the decrease in comps primarily to a substantial drop in traffic related to stay-at-home orders. By category …
• Brakes comps fell 41%.
• Front end and shocks comps dropped 36%.
• Maintenance services comps fell 35%.
• Alignment comps declined 32%.
• Tires comps decreased 14%.
President and CEO Brett Ponton told analysts on the company’s July 29 earnings call that April represented a low point in Monro’s quarterly topline performance. In May and June, the company experienced a resumption in demand driven by improved traffic as government restrictions gradually abated.
TRENDS … Comps were down 41% in April, down 24% in May and down 14% in June. Preliminary results for July show comps down 12%.
“While we experienced a double-digit comparable-store sales decrease in all product and service categories during the first quarter, we’re encouraged to see monthly comps improve sequentially across all categories throughout the quarter — a trend that has continued in the second quarter based on our preliminary results to date,” Ponton said on the call. “Importantly, tires, which represent our largest category, outperformed all other product and service categories as the rollout of our tire category management and pricing system is gaining traction.
“With improved visibility into the price elasticity of demand and competitive dynamics in each market, it has allowed us to optimize our tire assortment while favorably impact tire volumes and margins during the first quarter.”
Geographically, Monro’s South and Midwest markets outperformed its northern markets, where the company has a high concentration of shops. “This outperformance narrowed in recent weeks with strengthening performance in the Northeast and a slowdown in recovery pace in our southern states, as many are increasing restrictions due to higher infection rates,” Ponton noted.
PANDEMIC IMPACT … In response to the sharp drop in business related to stay-at-home orders, Monro reduced its shops’ operating hours in the early part of the quarter. The company returned to a more normalized shop schedule as demand improved. Yet, Monro still has a smaller number of shops that are open on Sundays.
Pre-pandemic, the company had roughly 840 locations that were open on Sundays. It fell to about 400 shops at one point early in the pandemic before rising to about 600 shops in July. “We believe that created about a 2% comp headwind in the quarter just by having fewer stores open on Sundays,” Ponton said.
Among the other efforts, Monro took to cut costs include “right-sizing” shop staffing and structurally changing its labor model with an eye toward having the right mix of technicians in shops at the right times. Additionally, the company tightened its marketing spend and accelerated its shift toward higher-ROI digital channels.
“Overall, we’re encouraged by the cost savings that derived from these initiatives, which we believe set us up well to drive better-operating performance going forward,” Ponton said.
SHOPS … As part of what the company called a onetime real estate portfolio adjustment, Monto closed 36 underperforming shops during the quarter. This followed the shuttering of six shops in the fourth quarter of fiscal 2020.
“These store closures were planned in accordance with our analytic model to drive the stronger long-term performance of our company and were not in response to COVID-19,” Ponton said. “We estimate the closure of these 42 stores will improve operating income by approximately $5.10 million on an annual basis.”
As of July 29, 2020, Monro had 1,247 company-operated shops and 97 franchised locations.
REBRANDING RETURNS … Monro on July 29 also announced plans to gradually resume its shop rebrand and reimage initiative. The program, which had been paused in the early days of the pandemic, seeks to create a consistent appearance and standardized operating procedures for all of Monro’s shops.
“To date, we have completed the transformation of more than 200 stores in a number of key markets, including rebranding approximately 70 stores from tire-branded stores and consolidating our tire brands to optimize our brand awareness and increase our tire revenue in select markets,” Ponton explained. “While we have paused this initiative since the onset of the pandemic, we are pleased to report that our rebrand stores’ comparable-store sales continue to outperform our chain average.
“These positive trends reinforce our confidence in our reimage and retail brand portfolio consolidation strategy to drive long-term, same-store sales growth. In light of our healthy financial position, we have decided to resume this program with a measured and moderated approach in the second quarter. Accounting for the current pandemic backdrop, our goal is to undertake the refresh of 60 to 120 stores in fiscal 2021.”
MISCELLANEOUS … Other items of interest from Monro’s quarterly report and conference call …
• The tire installation partnership between Amazon and Monro has expanded to include all of Monro’s shops, more than 1,200 locations across 32 states. Tire installation at Monro is available to Amazon shoppers who purchase tires from the e-tailer and select the “ship to store” option.
• Without providing specifics, Ponton told analysts that acquisitions remain a pillar of the company’s growth strategy. “We have a robust pipeline and are evaluating a number of quality potential targets that would fit our strategy while maintaining strong financial discipline,” he stated.
• Monro disclosed approximately $145 million in cash and cash equivalents, as well as roughly $255 million in availability on its revolving credit facility as of July 25.
• Management declined to provide fiscal 2021 guidance, citing ongoing uncertainty caused by the pandemic. — Marc Vincent
Pypes Exhaust, Cold Case Radiators Name New President/COO
Pypes Performance Exhaust and Cold Case Radiators have named Alex Tainsh as their president and COO, effective Aug. 1. Chris Casperson will remain CEO of both companies.
Tainsh was general manager of Parts Unlimited and general manager of SoffSeal. His background also includes time as the vice president of sales for Restoration Parts Unlimited.
Pypes is a manufacturer of high-performance exhaust systems, primarily serving the American car, truck and big-rig markets. Cold Case is a manufacturer of high-performance aluminum cooling products for the American car and truck enthusiast markets.
Custom Automotive Network Readies October Virtual Conference
The Custom Automotive Network (CAN) — which canceled its in-person 2020 CAN Connect conference originally scheduled for Sept. 13-16 because of the coronavirus pandemic — will host a virtual conference Oct. 5-9. CAN Connect Virtual will include networking opportunities, industry trend sessions, general sessions, a new products showcase and one-on-one private meetings based on the association’s CAN Connect formula. Attendees will meet with partners via secure video connections. For more information on CAN Connect Virtual, visit customautomotivenetwork.com.
Mickey Thompson Adds Director Of Product Management
Heather Tausch has joined Mickey Thompson Performance Tires as its director of product management. Tausch previously was a brand manager for Old World Industries/BlueDEF, as well as a brand manager at MOMO Automotive Accessories. Prior to that, she served as director of marketing and communications for Pulstar Spark Plugs at Enerpulse Inc.
Registration Begins For University Of The Aftermarket Fall Semester Online Classes
Registration has begun for fall semester online courses through the University of the Aftermarket. Classes will begin Aug. 24. Course offerings include …
• Fundamentals of Financial Accounting.
• Introduction to the Automotive & Heavy-Duty Aftermarket.
• Principles of Marketing.
• Selling & Sales Management.
The University of the Aftermarket also plans to offer a semester-long category management course that will begin Aug. 24. Details are forthcoming.
For more information on fall semester classes, or to register, click here.
ASE Partners With Kasey Kahne To Tout Renewal App
The ASE Renewal App program is available to technicians who are already certified in the automobile series of tests (tests A1-A9). A free three-day trial is available. Once subscribed, service professionals receive one question per area, per month sent to their phones, tablets or desktop computers. If they get eight questions correct, their certification is extended by one year.
App users can continue to answer questions each month to expand their knowledge after getting eight per area correct.
ASE Revamping Its myASE Portal
ASE is making enhancements to its myASE portal for test registering, scheduling and viewing technician information. The site closed July 31 and is scheduled to relaunch Aug. 10. Upgrades will include a shopping cart interface that allows technicians to order ASE tests and products and then place them into a shopping cart for immediate purchase.
RepairSmith Expands In California, Arizona
The mobile car repair and maintenance service provider RepairSmith has expanded its network to Thousand Oaks and Fresno in California and Tucson in Arizona.
The move into Tucson follows RepairSmith’s recent launch in the Phoenix area. The company’s services are now available in over 30 cities across Arizona. In California, RepairSmith is now present in more than 30 cities in Fresno and Ventura counties.
RepairSmith’s network currently covers more than 325 cities.
NextGear Upgrade Targets Online Reviews
Bolt On Technology has launched Fourth Gear, an upgrade to its NextGear standalone platform. Fourth Gear features Review Manager, which is designed to boost a repair shop’s positive online customer feedback and raise its Google rankings.
Available on any web-enabled mobile device independent of other shop management systems, Fourth Gear helps shops proactively prompt customer reviews and alerts shops to negative reviews so staffers can respond quickly and directly. FouthGear costs $100 per month.
AutoNation Reports 23.5% Decrease In Parts, Service Revenue
AutoNation Inc. saw its parts and service revenue fall 23.5% to $689.90 million in the second quarter of 2020 as coronavirus-related shelter-in-place orders kept vehicles off the road for several weeks throughout the three-month period. Same-store parts and service revenue declined 21.9%.
According to AutoNation, its parts and service business was operating below full capacity in April. And while volume improved in May and June, business continued to run below prior-year levels through the end of the quarter.
The company’s parts and service gross profit decreased 24.4% to $311.40 million, and its gross margin slipped from 45.7% to 45.1% on a year-over-year basis.
On a same-store basis, parts and service gross profit declined by $93 million, or 23.0%, to $311.20 million, primarily because of …
• A $39.30-million decrease in gross profit associated with customer-pay service.
• A $16.20-million downturn in gross profit related to the preparation of vehicles for sale.
• A $13.60-million decline in warranty gross profit.
• A $10.90-million decrease in gross profit from collision business.
Chairman and CEO Mike Jackson told analysts on AutoNation’s July 23 earnings call that average same-store parts and service gross profit per service day was down approximately 40% in April but down only about 10% in June when compared to last year. July parts and service have improved further, leading him to state that the business could start running equal to last year at some point during the third quarter if this pace continues.
“There is going to be a lot of pent-up demand ultimately for maintenance,” Jackson said. “No maintenance was done during this pandemic period. We only did repairs that had to be done.”
However, it’s worth noting that, while parts and service volume improved over the course of the second quarter of 2020, a recent resurgence of coronavirus cases in the United States — particularly in states where AutoNation has a significant presence — could lead to additional governmental mandates, adversely impacting the company’s parts and service business.
Fort Lauderdale, FL-based AutoNation is billed as the largest U.S. automotive retailer with more than 325 owned and operated locations coast-to-coast as of June 30, 2020.
Lithia’s Q2 Service, Body, Parts Gross Profit Fell 15.2%
For the second quarter of 2020, Lithia Motors generated $275.50 million in service, body and parts revenue — a decrease of 17.9% compared to the same period a year ago. According to the company, its service, body and parts revenue decreased in all areas during the three-month period, mainly because of decreased customer-pay work as a result of coronavirus-related shelter-in-place policies.
However, the business experienced incremental improvements as states lifted these mandates. June same-store service, body and parts revenue was down only 4%, while same-store service, body and parts revenue decreased 20.6% for the entire quarter.
Lithia’s service, body and parts gross profit declined 15.2% to $144.40 million. On a same-store basis, the business’ gross profit fell 18.3% to $135.60 million. Nonetheless, service, body and parts gross margin increased 160 basis points to 52.4%, attributable to a shift toward customer-pay work, which carries higher margins than the company’s other service work. Notably, same-store customer-pay gross margin increased 210 basis points for the quarter.
As of June 30, 2020, Medford, OR-based Lithia operated 188 locations representing 30 brands across 20 states.
We are now looking for a team member responsible for guiding product and merchandising strategies and functions to ensure the achievement of objectives related to key performance indicators, sales, gross margins, inventory, service levels and overall profitability. … (more) … Click here to find out more.
PACCAR Reports Nearly 20% Decrease In Q2 Parts Revenue
PACCAR Parts saw its second-quarter 2020 sales and revenue decrease 19.7% to $823.70 million. PACCAR Parts’ pretax profit declined 27.9% to $151.90 million.
“Many customers deferred truck maintenance during April and May’s economic uncertainty,” President and CFO Harrie Schippers told analysts on PACCAR’s July 21 quarterly report conference call. “In June, parts demand recovered nicely and is returning to normal levels.”
According to Schippers, June 2020 parts sales were only about 6% below June 2019.
David Danforth, PACCAR vice president and PACCAR Parts general manager, noted that a stronger economy and higher truck traffic in June increased demand for aftermarket services.
Management appears optimistic about the second half of 2020 for the parts side of its business. CEO R. Preston Feight told analysts: “Between the general economic state and our fantastic team in the parts division, we do expect the second half to look really good.”
In related news, PACCAR Parts opened a 250,000-square-foot distribution center in Las Vegas and a 160,000-square-foot distribution center in Ponta Grossa, Brasil during the second quarter.
People Watching 8/3/20
• Meritor Inc. is adding Hannah Lim-Johnson as its senior vice president, chief legal officer and corporate secretary, effective Aug. 3. Lim-Johnson will be responsible for Meritor’s legal affairs, including oversight of legal activities related to corporate governance, acquisitions, divestitures, litigation, business standards compliance, regulatory compliance and intellectual property. She also will manage the corporate legal department.
• The Dana Inc. board of directors has established a standing technology and sustainability committee to assist the board with oversight relating to innovation, new technology, sustainability and social responsibility. The committee is chaired by Diarmuid O’Connell, former vice president of business development and member of the executive team at Tesla from 2006-‘17. He is joined on the committee by Bridget Karlin, global chief technology officer and vice president of IBM Global Technology Services, and Raymond Mabus Jr., founding principal and CEO of The Mabus Group and a former U.S. Secretary of the Navy.
• BBB Industries has announced Mary Grace Boatright, a junior majoring in supply chain management at Auburn University, as the recipient of a $1,000 Remanufacturing ACE Awards scholarship. This scholarship is intended to encourage future industry leaders to become more engaged with remanufacturing.
News Briefs 8/3/20
• Fisher Auto Parts/Federated Auto Parts is awarding Federated Car Care scholarships to six students for the 2020-‘21 academic year. The awards go to the employees or children of Federated Car Care Center members. The University of the Aftermarket Foundation administers the scholarships in memory of the late Art Fisher, founder of Federated Auto Parts.
• The “Stay Positive” Parts Authority service center promotion hit its goal of donating $10,000 to the Automotive Aftermarket Charitable Foundation, according to AACF.
• CarParts.com won a front bumper from the inaugural NASCAR All-Star Race at Bristol Motor Speedway at an auction with a winning bid of $20,034. Proceeds from the auction benefit Motor Racing Outreach. CarParts.com then made a matching $20,034 donation to Victory Junction, a camping facility for children with chronic medical conditions and serious illnesses.
• Don Schumacher Motorsports Precision Manufacturing is expanding into the automotive, defense, equipment manufacturing and aerospace industries.
• Optima Batteries has announced partnerships with Tanner Foust, a four-time U.S. RallyCross champion, and Vaughn Gittin Jr., an ULTRA4 Racing competitor. Both drivers are joining the Optima PowerPro Ambassador ranks.
• Privacy4Cars has announced a new data partnership with Auto Auction Services Corp./AutoIMS to provide visibility to consignors and auctions on the removal of nonpublic personal information previous owners and drivers may have left in consigned vehicles’ on-board systems. This includes previous destinations, garage door codes, contact lists, text messages and device identifiers.
• MERA – The Association for Sustainable Manufacturing has developed a new mobile app. It allows users to receive MERA alerts and updates, register for association webinars and events, and connect with peers via private messaging. Click here to download the app for IOS or for Android devices.
• Motor Information Systems has published a white paper, “Heavy-Duty Parts E-Commerce,” addressing the rise of e-commerce within the medium- and heavy-duty parts sector. Click here for more information.
• The Chick Capoli Sales Company has launched a new website, capolisales.com.
• Makita U.S.A. has updated its automotive website, makitatools.com/automotive.
• Total Seal Piston Rings has launched a new website, TotalSeal.com.
Event & Trade Show Briefs 8/3/20
• On Aug. 5, SEMA will debut the first in a series of webinars focused on helping aftermarket businesses reopen with confidence. The four-part series, titled “Shifting Gears: Back to Business,” will concentrate on tactics and concepts designed to help businesses emerge from the economic downturn stronger. Click here for additional information.
• Event organizers have launched an AAPEX TV 360 video detailing the demonstrations and hands-on training that will take place in the new Joe’s Garage venue at AAPEX 2020, a real-world shop setup with six service bays, lifts, running vehicles and a source capture vehicle exhaust extraction system.
• FBI Supervisory Special Agent Paul Vitchock will address the AASA Technology Conference on computer and business technology crimes. The virtual event will take place Sept. 28-30. Click here for additional information on the conference.