Quick Hits …
(A few short items to get us started this week)
• Advance Auto Parts is adding NGK Ignition Coil and NTK Technical Sensor lines at all Advance and Carquest locations, including online, expanding upon the NGK Spark Plugs and NTK Oxygen Sensors that Advance and Carquest have carried for over 15 years.
• Advance Auto Parts has selected ILJIN to be the sole wheel bearing and hub assemblies supplier for its premium CQ Professional brand. ILJIN’s wheel bearing and hub assemblies are scheduled to hit the shelves at Advance Auto Parts stores across the United States in May. This comes as ILJIN has ramped up distribution capabilities within the United States to meet increased demand for its aftermarket products.
• EnerSys, the manufacturer of Odyssey batteries, is now a JIT Truck Parts approved vendor. Launched in 2010 and headquartered in Highland Park, IL, JIT is a distributor of heavy-duty aftermarket parts. It has distribution centers throughout the United States, with its main locations in Louisville, KY; Reno, NV; and Harrisburg, PA.
• The 2021 Vision Hi-Tech Training & Expo will transition from an in-person event to a virtual one in March, as current restrictions from local government authorities do not allow for an adequate number of attendees.
U.S. Proposes To Extend DMCA Exemption For Vehicle Repair
The U.S. Copyright Office has issued a notice of proposed rulemaking proposing to extend an exemption from anti-circumvention prohibitions in the Digital Millennium Copyright Act (DMCA) for the repair of motorized vehicles. The exemption is slated to expire in 2021 unless renewed by the Copyright Office. Various industry associations — including SEMA, the Auto Care Association and MEMA — have petitioned the Copyright Office to extend the exemption.
Comments from groups supporting the extension are due in December 2020. Those in opposition must submit comments by February 2021. A decision regarding a formal renewal would come later in 2021. For more information on the extension, click here.
O’Reilly Reports Strong 16.9% Comp-Store Sales Increase
O’Reilly Automotive reported a record $3.21 billion in sales for the third quarter of 2020 — up 20.3% compared to the same period a year ago. Comparable-store sales rose 16.9% on top of a 5.0% increase a year ago, giving the company an impressive two-year stack of +21.9%.
Gross profit increased 18.1% to $1.68 billion; however, gross margin decreased 96 basis points to 52.4%, attributable to a tough comparison against a gross margin benefit O’Reilly received a year ago from the sell-through of pre-tariff, on-hand inventory during the third quarter of 2019. This is inventory purchased prior to tariff-driven acquisition price increases.
Nonetheless, the company’s net income rose 34.7% to a record $527.25 million. As a percent of sales, net income grew from 14.7% to 16.4% on a year-over-year basis.
SALES TRENDS … CEO and Co-President Greg Johnson told analysts on the company’s Oct. 29 earnings call that O’Reilly started the third quarter with strong top-line sales. “As we progressed through the quarter, we continued to see resilient, robust sales performance on both sides of our business. From a cadence perspective, comps were in the strong mid- to high teens throughout the quarter, with the best performance at the beginning of the quarter in July,” Johnson said. “We had steady, consistent performance in the balance of the quarter in August and September … Our comparable-store sales thus far in the fourth quarter have remained strong and are trending slightly below our third-quarter exit rate in the low double-digit range.”
He added: “We have been somewhat surprised and definitely pleased with how steady our strong sales comps trends have been. And to the extent volumes did moderate in the third quarter and into the fourth quarter, that moderation has been much more gradual than the immediate acceleration we experienced when demand swung heavily in our direction in April.”
O’Reilly’s sales trends are encouraging in light of the fading tailwinds from the expiration of government stimulus payments as well as enhanced unemployment benefits.
Johnson also said that the DIY business was the stronger contributor during the third quarter; however, O’Reilly’s professional business also performed well, with trends on both sides of its business tracking along with the overall sales cadence for the quarter. From a ticket perspective, Johnson said O’Reilly saw robust increases in both ticket count comps and average ticket comps on both sides of its business.
“As we saw in the second quarter, our category performance reflected strong performance across all of our product lines, with some of the best performance in ‘out front’ categories in our DIY business, as well as another extremely strong sales quarter for batteries,” Johnson said on the call. “We believe these results indicate a continued ability and willingness of our DIY customers to work on larger projects.
“I want to be clear that even though these more-discretionary categories have been our better performers for the last two quarters, we have still been very pleased with our sales volume across our business. While demand in undercar hard parts categories is more failure-related and did not perform quite as strong as the company average in the third quarter, sales for these traditional categories were still robust and significantly better than historical trends.”
GAINING SHARE … Johnson told analysts on the call: “Aside from the macro benefits that have helped the automotive aftermarket, it’s also clear to us that our strong sales performance is the result of significant share gains our team has delivered over the course of the past several months.”
Additionally, CFO Tom McFall told analysts that management believes O’Reilly has gained significant share on both sides of the business.
GROWTH & EXPANSION … After opening a new DC in Lebanon, TN during the first quarter of 2020, management expected to open a second DC this year in Horn Lake, MS. However, because of travel-related health concerns associated with training new employees in preparation for opening the facility, the opening of this Memphis-area DC has been rescheduled for the first half of 2021.
Through the first nine months of 2020, O’Reilly opened 153 net new stores, which was within management’s revised guidance calling for 150 to 165 new stores this year. “We still have new stores on the schedule to open in the fourth quarter and expect our total count will ultimately fall toward the top end of that updated range,” COO and Co-President Jeff Shaw said on the call.
As of Sept. 30, 2020, O’Reilly had 5,592 stores across 47 U.S. states along with 21 stores in Mexico.
INVENTORY & SUPPLY CHAIN … Inventory per store at the end of the quarter stood at $628,000 — down 0.7% from the beginning of 2020 but up 1.7% from the third quarter of 2019. McFall said the inventory per store balance was below management’s expectations because of strong sales in the second and third quarters of 2020.
O’Reilly’s AP-to-inventory ratio at the end of the third quarter was a record 115.8%, also heavily influenced by strong sales volume and inventory turns over the last six months. “We still anticipate growth in per-store inventory in the remainder of 2020 as we improve in-stock positions and resume our inventory enhancement initiatives,” McFall told analysts on the call. “This will also moderate the increase in AP percentage over time.”
During the call, Johnson addressed analyst questions regarding supply chain stress and in-stock positions. He said there are only a handful of suppliers that are having fill-rate issues — for example, some smaller chemical suppliers are having issues getting containers to ship their products because so many containers are currently going toward hand sanitizers. “From the supplier component of the supply chain, we are seeing continued improvement, and there’s only really a handful of suppliers that are really continuing to not fill at a rate that we desire,” Johnson said.
“Overall, we feel good. Suppliers are doing a good job,” he added. “We’re doing a good job of getting caught up. And I would say, within the next 30 to 45 days, we feel like our supply chain will be back to normal.”
LOOKING AHEAD … Johnson said he expects demand to remain solid, buoyed by several potential tailwinds such as consumers deferring new vehicle purchases in favor of maintaining their existing vehicles. However, he did caution analysts that the fourth quarter can be volatile because of weather, consumer demand dynamics during the holiday season and the upcoming election.
“Ultimately, we will have to wait and see where our sales level out,” Johnson said. “We have been very encouraged by the stability of sales trends during the six-month period of record-setting comps and feel very confident our company continued to deliver solid sales growth even if the broader economic conditions deteriorate.”
O’Reilly did not issue formal guidance for 2020, citing uncertainty related to the coronavirus pandemic.
BUYBACKS … During the third quarter, O’Reilly repurchased 1 million shares of its common stock at an average price per share of $458.70 for a total investment of $443 million. And subsequent to the end of the third quarter and through Oct. 28, the company repurchased an additional 700,000 million shares of its common stock at an average price per share of $458.97 for a total investment of $313 million.
The board of directors has approved a resolution to increase the authorization amount under O’Reilly’s share repurchase program by an additional $1 billion, raising the aggregate authorization under the program to $14.75 billion. The additional $1 billion authorization is effective for a three-year period beginning Oct. 28, 2020. — Marc Vincent
KPS Ups Its Offer For Garrett Motion; Mid-December Auction Anticipated
Garrett Motion Inc. has secured bankruptcy court approval regarding bidding procedures to either sell the business or raise equity capital for a stand-alone plan of reorganization.
The procedures call for a competitive bidding process to continue over the next six weeks, concluding with an auction in mid-December. According to an Oct. 26 announcement from Garrett, the bidding procedures permit the company to explore all options, including sales of Garrett for cash, sales of Garrett with co-investment rights offered to stakeholders, and stand-alone plans of reorganization.
Garrett also has obtained approval of “stalking horse” bidding protections for affiliates of KPS Capital Partners, including a $63 million termination fee and expense reimbursement, subject to a limit of $21 million.
As you may recall, Garrett on Sept. 20 filed for Chapter 11 bankruptcy protection in an attempt to restructure its balance sheet and sell the company to KPS, a global private equity firm. The original deal would have taken the publicly traded Garrett private.
NEW, HIGHER OFFER … On Oct. 19, KPS revised its proposal, agreeing to, among other things, increase its “stalking horse” bid by $500 million to $2.60 billion, subject to adjustment. The new offer also calls for KPS to purchase an entity that directly holds and after closing of the transaction, would retain the claims of Garrett and its affiliates against Honeywell International in connection with a disputed subordinated asbestos indemnity agreement and tax matters agreement.
Upon completion of the sale, KPS would list the new parent company on a U.S. stock exchange.
Additionally, KPS would make available to existing Garrett stockholders an equity co-investment opportunity, allowing Garrett stockholders to continue to hold shares in the publicly listed, reorganized business. KPS would offer as much as $350 million in co-investment, $100 million of which would be available to all shareholders on a pro-rata basis. According to Garrett, KPS expects existing shareholders would own roughly 24% of the outstanding common equity, assuming maximum co-investment. This also is subject to adjustment.
The new, aforementioned “stalking horse” bidding protections are payable by Garrett if its share and asset purchase agreement is terminated because Garrett decides to pursue a higher and better alternative or in certain other circumstances.
Garrett, in its Oct. 26 announcement, said it intends to proceed with the competitive process and actively solicit alternatives to KPS’ “stalking horse” bid prior to the auction. This includes proposals received from Centerbridge Partners and Oaktree Capital Management, as well as other potential stand-alone plans that provide investment opportunities to Garrett’s stockholders.
RIVAL BID … On Oct. 16, Garrett received a non-binding proposal from a group of institutional investors and Honeywell, calling for Garrett to sell control to the institutional investors without a further marketing process. The bidding group includes Centerbridge and Oaktree. They have entered into a coordination agreement in anticipation of submitting to Garrett an alternative proposal for a plan of reorganization.
According to Garrett, this alternative proposal was prepared with public information and had not been negotiated with Garrett, and it followed invitations from Garrett to the members of the bidding group to join the competitive process alongside other bidders.
The alternative proposal also requested that Garrett agree to stop the competitive process altogether, as well as not seek, solicit or support any alternative to this proposal, according to Garrett. Terms of the alternative proposal include …
• The cash sale of virtually all equity value of Garrett to the institutional investors party to the alternative proposal.
• Special participation rights offered to select institutional investors in return for their support of the alternative proposal.
• A settlement with Honeywell.
According to Garrett, it responded to the bidding group by raising initial questions about the content of the alternative proposal, including its impact on the competitive process, the availability and terms of financing, and its treatment of remaining Garrett stockholders. Garrett also stated that it invited members of the bidding group to participate in what is intended to be an ongoing competitive process.
WHAT’S NEXT? … “Garrett is pleased to have obtained the recent relief from the court, including approval of our debtor-in-possession financing and customer, supplier and vendor programs, as well as the auction procedures and the preservation of the current $2.60 billion bid by KPS,” CEO Olivier Rabiller said in the Oct. 26 announcement. “We look forward to working with the various bidders, our stockholder groups and all of our stakeholders on a robust competitive process and prompt emergence from Ch. 11 in the first quarter of 2021.”
Court filings and other documents related to Garrett’s Ch. 11 case are available at kccllc.net/garrettmotion.
SMP Reports Record Q3 Sales; Demand Continued In October
Standard Motor Products (SMP) came through with a record $343.61 million in net sales for the third quarter of 2020 — an increase of 11.7% compared to the same period a year ago and a marked sequential improvement over the $247.94 million in net sales (down 18.8%) that SMP reported for the second quarter of 2020.
The company’s consolidated gross profit increased 17% to $107.75 million, and its net income rose 94.1% to $28.63 million for the three months ended Sept. 30, 2020.
President and CEO Eric Sills told analysts on the company’s Oct. 28 earnings call that SMP came out of the second quarter experiencing strong demand, which continued throughout the third quarter. “After a mediocre first quarter and a truly difficult second quarter, we were able to make up much of the lost ground with a very strong third quarter,” Sills said. “We always experience a certain amount of volatility period-to-period. And while this year it has been substantially more exaggerated, it does show that our business tends to balance over time and we do expect that to continue going forward.”
ENGINE MANAGEMENT … SMP’s Engine Management (EM) segment generated $229.55 million in revenue for the quarter — an increase of $13.58 million, or 6.3%, year-over-year. A closer look shows that ignition, emission control, fuel and safety-related system product revenue grew 5.6% to $190.89 million, while wire and cable revenue rose 10% to $38.66 million.
Sills said EM was able to claw back about a third of its sales shortfall from the first half of 2020. “Consumer demand has been robust, which we believe reflects deferred maintenance from the early days of the pandemic when cars were idled in driveways, but we’re also experiencing a general surge in the aftermarket, the result of people staying at home and working on their vehicles,” he told analysts on the call. “And we believe this has especially impacted the DIY segment. Good evidence of this is the strong performance of our wire and cable business. It fits older vehicles and is relatively easy to install, which are two hallmarks of DIY business.”
He added that the 10% spike in wire and cable sales is likely a temporary phenomenon, noting that the business has been trending down roughly 7% per year.
“Customer orders for all of Engine Management have been consistently solid, and this has continued into October,” Sills stated. “That said, our forecast remains low single-digit growth over the long term.”
EM gross margin increased 9.2% to $72.36 million in the third quarter of 2020. As a percent of sales, segment gross margin climbed from 30.7% to 31.5% on a year-over-year basis.
Segment operating income rose 21.1% to $36.70 million, while EM operating margin increased from 14% to 16%.
TEMPERATURE CONTROL … SMP’s Temperature Control (TC) segment came through with $110.39 million in revenue for the third quarter of 2020 — an increase of $88.30 million, or 25%, year-over-year. Compressors revenue rose 34.1% to $70.79 million, while other climate control products revenue increased 11.5% to $39.61 million.
During the call, Sills cited two drivers of the segment’s 25% sales growth. “If you recall, pre-season orders from our customers were very light this year. In fact, our first half was down almost 20%,” he noted. “Then it got hot out, creating a surge in demand across the country. These two factors combined for a very strong quarter, though year-to-date we are slightly behind last year.
“This is why we always suggest looking at Temperature Control on a full-year basis. There are often quarterly anomalies, but they typically balance themselves out.”
In terms of customer point-of-sale (POS) trends, Sills said TC was robust throughout the quarter, roughly matching the segment’s sales of 25%.
Segment gross margin rose 40.2% to $32.21 million in the third quarter of 2020. As a percent of sales, TC gross margin grew from 26% to 29.2% on a year-over-year basis.
TC operating income climbed 122.5% to $16.64 million, while segment operating margin rose from 8.5% to 15.1%.
PANDEMIC IMPACT … “The past six months to seven months have been challenging and demanding,” COO Jim Burke told analysts on the call. “Our baseline was a 40% decrease in volume in April. This was followed by a relatively quick rebound in customer POS numbers in May and June that turned into increased orders to us in June and July. This momentum increased as we progressed through Q3 and remained steady.
“From a supply chain view, this meant working feverishly with our vendors to be able to meet our materials demand. Overall, with a few exceptions, our vendors and supply team have been able to keep supply flowing to our factories.”
On the manufacturing side, Burke said SMP faced surging demand along with a significant mix shift toward older-technology SKUs, driven by customer sales in the DIY channel.
“Early in the third quarter, we were hampered with a shortage of available labor, a combination of higher demand and the COVID impact with high-risk employees out and disruptions from contact tracing,” he noted. “I’m happy to report that we have been able to secure additional manpower along with the return of our high-risk employees. What is the result of this surge in demand? Production levels are significantly up in all our manufacturing facilities, generating favorable overhead absorption, which can be seen in our very strong Q3 gross margins. …
“These higher margins were generated from the surge in production volume, which we expect to level off. While this favorable momentum should carry into Q4, we expect sales and production to return to normal in 2021. Our longer-term gross margin targets would be Engine Management at +30% and Temperature Control at +26%.” — Marc Vincent
Gates Promotes Two Within Its Automotive Replacement Business
Gates Corp. has promoted Colby Florea to senior director of national sales for its U.S. automotive replacement division. Florea is responsible for Gates’ U.S. sales force, supporting all customers, as well as traditional automotive and heavy-duty customer headquarters relationships. His previous role at Gates was director of sales – west, responsible for the sales force and customers in the western-most 28 states.
Gates also has promoted Francois Godin to vice president of U.S. automotive and Canada replacement. Godin is responsible for the Gates U.S. and Canadian automotive replacement business. His previous role at Gates was general manager of Canada.
Dorman Reports Record Q3 Revenue; Net Income Grew More Than 60%
For the third quarter of 2020, Dorman Products reported $34.26 million in net income (up 60.8% year-over-year) and $107.80 million in gross profit (up 24%). Gross margin increased from 34.2% a year ago to 35.9% for the three months ended Sept. 26, 2020. Management attributed the rise in gross profit to improved productivity at its Portland, TN distribution facility, as well as lower provisions for excess and obsolete inventory as efforts to improve its supply chain began to show results.
Net sales rose 18.4% to a record $300.62 million, primarily driven by share gains in chassis (+24%) and strong powertrain (+15%) sales, as well as above-trend sales growth in the auto body (+14%) and hardware (+38%) categories, according to Jefferies LLC.
“Going forward, we are modeling Q4 sales +16% year-over-year as growth likely moderates from Q3’s record pace and year-over-year gross margin improvement to 36.2% on easy DC cost compares,” Jefferies analysts Bret Jordan, Mark Jordan and Ethan Huntley wrote in their Oct. 29 report.
Dorman is not providing guidance at this time because of the uncertainty brought about by the coronavirus pandemic.
President and CEO Kevin Olsen said the company’s record-high net sales and earnings performance underscores Dorman’s ability to execute despite the challenging macroeconomic environment. “The highlight of the quarter was the robust end-customer demand from do-it-yourself customers, as well as meaningful contributions from do-it-for-me customers that continued throughout the entire quarter,” Olsen stated. “We certainly faced challenges ramping up our supply chain to meet customer demand, but we demonstrated the agility of our business by meeting the significant demand increases while still maintaining the efficiency levels of our operations.”
Dorman resumed its share repurchase program in August. During the third quarter, the company repurchased 126,900 shares of its common stock for $10.70 million at an average price paid per share of $84.55.
Additionally, the board of directors has authorized an expansion and extension of Dorman’s share repurchase program. The expanded program authorizes share repurchases up to $500 million through Dec. 31, 2022.
Following the expansion, Dorman has $227.70 million left under the program for share repurchases.
Monro Inks Deal To Purchase 17 Shops In Southern California
Rochester, NY-based Monro Inc. has signed a definitive agreement to acquire 17 shops in Southern California, expanding the company’s geographic footprint on the West Coast. The locations are expected to add roughly $20 million in annualized sales, representing a sales mix of 60% tires and 40% service. The acquisition is expected to close in the current quarter.
During Monro’s Oct. 28 quarterly report conference call, Chairman and interim CEO Rob Mellor reiterated the company’s commitment to mergers and acquisitions. “As we have said in the past, M&A is a critical driver of our growth strategy, and we will continue to capitalize on attractive acquisition opportunities,” Mellor said. “Our industry is extremely fragmented and ripe for further consolidation, and we believe we’re well-positioned to continue to execute on our robust pipeline of quality targets.”
Executive Vice President and CFO Brian D’Ambrosia told analysts that Monro has more than 10 non-disclosure agreements signed with opportunities ranging from five shops to 40 shops.
Monro Shows Sequential Progress; Comps Held Back By Less Driving
For the fiscal second quarter ended Sept. 26, 2020, Monro Inc. saw its net income fall 36.8% to $12.85 million, while its gross profit declined 14.4% to $104.53 million. Gross margin slipped 150 basis points, going from 37.7% to 36.2% on a year-over-year basis.
The company’s net sales decreased 11% to $288.59 million, with comparable-store sales down 11.4%. By month, comps were down 12% in July, down 13% in August and down 8% in September.
“Overall, we are encouraged by the gradual improvement in traffic in our markets that led to an 11% decrease in comparable-store sales in the second quarter — a significant improvement over the 26% decline in the first quarter,” Rob Mellor, chairman of the board of directors and interim CEO, said during Monro’s Oct. 28 earnings call. “We also saw a significantly higher number of stores with positive comps in the second quarter compared to the first quarter.
“Following relatively consistent same-store sales trends in July and August, we saw an improvement in September. This has tempered in October with comparable-store sales down approximately 12%.”
It’s worth noting that Monro’s comps become more challenging as the quarter progresses, as November 2019 was down 1.7% and December 2019 was up 1.4%, according to analysts with Jefferies LLC who are calling for Monro to report a fiscal third-quarter comp-store sales decrease of roughly 6%.
Management attributed the shortfall in its fiscal second-quarter comps to reduced store traffic tied to a coronavirus-driven reduction in vehicle miles traveled. A closer look at Monro’s quarterly sales shows that …
• Brakes comps were down 24%.
• Maintenance services comps were down 19%.
• Front-end and shocks comps were down 19%.
• Alignments comps were down 16%.
• Tires comps were down 3%.
By geography, the South and Midwest outperformed the Northeast and Mid-Atlantic by about 500 basis points — essentially the same spread that Monro reported for the previous quarter. It’s worth noting that the company has a higher concentration of shops in these northern markets.
HOURS & STAFFING … In an effort to improve its profit and cash flow performance, Monro continued to operate its shops with reduced hours of operation. “With store operating hours being approximately 13% lower than the same quarter last year, our comparable-store sales per hour improved compared to the prior-year period,” Mellor said. “During the quarter, we strategically added hours of operation at locations where demand improved, and we continue to assess and adjust our hours against evolving demand trends.”
Additionally, the company has worked to adjust staffing levels at its shops. “During the early days of the pandemic, we significantly reduced the staffing levels in our stores and have strategically added staffing back as demand has improved,” Mellor told analysts. “Since the beginning of the second quarter, we have added approximately 700 new teammates, primarily technicians. We believe we have the right level of staffing across our stores base as we enter the higher-volume winter months.”
REIMAGING RESUMES …. Monro has resumed its rebrand and reimaging initiative, transforming 43 shops during the quarter. This included the rebranding of 18 locations to a tire-oriented banner. The remainder were brand consolidations.
“The objective of our store rebranding initiative is to drive higher awareness for tires and increased tire sales without sacrificing service revenue,” explained COO Rob Rajkowski. “To date, we have completed the transformation of approximately 250 stores in a number of key markets, including rebranding approximately 85 service-branded stores to tire-oriented banners.
“Importantly, our rebranded stores outperformed again this quarter, with comparable-store traffic trends significantly above our non-rebranded stores. These encouraging results reinforce our confidence in the benefits of our reimage and retail brand portfolio consolidation strategy, as we are on track to transform 100 to 150 stores in fiscal 2021.”
CEO SEARCH … Mellor told analysts that Monro has retained the search firm Spencer Stuart to lead the search for a new CEO in coordination with the company’s board of directors. Both internal and external options are being considered. “We are in the process of interviewing candidates at the present time,” he said.
“While my tenure as CEO is only temporary, I am deeply committed to ensuring continuity. I also plan to continue in my role as chair after the board appoints a permanent CEO to ensure a smooth transition,” Mellor said. “Importantly, we have a team of highly talented and seasoned senior leaders who remain committed to working together to advance the strategic initiatives we have underway.”
Mellor stressed that he worked closely with Monro’s senior leadership team throughout the development and execution of the company’s “Monro Forward” strategy, adding that he remains very positive about the opportunities.
“We have built a solid foundation and made tremendous progress in our transformational journey to create a scalable platform for long-term sustainable growth,” he said on the call. “As the board chair, I have direct insight into the strategic priorities of the board. The continued execution of ‘Monro Forward’ has been the highest priority.”
MISCELLANEOUS … Other items of interest from Monro’s quarterly report and conference call …
• As of Sept. 26, 2020, Monro had 1,242 company-operated shops and 97 franchise locations. This compares to 1,262 company-operated shops and 98 franchise locations as of Sept. 28, 2019.
• During the fiscal second quarter, Monro added one company-operated shop and closed six shops, of which five are temporarily closed as a result of damage sustained during Hurricane Laura in Louisiana and Tropical Storm Isaias in the Northeast.
• Rajkowski told analysts that the company is on track to complete the rollout of its new tire category management and pricing system across its network by the end of the current quarter. “Our goal is to be the No.-1 destination for tires at every price point,” he said.
• During the quarter, the company expanded its gross profit per tire by more than 10% versus the prior-year period because of the ongoing rollout of its tire category management tool.
• According to Mellor, Monro improved its labor productivity by over 20% during the quarter, attributable to its store staffing optimization efforts and its cloud-based labor scheduling tool.
• As of Oct. 24, 2020, Monro had cash and cash equivalents of roughly $55 million and availability on its revolving credit facility of approximately $365 million.
• Management is not providing fiscal 2021 guidance at this time, citing uncertainty caused by the coronavirus pandemic. — Marc Vincent
FullSpeed Acquires Michigan-Based Uncle Ed’s Oil Shoppe
FullSpeed Automotive (Greenwood Village, CO) has acquired Uncle Ed’s Oil Shoppe, a provider of quick-lube, preventative maintenance and car wash services with 29 service centers and five AutoBath America car wash locations in Michigan. Financial terms of the transaction were not disclosed.
FullSpeed is a large franchisor and operator of automotive service centers, primarily under the Grease Monkey and SpeeDee brands. The company’s service offerings include oil changes, tire sales, tire rotations, brake services and car washes.
“Uncle Ed’s complements our service lines and our existing footprint in the Midwest, and we are impressed with their strong local brand recognition and best-in-class operation,” said Kevin Kormondy, CEO of FullSpeed. “This transaction represents a natural fit for our long-term growth plan in the Midwest.”
FullSpeed is a portfolio company of CenterOak Partners, a Dallas-based private equity firm.
The Uncle Ed’s transaction marks FullSpeed’s 15th acquisition since CenterOak completed a majority investment in 2017. It expands FullSpeed’s footprint to nearly 600 domestic and international locations.
“FullSpeed continues to actively expand, and the Uncle Ed’s footprint provides an attractive entry point into the Michigan market,” said Lucas Cutler, a managing partner with CenterOak. “Adding Uncle Ed’s under the FullSpeed umbrella is a strong strategic fit for our platform and enables FullSpeed to reach a broader customer base while expanding our retail presence.”
TRC/TECH Adds North America Marketing Manager
TECH, the global tire and wheel brand of parent company Technical Rubber Company (TRC), has added Mitch Langford as TECH’s new marketing manager for North America. Langford has a history of working with the automotive industry and has a background in digital and traditional marketing, content development and communications for a variety of companies, including Malco Automotive Products and JC Whitney. At TRC, he will help drive the creative concept, development and execution of all marketing initiatives for TECH throughout North America.
Vehicle Service Group Expanding Indiana Facility
The Dover Corp. Vehicle Service Group has announced plans for a $7-million expansion of its Madison, IN operation. The project will include a new paint line, improved manufacturing flow and increased manufacturing capacity. Groundbreaking will occur in the coming weeks.
According to the company, no interruptions to current production are expected during construction. Completion is anticipated in late 2021.
The Vehicle Service Group includes the brands Rotary Lift, Chief, Forward, Direct-Lift, Ravaglioli, Warn Automotive, Elektron and Blitz.
Exide’s Former EMEA, Asia-Pacific Unit Is Now A Stand-Alone Company
Exide’s former Europe, Middle East & Africa (EMEA) and Asia-Pacific (APAC) business now operates as a stand-alone company under new ownership, having separated from its now-former parent company in the United States. The entire EMEA and Asia-Pacific business has transferred to a group of long-term shareholders with funding from new investors.
The new Exide Technologies, headquartered in France, is a provider of advanced energy products for the automotive and industrial markets. It has more than 5,000 employees across Europe, the Middle East, Asia and Australia.
Exide Technologies is led by Stefan Stübing, the former president of Exide’s EMEA and APAC business, as president and CEO, as well as a member of the board of directors. Joe Hinrichs, the recently retired president of Ford’s global automotive business, serves as Exide Technologies’ new chairman.
Virtual AAPEX To Highlight Government Advocacy On Nov. 4
The Virtual AAPEX Experience will host a Government Advocacy Town Hall on Wednesday, Nov. 4 to address results of the Massachusetts vote on “Right to Repair” and how the outcome of the presidential election will affect the automotive aftermarket, along with other issues. The discussions will be live-streamed on aapexshow.com. Registration for the Virtual AAPEX Experience is not required to attend.
The “Right to Repair” roundtable will include the following participants …
• Aaron Lowe, senior vice president of government and regulatory affairs for the Auto Care Association.
• Tommy Hickey, spokesperson for the Massachusetts Right to Repair Committee.
• Ray Pohlman, president of the Coalition for Auto Repair Equality (CARE).
• Bill Hanvey, president and CEO of the Auto Care Association.
• Rich Benoit, owner of Electrified Garage in Salem, MA.
• Michael Borr, president of Allied Auto Parts.
The “What the Election Means for Our Business” roundtable will include the following people …
• David McKinney, vice president of government and community relations at AutoZone Inc.
• Ann Wilson, senior vice president of government affairs for MEMA and AASA.
• Ian Musselman, senior vice president of government affairs for LKQ Corp.
• Aaron Lowe of the Auto Care Association.
Additionally, the Auto Care Association’s Bill Hanvey will join Paul McCarthy, president and COO of AASA, to discuss the government’s role in the aftermarket; how policies may change in the future; what the election results mean for key industry issues; the impact of tariffs, tax cuts and government stimulus; and the importance of association collaborations moving forward.
MEMA Financial Services Group, Aftermarket Volume Group Combine
The MEMA Financial Services Group (MFSG) and the Aftermarket Volume Group (AVG) have combined to form the AASA Aftermarket Volume Group (AAVG). The new council’s executive committee includes Mike Duffy, director of aftermarket accounts receivable for the DRiV Inc. division of Tenneco Inc.; Darcey Keene, corporate credit manager with Standard Motor Products; and Joe Yackanicz, customer financial services director at Dorman Products.
According to AASA, AAVG member benefits include …
• In-person and online discussion group meetings to review health and trends of customers.
• Access to legal advice on customer payment histories and bankruptcies.
• Networking with other credit and finance professionals among suppliers.
• Insights into accounts payable, credit status and other customer patterns.
• Complimentary credit reference reports.
• Ongoing education.
The next AAVG meeting is scheduled for Thursday, Nov. 19.
Automechanika Launches Aftermarket-Focused Talk Series
Messe Frankfurt on Oct. 30 launched an English-language talk series under its Automechanika brand called “Let’s Talk Business.” This new initiative will feature international suppliers and association leaders discussing the coronavirus pandemic’s impact on the automotive aftermarket. The first session included representatives from Robert Bosch, ContiTech, Delphi, Schaeffler AG and ZF AG. “Let’s Talk Business” presentations will be available on automechanika.com.
Bolt On’s Technology Now Available To All Vehicle Repair Businesses
Bolt On Technology is expanding its customer base beyond independent repair shops. The company now offers its services to a wide variety of vehicle care operations, including new and used car dealership service centers, autobody shops, and specialty shops, as well as fleet managers and truck, RV, motorcycle and marine repair specialists.
Formerly available only to traditional repair shops using compatible third-party shop management programs, Bolt On’s full capabilities are now available over the cloud via NextGear, making it possible for any customer-facing repair operation with an internet connection and a mobile device to use Bolt On’s services. There’s no need to buy new software or hardware.
NextGear includes a range of capabilities in a single product, available month-to-month with no long-term commitment. This includes …
• Vehicle condition photographs and videos.
• Vehicle health reports.
• Two-way texting between customers and shops.
• Speech-to-text note-taking.
• The ability to track the progression and wear of parts over time.
• Future appointment scheduling.
• Text-to-pay and payment financing via Bolt On Pay.
• Review Manager.
• Cloud storage of all data for protection and easy access.
AutoNation’s Q3 Parts And Service Gross Profit Decreased 8.3%
AutoNation Inc., billed as America’s largest automotive retailer, saw its parts and service revenue decrease 5.5% to $852.80 million in the third quarter of 2020. On a same-store basis, parts and service revenue was down 3.7%.
Parts and service gross profit declined by $33.80 million (or 8.3%) to $375.20 million, with gross margin slipping from 45.3% a year ago to 44.0% for the three months ended Sept. 30, 2020.
On a same-store basis, AutoNation’s parts and service gross profit decreased by $27.50 million (or 6.8%), attributable primarily to a $20.60-million inventory valuation adjustment recorded in connection with the closure of its aftermarket collision parts business (AutoNation Collision Parts), as well as a $9.70-million decrease in gross profit associated with customer-pay service and an $8.00-million decrease in gross profit associated with collision work. This was partially offset by a $4.70-million increase in gross profit associated with the preparation of vehicles for sale in addition to smaller increases in gross profit associated with wholesale parts sales and warranty service.
According to management, AutoNation’s customer-pay service gross profit was adversely impacted by a decrease in volume attributable to lower vehicle miles driven amid the coronavirus pandemic. This was partially offset by higher-value repair orders and price increases. Similarly, collision gross profit was adversely impacted by a decrease in volume tied to lower miles driven. This was partially offset by improved margin performance.
Executive Vice President and CFO Joe Lower told analysts on AutoNation’s Oct. 21 earnings call that the company’s parts and service business is recovering, which can be seen in its sequential improvement. AutoNation’s parts and service revenue fell 23.5% in the second quarter of 2020, with same-store parts and service revenue down 21.9%. And, its parts and service gross profit declined 24.4%, with same-store parts and service gross profit down 23.0% in the second quarter of 2020.
“We believe collision will be that final straw, if you will, as people continue to increase driving this fall and into the winter,” Lower said. “That really is probably the only area that has just continued to lag a little bit versus our expectations.”
As of Sept. 30, AutoNation owned and operated more than 325 locations across the United States.
Lithia Motors Reports Higher Service, Body And Parts Gross Profit
For the third quarter of 2020, Lithia Motors saw its service, body and parts revenue increase 5.6% to $359.50 million, attributable to increases in customer-pay and warranty revenue, offset by decreases in parts wholesale and body shop revenue. On a same-store basis, Lithia’s service, body and parts revenue was down 2.9% for the quarter. However, it’s worth noting that business turned positive in September, with revenue for the month up 2.0%.
According to management, Lithia’s service, body and parts business experienced incremental improvement each month of the quarter in all areas.
For the sake of comparison, the company’s second-quarter 2020 service, body and parts revenue decreased 17.9% (down 20.6% on a same-store basis). Lithia’s 2020 second-quarter service, body and parts gross profit declined 15.2% with same-store gross profit down 18.3%.
By contrast, third-quarter 2020 service, body and parts gross profit rose 14.2% to $195.90 million, with same-store gross profit up 3.9%. Lithia pegged the increase primarily to higher customer-pay gross margin (up 480 basis points), offset by decreased customer-pay revenue. Overall same-store service, body, and parts gross margin increased 350 basis points to 53.9%.
During the quarter, Lithia debuted its online e-commerce platform, Driveway. This included the launch of an in-home Driveway vehicle service offering in the Northwest. It allows consumers to schedule service work with free home pickup and delivery, including free loaner vehicles, within a predefined geo-fenced area.
As of Sept. 30, Medford, OR-based Lithia operated 201 locations representing 30 brands across 21 states.
Pep Boys Again Sponsoring Toys For Tots Campaign
Pep Boys is returning as a national sponsor of Toys for Tots, the annual program run by the U.S. Marines that collects new, unwrapped toys and distributes them to less fortunate children. Collection bins are being placed in nearly 1,000 Pep Boys locations. Pep Boys also is pledging a $25,000 donation to Toys for Tots. And over the holiday season, its employees will work with U.S. Marines and volunteers to collect and distribute toys.
Continental Expanding In South Carolina
Continental Tire has announced plans to expand its operations in Lancaster County, SC, investing more than $20 million into the project. The expansion will include a new 88,000 square-foot building to be constructed next to its existing headquarters. The new facility will allow Continental to consolidate its footprint while at the same time, provide space to support the growth of its operations. The expansion is expected to be completed by mid-2022.
Bridgestone Unveils Sustainability Campaign
Bridgestone has unveiled a new campaign designed to highlight how the company incorporates sustainability in its value chain. The program covers how rubber trees are tapped for latex and how recycled material is incorporated into new tires, as well as innovations intended to extend product lifecycles and uncover circular uses for material.
WD-40 Announces Board Changes
Lara Lee has been nominated for election to the WD-40 Company board of directors. Lee was the president of Orchard Supply Hardware, a subsidiary of Lowe’s. Her background also includes 14 years with the Harley-Davidson Motorcycle Company.
Meanwhile, Neal Schmale and Dan Pittard will retire from the board at WD-40’s Dec. 8 stockholders meeting. Schmale has been a director for 20 years. He was WD-40’s chairman from 2004-‘16. Pittard has been a director for five years. He is a former group vice president at Amoco.
WD-40 also has appointed Greg Sandfort to serve as its lead independent director, effective immediately. Sandfort is the retired CEO of the Tractor Supply Company.
Job Mart: Michael Cummings
Senior Technical Product Manager seeking employment with an automotive aftermarket company looking to start a “New Caliper” or boost a Remanufacturing Caliper program. I could also step in as your buyer of brake calipers for either aftermarket or introducing an OEM remanufacturing program. Please reach out via email at firstname.lastname@example.org. You can find him on LinkedIn at linkedin.com/in/michael-cummings-26256214.
Alltech Automotive LLC is seeking a Director of Sales for the Traditional and Buying Group segments of the North American Automotive Aftermarket. This position will oversee sales to all Strategic partners from our global manufacturing footprint. … (more) … Click here to find out more.
The applicant will be responsible for developing and executing product strategies, objectives, budgets and promotions for a variety of product lines throughout the product lifecycle. … (more) … Click here to find out more.
Alltech Automotive LLC, a dynamic global automotive supplier, is seeking an experienced Catalog Manager from the automotive industry. This individual will be responsible for researching and updating data for all hard parts product lines and maintaining both a print version and online database that is compatible with Activant, Wrench Head and ACES/PIES formats … (more) … Click here to find out more.
Alltech Automotive LLC, a dynamic global automotive supplier, is seeking a Regional Sales Manager to represent products it sells into the Automotive Aftermarket. The Regional Sales Manager is responsible for the execution of the corporate sales and marketing plan. As a sales manager, you will direct all sales-related activities within the assigned region. … (more) … Click here to find out more.
We are currently seeking to hire an Aftermarket Product/Catalog Manager to join our team and improve customer support, covering current and new product introduction of aftermarket products. This individual will be an important part of developing GSP North America strategies … (more) … Click here to find out more.
Looking to augment Inside sales/telemarketing/customer support for group approved programs. Make calls to jobber level accounts from home. Great for a retired factory or independent rep looking to supplement income by working 20 to 25 hours/wk. … (more) … Click here to find out more.
We are looking for an accomplished Vice President of National Sales to join our growing team to expand distribution and sales of Sea Foam products throughout various channels to include aftermarket retailers, heavy-duty truck, marine, farm, hardware, C-store, motor sports and small engine. … (more) … Click here to find out more.
People Watching 11/2/20
• Larry Sills, executive chairman of Standard Motor Products, is stepping down as an officer of the company but will continue in his role as chairman of the board, effective Jan. 1. Larry Sills has been SMP’s executive chairman since 2016 and as a director of the company since 1986. He has was chairman of the board from 2000-’16, CEO from 2000-’16, and president and COO from 1986-’00. He is the father of Eric Sills, a director of SMP as well as its president and CEO.
• Ross Berlanga has joined TMI Products as its marketing director. Berlanga is the former director of advertising for Race Winning Brands. Before that, he was an automotive and powersports brand manager at K&N Engineering. His background also includes time as a creative director – marketing for the Motorsport Aftermarket Group (MAG) and a creative director at Magnaflow Exhaust Products.
• Lakeland, FL-based Solid Start Inc. — manufacturer of True Brand fuel, gear, hydraulic and engine treatments and performance additives — has promoted Crystal Mathews to president and Freddy Pascarella to vice president. Mathews had been vice president, while Pascarella was vice president of sales.
• Michael Beam, senior account manager at Idemitsu Lubricants America Corp., and Hiromi Takahashi, general manager of ENEOS aftermarket sales at JX Nippon Oil & Energy USA, have been appointed to CAWA’s Manufacturers’ Advisory Council.
• David Mitchel has joined Tire Profiles/TPI LLC as a marketing specialist. Tire Profiles is a provider of tire and alignment diagnostic systems and instruments. Mitchel was a senior marketing analyst at Koeppel Direct, where he was the client-facing lead for customers in a variety of industries, including transportation, healthcare, insurance and legal services.
• Mark Carter has joined Speed Sport as its vice president of business development, responsible for developing and managing advertising and sponsorship relationships, in addition to developing new business and strategic partnership opportunities, according to a Speed Sport blog post. Carter’s background includes time as the vice president and general manager of the NBC Sports Group, as well as director of brand integration at Saatchi & Saatchi.
• PDM Automotive has announced the addition of Tayler Edwards as a data and customer support manager. Edwards previously worked as a data, content and catalog manager for Data Point Inc.
• The Valeo board of directors has approved a succession plan for Chairman and CEO Jacques Aschenbroich that calls for the eventual separation of the roles of chairman of the board and CEO. Aschenbroich will continue as chairman until the end of his current term of office as a director in May 2023. COO Christophe Perillat will succeed Aschenbroich as CEO in January 2022.
• Transtar Industries has added Anna Gluck as its vice president of human resources, responsible for human resources across all Transtar Holding Companies, including RECON Certified, Nickels Performance and Transtar Autobody Technologies. Her background includes four years in human resources at The Timken Company.
News Briefs 11/2/20
• Schwartz Advisors was the exclusive sell-side adviser to All Products Automotive in its sale to the NPW Companies. Keith Zar, managing partner; Rick Schwartz, managing partner; and Bruce Tartaglione, partner, assisted All Products on the transaction, which closed Oct. 16. Schwartz Advisors is a mergers and acquisition advisory and strategic planning firm for the automotive industry.
• Brembo plans to open a new aftermarket distribution center in the Memphis area this month. The facility will handle warehousing and logistics services for the company’s aftermarket brake pads, rotors, brake fluid and related components.
• Motorcar Parts of America on Oct. 27 formally announced that brake caliper production has commenced at its recently opened 370,000-square-foot facilities in Tijuana, Mexico.
• Plews & Edelmann has launched a power steering hard parts program under the Edelmann Elite brand. The new program includes power steering rack and pinion assemblies, power steering pumps, and power steering gear boxes. According to the company, initial coverage for cars, vans, SUVs and light trucks currently exceeds 60% of North American demand and will expand to over 80% in 2021 as new applications are tooled.
• Roughly a year after opening its first store in Alberta, Lordco Auto Parts expects to open its second location in the province, in Edmonton, in December.
• The NAPA Auto Parts Asia/Pacific team has opened its 25th location in Australia, a location in suburban Brisbane called NAPA Auto Parts Virginia.
• BuyBrakes.com has added Wilwood big brake kits, brake rotors, brake calipers, and wheel hubs and bearings to its online catalog.
• Turn 14 Distribution has added off-road and truck parts from Superlift Suspension to its line card.
• Keystone Automotive Operations has added aftermarket air horn systems from HornBlasters to its accessories category.
• Truck Hero’s 2018 SEMA Show truck build “Ultimate Tailgate,” a custom 2019 Ford F-350 Lariat, sold for $275,000 at the Barrett-Jackson Collector Car Auction in Scottsdale, AZ with 100% of the proceeds going to Building Homes for Heroes. The charity builds and modifies homes and gives them to veterans and their families.
• Advance Auto Parts has raised nearly $1.40 million in support of the American Heart Association’s 2020 “Life is Why We Give” campaign to help fight heart disease and stroke — a 38% increase compared to 2019. Advance’s efforts included in-store fundraising, as well as employee participation in local AHA Heart Walks.
• ASE has revamped its myASEweb portal. Now, service professionals can use its new shopping cart tool to order ASE tests and products, and place them into a shopping cart for immediate purchase. Each order for ASE tests automatically includes the new, lower registration fee of $34. Test fees remain the same.
• MAM Software has debuted new branding — the first for the automotive software provider since 2013 — which includes an updated logo, as well as a new website. This comes about a year after being acquired by Kerridge Commercial Systems (KCS).
Financial Briefs 11/2/20
• Dover Corp. reported that its vehicle service business experienced a notable sequential improvement from the second quarter of 2020 to the third quarter of 2020, attributable to a “robust recovery” in the vehicle aftermarket. On a year-over-year basis, vehicle service business revenue returned to a level that was only slightly below the third quarter of 2019. A part of Dover’s engineered systems segment, the Vehicle Service Group (VSG) includes the brands Rotary Lift, Chief, Forward, Direct-Lift, Ravaglioli, Warn Automotive, Elektron and Blitz.
• The Standard Motor Products board of directors has approved the reinstatement of a quarterly dividend of $0.25 per share on common stock outstanding. The dividend will be paid Dec. 1, 2020 to stockholders of record on Nov. 16, 2020. The company also has reinstated its share purchase program, which has a remaining authorization of $11.30 million.
• Tyrata Inc., a tire sensor and data management company, on Oct. 21 reported that it has raised $2.90 million in financing from global investors. According to the company, funds will be used to complete customer qualification of the IntelliTread Drive-Over System, establish high-volume manufacturing in global markets and speed development of the Tyrata Internal Tread Sensor product line.
Event & Trade Show Briefs 11/2/20
• Training sessions from Carquest Technical Institute (CTI) and WORLDPAC Technical Institute (WTI), as well as ASE and Michelin have been added to the schedule for the Virtual AAPEX Experience. The new sessions are part of a lineup of free technical and management training geared towards shop owners, technicians and service advisers. Although, all aftermarket professionals are welcome to attend. Registration is required and can be completed at aapexshow.com/register.
• Event organizers expect 330 project vehicles will be featured in the SEMA360 Builders Showcase and that more than 100 first-time exhibitors will take part in this year’s online show. SEMA360 will take place Nov. 2-6. Click here for more information about the online show.
• AASA will host a webinar Thursday, Nov. 12 analyzing the U.S. elections and their impact on the industry. The presenter will be Bret Jordan of Jefferies LLC. The presentation will include a member-only question-and-answer session. Click here to register for the webinar.
• The International Trademark Association will lead a discussion on global anticounterfeiting enforcement at the AASA Aftermarket IP Forum, a virtual event taking place Nov. 19-20. Click here for additional information about the forum.
• iFlex 2021 and the International Car Wash Show have been rescheduled from June 2021 to Nov. 15-17, 2021 in Las Vegas. According to event organizers, moving to a later date increases the ability to deliver a large, in-person gathering.
• Heavy Duty Aftermarket Dialogue (HDAD) 2021 will be fully virtual. The conference will take place Jan. 25. Topics will include a discussion of coronavirus pandemic strategies, successes and failures; technology changes forced into the distribution chain by the pandemic; the fleet perspective on changes in the aftermarket and lasting lessons from the pandemic; and macroeconomic trends that will impact the industry. Click here for more information on HDAD 2021.
• The Midwest Auto Care Alliance (MWACA) plans to host a new in-person event this summer that will focus on ADAS training. The ADAS Academy will include classroom and hands-on technical training, as well as vendors featuring products and services related to ADAS. The event is scheduled for July 29 to Aug. 1 in Overland Park, KS.