Auto Parts Retailers Boom As Cars Kept Longer
The Associated Press
Auto parts retailers have boomed in the past two years as recession-weary Americans fixed up old cars and postponed new-car purchases. But the parts sellers might be ready to downshift amid surging car sales and a spreading economic recovery.
Major parts-store chains have posted impressive sales and net income growth since the economic downturn started in late 2007. Investors have snapped up the stocks, seeking equities that benefit from prolonged unemployment and economic uncertainty.
The result: double- or triple-digit price spikes for shares of retailers such as AutoZone Inc., Advance Auto Parts Inc. and O'Reilly Automotive Inc.The average age of the U.S. vehicle fleet has grown to just over 10 years, and the typical car has 125,000 to 155,000 miles on it, according to Paul Taylor, chief economist for the National Automobile Dealers Association. However, that's beginning to change. New car sales in October and November improved, used car prices have risen and some consumers are feeling confident enough about the economy to buy a new car. Others are replacing older cars out of necessity. New cars are either repaired for free under warranty by a dealer, or they need fewer replacement parts because they are more reliable. That's led investors to wonder whether there's much upside left for the parts retailers. Consider the reactions to two companies that reported strong quarterly financial results this week: Pep Boys-Manny, Moe & Jack said late Monday that its third-quarter net profit more than doubled as it expanded its footprint and boosted sales at existing stores. Pep Boys shares jumped Tuesday by 61 cents, or 4.7 percent, to close at $13.57 after hitting a 52-week high of $14 earlier in the session. AutoZone Inc. did not fare as well. The company said Tuesday that net income rose by 20 percent during for the quarter ended Nov. 20, marking its eighth-straight quarter of 20 percent growth in earnings per share. Revenue increased by 13 percent to $1.79 billion.
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