After years of consistent double-digit growth in earnings per share, the top three auto parts stores posted very weak results in store traffic and a dramatic slowdown in earnings growth in the last quarter. AutoZone (NYSE:AZO), Advance Auto Parts (NYSE:AAP), and O’Reilly Automotive (NASDAQ:ORLY) posted roughly flat same store sales growth. This impacted earnings performance — O’Reilly and AutoZone were able to squeeze out 9% and 6% earnings-per-share growth, respectively, while Advance Auto Parts earnings collapsed 36% year over year.
Not surprisingly, shares of these companies have tanked since the beginning of the year after years of delivering market beating returns for shareholders. AutoZone, Advance Auto Parts, and O’Reilly are down 21%, 19%, and 12%, respectively, year to date. These stocks are even underperforming the SPDR S&P Retail ETF, which is down 6% year to date.
Amazon is aiming for what has been a bright spot in the retail sector
These results come after a January 2017 report from the New York Post, which reported that Amazon.com (NASDAQ:AMZN) is quietly penetrating the $50 billion do-it-yourself auto parts market where the top auto parts stores have long been dominant. AutoZone is the most vulnerable to potential competition with Amazon since 75% of its revenue comes from do-it-yourself customers. Advance Auto Parts and O’Reilly have no more than about 50% of their revenue exposed to this market.
It’s not surprising Amazon would be interested in auto parts, and not just because it’s the “everything store”. The major auto parts stores have experienced consistent growth over the last several years due to aging vehicles and car owners more willing to keep their current cars running longer rather than buy new ones. Just take a look at how well these stocks have performed…