After the market close (06/30/20), Genuine Parts (GPC) announced the sale of its S.P Richards office products business. Terms of the deal were not disclosed. Recall GPC previously sold off the Canadian portion of this segment (approx. $50M in annual revenue) earlier in 2020. We look favorably upon management’s continued efforts to shed lower margin operations and focus in on the “growthier” aspects of the GPC operating model, namely auto parts.
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Our latest checks across the auto parts space are showing continued signs of sales recovery, although indications of moderate supply constraints have surfaced across some categories. This coincides with accelerating demand trends in the commercial or DIFM segment of the business, which we pointed out last week as part of our broader consumer checks.
We’re continuing to see signs of recovery (we had begun seeing an improvement on May 15) across our leisure and hardlines coverage. Powersports retail demand remains a standout—sales of off-road vehicles, boats and RVs picked up significantly in May and momentum has continued into June—although inventory replenishment is an increasing focus. Cruise trends improved modestly over the past few weeks. Home improvement is seeing continued strength although DIY trends are likely moderating off peakish May levels; however, pro biz improved in June. The recovery in auto parts retail is further taking shape with commercial sales picking up of late. Finally, small biz activity has been accelerating over the last several weeks as states re-open, according to Office Depot.
Updating estimates – Following recent earnings reports across leisure and hardlines companies, we are publishing updated estimates for each of the following: BRP (DOO-CA), Thor (THO), Best Buy (BBY), Genuine Parts Company (GPC), RH (RH), and Williams-Sonoma (WSM).
We conducted a consumer survey to better assess driving plans for this summer amid COVID-19 related fallout, and the implications for auto parts retailers. This follows our latest industry checks (through June 1st) which indicated a further step up in sales activity in recent weeks. Overall, we expect emerging, favorable dynamics within the broader auto parts sector to help propel a continued, gradual sales recovery from here absent any other major shocks to the system (i.e. second coronavirus wave or further tariff escalation).
Our latest checks across the auto parts retail space suggest a further step up in sales activity over the past two weeks as more favorable weather and some pent-up demand has furthered the positive momentum spurred on by stimulus payments. We indicated sequential sales improvement through mid-May in our previous checks.
Top-line trends for the broader sector likely picked up throughout April and into May, getting better each week and approaching normalized levels. The flow of stimulus checks to consumers likely helped drive at least some of the nearer-term lift.
We’ve seen improved demand across several segments of the consumer landscape. Most discretionary categories appear to have bottomed-out in late March / early April and have subsequently improved week-to-week, with less discretionary categories like home improvement enjoying healthy demand over the last 2-months. Changes in vacation spend and summer plans (fewer camps, sports, etc.), are likely helping, but the big unknown over the next few quarters is whether the demand we’re seeing is sustainable in light of higher unemployment and lingering economic impacts from coronavirus.
Earlier this morning (05/06/20), Genuine Parts (GPC) announced Q1 results and provided an update into early Q2 trends. While sales gains remained solid through mid-March, pressures from COVID-19 have accelerated leading to a consolidated sales decline of approx. (25%) for the month of April (ex. divestitures). Sales in the company’s Automotive Group have declined about (30%) in April, consistent with our recent checks across the space. We await further commentary on this morning’s 11 AM EST conference call as to the levers GPC can pull and emerge better positioned post-crisis.
This morning (02/19/20) GPC reported Q4 results. Revenue of $4.65bn was 1% below Consensus, while adj. EPS of $1.35 beat Cons. of $1.30 and our $1.29. Automotive margins declined 57bps y/y, largely due to deleverage in Europe (40bps) despite stabilizing topline. GPC also issued 2020 EPS guidance which was 1% below Cons. at the midpoint. Shares were up 3%.
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