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O’Reilly Auto Parts: DIY Customers Feeling Inflation Pinch

“We expect DIY ticket counts to continue to be under pressure … ” O’Reilly CEO and Co-President Greg Johnson said during the company’s Feb. 6 conference call.

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O’Reilly Automotive reported a 3.8 percent increase in comparable store sales for full-year 2019, marking its 26th consecutive year of growth in that key metric, which measures the performance of stores open at least one year.

In the fourth quarter, sales from professional and DIY customers contributed to a 3.3 percent jump in same-store revenue growth, “with professional continuing to outperform DIY,” CEO and Co-President Greg Johnson explained during the company’s Feb. 6 conference call. Throughout the call, Johnson and other O’Reilly executives pointed to a shift in DIY spending habits, with Johnson asserting that “pricing increases across the economy put pressure on many of our DIY customers’ wallets” in the fourth quarter.

“We expect DIY ticket counts to continue to be under pressure as our more economically constrained customers feel the pinch of rising prices across the economy and react by attempting to defer repairs or maintenance when possible,” Johnson said.

Simply put, fewer DIY customers are coming into the stores, opting to put off oil changes and other basic maintenance. When they do come to the stores, it’s for more serious repairs. Consequently, the average transaction is higher, as DIY customers are purchasing more hard parts. And in general, auto parts and repairs are becoming more complex – and costly.

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“We expect a continuation of the trend we’ve seen for several years where average ticket growth is driven by increasing complexity of parts on newer model-year vehicles and [we] also expect additional top-line growth from same-SKU inflation similar to what we saw in the fourth quarter,” Johnson said, noting O’Reilly’s same-store sales-growth guidance for 2019 is in the range of 3 percent to 5 percent. “This level of inflation is based on known input-cost pressures and does not take into account additional tariffs or other unknown factors.”

During the Q&A session with analysts, Johnson offered some more insight into the DIY trend, asserting that inflation could crimp discretionary spending “for that lower-income DIY customer.”

“That customer would have to make necessary repairs to keep their car running and to get them to work, to the grocery store and what have you,” Johnson said. “But from a discretionary standpoint, when you get to items like routine maintenance, deferring oil changes, extended oil-change periods, filters and things like that – those things you can push out a little longer and your car still runs fine – you’re just not following the manufacturer’s recommended schedules for doing those.

“So I think the DIY customers who are on the lower end of the wage scale and are more economically challenged are going to have to make those breakage-related repairs, but some of those repairs and maintenance things that are somewhat discretionary, they’re going to be likely to push those off.”

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In response to more questions from analysts about the DIY trend, O’Reilly CFO Tom McFall responded: “ … When we look at 2018, we’ve been pressured on the DIY customer count. Pro has grown each quarter. Average ticket is up on both. And we would expect that trend to continue in 2019.”

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