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The Pulse: Northcoast Research Independent Automotive Repair Garage Survey July 2012

According to the survey results of nearly 250 independent garage owners, sales in the DIFM channel increased in July relative to the prior year.

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Each month, Northcoast Research publishes the Northcoast Research Mechanic Index, based on the results of a survey of approximately 50 independent repair shops operating in the top 10 states (based on the light vehicle fleet population), plus Advance Auto Parts’, AutoZone’s and O’Reilly’s aggregate store count.
 
Below are highlights from the results of Northcoast Research’s Independent Automotive Repair Garage Survey for July 2012.
 
According to the survey results of nearly 250 independent garage owners, sales in the DIFM channel increased in July relative to the prior year. Specifically, Northcoast’s Current Sales Index finished the month at 58.5, which was well into expansion territory and 30.7 percent higher on a sequential basis.
 
"Not surprisingly, our research suggests that the sudden acceleration in demand during July was largely a function of above average temperatures," the firm wrote in its July report.
 
"That said, we think it is worth noting that even though the improvement in sales trends was relatively broad-based, garage operators indicated that they were surprised that they didn’t experience a larger sales increase given how high the temperatures were during the month.
 
"This belief is supported by recent commentary from our vendor contacts. Specifically, our contacts noted that they have not seen a significant recovery in demand trends at the point-of-sale during July or the first two weeks of August (i.e. the breadth of the improvement was wide but the magnitude was rather tepid).

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"Despite the fact that our survey respondents noted that July was the strongest period in a number of months, the Three Month Outlook Index dropped 7.3 percent to close at 62.2. The two most commonly cited reasons for a slightly more pessimistic outlook were: (1) August trends have gotten off to a slow/choppy start; and (2) weather-related work aside, the traffic trends underpinning industry demand in July were relatively weak.
 
"While we continue to appreciate the opportunity that the publically traded players in the automotive aftermarket have to gain market share in the DIFM channel, current valuations are not attractive enough to pique our interest, especially given the recent deterioration in sales trends and signs that the industry remains under some pressure. Furthermore, we have growing concerns over what a changing mix of automobiles in the nation’s light vehicle fleet could mean for demand trends over the next four to five years. See our recent initiation on Monro Muffler Brake for more details. As a result, we are maintaining our NEUTRAL ratings on Advance Auto Parts, AutoZone, Monro Muffler Brake and O’Reilly Automotive."

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ABOUT NORTHCOAST RESEARCH
Northcoast Research is an independent, full-service institutional equity research and trading firm headquartered in Cleveland, Ohio. Founded in 2009, the company’s mission is to add value in each phase of the investment process by aligning the company’s goals with those of its clients. Northcoast aims to provide unbiased, proprietary and actionable fundamental research on select industry verticals and companies, underpinned by comprehensive channel checks across a broad array of industry contacts. The company’s core research verticals are Consumer, Health Care, Industrial and Business Services.

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