Auto parts sector plunges following ORLY warning

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O'Reilly Auto Parts

O'Reilly Auto Parts lowered its sales projections, forecasting an industry slowdown. Image: dave_mcmt/Flickr/CC BY

Stock for the auto parts giant, O’Reilly Automotive Inc (ORLY), fell by 18 percent Wednesday, after the company reported continued slow sales in June. The rest of the sector is also losing ground on Wall Street, amid rising concerns of an industry-wide slowdown.

Blaming the warm winter

Analysts at Piper Jaffray have previously speculated that the early spring and warm winter drove some lower auto parts sales because of the lack of wear and tear on vehicles, as is seen in more typical winters.

However, O’Rielly previously blamed slow sales in April on the warmer than normal winter. But those low sales have persisted into June, according to O’Reilly.

Second quarter projections lowered

Greg Henslee, the CEO of O’Reilly Automotive Inc., wrote in a statement:

“We saw improved comparable store sales results for the month of May. However, comparable store sales in June were below our expectations, and we now expect comparable store sales for the second quarter to finish in the range of 2.0 percent to 2.5 percent.”

Previously, its same-store sales guidance had been 3 percent to 5 percent. Same-store guidance is a comparison of sales at comparable retail stores that have been open for a year or more.

O’Reilly now says its previously-announced second-quarter per-share earnings outlook of $1.13 to $1.17 will fall somewhere to the lower end of that scale.

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Auto parts sector reeling from news

The entire auto parts industry is hurting from the news, as shareholders rush to sell off stock in its wake.

Advance Auto Parts (AAP), which also reported lower quarterly profits than it anticipated in May, was down 4.5 percent. Genuine Parts Co. (GPC) lost 2.69 percent. Autozone Inc. (AZO), the nation’s largest auto parts supplier, fell 4.9 percent on Wednesday.

Dan Wewer, an analyst with Raymond James, said:

“The entire auto parts retail sector appears to be weakening.”

Don’t panic, some advise

The investment firm Raymond James downgraded it’s target price on O’Reilly shares from $115 to $100. However, Wewer advises investors not to panic and sell off all their shares. Auto repairs can be delayed, he reminded shareholders, but not indefinitely.

“We are retaining strong buy rating as we anticipate what we view as industry wide sales weakness to stabilize by fourth-quarter 2012,” Wewer said.


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