AutoZone accelerates, Advance Auto stalls
Consumer Discretionary
Northcoast’s latest Auto Parts Price Tracker shows that AZO has taken significantly more aggressive pricing actions than its competitors. By raising prices earlier, AZO may be positioning itself to absorb future tariff-related costs more effectively, limiting the impact on its margins over time. In contrast, AAP does not appear to be taking full advantage of this pricing environment. Not only has it refrained from meaningfully increasing prices, but it has also decreased prices in some categories, despite macro conditions that would typically encourage companies to maintain or raise prices. Northcoast believes this reflects the company’s ongoing struggle to better align its purchasing and pricing strategies. This cautious approach may be limiting its ability to expand margins at a time when passing through higher costs could be both justified and beneficial to the bottom line.
Edition: 210
- 02 May, 2025
Consumer Discretionary
Despite a 50%+ drop from its 52-week high and ongoing cost reduction efforts, the potential for further downside remains high. Veritas' report focuses on how 1) the automotive aftermarket industry has grown substantially, but AAP has been losing market share in both the DIY and DIFM segments. 2) Over three decades, the company's operating margin has consistently lagged peers. 3) The company has unique off-balance sheet supply chain financing exposure (60% of its EV). This exposure is considered an outlier and the estimated financing components are substantial. Normalising operating lease liabilities further reveals higher leverage than reported. TP $38 (40% downside).
Edition: 178
- 26 January, 2024