webinar presentation auto parts supply industry …...webinar presentation auto parts supply...

CONFIDENTIAL

Webinar Presentation

Auto Parts Supply Industry

January 14, 2014

Eugene Shiller – Industry Analyst

CONFIDENTIAL 1/14/2014

GDP Growth Accelerated from 2.5% in Q2 to 4.1% in Q3

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ECONOMIC OVERVIEW GDP Growth


ECONOMIC OVERVIEW Monthly Retail Sales

3


Volatility In Job Growth

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ECONOMIC OVERVIEW Monthly Job Growth Signaling “Recovery”

CONFIDENTIAL 1/14/2014 5

ECONOMIC OVERVIEW Unemployment Rate

6.7% Unemployment in December – 5-Year Low


ECONOMIC OVERVIEW Workforce Participation


ECONOMIC OVERVIEW Retail Sales Y/Y Growth Rate

4.2%

-15.0%

-10.0%

-5.0%

0.0%

5.0%

10.0%

15.0%

U.S. Retail Sales 12-Month Moving Average


ECONOMIC OVERVIEW Per Capita Disposable Income Growth Y/Y

0.8%

-8.0%

-6.0%

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

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Oct

-08

Feb-

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Jun-

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Oct

-09

Feb-

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Jun-

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Oct

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Feb-

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Jun-

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-11

Feb-

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Jun-

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Oct

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Per Capital Disposable Income Growth Y/Y 12-month Moving Average


ECONOMIC OVERVIEW Historical Gas Prices

Week of Jan. 6, 2014 - $3.26


ECONOMIC OVERVIEW Projected Gas Prices For 2014


AUTO PARTS SUPPLY INDUSTRY Industry Statistics

Revenue $51 Billion

Annual Growth (2008-2013) 2.5%

Employment 298,000

Locations 18,200

Net Profit Margin 8.2%


AUTO PARTS SUPPLY INDUSTRY Industry Structure

Industry Structure

Life Cycle Stage Mature

Revenue Volatility Low

Capital Intensity Low

Regulation Level Low

Technology Change Low

Barriers to Entry Medium

Competition Level High

CONFIDENTIAL

AUTO PARTS SUPPLY INDUSTRY Industry Update

• A long-term expectation that miles driven will continue to increase based on historical trends

• A fragmented commercial market, growing at twice the rate of the DIY retail market

Unfavorable Industry Trends: • Longer maintenance and part failure intervals on newer cars due to improved quality

• Higher and more volatile gas prices

• Consumers only performing critical repairs, deferred maintenance at record levels

• Store over-expansion, more footprint overlap as new markets diminish

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Favorable Industry Trends:

• An increase in the number and average age of vehicles (11yrs). Over 80% of vehicles over 6 yrs old


AUTO PARTS SUPPLY INDUSTRY Global Credit Services Ratings

Company Credit Rating Risk Factor Outlook AutoZone B- Low Negative

Advance Auto Parts

B- Low Negative

O’Reilly Automotive

B Low Stable

Pep Boys E+ High Stable


AUTO PARTS SUPPLY INDUSTRY Big Four Snapshot

AutoZone Advance Auto

Parts (Excludes GPI Acquisition)

O’Reilly Automotive Pep Boys

Service Area

Locations

4,843 Stores in US 363 in Mexico,

4 in Brazil

4,018 Stores in 39 States, Puerto Rico, US Virgin Isl.

4,135 Stores in 42 States

793 Stores in 35 States, Puerto Rico

Sales Mix 17% Commercial 83% Retail

35% Commercial 65% Retail

41% Commercial 59% Retail

22% Service 78% Retail (Includes Commercial Sales)

Last Twelve Months Sales

$9.3 Billion $6.4 Billion $6.5 Billion $2.1 Billion

Last Twelve Months

Adjusted EBITDA $2.0 Billion $889 Million $1.3 Billion $92 Million

EBITDA Margin 21.5% 13.9% 20.0% 4.4%


AUTO PARTS SUPPLY INDUSTRY Market Share


AUTO PARTS SUPPLY INDUSTRY Store Map


AUTO PARTS SUPPLY INDUSTRY Benchmarking - Store Growth Rate


AUTO PARTS SUPPLY INDUSTRY Total Revenue & Revenue Growth Y/Y

AZO, AAP, ORLY, PBY


AUTO PARTS SUPPLY INDUSTRY Benchmarking – Comparable Store Sales


AUTO PARTS SUPPLY INDUSTRY Benchmarking – EBITDA Margin


AUTO PARTS SUPPLY INDUSTRY Benchmarking – Rent-Adjusted Leverage


AUTO PARTS SUPPLY INDUSTRY Benchmarking – Rent-Adjusted Interest Coverage

CONFIDENTIAL

AUTOZONE Company Profile, Recent Developments

• At November 23, 2013, the company also had 3,546 commercial sales programs in the US (73% of domestic store base) and some in Mexico and the Brazil stores. Commercial programs provide commercial credit and delivery of parts and other products to local, regional and national repair garages, dealers, service stations and public sector accounts. AutoZone lags its competitors in the commercial market (17% commercial sales).

• Also sells the ALLDATA automotive diagnostic and repair software through www.alldata.com and other items through www.autozone.com, www.autoanything.com, and www.autozonepro.com (commercial customers). No revenue derived from repair or installation services. • Competitors include national, regional and local auto parts chains, independently owned parts stores, online parts stores, jobbers, repair shops, car washes and auto dealers. Also discount and mass merchants, department stores, hardware stores, supermarkets, drugstores, convenience stores, home stores, and other online retailers.

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• Second-largest retailer and distributor of automotive replacement parts and accessories in the United States.

• Stores carry an extensive product line for cars, SUVs, vans and light trucks, including new and remanufactured automotive hard parts, maintenance items, accessories and non-automotive products.

CONFIDENTIAL

AUTOZONE GCS Rating & Outlook

• Currently rated as a low risk, “B-” credit with a negative outlook • Recently revised outlook from stable, downward credit rating revision possible

• Sales and margins show healthy growth, BUT

• Company’s recent comp store sales performance leaves more to be desired

• Generating strong positive free cash, used entirely for stock buy-backs • Company showing moderately high leverage on a rent-adjusted basis, taking on new debt to fund stock buybacks

• Access to ample liquidity via commercial paper market backed by $1.25 billion revolver

• Increased industry competition and over-expansion may compress future profits

1/14/2014 25

CONFIDENTIAL

AUTOZONE Income Statement – First Quarter

• Solid top-line growth • Gross margins are improving slightly

• Operating income growing • Operating and net margins very strong • Can AutoZone continue to grow profitability as interest expense rises?

$ in Millions, FY 11/23/2013 11/17/2012 YOY Change

Sales $2,094 $1,991 5.1%

Gross Margin $1,086 $1,031 5.2%

% of Sales 51.9% 51.8% 3 BPS

Operating Income $384 $363 5.6%

Operating Margin 18.3% 18.2% 8 BPS

Net Income $219 $203 7.2%

Net Income Margin 10.4% 10.2% 20 BPS

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CONFIDENTIAL

11/23/2013 11/17/2012

Cash $126 $100

Accounts Receivable $173 $173

Inventory $2,948 $2,702

Current Assets $3,247 $2,975

Total Assets $7,023 $6,398

Accounts Payable $3,407 $3,022

Accrued Exp. & Other $462 $456

Inc Tax Payable & Deferred $304 $267

Short Term Borrowings $160 $0

Current Liabilities $4,333 $3,745

Long Term Debt $4,013 $3,803

Other Long Term Liabilities $399 $442

Total Liabilities $7,989 $7,989

Tangible Net Worth ($2,097) ($1,591)

1/14/2014

AUTOZONE Selected Balance Sheet Items

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CONFIDENTIAL

AUTOZONE Select Cash Flow Statement Items - LTM

$ in Millions, Last Twelve Months 11/23/2013 11/17/2012

Cash Income $1,285 $1,140

Working Capital $169 $60

Cash Flow From Operations $1,454 $1,200

Capital Expenditures ($417) ($397)

Free Cash Flow $1,037 $803

Debt $371 $447

Stock (Net of Stock Options) ($1,238) ($1,199)

Acquisitions ($117) ($0)

Other $7 ($2)

1/14/2014 28

CONFIDENTIAL

AUTOZONE Free Cash Flow vs Return Of Shareholder Cash

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$ I

n M

illio

ns

CONFIDENTIAL

AUTOZONE Liquidity

$ in Millions 11/23/2013 11/17/2012

Adjusted Working Capital ($1,086) ($769)

W/C Coverage N/A N/A

Current Ratio 0.7:1 0.8:1

Cash/Current Liabilities 2.9% 2.7%

Cash $126 $100

Bank Availability $963 $413

Total Liquidity $1,089 $513

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CONFIDENTIAL

ADVANCE AUTO PARTS Company Profile, Recent Developments

delivers product from its store locations to commercial places of business, including independent garages, service stations and auto dealers. • Operates in two segments: Advance Auto Parts (AAP), and Autopart International (AI). The AAP segment is comprised of its store operations, which operate under the Advance Auto Parts and Advance Discount Auto Parts banners. The AI segment consists of the operations of Autopart International, Inc. which serves the commercial market (including warehouse distributors and jobbers), with an emphasis on parts for imported cars, from store locations primarily throughout the Northeastern, Mid-Atlantic and Southeastern regions of the United States.

•Primary competitors are national and regional retail automotive parts stores (AutoZone, O'Reilly, Pep Boys) and independent stores, discount stores and mass merchandisers that carry automotive products, wholesalers and jobber stores (including those associated with national parts distributors such as NAPA), automobile dealers that supply parts and internet-based parts providers.

• On January 2, 2014, AAP closed on the acquisition of General Parts International for approx. $2.04 billion. GPI is a privately held distributor and supplier of OE and aftermarket parts for the commercial markets operating under the CARQUEST and WORLDPAC brands. The combination positions AAP as the largest automotive after market provider of parts in N.A. Allows AAP to expand its geographical presence, channels of distribution, and commercial capabilities. Combined annual sales in excess of $9.3 billion.

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• The largest specialty retailer of automotive aftermarket parts, accessories, batteries and maintenance items operating within the United States, Puerto Rico and the US Virgin Islands. • Carries an extensive product line for cars, vans, SUVs and light trucks. Serve both "do-it-yourself," or DIY, and “do-it-for-me,” or commercial, customers. Commercial customers are delivery customers for whom AAP

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CONFIDENTIAL

ADVANCE AUTO PARTS GCS Rating & Outlook

• Currently rated as a low risk, “B-” credit with a negative outlook • Recently revised outlook from stable, downward credit rating revision pending due to GPI acquisition (new rating likely to be in the C range)

• Sales and margins show low single digit growth

• Comparable store sales negative in each of the last six quarters

• Generating ample positive free cash, used for stock buy-backs and acquisitions • Company showing moderate leverage on a rent-adjusted basis

• Access to ample liquidity via a $750 million revolver and cash buffer

• Increased industry competition and over-expansion hurting retail comps

1/14/2014 32

CONFIDENTIAL

ADVANCE AUTO PARTS Income Statement – Third Quarter

• Solid top-line growth • Gross margins and margin rate are improving

• Operating income growing • Operating and net margins strong • Can Advance continue to maintain high margins post GPI combination?


Sales $1,520 $1,458 4.3%

Gross Margin $763 $725 5.2%

% of Sales 50.2% 49.8% 42 BPS



Net Income $104 $90 16.0%


1/14/2014 33

CONFIDENTIAL

10/5/2013 10/6/2012

Cash $567 $479


Inventory $2,464 $2,193




Accrued Exp. $429 $414

Curr. Port. LT Debt $1 $1

Other $148 $141


Long Term Debt $604 $600



Tangible Net Worth $1,215 $1,042

1/14/2014

ADVANCE AUTO PARTS Selected Balance Sheet Items

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CONFIDENTIAL

ADVANCE AUTO PARTS Select Cash Flow Statement Items - LTM


Cash Income $614 $597

Working Capital ($35) $126

Cash Flow From Operations $579 $723


Free Cash Flow $361 $461

Debt ($2) ($3)

Stock (Net of Stock Options) ($81) ($14)

Dividends ($18) ($18)

Acquisitions

($184) ($16)

Other $11 ($1)

1/14/2014 35

CONFIDENTIAL

ADVANCE AUTO PARTS Free Cash Flow vs Return Of Shareholder Cash

1/14/2014 36

$ I

n M

illio

ns

CONFIDENTIAL

ADVANCE AUTO PARTS Liquidity

$ in Millions 10/5/2013 10/6/2012

Adjusted Working Capital $674 $496

W/C Coverage 3.1 Mo. 2.4 Mo.



Cash $567 $479


Total Liquidity $1,229 $1,141

1/14/2014 37

CONFIDENTIAL

O’REILLY AUTO PARTS Company Profile, Recent Developments

• Stores carry an extensive product line consisting of new and remanufactured automotive hard parts, maintenance items, accessories, a complete line of auto body paint and related materials, automotive tools and professional service provider service equipment. Differentiated by quality and price for most of the product lines, reflecting “good,” “better,” and “best” alternatives.

• Stores also offer enhanced services and programs to customers: used oil, oil filter and battery recycling; battery, wiper and bulb replacement; battery diagnostic testing; electrical and module testing; check engine light code extraction; loaner tool program; drum and rotor resurfacing; custom hydraulic hoses; professional paint shop mixing and related materials; and machine shops.

• Invested in new distribution center facilities in 2013 (currently 24 in total), plans for 3 new DCs in 2014 to service stores in the Northeast (including the 56 recently acquired VIP stores), Central and Southern Florida and the Midwest.

• Compete with AutoZone, Advance Auto Parts, NAPA, CARQUEST (now part of AAP), Pep Boys, regional retail and wholesale automotive parts chains, independently owned parts stores, wholesalers or jobber stores (some of which are associated with national automotive parts distributors or associations such as NAPA, CARQUEST, Bumper to Bumper and Auto Value), automobile dealers and mass merchants that carry auto parts (Wal-Mart)

1/14/2014 38

• Third largest specialty retailer of automotive aftermarket parts, tools, supplies, equipment and accessories in the US. O'Reilly enjoys industry leading comparable store sales performance, lowest leverage among its peers.

• Sell to both DIY customers and professional service providers (commercial).


CONFIDENTIAL

O’REILLY AUTO PARTS GCS Rating & Outlook

• Currently rated as a low risk, “B” credit with a stable outlook • Sales and margins show healthy growth (high single digits)

• Company’s recent comp store sales performance has been better than its competitors

• Generating very strong free cash flow, used entirely for stock buy-backs • Company showing moderately high leverage on a rent-adjusted basis, taking on new debt to fund stock buybacks

• Access to ample liquidity via a $600 million revolver (untapped)

• Increased industry competition and over-expansion may compress future profits

1/14/2014 39

CONFIDENTIAL

O’REILLY AUTO PARTS Income Statement – Third Quarter

• Solid top-line growth • Gross margins and margin rate are improving

• Operating income growing • Operating and net margins strong


Sales $1,728 $1,602 7.9%


% of Sales 50.9% 50.3% 58 BPS



Net Income $186 $159 17.0%


1/14/2014 40

CONFIDENTIAL

9/30/2013 9/30/2012

Cash $363 $423


Inventory $2,365 $2,207






Other $258 $233


Long Term Debt $1,396 $1,096



Tangible Net Worth $1,277 $1,514

1/14/2014

O’REILLY AUTO PARTS Selected Balance Sheet Items

41

CONFIDENTIAL

O’REILLY AUTO PARTS Select Cash Flow Statement Items - LTM



Working Capital $111 $516

Cash Flow From Operations $938 $1,312


Free Cash Flow $556 $1,010

Debt $301 $300

Stock (Net of Stock Options) ($894) ($1,168)

Other ($22) $5

1/14/2014 42

CONFIDENTIAL

O’REILLY AUTO PARTS Free Cash Flow vs Return Of Shareholder Cash

1/14/2014 43

$ I

n M

illio

ns

CONFIDENTIAL

O’REILLY AUTO PARTS Liquidity

$ in Millions 9/30/2013 9/30/2012





Cash $363 $423


Total Liquidity $911 $1,025

1/14/2014 44

CONFIDENTIAL

PEP BOYS Company Profile, Recent Developments

Supercenters and Service & Tire Centers. Supercenters average 20,000 sq ft (the new Supercenter format is 14,000 sq ft) and combine do-it-for-me service labor, installed merchandise and tire offerings with DIY parts and accessories. Most of the supercenters also have a commercial sales program that delivers parts, tires and equipment to automotive repair shops and dealers.

• Service & Tire Centers (6,000 sq ft) provide services in neighborhood locations designed to capture market share and leverage existing supercenters and support infrastructure. Pep Boys also operates several legacy DIY only Pep Express stores.

• In 2013, PBY continued to invest in its online experience, added ability to schedule professional installation with the purchase of a battery online, personalize maintenance alerts for scheduled maintenance and recall notices, buy online/pay in store and live chat.

• Pep Boys has been testing a new store format in the Tampa, FL market that incorporates elements of higher customer service and store design (lounge for service customers, various "neighborhoods" throughout the store to target enthusiasts and DYIs), aspires to to become a lower cost alternative to a dealership experience. Has plans to convert three additional markets totaling 20 supercenters during H1 2014.

• Unlike its competitors, Pep Boys derives roughly 22% of its revenue from services performed for customers.

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• Fourth largest after market auto parts retailer with locations across the US and Puerto Rico. Focused on delivering the best customer service through our unique offering of service, tires, parts, accessories and knowledge.

• Stores are organized in a hub and spoke network consisting of


CONFIDENTIAL

PEP BOYS GCS Rating & Outlook

• Currently rated as a high risk, “E+” credit with a stable outlook • Weakest and smallest of the four major auto part suppliers

• Sales, margins and comparable store sales volatile, gyrate between growth and contraction

• Mostly generates positive free cash, though net user during some periods • Company showing high leverage on a rent-adjusted basis

• Access to adequate liquidity via a $300 million revolver

• Intense industry competition may make future growth difficult

1/14/2014 46

CONFIDENTIAL

PEP BOYS Income Statement – Third Quarter

• Mild top-line contraction (negative comps) • Gross margins and margin rate offset top line declines

• Operating income slightly improved • Operating and net margins much weaker than competitors


Sales $507 $510 -0.5%


% of Sales 24.2% 22.8% 145 BPS

Operating Income $8 $4 92%


Net Income $1 ($7) N/A

Net Income Margin 0.2% N/A N/A

1/14/2014 47

CONFIDENTIAL

11/2/2013 10/27/2012

Cash $56 $79


Inventory $665 $634

Current Assets $746 $738


Accounts Payable $389 $384



Deferred Inc Tax $59 $65

Current Liabilities $675 $670

Long Term Debt $197 $198

Def. Gain on sale/leaseback & Other $167 $194


Tangible Net Worth $445 $442

1/14/2014

PEP BOYS Selected Balance Sheet Items

48

CONFIDENTIAL

PEP BOYS Select Cash Flow Statement Items - LTM



Working Capital ($34) $10

Cash Flow From Operations $51 $141


Free Cash Flow ($11) $77

Acquisitions ($11) $0

Debt $1 ($72)

Stock (Net of Stock Options) ($1) $3

Dividends ($2) ($2)

Other ($2) ($3)

1/14/2014 49

CONFIDENTIAL

PEP BOYS Free Cash Flow vs Return Of Shareholder Cash

1/14/2014 50

$ I

n M

illio

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CONFIDENTIAL

PEP BOYS Liquidity

$ in Millions 11/2/2013 10/27/2012





Cash $56 $79


Total Liquidity $209 $246

1/14/2014 51

CONFIDENTIAL

AUTO PARTS SUPPLY INDUSTRY Rent-Adjusted Leverage & Coverage

$ in Millions, Estimated

AUTOZONE ADVANCE AUTO PARTS

(Pre-GPI)

O’REILLY PEP BOYS

Rent Expense $246 $325 $241 $98

Total Debt $4,170 $605 $1,400 $199

LTM EBITDA $2,020 $890 $1,250

$130

Rent-Adjusted Debt/EBITDAR

2.7x 2.6x 2.2x 4.3x

Rent-Adjusted Interest Coverage

5.2x 3.4x 5.2x 2.0x

GCS Credit Rating B- B- B E+

1/14/2014 52


ADMINISTRATIVE ITEMS Contact Information

• Eugene Shiller – Industry Analyst – Home Centers, Specialty Retail – Phone: (917) 388-8814 – Email: [email protected]

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mailto:[email protected]


ADMINISTRATIVE ITEMS Upcoming Webinars

• Sears Holdings

– Thursday, January 23, 2014 @ 2PM Eastern Time – Rafay Khalid, CFA, Senior Industry Analyst

• Gordmans

– Tuesday, February 11, 2014 @ 2PM Eastern Time – Rob Pike, Senior Industry Analyst

• SuperValu

– Tuesday, February 25, 2014 @ 2PM Eastern Time – Jonathan Kanarek, CFA, Director of Analysis

• Sports Chalet & Pacific Sunwear

– Tuesday, March 18, 2014 @ 2PM Eastern Time – Iwan Juwana, CFA, Senior Industry Analyst

54

CONFIDENTIAL

ADMINISTRATIVE ITEMS GCS Ratings Definitions

1/14/2014 55

CONFIDENTIAL

ADMINISTRATIVE ITEMS Map of GCS Scores & Ratings To Agencies

Global Credit Services

Score Rating From To S&P / Fitch Moodys

- - 0 NR NR 1.00 1.32 A+ AAA Aaa 1.00 1.32 A+ AA+ Aa1 1.33 1.65 A AA Aa2 1.66 1.99 A- AA- Aa3 2.00 2.32 B+ A+ A1 2.33 2.65 B A A2 2.66 2.99 B- A- A3 3.00 3.32 C+ BBB+ Baa1 3.33 3.65 C BBB Baa2 3.66 3.99 C- BBB- Baa3 4.00 4.32 D+ BB+ Ba1 4.00 4.32 D+ BB Ba2 4.33 4.65 D BB- Ba3 4.66 4.99 D- B+ B1 5.00 5.32 E+ B B2 5.00 5.32 E+ B- B3 5.33 5.65 E CCC+ Caa1 5.33 5.65 E CCC Caa2 5.66 5.99 E- CCC- Caa3 6.00 6.32 F+ CC+ Ca1 6.00 6.32 F+ CC Ca2 6.33 6.65 F CC- Ca3 6.66 6.99 F- C C 6.66 6.99 F- D D

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webinar presentation auto parts supply industry …...webinar presentation auto parts supply...

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