Northcoast Research released its monthly report on commercial automotive aftermarket outlet sales, noting that demand trends in the do it for me (DIFM) channel increased in July relative to the prior year's period. Conversations with more than 300 repair shop owners indicated that demand trends accelerated in July from the rate seen in June, partially due to the favorable calendar shift.
Excluding the benefit associated with July 2013 containing one fewer Sunday and an extra weekday relative to the prior year's period (Sunday is the least productive day of the week for the commercial channel), the underlying demand trends in July were consistent with the prior month. This stability in demand patterns was the primary reason the 3-month outlook index was virtually unchanged in the period (ended July at 65.8, which was a 1.6 percent higher). As a result of the aforementioned movements, the composite index rose 5.9 percent to 63.1.
There was a favorable calendar shift in the period, which no doubt positively affected sales trends. Specifically, July 2013 contained one less Sunday and one more Wednesday relative to the prior year's period, which is significant as Sunday is the least productive day of the week for the commercial market as many shops are closed or run a shortened schedule.
The Current Sales Index finished in expansionary territory during July, partially due to the fact that traffic growth was a tailwind for the fifth consecutive month. Specifically, a net 9.1 pecent of the respondents cited stronger traffic trends on a year-over-year basis in July, which was an improvement from the net 1.3 percent in June.
While five straight months of favorable traffic trends is certainly an encouraging sign for the health of the industry, it is worth pointing out that many garage owners indicated that sales trends continue to remain volatile on a week-to-week basis. Additionally, the Census Bureau's big-picture look at monthly demand trends across a wide spectrum of automotive aftermarket channels continues to imply that broader-based sales trends remain lackluster. Weak demand trends in the DIY channel is one of the factors weighing on the data from the Census Bureau.
In addition to the healthier traffic trends in July, the industry also benefitted from a gain in the average ticket. In short, while the survey work continues to indicate that aggregate traffic levels are improving, and ticket trends remain favorable in the commercial channel, there are enough contradicting data points regarding the strength across the broader market (significant deceleration in sales trends at Advance Auto Parts and Monro during the second half of 2Q CY13; anemic demand trends in DIY channel; weaker-than-expected shipments to the aftermarket at Johnson Controls; and mixed commentary from Federal Mogul), that reservations remain about the sustainability of the current uptick in sales trends in the DIFM channel.
The garage owners in the sample indicated that consumers' tendency to defer routine maintenance reemerged in July following five consecutive months of being a tailwind. Indeed, a net 4.3 percent of the respondents indicated that their customer base was performing less routine maintenance than usual, compared to the 31.3 percent of respondents suggesting that routine maintenance was a tailwind in June. Many of the respondents noted that the weakness in July was partially driven by the unseasonably cool temperatures this summer, which pressured maintenance work associated with air conditioning systems.
While the unfavorable data for maintenance spend in July was likely affected by the cool weather, there are lingering concerns over the health of demand trends in the automotive aftermarket in the intermediate term as a result of macro headwinds (higher payroll taxes still pressuring many DIY customers) and the changing demographics of the car parc — both of which are factors that will be headwinds throughout 2013. That said, maintenance trends will likely get a benefit in 2H FY13 from the projected relief at the gas pumps. Specifically, the most recent forecast from the EIA has retail fuel prices falling 5.1% during the remainder of the year.
The collective outlook of the garage owners in our sample was essentially unchanged at the end of July despite the fact that sales growth picked up from the performance seen in June. Specifically, the Three Month Outlook Index increased 1.6 percent in the period to finish at 65.8. The fact that this measure of the technicians' optimism did not improve more significantly in the period in light of the improvement in the Current Sales Index is likely an indication that the underlying demand trends in the DIFM channel were fairly stable from month-to-month after accounting for the favorable calendar shift that we discussed earlier. While the garage owners in the study generally remained optimistic about future demand trends due to the fact that traffic patterns have remained positive on a year-over-year basis for the past five months, many of the technicians continued to express some angst about the health of the consumer.
The retail sales data from the Census Bureau continues to suggest that demand trends across the aggregate channel (DIY and DIFM) are not overly strong. Additionally, there are concerns over what a changing mix of automobiles in the nation’s light vehicle fleet could mean for demand trends over the next two to three years.
For more information, contact Northcoast Research at 216-468-6900.