When auto parts retailers talk about their financial performance – past, present or future – the impact of weather patterns often enters the conversation. But as we look ahead to 2019, AutoZone Chairman and CEO Bill Rhodes isn’t totally comfortable playing the role of meteorologist.
“We’ve spent considerable time over the last few years discussing the weather – something I’m quite reluctant to do, as there’s nothing that we can do about it,” Rhodes said during AutoZone’s Dec. 4 conference call. “And over the long term, weather impacts normalize and are not material drivers of the long-term success of this business or industry.”
Rhodes, however, is happy to talk about falling gasoline prices and other current fundamentals that look “favorable” to the automotive aftermarket.
“As our economy enters the later stages of an extended growth cycle, we know when economic times get difficult, our customers turn to us more frequently out of economic necessity to help them stretch their resources,” Rhodes explained. “We don’t know what the next year will hold, but we have a high degree of confidence – built off of nearly 40 years of experience – that this is a very reliable, predictable industry over reasonable planning horizons, and we continue to be optimistic about our industry’s prospects, and particularly our company’s prospects.”
Not all of the macroeconomic factors are favorable for the automotive aftermarket. Trade tensions and President Trump’s imposed and proposed tariffs have been looming as a potential threat for months now. Still, Rhodes said Trump’s initial round of tariffs on raw materials “weren’t significant to us,” and AutoZone has been able to “negotiate and offset” some of the negative impact of subsequent rounds of tariffs “based on the strength of the U.S. dollar.”
“We will continue to monitor developments closely and work with our industry associations to share our concerns about the potential negative ramifications of ongoing and increased tariffs to our customers and the broader economy,” he added.
“That said, our industry has much lower elasticity of demand than most other retail and distribution sectors. If your car won’t start and you have to go to work, you or someone else has to fix it. Period. This phenomenon has historically allowed our industry to pass on product inflation” to customers.
Technically, AutoZone’s 2019 is underway already. The Memphis, Tennessee-based retailer is in the second quarter of its fiscal 2019, after reporting solid financial results for its first fiscal quarter, which ended Nov. 17.
AutoZone’s key priorities for 2019 include “customers first,” accelerating its commercial business, improving the omni-channel sales experience, leveraging technology and increasing inventory availability.
“With the continued aging of the car population and recently lower gas prices at the pump, these are contributing to our optimism regarding 2019 for both DIY and commercial,” Rhodes said. “The trends remain encouraging.”