Auto Parts Chains Cautious After Slow June

CHICAGO – Two leading auto parts chains issued cautious profit outlooks Thursday after cool weather caused fewer cars to break down in June, hurting sales.

"With car parts, you need weather extremes for them to break, and you did see weak consumer demand," said Derrick Irwin, analyst with Advest Inc. "Clearly June was a bad month. Is it it a trend? It's hard to say."

Auto parts chain Monro Muffler Brake Inc. (MNRO) Thursday lowered its full-year profit forecast, citing a slowdown in consumer spending, and its stock fell more than 8 percent.

Advance Auto Parts Inc. (AAP), the second-largest U.S. auto parts retailer, said it sees its second-quarter earnings at the low end of its prior forecasted range.

Its stock declined a more modest 2 percent as the company also predicted sales at its stores open at least one year would be up about 5 percent in the quarter, in line with Wall Street expectations.

"Advance was not terrible news. In my view, they were not preannouncing as much as reconfirming," said Irwin, who has "buy" ratings on both Monro and Advance.

No. 1 auto parts retailer AutoZone Inc. (AZO) in late June said same-store sales declined 1 percent in the first seven weeks of its fiscal fourth quarter. Its shares plummeted, with analysts saying the company showed signs of losing market share to competitors.

Last week, shares of CSK Auto Corp (CAO) plunged after the parts seller cut its second-quarter forecast, citing cool weather and high gasoline prices.

"Advance's numbers are far superior to those posted by AutoZone and CSK," said Lehman Brothers analysts Alan Rifkin, who has an "overweight" rating on Advance and "equal weight" ratings on both AutoZone and CSK.

Advance, based in Roanoke, Va., said it sees its second-quarter earnings at the low end of its prior range of 69 cents to 72 cents a share.

The company forecast sales at its stores open at least one year will be up about 5 percent in the second quarter ending July 17, saying same-store sales will be in the low single digits for the last four weeks of the second quarter.

Rochester, N.Y.-based Monro on Thursday posted an 18 percent increase in net income during the fiscal first quarter ended in June, as new stores, including the recently acquired Mr. Tire chain, boosted overall sales.

But sales at stores open at least one year rose less than 1 percent. Monro also said it sees greater opportunity to expand through acquisitions due to recent weakness in the retail market.

Monro forecast full-year 2005 earnings of $1.40 to $1.46 a share, lowering the high end of the range of its prior forecast of $1.40 to $1.50 a share.

Shares of Monro dropped $1.86, or about 8.6 percent, to $19.89. Advance Auto shares were down 98 cents, or 2.5 percent, at $37.98. AutoZone and CSK each slipped about 1 percent.