Shares of the four major public auto parts retailers fell earlier this week on a report that Amazon (AMZN) might be ramping up its presence in the space. Autozone (AZO), Advance Auto Parts (AAP), O'Reilly Automotive (ORLY) and Genuine Parts (GPC) all saw their stock fall on Monday after a newspaper article suggesting that the online retailer had inked supply deals that would allow it to expand in the auto parts sector.
The New York Post reported that Amazon has signed supply contracts with large auto parts makers. Citing what it referred to only as "sources," the Post listed Robert Bosch, Federal-Mogul, Dorman Products and Cardone Industries as firms that Amazon has reached accords with.
The Post cited an analyst who said that Amazon could increase its auto parts business by more than 50% in 2017. This would bring the unit to $5 billion in annual revenue.
Even if Amazon isn't able to steal significant additional market share from the large auto parts retailers, the company's presence as a major player in the industry will likely lead to lower pricing. This will cut into retailers’ bottom line. Meanwhile, a sustained push by Amazon over the next several years could also spark a round of consolidation, as retailers look to confront Amazon with larger size.
In an article following up on the Post's story, Fortune suggested that Autozone might be the most vulnerable of the major publicly traded auto parts retailers to a full-scale Amazon attack. Fortune quoted an analyst at Northcoast Research, who said Autozone gets about 75% of its sales from the market segments reportedly being targeted by Amazon.
Meanwhile, O'Reilly gets just over 50% of its sales from the market and Advance Auto Parts gets a percentage in the low-40 range. Genuine Parts is the least vulnerable, according to the analyst's stats, with only about 15% of its revenues from the Amazon-targeted sales.
The effect on the businesses of any of these companies would take place over time. It would be a relatively long process - likely over the course of years - for Amazon's presence to have an appreciable impact on the major auto parts retailers.
But the stock reaction on Monday suggests that there is worry about the long-term implications of the report. Obviously, Amazon's central reputation is that of a disruptor - to book sellers, retailers in general and even into areas like TV content production. It's certainly worrisome for an industry when such a company sets its sights on that market.
The option market saw very little impact in response to the news. There is no appreciable change in the short-term prospects for the companies. With earnings reports for most of the industry's biggest players due out in the next several weeks, those results are likely to dominate the near-term fate of share prices.
So Implied Volatility for AZO ticked up with the report, but quickly gave back a good portion of that advance on Tuesday. IV for AZO remains in a trading range it has seen since after the release of its last earnings report.
Meanwhile, IV for GPC has been in a range since last September, with the report on Amazon creating only a slight blip.
Both AAP and ORLY have seen Implied Volatility reach multi-month highs recently. But not surprisingly, both of their earnings reports are due out in the relative near term. Each of those companies is expected to report in the first half of February, though the precise dates still need to be announced.
Implied volatility for AAP has risen steadily over the past five weeks or so, climbing from a level of 20.1 on December 19 to 35.8 on January 27. This marked its highest level since the release of its last earnings announcement in mid-November.
The ATM Straddle premium for the 17-Feb-17 expiration for AAP, which will likely include its next earnings announcement, is sitting at $12.14, or 7.4%. Looking further out, the 19-Jan-18 expiration has a premium of $35.37, or 21.5%. The 18-Jan-19 premium is sitting at $51.91, or 31.6%. To see more on AAP, visit the AAP Option Breakdown page on MarketChameleon.com.
Implied Volatility for ORLY advanced over the same time period, rising from 17.7 on December 19 to 27.3 on January 23 - its highest mark since last April. To see more statistics, visit the ORLY Option Breakdown page on MarketChameleon.com.