Shares of auto parts retailers took deep dives on Wednesday after O’Reilly Automotive Inc.’s sales warning and Volvo’s plan to phase out conventional combustion engines cast a pall over the sector.
O’Reilly’s stock ORLY, -18.89% plunged $42.61, or 19.3%, in afternoon trade, putting it on course to suffer the biggest one-day price and percentage decline since it went public in April 1993. Volume ballooned to 9.4 million shares in recent trade, which was nearly seven times the full-day average.
The company said early Wednesday that second-quarter same-store sales rose 1.7% from a year, well short of its guidance of 3% to 5% growth. O’Reilly said the disappointing sales results, in the wake of a slowdown during the final two months of the quarter, will have a “consequent impact” on profitability.
Separately, Chinese-owned Volvo said earlier that within two years all of the autos it produces will be either fully electric or a hybrid, as it begins abandoning combustion-engine technology. That has negative implications for auto parts sellers, as maintenance costs are very low, given they only have about 20 moving parts compared with over 2,000 for internal combustion engine cars, according to analysts at Desjardins Capital.
Don’t miss: Volvo to phase out gas-only cars within 2 years.
“Overall, the two announcements provide a negative read-through for automotive aftermarket stocks, which are down materially today,” Desjardins analyst Benoit Poirier wrote in a note to clients. “The announcements could also put further pressure on valuation multiples.”
Among O’Reilly’s peers, Advance Auto Parts Inc.’s stock AAP, -11.15% tumbled 11% toward the lowest close since December 2013, and AutoZone Inc. shares AZO, -9.47% plummeted 8.8% toward the lowest level since October 2014.
O’Reilly, Advanced Auto and AutoZone shares were the S&P 500 index’s SPX, +0.15% three worst performers on Wednesday.
The announcements also come as electric-car maker Tesla Inc. begins deliveries of its Model 3 vehicles later this month, which will be priced for mass-market consumption, and after U.S. auto makers reported steep monthly declines in vehicle sales in June.
“Bottom line, electrification could have potential negative implications for the automotive aftermarket industry,” Poirier wrote.