Summary of Holley (HLLY) FY Conference Call - June 04, 2025 Company Overview - Holley specializes in automotive aftermarket products, enhancing vehicle performance and enjoyment for car enthusiasts [2][3] - The company has a history of over 120 years, focusing on iconic brands in the automotive sector [6][27] Market Insights - The automotive enthusiast market in the U.S. comprises approximately 70 million individuals, surpassing other hobbies like golf and fishing [5] - The market for trucks, SUVs, and CUVs is valued at $26 billion, representing 80% of new vehicle sales in the U.S. [10] - Holley operates in four main verticals: domestic muscle cars, trucks/SUVs, import vehicles, and safety/racing [10][11] Financial Performance - In Q1, Holley reported a 3.3% year-over-year growth in core business, marking the first growth in five quarters [12][13] - Direct-to-consumer sales grew over 10%, while third-party marketplace sales increased by 50% [15] - The company achieved $8.1 million in product innovation and strategic pricing during the quarter [15] - Free cash flow was negatively impacted by timing issues, with expectations of recovery in Q2 [17] Operational Efficiency - Holley has cut operational inefficiencies by over $30 million in the past two and a half years, with a target of an additional $5-10 million this year [29][30] - The company reduced its SKU count by 45%, improving inventory management [32] - Past dues were reduced by 20%, and the company is focused on freeing up cash by eliminating unproductive inventory [18] Strategic Initiatives - Holley aims to enhance the consumer experience and improve its direct-to-consumer model, which has grown from 15% to 20-25% of sales [42] - The company is exploring transformational M&A opportunities to further strengthen its market position [23] - Holley is expanding into new markets, including Mexico, and is looking to enter additional international markets [22] Challenges and Risks - The automotive aftermarket industry has faced softness over the past three years, with market conditions being challenging [20] - Tariff impacts remain a concern, but Holley has managed to mitigate some effects through supplier consolidation and moderate pricing actions [49][50] Consumer Engagement - Holley has a strong social media presence with 8 million followers and hosts events that attract over 50,000 attendees [38][40] - The company emphasizes the importance of brand recognition and consumer loyalty in the automotive aftermarket [42] Future Outlook - Holley maintains a guidance of approximately $120 million in EBITDA for the year, with expectations of generating $40-50 million in free cash flow [36] - The company is focused on deleveraging and improving its balance sheet through strategic financial management [36][37] Conclusion - Holley is positioned for growth in the automotive aftermarket, leveraging its strong brand portfolio and operational improvements while navigating market challenges and consumer trends [37][42]

Company Overview - AutoZone, founded in 1979, has grown from a single store to 6,500 locations in the U.S. and expanding in Mexico and Brazil [4] - The company is recognized for its strong brand and customer service, catering to both automotive repair technicians and DIY customers [3] Financial Performance - For fiscal 2024, AutoZone reported net sales of $18.5 billion, a year-over-year increase of nearly 6%, and earnings per share (EPS) rose 13% to $149.55 [5] - In the third quarter of fiscal 2025, net sales increased by 5.4% to $4.5 billion, with domestic same-store sales up 5% [5] - EPS in the latest quarter decreased by 3.6% compared to the previous year, attributed to aggressive investments in growth rather than weak demand [6] Growth Strategy - AutoZone is focusing on expanding its market share in the commercial sector by enhancing delivery capabilities, increasing sales staff, and opening "mega-hub" stores [7] - The company is committed to long-term growth despite short-term margin pressures due to these investments [7] Market Position - The automotive aftermarket, valued at over $2.3 trillion globally, is characterized by inelastic demand, making AutoZone's core business resilient even during economic downturns [9][10] - The average age of vehicles on U.S. roads has reached a record 12.8 years, indicating a growing need for maintenance and parts, which benefits AutoZone [13] Share Buyback Program - AutoZone has repurchased over $38 billion of its own shares since 1998, significantly reducing its shares outstanding [14][15] - The company has $1.1 billion remaining in its current buyback authorization, indicating a strong commitment to returning value to shareholders [15] Valuation and Future Outlook - AutoZone's forward price-to-earnings ratio is around 25, which is lower than competitor O'Reilly Auto Parts at 31, suggesting reasonable valuation [17] - The U.S. automotive aftermarket is projected to reach $617 billion by 2027, providing substantial growth opportunities for AutoZone [17]

Financial Data and Key Metrics Changes - Company reported nearly 25% increase in sales for Q1 2025, with a 5% increase excluding the Nissens acquisition [5][6] - EBITDA increased by $20 million, with a 350 basis point lift in EBITDA margin [6] - Consolidated net sales increased by 24.7%, and adjusted EBITDA margin rose to 10.4% of net sales [26] Business Line Data and Key Metrics Changes - Vehicle Control segment saw a 3.7% increase in sales, continuing a growth trend [7][23] - Temperature Control segment experienced a 24.1% increase in sales, driven by strong preseason orders [9][23] - Engineered Solutions segment sales decreased by 11.2%, but adjusted EBITDA improved to 9.7% due to favorable customer and product mix [10][24] - Nissens contributed $66.2 million in net sales and $11.5 million in adjusted EBITDA, exceeding expectations [25] Market Data and Key Metrics Changes - North America remains a strong market, with favorable macro trends supporting aftermarket demand [8][15] - U.S. sales now represent about 70% of total sales, down from 90% a few years ago, indicating geographic diversification [20] Company Strategy and Development Direction - Company focuses on maintaining a North American manufacturing footprint to mitigate tariff impacts [15][17] - Integration of Nissens is expected to yield significant synergies and enhance market position [14][33] - Emphasis on operational excellence and cost reduction programs to navigate economic challenges [31][33] Management Comments on Operating Environment and Future Outlook - Management expressed confidence in navigating the uncertain economic climate, citing the resilience of the aftermarket industry [30][31] - Tariffs are expected to introduce some inflation, but demand for nondiscretionary parts is anticipated to remain stable [31][32] - Full-year guidance for 2025 remains unchanged, expecting mid-teens percentage growth in net sales [28][29] Other Important Information - Cash used in operations increased to $60.2 million due to higher accounts receivable and inventory balances [26] - Capital expenditures for the quarter were $9.1 million, including investments in a new distribution center [27] Q&A Session Summary Question: POS and Vehicle Control performance - Management confirmed low single-digit gains in POS for Vehicle Control in Q1, following a flat trend last year [40][41] Question: Impact of tariffs on aftermarket - Management indicated that recent tariff announcements are expected to have minimal impact, primarily affecting OEMs [42] Question: Nissens growth and integration - Nissens continues to show growth in the European market, with integration efforts ongoing but no immediate financial impact [43][44] Question: Competitive positioning in tariff environment - Company believes its North American footprint provides a structural advantage over competitors [52] Question: European aftermarket trends - Similar trends observed in Europe, with hard failure items outperforming in the aftermarket [53] Question: Inventory management and tariff anticipation - No evidence of pull-forward orders due to tariffs; preseason orders for Temperature Control were front-loaded [54] Question: Retailers' response to tariff pricing - Management is in negotiations with retailers to share tariff costs, expecting a fair process [56][57] Question: Current impact of tariffs in Q1 - No significant impact from new tariffs observed in Q1 numbers, with cost impacts expected later in the year [62] Question: Strength of Q1 performance - Q1 performance was strong, but management maintains guidance due to potential uncertainties ahead [64]

Financial Data and Key Metrics Changes - Total GPC sales for Q1 2025 were $5.9 billion, an increase of 1.4% compared to the same period last year, driven primarily by acquisitions and improving sales in the industrial business [11][27] - Gross margin expanded by 120 basis points to 37.1%, reflecting benefits from acquisitions and strategic pricing initiatives [12][28] - Adjusted EPS for Q1 was $1.75, down 21% year-over-year, impacted by one less selling day, lower pension income, and higher depreciation and interest expenses [26][30] Business Line Data and Key Metrics Changes - Global Industrial segment sales were approximately flat at $2.2 billion, with comparable sales decreasing less than 1%, negatively impacted by one less selling day [12][14] - Global Automotive segment sales increased by 2.5%, with comparable sales down 0.8%, also affected by one less selling day [15][16] - Sales from value-added services in the industrial segment were flat to slightly down, indicating a notable improvement compared to the previous year [13] Market Data and Key Metrics Changes - In the industrial market, growth was observed in pulp and paper, aggregate and cement, and DC and logistics, while sectors like iron and steel, automotive, and oil and gas remained pressured [13] - In the U.S. automotive market, total sales increased approximately 4%, while comparable sales declined about 3% [17] - Canadian sales increased approximately 5% in local currency, with comparable sales up about 4%, showcasing strong performance despite a softer macroeconomic environment [19][20] Company Strategy and Development Direction - The company is focused on enhancing customer service and executing strategic initiatives to improve operational efficiency and agility in a dynamic external environment [7][9] - The rollout of the modernized e-commerce platform, NAPA ProLink, aims to improve customer experience and drive sales growth in the B2B segment [10] - The company is committed to leveraging its scale and diversified global presence to navigate market challenges and capitalize on growth opportunities [22][39] Management's Comments on Operating Environment and Future Outlook - Management acknowledged the impact of tariffs, trade, and geopolitical factors on the operating landscape, while expressing confidence in the company's ability to adapt [7][9] - The outlook for 2025 remains unchanged, with expected diluted EPS in the range of $6.95 to $7.45 and adjusted diluted EPS between $7.75 and $8.25 [32][39] - Management highlighted the importance of agility and responsiveness to market conditions, particularly regarding potential tariff impacts and overall economic recovery [36][38] Other Important Information - The company incurred restructuring costs of $55 million in Q1, with an expected benefit of $100 million to $125 million from restructuring efforts when fully annualized in 2026 [30][41] - The company plans to invest approximately $120 million in capital expenditures and $75 million in strategic acquisitions during the quarter [31][43] Q&A Session Summary Question: Can you discuss inflation impacts in both motion and automotive businesses? - Inflation was slightly less than a point across both businesses, with SG&A costs increasing around 2% primarily due to salaries and rent [50][51] Question: Are you seeing share gains in Europe automotive? - The company is experiencing outsized growth in NAPA branded products in Europe, with share performance in line with or slightly better than the market [52][54] Question: What is the status of North American auto acquisitions? - The company added approximately 40-45 stores in the quarter and will continue to focus on running great stores while moderating acquisition efforts [58][59] Question: Can you size the cost impact of tariffs on cost of goods? - The complexity of tariffs makes it difficult to quantify the exact impact, but a specific SKU could see a potential cost increase of about 30% due to various tariff permutations [83][84] Question: How are independents navigating the current environment? - There has not been a significant rush to stock up on inventory among independent owners, and the company continues to support them with analytics for inventory management [94][95]