Genuine Parts (GPC)

Auto and industrial parts retailer Genuine Parts (NYSE:GPC) beat Wall Street’s revenue expectations in Q1 CY2025, with sales up 1.4% year on year to $5.87 billion. Its non-GAAP profit of $1.75 per share was 4.2% above analysts’ consensus estimates.

Company Overview

Largely targeting the professional customer, Genuine Parts (NYSE:GPC) sells auto and industrial parts such as batteries, belts, bearings, and machine fluids.

Cars are complex machines that need maintenance and occasional repairs, and auto parts retailers cater to the professional mechanic as well as the do-it-yourself (DIY) fixer. Work on cars may entail replacing fluids, parts, or accessories, and these stores have the parts and accessories or these jobs. While e-commerce competition presents a risk, these stores have a leg up due to the combination of broad and deep selection as well as expertise provided by sales associates. Another change on the horizon could be the increasing penetration of electric vehicles.

Competitors offering auto and/or industrial parts include Advance Auto Parts (NYSE:AAP), AutoZone (NYSE:AZO), Grainger (NYSE:GWW), and Fastenal (NASDAQ:FAST).

Examining a company’s long-term performance can provide clues about its quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul.

With $23.57 billion in revenue over the past 12 months, Genuine Parts is one of the larger companies in the consumer retail industry and benefits from a well-known brand that influences purchasing decisions. However, its scale is a double-edged sword because there is only so much real estate to build new stores, placing a ceiling on its growth. To expand meaningfully, Genuine Parts likely needs to tweak its prices or enter new markets.

As you can see below, Genuine Parts’s sales grew at a sluggish 4.2% compounded annual growth rate over the last six years (we compare to 2019 to normalize for COVID-19 impacts).

This quarter, Genuine Parts reported modest year-on-year revenue growth of 1.4% but beat Wall Street’s estimates by 0.5%.

Looking ahead, sell-side analysts expect revenue to grow 3.5% over the next 12 months, similar to its six-year rate. This projection is above average for the sector and indicates its newer products will help maintain its historical top-line performance.

Number of Stores

Genuine Parts opened new stores at a rapid clip over the last two years, averaging 4.7% annual growth, much faster than the broader consumer retail sector.

When a retailer opens new stores, it usually means it’s investing for growth because demand is greater than supply, especially in areas where consumers may not have a store within reasonable driving distance.

Note that Genuine Parts reports its store count intermittently, so some data points are missing in the chart below.

Same-Store Sales

The change in a company's store base only tells one side of the story. The other is the performance of its existing locations and e-commerce sales, which informs management teams whether they should expand or downsize their physical footprints. Same-store sales gives us insight into this topic because it measures organic growth for a retailer's e-commerce platform and brick-and-mortar shops that have existed for at least a year.

Genuine Parts’s demand within its existing locations has barely increased over the last two years as its same-store sales were flat. Genuine Parts should consider improving its foot traffic and efficiency before expanding its store base.

In the latest quarter, Genuine Parts’s year on year same-store sales were flat. This performance was more or less in line with its historical levels.

Gross profit margins are an important measure of a retailer’s pricing power, product differentiation, and negotiating leverage.

Genuine Parts’s unit economics are higher than the typical retailer, giving it the flexibility to invest in areas such as marketing and talent to reach more consumers. As you can see below, it averaged a decent 36.4% gross margin over the last two years. That means for every $100 in revenue, $63.62 went towards paying for inventory, transportation, and distribution.

In Q1, Genuine Parts produced a 37.1% gross profit margin, up 1.2 percentage points year on year and exceeding analysts’ estimates by 2.1%. Zooming out, the company’s full-year margin has remained steady over the past 12 months, suggesting it strives to keep prices low for customers and has stable input costs (such as labor and freight expenses to transport goods).

Operating margin is an important measure of profitability for retailers as it accounts for all expenses necessary to run a store, including wages, inventory, rent, advertising, and other administrative costs.

Genuine Parts was profitable over the last two years but held back by its large cost base. Its average operating margin of 6.5% was weak for a consumer retail business.

Analyzing the trend in its profitability, Genuine Parts’s operating margin decreased by 1.3 percentage points over the last year. This raises questions about the company’s expense base because its revenue growth should have given it leverage on its fixed costs, resulting in better economies of scale and profitability. Genuine Parts’s performance was poor no matter how you look at it - it shows that costs were rising and it couldn’t pass them onto its customers.

This quarter, Genuine Parts generated an operating profit margin of 7.9%, up 2.4 percentage points year on year. The increase was encouraging, and because its operating margin rose more than its gross margin, we can infer it was more efficient with expenses such as marketing, and administrative overhead.

Although earnings are undoubtedly valuable for assessing company performance, we believe cash is king because you can’t use accounting profits to pay the bills.

Genuine Parts has shown decent cash profitability, giving it some flexibility to reinvest or return capital to investors. The company’s free cash flow margin averaged 2.9% over the last two years, slightly better than the broader consumer retail sector.

Taking a step back, we can see that Genuine Parts’s margin dropped by 3 percentage points over the last year. This decrease came from the higher costs associated with opening more stores.

Genuine Parts burned through $160.7 million of cash in Q1, equivalent to a negative 2.7% margin. The company’s cash flow turned negative after being positive in the same quarter last year, suggesting its historical struggles have dragged on.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).

Genuine Parts historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 14.3%, somewhat low compared to the best consumer retail companies that consistently pump out 25%+.

Genuine Parts reported $420.4 million of cash and $6.10 billion of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $2.04 billion of EBITDA over the last 12 months, we view Genuine Parts’s 2.8× net-debt-to-EBITDA ratio as safe. We also see its $41.92 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

We were impressed by how significantly Genuine Parts blew past analysts’ EBITDA expectations this quarter. We were also happy its gross margin outperformed Wall Street’s estimates. Overall, we think this was a solid quarter with some key areas of upside. The stock traded up 1.1% to $113 immediately after reporting.

Updated: May 16, 2025 at 10:37 PM EDT

Before investing in or passing on Genuine Parts, we urge you to understand the company’s business quality (or lack thereof), valuation, and the latest quarterly results - in that order.

Genuine Parts isn’t a terrible business, but it isn’t one of our picks. To kick things off, its revenue growth was a little slower over the last six years, and analysts don’t see anything changing over the next 12 months. And while its new store openings have increased its brand equity, the downside is its poor same-store sales performance has been a headwind. On top of that, its operating margins are low compared to other retailers.

Genuine Parts’s P/E ratio based on the next 12 months is 15.6x. Investors with a higher risk tolerance might like the company, but we think the potential downside is too great. We're fairly confident there are better investments elsewhere.

Wall Street analysts have a consensus one-year price target of $131.06 on the company (compared to the current share price of $128.67).

Want to invest in a High Quality big tech company? We’d point you in the direction of Microsoft and Google, which have durable competitive moats and strong fundamentals, factors that are large determinants of long-term market outperformance.

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