Q2 2024 Earnings Summary
- Dorman is achieving above-market growth in its Light Duty segment due to successful new product launches, with roughly 1,700 SKUs added in Q2 2024, 30% of which were new to the aftermarket, representing a 20% increase over the previous year's Q2 SKU launches. This strategy of delivering innovation is expected to continue driving growth.
- Despite a flat or slightly down market in Specialty Vehicles, Dorman is successfully taking market share in the dealer channel and increasing its nondiscretionary repair parts business, enabling flattish to modest growth in a challenging environment.
- The company has made significant progress in improving margins across its segments, with expectations of operating margins in the high teens for Light Duty and Specialty Vehicle segments, and mid- to high teens for the Heavy Duty segment, indicating effective cost management and margin improvement initiatives.
- Specialty Vehicle Segment's Dependence on New Vehicle Sales: The Specialty Vehicle segment relies heavily on sales within the first two years of a new vehicle's sale. A decline in new ATV and UTV sales directly impacts this segment's revenue. As Kevin Olsen stated, "When we see new vehicle sales drop, that really does impact the business."
- Continued Softness in Heavy Duty and Specialty Markets: Both the Heavy Duty and Specialty Vehicle sectors are facing market headwinds. The Heavy Duty business is expected to experience softness through the rest of 2024, with few signs of improvement before early 2025. The Specialty Vehicle market is described as "slightly down," with flattish growth expected. This prolonged weakness could pressure overall company performance. ,
- Reliance on New Product Introductions for Growth: Dorman's growth, particularly in the Light Duty segment, is heavily driven by new product introductions. Kevin Olsen mentioned that "Most of our growth is driven by new product," and the underlying market growth is believed to be "in that low single-digit level." This suggests that without continuous innovation and successful new product launches, the company's growth may slow down. ,
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Operating Margins Outlook
Q: What are expected operating margins as sales recover?
A: Management expects operating margins to be in the high teens for both the Light Duty and Specialty Vehicle segments, and in the mid- to high teens for the Heavy Duty business. They feel good about the progress made over the last few quarters. -
Light Duty POS Growth
Q: Did you see weakness in Light Duty categories?
A: The company saw broad-based growth across all Light Duty categories. Favorable macro trends like more used cars, older vehicles, solid miles driven, and growth in the 8- to 13-year-old vehicle cohort contributed to strong performance. New products played a significant role, with about 1,700 SKUs launched in Q2, 30% of which were new to the aftermarket—a 20% growth over the previous Q2. -
Specialty Segment Strategy
Q: Is sell-out improving in the Specialty segment?
A: Sell-out is currently flattish in the Specialty segment. While dealer inventory levels are normalizing, the company is focusing on taking share in the dealer channel and increasing their nondiscretionary repair parts business. This approach has enabled them to achieve flattish to modest growth in a slightly down market. -
Growth Driven by New Products
Q: How much is growth driven by new products?
A: Most of the company's growth is driven by new products, whether launched two, three, or one year ago, or this year. New products are the driving factor beyond the market growth, which is believed to be in the low single-digit level. -
Sales Timing in Specialty
Q: When do you sell more in Specialty—new sales or maintenance?
A: A very high percentage of sales in the Specialty segment come within the first two years of a new vehicle sale. Therefore, a drop in new vehicle sales significantly impacts the business.