John, Thought you might be interested in the IBD article; also an article on RAVE doing a "dead cat bounce" a couple of months ago. The free fall on thgi stock started when a big investor dumped his shares.
The New America RANKIN AUTOMOTIVE GROUP INC.
John Zmirak
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04/11/97
Investor's Business Daily
Alexandria, Louisiana
Expanding Auto Parts Chain In The Jalopy Belt
An 11-yearold car can be quite a sight. Engines crack, U-joints fracture, transmissions just fall out. The repair bills can quickly add up to the price of another car.
That's the age of the average car in central Louisiana. Far from tourist meccas such as New Orleans, people in the middle of the state work hard for not much money. This region contains some of the lowest per-capita incomes in the U.S. In this neck of the piney woods, people don't replace their cars; they fix them. Bad news for new auto dealers, but an opportunity for auto parts distributors.
Randy Rankin found his opportunity. As chief executive of Rankin Automotive Group Inc., Rankin has ridden waves of auto demand through oil boom and bust. He transformed a small, rural business into a regional wholesale and retail auto-part chain, with annual sales of $21 million.
It all started out of the trunk of a car. In 1968, upon his graduation from high school, Rankin began a business distributing flat-tire kits to rural gas stations and garages. Business picked up quickly, and by 1970, Rankin had a fleet of salesmen working for him and almost $1 million in annual sales. "We moved into vans and a broader product line," he said, "including oil filters and service station supplies."
In 1979, Rankin opened his first store. Growth continued, slow and steady, through the oil-boom in the early '80s and the subsequent crash, until in 1993, Rankin had seven locations. Meanwhile, national giants such as Autozone Inc., had begun to make their effect in other regions, shutting down "mom and pop" auto stores and smaller local chains.
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"We saw the writing on the wall in 1990," Rankin said. "I realized that the independents were all in trouble." Companies such as CarQuest, Napa and APS were supplying inventory, advertising and national warranties to retail and wholesale shops.
"It was clear that stores which didn't have these sponsors were going under - they couldn't achieve the same economies or compete efficiently with national chains," he said.
In 1993, Rankin inked a deal with APS - owned by Aps Holding Co. of Houston - that allowed him to maintain a small parts inventory and offer overnight delivery of almost any item his stores could need. This gives him an advantage over some national competitors, according to Lincoln Werden, analyst at Nichols, Safina, Lerner & Co.
APS sells name-brand parts, as well as its own "Big A" private label variety. Thanks to APS, Rankin is able to offer 160,000 items compared to 45,000 or less at Autozone and other rivals, Werden said. His firm helped arrange Rankin's November 1996 initial public offering, which netted Rankin $13 million to retire debts and make acquisitions.
Older cars need more parts, and more expensive repairs, than newer models. People tend to bring their old cars to trusted independent mechanics - rather than authorized dealers, who get parts from the manufacturer.
And in these poorer areas, there are fewer competitors, so a parts retailer can ask for a higher margin than in fiercely disputed urban markets. "That has been one of the secrets to Rankin's success," Werden said.
Another crucial element has been the consolidation of the market, Rankin said. "There is no way some of these smaller operators can take the competition from companies like Autozone. Autozone's strategy is to move into a town, undersell the locals, and shut them down. They couldn't possibly survive. So we stepped in and offered a more gracious way out."
Rankin prefers to buy owners out, keep them and their staff on as managers, and offer them a share in the company's pension plan. "This is a people business, and you can't get that kind of experience and know-how any other way," he said.
Rankin began a strategy of aggressive acquisition throughout central Louisiana, east Texas and northern Mississippi.
Offering an average of $350,000 for each $1 million in annual sales per store, Rankin managed to buy enough shops to raise his net sales from approximately $4.1 million in fiscal 1992 to an estimated $30 million for fiscal 1996, according to Werden. Rankin plans to expand across the Gulf South, from the outskirts of Houston and Galveston, Texas, to the suburbs of Atlanta, avoiding only Florida - the territory of Ace Auto Parts Inc., an equally aggressive APS affiliate. "We don't want to mess with them," said Rankin. "That would not be pretty."
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Rankin has the wherewithal to make whatever acquisitions attract him. He still has $3.5 million in cash, much of it left over from the company's IPO, plus a $7.5 million line of credit that could expand to $25 million.
"We are virtually debt-free. We've got money laying around, which we're looking for something to do with - but only things that make sense. There has to be 'people power' present in a company for us to be interested in it," he said.
For the first three quarters of fiscal 1996, through November '96, actual earnings at Rankin (not adjusted for the IPO or retroactively for acquisitions) were $21 million vs. $15.4 million for nine months a year ago. Earnings per share for the nine months reached 17 cents compared with nine cents.
Rankin trades as RAVE at around 16.
Rankin Auto Up 35% After Setting 52-Week Low Fri. >RAVE
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NEW YORK (Dow Jones)--Shares of Rankin Automotive Group Inc. (RAVE) rose as much as 35% Monday in what an analyst described as a "dead cat bounce."
Peter Ricchiuti, director of research at Tulane University's Burkenroad Reports, said the stock had fallen so low that it simply may had to have risen. "If you throw a dead cat off the roof, it's still going to bounce a bit," said Ricchiuti, who has an outperform rating on the stock.
Rankin, which went public last December with an initial price of $10 a share, sailed to as high as 24 1/2 on May 14 but had reversed course and fell to as low as 2 1/8 on Friday.
Rankin, a specialty supplier and retailer of automotive parts, tools and accessories, faces tough competition from larger automotive-parts retailers such as AutoZone Inc. (AZO), Ricchiuti said.
AutoZone shares were recently trading at 29 1/4, up 5/8 or 2.2%.
Last month, Rankin reported earnings for the second quarter ended Aug. 25 of $11,000, or 3 cents a share, on sales of $10.6 million, compared with net income of $201,000, or 13 cents a share, on sales of $7.4 million a year ago.
Ricchiuti said he expects Rankin to earn 8 cents a share in fiscal 1998 ending Feb. 25, and 19 cents a share in fiscal 1999.
Rankin shares were trading recently at 2 5/8, up 1/24, or 23.5%, on Nasdaq-volume of 54,800 shares, compared with average daily turnover of 21,318 shares. Earlier Monday the stock moved as high as 2 7/8, up 35%.
-Nancy Beiles; 201-938-5393 |
