ARB Corporation: from local manufacturer to global 4×4 powerhouse
From the first days of this blog, back in 2009/10, we have been writing about ARB Corporation (ASX:ARB), classifying it as one of the highest ‘A1’ quality companies listed on the ASX. Back in 2009, the share price was below $3.00 (and many thought it was on a high price to earnings (P/E) ratio then!). Today, ARB shares trade at nearly $40 dollars, and it’s paid out $7.62 in dividends since.
For a snapshot of how a local bull bar manufacturer becomes a global automotive accessory leader, navigating the shifting tides of consumer confidence and currency markets, look no further than ARB. It’s a company owned indirectly by investors in the Montgomery Small Companies Fund.
The company recently released its first-half (1H25) results, revealing solid revenue gains, exciting U.S. developments and an ongoing global expansion strategy.
Consistent top-line growth despite global challenges
ARB recorded a commendable 5.9 per cent rise in group revenue for first-half 2025, a solid performance considering softer new vehicle sales across the globe and weaker discretionary spending. The incremental growth speaks to the company’s resilient brand strength and the company’s ability to tap opportunities in multiple regions, even in a cautious market.
Export strength shines
We have previously explained that ARB’s overseas business will eventually usurp its domestic operations. We have also articulated our view that even before that happens, sell-side analysts will realise ARB will eventually be released of its cyclical relationship to the Australian economy and price the company as an international grower.
Exports, now accounting for 35 per cent of total sales, saw revenue surge by 15.4 per cent on the back of robust performances in Asia Pacific, Europe, the Middle East and Africa (EMEA), and the Americas. The company highlighted especially strong U.S. demand, aided by the ongoing Toyota contract and steady monthly growth in aftermarket product sales to Off Road Warehouse (ORW)/4 Wheel Parts (4WP).
Accelerating in the U.S. market
One of the most significant developments this half was ARB’s increased stake in Off Road Warehouse from 30 to 50 per cent. Alongside this strategic move, ORW acquired 4WP, expanding its retail footprint from 11 to 53 stores across the United States. This combination solidifies ORW/4WP as the largest 4×4 accessory retailer in the U.S. – an enviable position that sets the stage for further brand recognition and market share gains in the world’s largest off-road aftermarket.
Margins and costs: a tale of two trends
Gross margin reached a record 58.9 per cent, up +110 basis points year-over-year. However, earnings before interest, taxes, depreciation, and amortisation (EBITDA) margin dipped by 160 basis points to 24.0 per cent, with costs increasing more than anticipated. ARB attributes much of this rise to significantly higher staff, advertising, and occupancy expenses, which were up by 18 per cent, 41 per cent, and 17 per cent, respectively. The company expects to maintain this level of operating expenditure through the second half as it continues to invest in growth and brand promotion.
Original equipment manufacturer segment remains steady
While original equipment manufacturer (OEM) sales only account for around 8 per cent of total revenue, the segment declined a modest 1.3 per cent in first-half 2025. When considering the formidable 40.5 per cent growth in financial year 2024 , management sees this dip as a relatively stable result, reinforcing that OEM relationships continue to play a meaningful role in ARB’s overall business and growth story.
Australia and cash flow slow
On the home turf, Australian aftermarket sales (still the largest single contributor at 57 per cent of revenue) grew slightly 1.9 per cent, but momentum slowed in the second quarter with a 1.1 per cent sales decline. Retailer destocking and a broader downturn in new vehicle sales weighed on growth, although ARB indicated satisfaction with the results, given challenging market conditions.
Moreover, operating cash flow took a hit, coming in at $45.9 million compared to $71.6 million in the prior period. The primary culprits? A $38 million jump in inventory, currency impacts, an expanded product range, and gearing up for the Toyota U.S. contract. While this reduced cash conversion to 78 per cent (from 105 per cent in first-half 2024) and lowered cash holdings to $23 million, ARB remains debt-free.
Weaker Aussie dollar: potential second-half 2025 headwind
The company foresees the weaker Australian dollar exerting more pressure in the second half, potentially inflating costs on imported components. That said, management points to prior price rises and declining freight costs as partial offsets. We also note the Australian dollar has risen circa five per cent since its January lows of US$0.61.
With most of ARB’s forward currency positions settled, ARB is now exposed mainly to spot market rates – granted; an area to watch for the remainder of the financial year.
Refurbishing and expanding the store network
In keeping with its long-term growth strategy, ARB is accelerating the upgrade of its network. The company now operates 75 ARB stores – a mix of corporate and independent outlets – and has plans for five new flagship stores to open in second-half 2025. As an aside, back in 2010 the company thought saturation would be achieved in Australia with 50 stores!
Four sites are converting from stockists to exclusively carrying ARB’s product range, strengthening brand presence. Meanwhile, seven store upgrades are slated for financial year 2026.
Ongoing acquisitions and global investments
Acquisitions remained part of ARB’s growth strategy in first-half 2025 , with $13.3 million spent on acquiring local retail outlets and MITS Alloy, a manufacturing business. Beyond its home base and the U.S. expansion, ARB is setting up a new Middle East distribution center. The Dubai hub is slated for completion in April 2025 and is expected to bolster the company’s presence in a region teeming with off-road and four-wheel-drive enthusiasts.
Stabilising the UK
Meanwhile, ARB’s UK business under the Truckman brand delivered steady sales following a strong rebound in financial year 2024. A second site in Bristol is on track to open in financial year 2025, potentially broadening Truckman’s reach and customer base.
Concluding thoughts
Despite softness in Australian aftermarket demand and currency volatility, ARB remains confident in its export order book and sees OEM sales holding steady – outside the recently established Toyota U.S. deal. Management’s upbeat note includes a strong pipeline for its North American retail operations, with ORW/4WP even turning a profit in January 2025.
While cost inflation and currency concerns may linger, ARB’s broadening international footprint and associated growth opportunities, consistent dividend, and focus on brand enhancement through store upgrades should underscore share market support.
The Montgomery Small Companies Fund owns shares in ARB Corporation. This article was prepared 20 February 2025 with the information we have today, and our view may change. It does not constitute formal advice or professional investment advice. If you wish to trade ARB Corporation, you should seek financial advice.
Roger Montgomery is the Founder and Chairman of Montgomery Investment Management. Roger has over three decades of experience in funds management and related activities, including equities analysis, equity and derivatives strategy, trading and stockbroking. Prior to establishing Montgomery, Roger held positions at Ord Minnett Jardine Fleming, BT (Australia) Limited and Merrill Lynch.
This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564). The principal purpose of this post is to provide factual information and not provide financial product advice. Additionally, the information provided is not intended to provide any recommendation or opinion about any financial product. Any commentary and statements of opinion however may contain general advice only that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting on any of the information provided, you should always consider its appropriateness in light of your personal objectives, financial circumstances and needs and should consider seeking independent advice from a financial advisor if necessary before making any decisions. This post specifically excludes personal advice.
