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$24.78 -1.07 (-4.14%)
10/6/2008 4:00 PM

O'Reilly Automotive, Inc. (ORLY)

CAPS Rating:
****

The Company is a specialty retailer and supplier of automotive aftermarket parts, tools, supplies, equipment and accessories to both the 'do-it-yourself' customers and the professional installers.

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Avatar NetscribeRetail (70.53) Submitted: 12/12/06 8:17 AM : Outperform Start Price: $32.25 ORLY Score: 2.93

O’Reilly Automotive, Inc. affirms real gains

O’Reilly Automotive, Inc. is the fourth largest automotive aftermarket parts retailer in the United States, with 1,596 stores located in 25 states, and 15 distribution centers across the nation. The company’s revenue is evenly distributed between its segments. The Do-It-Yourself (DIY) segment has a share of 52%, while the Professional Installers (Commercial) segment has a 48% share. This indicates that the company has a lower risk profile because of its exposure to a broader customer base.

It is a fact that vehicle maintenance is done out of necessity, rather than by choice. Therefore, during economic downturns, as seen in the previous quarter, most customers defer maintenance of their vehicle0. This postponement of repair and maintenance should materialize in the quarters ahead. Additionally, factors like increasing number of cars coming off warranty period coupled with a decline in gasoline price, as projected by Energy Information Administration, will aid the company to boost its performance.

The company’s top line has seen a growing trend. Even in the challenging economic environment that the company witnessed in the previous quarter, which eroded the consumer spending power, it was able to generate a respectable rise of 10% backed by rise in comparable store sales. It is also noteworthy that the profit margins of O’Reilly are higher as compared to its peers. Moreover, owing to favorable product mix and better purchasing power, gross margins are also witnessing a healthy rise.

In addition to financials, factors like rising average age of cars, which currently hovers around 9.5 years, increasing number of vehicles on road, declining trend of new car sales and the ascendance of total number of miles driven annually to 3 trillion shows a favorable sign for the company, and surely will aid O’Reilly in future.

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Avatar NetscribeRetail (70.53) Submitted: 4/20/07 5:01 AM

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O’Reilly Automotive competes in a highly fragmented automotive after market industry. The company in a move to stay away from competitors, the company has a unique strategy to operate its stores in both large markets as well as less densely populated areas within the regional markets. Further, in order to achieve greater penetration in existing markets and to expand into new, contiguous markets, the company intends to open 190 to 195 new stores in 2007. The company has strategically located these store sites in clusters within geographic areas in order to achieve economies of scale in the form of advertising cost and distribution efficiency.

O’Reilly Automotive has witnessed an increase in its fiscal 2006 revenue by 11.6%, thanks to 170 net additional stores opened during the year. Increased promotional and advertising efforts have complimented the revenue growth. Moreover, the company has been able to improve its gross margin by 50 basis points on account of enhanced product mix and lower product cost acquisition.

However, same-store sales grew by a mere 3.3% for fiscal 2006, which was below the prior year increase of 7.5%. The external macroeconomic factors were the main culprit for this dismal performance in same-store sales, as customer’s discretionary income was eroded on account of increased interest rates. Also, a reduction in the miles driven due to higher gas prices during the key summer selling season has further aggravated the problem.

Factors like rising average age of cars portends positive signal for automotive aftermarket industry, thereby indicating a rise in demand for replacement car parts. As a result of which, the company expects its fiscal 2007 revenues to be around $2.5 to $2.6 billion, while its EPS to be around $1.71 to $1.78, an increase of at least 10%. Looking at these positive aspects O’Reilly should outperform when compared with the market.

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