O'Reilly Automotive, Inc. (ORLY)

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.