Although consumer spending has inched up by 0.3% for the month of February, consumer confidence is still not increasing. People are still conscious about opening their wallets, trying to make the most of their hard earned money. Also, colder weather was another setback for most of the retailers, which led to declining sales.
However, there are some industries which are in fact benefitting from these issues and are indeed making merriment. A typical example here is that of auto parts retailers, which are enjoying the after effects of wear and tear of vehicles during the stormy weather conditions. Moreover, the average age of vehicles in the U.S. has increased to 11.4 years. This again means more of repairs and change of auto parts in order to keep the vehicles in a good condition. Therefore, great first quarter results posted by O’Reilly Automotive (ORLY) was nothing but obvious. The numbers were quite ahead of analysts’ expectations, enabling its share price to move north.
Driven by higher sales during the period, revenue surged 9% to $1.73 billion, whereas analysts were expecting it to be $1.72 billion. 50 new stores opened during the quarter, boosted the top line. Also, same store sales growth of 6.3% was another key driver. Even same store sales metric was higher than the expectation of 4% to 6%. Increase in sales per weighted average store also drove revenue higher. This metric jumped to $408,000 as against sales per weighted average store of $391,000 last year.
Earnings for the quarter rose 18% to $1.61 per share, over the previous year, as the company managed its costs efficiently. Also, gross margin expanded a whopping 400 basis points to 50.8% for the period.
The competitive scenario
Although O’Reilly registered a great quarter and should continue to benefit from the growing demand for the replacement of auto parts and repairs, it faces stiff competition from other players in the industry. Peers such as Advance Auto Parts (AAP) and AutoZone (AZO) are also enjoying the benefits of growing demand, which are coupled with their strategic measures to attract maximum customers possible.
Advance Auto Parts, for instance, has grown in stature after its acquisition of General Parts International in January 2014. Through this acquisition Advance Auto expanded its footprint in North America, especially in the mechanical repair segment. As the auto industry has been making new technological advancements, it has become difficult for customers to get their cars repaired. Hence, they need the expertise of such retailers who specialize in such services.
AutoZone has also adopted the strategy of acquisition. It acquired AutoAnything, an online auto-parts retailer, which strengthened its e-commerce segment. Also, AutoZone has been expanding its presence in the commercial segment by adding more commercial programs to its list of offerings.
Despite tough competition, O’Reilly has been performing well, which is evident from its quarterly numbers. Moreover, it has been expanding its distribution centers so that it can deliver products on the same day of purchase. Also, it has introduced a loyalty card program which should attract customers. The retailer’s bright outlook also added to its positives. Hence, O’Reilly looks like a rewarding investment proposition.