What Makes O'Reilly Automotive Such An Interesting Pick

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Mar 24, 2015
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Consumer spending in the U.S. was not very impressive for the month of January, as people are still unsure about spending too much. Although income is on the rise and gasoline prices have declined, retailers are finding it difficult to attract customers without any promotions. However, demand for automobiles has been on the rise for quite some time now. People are willing to splurge on new cars. Also, there has been an increase in the demand for auto parts too. Thus, auto parts retailers too are witnessing growing sales, resulting in better performances.

For instance, O’Reilly Automotive (ORLY, Financial), a leading auto parts retailer, has been performing well from the last one year. Its shares have risen 33% in the last one year. Moreover, its recently reported fourth quarter results were also ahead of the Street’s estimates, enabling its share price to surge. Let us take a closer look at the numbers.

Snapshot of the numbers

Revenue for the quarter surged 9% to $1.76 billion, as compared to the previous year. The top line was higher than the analysts’ estimate of $1.74 billion. The growing demand for auto parts resulted in higher sales of the company. Revenue was also driven by same store sales growth of 6.3%, higher than the growth of 5.4% last year. Same store sales metric excludes the impact of new stores added or closed during the period.

Further, the company opened 57 new stores during the quarter and 207 new stores in 2014. These stores contributed to the growth of the company. Another important metric, sales per weighted average store, increased to $403,000 in the fourth quarter from $387,000 in the prior year.

The earnings of the company climbed 26% to $1.76 per share, over last year’s quarter. This was significantly higher than the analysts’ estimate of $1.67 per share. The auto parts retailer managed to register a higher bottom line mainly because of higher sales and efficient management of costs.

What the future has in store?

O’Reilly has a number of plans to grow its business and make its future bright. Firstly, it plans to open 205 new stores this year. Expanding will not only expand its presence, but will also help grow its geographic footprint.

The company’s loyalty program is also growing and is resonating well with the customers and now has a total of 12 million customers, as loyal customers continue to shop at O’Reilly for all their auto parts needs. Further, the company has increased its share repurchase program by $500 million. This announcement made investors happy.

Strong guidance

The company also provided a strong guidance for the first quarter. It expects same store sales growth to be in between 3% and 5%. Earnings are estimated to be in the range of $1.89 per share to $1.93 per share. The retailer also expects to spend $400 to $430 million as capital expenditure in the current year. These numbers make O’Reilly’s future look brighter.

The takeaway

O’Reilly Automotive is witnessing stronger demand for its products and services. Its efforts to grow its business and expand its footprint should be fruitful. Moreover, higher sales and an increase in share repurchase program made investors happy. In addition, a bright outlook makes this auto parts retailer an interesting buy.