O'Reilly Automotive (
) is getting a lot of mileage from new-store openings.
Last month, the Missouri-based auto-parts retailer opened in
Tampa, Fla., its 4,000th store -- the start of what will be an
aggressive expansion into the Sunshine State.
Florida offers significant growth opportunities, chiefly
because "we're not there yet," said company spokesman Mark Merz.
"There are lots of cars in the Florida market. It has robust,
Actually, O'Reilly operates a modest number of stores in the
northern part of the state, close to distribution centers in
Mobile, Ala., and Atlanta.
Tampa is a sharp turn south. A new distribution center in the
works in Lakeland, Fla., will better serve that market as well as
others expected to open in central Florida and farther south.
The distribution center is on track to open early next year.
Management has said that about 25 new stores would open initially
and up to 350 in the state, longer term.
O'Reilly is one of the largest auto-parts chains in the U.S.,
smaller than No. 1AutoZone (
) but now slightly larger thanAdvance Auto Parts (
) in sales and store count.
Of the three, O'Reilly is growing the fastest on both the top
and bottom lines. In 2012, earnings rose 25% over the prior year
to $4.75 a share.
Double-digit profit growth is being driven in part by
geographic expansion, as Morgan Stanley analysts said in a Feb. 8
report on O'Reilly, titled "Pulling Away From the Pack."
O'Reilly drove into another new region recently, New England.
Its acquisition of Maine-based VIP Parts, Tires & Service at
the end of December gave it 56 retail stores in Maine, New
Hampshire and Massachusetts, plus distribution centers.
The company plans to make use of those distribution centers to
expand farther into New England and other northeastern markets,
such as New York State.
Morgan Stanley analysts figure that the Northeast and Florida
account for about 25% of industrywide auto-parts retail revenue
based on total light vehicle registrations. They say the two
major markets could ultimately translate into $1.5 billion to $2
billion in annual revenue for O'Reilly.
Last year, O'Reilly took in nearly $6.2 billion, a 7% gain
Analysts expect O'Reilly's revenue to grow 8% this year, to
nearly $6.7 billion.
They estimate that AutoZone and Advance Auto sales will grow
slightly less this year, 7%, according to Thomson Reuters, with
AutoZone's to total $9.2 billion and Advance $6.6 billion.
Advance's profits are seen growing the slowest, at 7%.
O'Reilly plans to open 190 new stores this year, on top of 180
last year. Management has said it could open around 200 new
stores a year for the foreseeable future.
"We've more than doubled our size in the last five years,"
said Merz. Top states currently are Texas and California.
A swift acceleration occurred in 2008, when more than 1,300
stores were acquired from CSK Auto, giving O'Reilly a new
presence in the Western half of the U.S.
Those stores were viewed as underperforming with average
annual volume of $1.35 million a year.
As O'Reilly integrated its systems and culture, CSK stores
have been posting stronger sales, outpacing growth at the firm's
Since most of the CSK stores are in major metro markets
compared to O'Reilly's larger mix of legacy stores in smaller
markets, management thinks CSK stores can reach $1.8 million in
per-unit volume. They're not there yet.
Average unit volume chainwide is now $1.6 million.
Same-store sales and margins should continue to get a lift
from improving performance at CSK acquired stores, analysts
O'Reilly's operating margin in 2012 was a record 15.8%.
A little more than half of sales are from do-it-yourselfers
with the rest from mechanics on the commercial, or professional,
Sales in the fourth quarter rose 7% to $1.49 billion, while
earnings jumped 21% to $1.14 per share.
After Q4 and full-year results were released late on Feb. 6,
shares jumped 8% in the next day's trading session.
In contrast, AutoZone's stock fell nearly 2% on Tuesday after
it reported disappointing results for its second fiscal quarter
ended Feb. 9. At the close, shares were down less than 1%,
Though earnings beat views, AutoZone's revenue came in below
Wall Street's consensus, rising 2.8% to $1.85 billion. Same-store
sales fell 1.8% vs. O'Reilly's 4.2% gain in the fourth
Analysts estimate O'Reilly's earnings will rise 20% this year
to $5.72 a share and go up 13% in 2014, according to Thomson
Expense controls have contributed to strong profits, from
negotiating better prices from suppliers based on greater scale
to keeping travel budgets down. For example, managers share hotel
rooms when they are away on business. Even the CEO and CFO have
shared a room, Merz says.
Comparisons could get easier this year over last year, when an
unusually mild winter caused less stress on car parts.
After noticing softer demand for products, management
announced June 27 that it wouldn't meet earlier guidance of 3% to
5% same-store sales growth in Q2, sending shares tumbling
Benefits of this winter's cold weather and snowstorms will
likely be "felt in spring/summer," said Stifel Nicolaus analysts
in a Feb. 8 note. Since then, heavy snowstorms hit major O'Reilly
markets in Kansas, Missouri, Texas and others especially
A cold snap, a Stifel Nicolaus report said, "warms our hearts
to auto parts."
The company's stock, though volatile, has benefited from a
share buyback program begun in January 2011. Some 32 million
shares were bought through the end of December, for $2.4 billion.
Over that time, shares rose nearly 50%. Shares are up 14%
Management plans to use excess cash to keep purchasing
"We're able to generate more free cash than we can use to grow
our business organically (and profitably)," Merz said.
On the downside for the company's near-term prospects,
analysts say, new-car sales continue to pick up. More new cars on
the road mean fewer repairs and parts are needed, at least in the
first few years.
O'Reilly's take is a bit different. Management says that
better engineered new cars will stay in use longer, meaning
today's new-car customer "is going to be our customer five or six
years down the road," as Merz put it.