O'Reilly Automotive Inc.
(
ORLY
) witnessed a 20% increase in earnings per share to $1.32 in the
third quarter of 2012 from $1.10 per share in the same period
last year. Quarterly earnings also surpassed the Zacks Consensus
Estimate of $1.27. Net income increased 7.3% to $159.3 million
(9.9% of sales) from $148.4 million (9.7%) in the third quarter
of 2011.
Revenues in the quarter rose 4.3% to $1.60 billion from $1.54
billion a year ago, marginally missing the Zacks Consensus
Estimate of $1.62 billion. Comparable store sales (change in
sales for stores open at least one year) stood at 1.3% compared
with 4.8% in the third quarter of 2011.
Gross profit for the quarter increased 6.8% to $805.5 million
(50.3% of sales) from $754.2 million (49.1% of sales) a year ago.
Selling, general and administrative expenses escalated 5.7% to
$542.2 million (33.9% of sales) from $513.2 million (33.4% of
sales) in the prior-year quarter.
Operating income improved 9.2% to $263.3 million from $241.0
million a year ago, while operating margin improved to 16.4% from
15.7% in the third quarter of 2011.
During the quarter, O'Reilly opened 37 new stores across 20
states. As of September 30, 2012, the company has operated 3,896
stores. It expects to open 24 new stores in the year to meet its
management guidance.
O'Reilly plans to open 190 new stores in 2013. The company also
plans to open its 24th distribution center in Lakeland, Florida
in the first quarter of 2014. This new store will support the
company's existing store in Florida and help it expand across the
entire state.
Share Repurchase
During the quarter, O'Reilly repurchased 6.4 million shares of
its common stock at an average price of $84.76, implying a total
investment of $539.0 million. Subsequent to the end of the third
quarter until October 25, the company has repurchased an
additional 1.5 million shares for an average price of $83.49,
implying a total investment of $128.0 million.
During the first nine months of the year, the company has
repurchased 12.6 million shares at an average price of $89.62,
leading to a total investment of $1.13 billion.
Since the inception of the share repurchase program in January
2011 until October 25, the company has repurchased 30.1 million
shares at an average price of $74.45, implying a total investment
of $2.24 billion. As of October 25, 2012, the company had
approximately $263 million remaining under its share repurchase
program.
Financial Position
O'Reilly had cash and cash equivalents of $422.7 million as of
September 30, 2012, up from $276.7 million as of September 30,
2011. Inventories of $2.2 billion constituted a significant 76.6%
of current assets as of September 30, 2012. Long-term debt was
$1.1 billion as of September 30, 2012, up from $797.8 million as
of September 30, 2011.
In the first nine months of the year, net cash flow from
operations improved to $1.0 billion from $840.1 million in the
prior-year period. Capital expenditures (net) decreased to $217.3
million from $243.3 million in the first nine months of 2011. As
a result, free cash flow improved to $815.8 million during the
period from $596.8 million a year ago.
Guidance
For the fourth quarter of the year, O'Reilly expects earnings per
share of $1.03 to $1.07 and consolidated comparable store sales
to increase in the range of 2% to 4%.
For full year 2012, the company anticipates earnings per share in
the range of $4.64 to $4.68, up from the previous guidance of
$4.56 to $4.66 per share. It expects lower consolidated
comparable store sales of 3%-4% compared with the prior guidance
of 3%-5%.
O'Reilly lowered its revenue guidance to $6.15 billion-$6.20
billion from $6.15 billion-$6.25 billion. The company expects
gross margin between 49.8% and 50.0% and operating margin between
15.5% and 15.8% for the year.
It expects to incur $300 million to $320 million in capital
expenditure in the year, down from the earlier projection of $315
million to $345 million. However, it raised the free cash flow
guidance to $800 million to $830 million from $725 million to
$775 million for the year.
Our Take
O'Reilly Automotive is the third largest specialty retailer of
automotive aftermarket parts, tools, supplies, equipment, and
accessories in the U.S., selling products to both Do-it-Yourself
(DIY) customers and Do-it-for-Me (DIFM) or professional
installers.
The company sells an extensive line of products consisting of new
and remanufactured automotive hard parts (such as mufflers,
brakes, and shock absorbers), maintenance items, accessories, a
complete range of auto body paint and related materials,
automotive tools and professional service equipment. Its main
competitors are
Advance Auto Parts Inc.
(
AAP
) and
AutoZone Inc.
(
AZO
).
The company currently retains a Zacks #3 Rank, which translates
to a short-term rating of Hold, and we have a long-term
recommendation of Neutral on its shares.
ADVANCE AUTO PT (AAP): Free Stock Analysis
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AUTOZONE INC (AZO): Free Stock Analysis
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O REILLY AUTO (ORLY): Free Stock Analysis
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