Stock price appreciation of 40%, when consumer spending is showing signs of weakness, is a rare phenomenon. Consumer spending in the U.S. dropped 0.2% in September as compared to the previous month. However, O'Reilly Automotive (ORLY, Financial) has been an exemplary performer and registered a growth of 40% in its share price.
Its recently reported third quarter results were also a blockbuster one, wherein its numbers came in ahead of analysts' expectations. This resulted in a sharp increase in its share price. Let us get into the details.
The "wow" quarter
Revenue for the quarter surged 9% to $1.88 billion, over last year. Analysts were expecting it to be at $1.85 billion. The top line was driven by same store sales growth of 6.2%, much higher than the growth of 4.6% in the previous year. Therefore, it is clear that people are happy with the company's service and turn to it for all their auto parts needs. Moreover, it has opened a total of 145 new stores since the beginning of this year, which added to the top line.
Since the average age of vehicles in the U.S. has been increasing for quite some time and has reached a high of 11.4 years, the demand for auto parts has increased. This is because maintaining a car for a long time results in more wear and tear of auto parts.
Moreover, the company is also doing a great job of managing its expenses. This resulted in an increase of 70 basis points in the gross margin, clocking in at 51.6%. Also, the bottom line jumped to $2.06 per share from $1.69 per share in the prior year. This was much higher than the estimate of $1.95 per share.
The scenario with peers
Peer AutoZone (AZO, Financial) too is witnessing higher demand for its products, which reflects the overall uptrend in this industry. Its earnings in the recently reported fourth quarter results jumped to $11.28 per share, beating the analysts' estimate by $0.02 per share. Also, its share price has risen by 26.3% in the last one year.
Even Advance Auto Parts (AAP, Financial) has been performing well with a share price appreciation of 50% in the last one year, the highest among its peers. Advance Auto Parts' acquisition of General Parts has been instrumental in driving its results.
Looking forward
O'Reilly has several plans to boost its growth in the future. After adding a total of 145 stores to its portfolio, the auto parts retailer plans to open another 55 by the end of the year. Also, it plans to open a total of 205 new stores in 2015. This should help the revenue grow. Also, it has been adding new distribution networks to its portfolio, which should help improve the performance.
Furthermore, it has increased its outlook for the year. It now expects comparable store sales to be in the range of 5% and 6% as against the range of 3.5% to 5.5% earlier.
Bottom line
O'Reilly Automotive is doing well and its recent third quarter results indicated the same. Not only O'Reilly, but all other industry players are performing well as overall demand for car parts and maintenance services has increased. Moreover, O'Reilly's drive to expand its presence and control its costs has been impressive. It has also repurchased shares, making investors hopeful about its future. Thus, this auto art retailer is worth an investment.
