O’Reilly (NASDAQ:ORLY) Beats Q3 Sales Targets

Auto parts and accessories retailer O’Reilly Automotive (NASDAQ:ORLY) reported results ahead of analysts’ expectations in Q3 FY2023, with revenue up 10.7% year on year to $4.2 billion. The company’s outlook for the full year was also close to analysts’ estimates with revenue guided to $15.8 billion at the midpoint. Turning to EPS, O’Reilly (NASDAQ:) made a GAAP profit of $10.72 per share, improving from its profit of $9.17 per share in the same quarter last year.

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O’Reilly (ORLY) Q3 FY2023 Highlights:

• Revenue: $4.2 billion vs analyst estimates of $4.09 billion (2.87% beat)
• EPS: $10.72 vs analyst estimates of $10.42 (2.91% beat)
• Free Cash Flow of $564.4 million, down 28.7% from the same quarter last year
• Gross Margin (GAAP): 51.4%, in line with the same quarter last year
• Same-Store Sales were up 8.7% year on year (beat vs. expectations of up 5.4% year on year)
• Store Locations: 6,111 at quarter end, increasing by 173 over the last 12 months

“We are pleased to once again report another quarter of strong performance and profitable growth, highlighted by an 8.7% increase in comparable store sales and a 17% increase in diluted earnings per share to $10.72. Team O’Reilly’s consistent execution of our proven dual market strategy and dedication to our culture of excellent customer service resulted in another quarter of mid-teen professional and solid DIY comparable store sales growth. Our profitable growth is the direct result of our Team Members’ hard work and unwavering commitment to providing the highest level of service in our industry, and I would like to thank each of them for their ongoing contributions to our long-term success.”

Serving both the DIY customer and professional mechanic, O’Reilly Automotive (NASDAQ:ORLY) is an auto parts and accessories retailer that sells everything from fuel pumps to car air fresheners to mufflers.

Auto Parts RetailerCars are complex machines that need maintenance and occasional repairs, and auto parts retailers cater to the professional mechanic as well as the do-it-yourself (DIY) fixer. Work on cars may entail replacing fluids, parts, or accessories, and these stores have the parts and accessories or these jobs. While e-commerce competition presents a risk, these stores have a leg up due to the combination of broad and deep selection as well as expertise provided by sales associates. Another change on the horizon could be the increasing penetration of electric vehicles.

Sales GrowthO’Reilly is larger than most consumer retail companies and benefits from economies of scale, giving it an edge over its competitors.

As you can see below, the company’s annualized revenue growth rate of 11.9% over the last four years (we compare to 2019 to normalize for COVID-19 impacts) was impressive as it opened new stores and grew sales at existing, established stores.

This quarter, O’Reilly reported robust year-on-year revenue growth of 10.7% and its revenue of $4.2 billion exceeded analysts’ estimates by 2.87%. Looking ahead, the analysts covering the company expect sales to grow 4.71% over the next 12 months.

Number of Stores

When a retailer like O’Reilly is opening new stores, it usually means it’s investing for growth because demand is greater than supply. Since last year, O’Reilly’s store count increased by 173 locations, or 2.91%, to 6,111 total retail locations in the most recently reported quarter.

Taking a step back, the company has generally opened new stores over the last eight quarters, averaging 3% annual growth in its physical footprint. This is decent store growth and in line with other retailers. With an expanding store base and demand, revenue growth can come from multiple vectors: sales from new stores, sales from e-commerce, or increased foot traffic and higher sales per customer at existing stores.

Same-Store SalesSame-store sales growth is an important metric that tracks demand for a retailer’s established brick-and-mortar stores and e-commerce platform.

O’Reilly’s demand within its existing stores has generally risen over the last two years but lagged behind the broader consumer retail sector. On average, the company’s same-store sales have grown by 8.59% year on year. With positive same-store sales growth amid an increasing physical footprint of stores, O’Reilly is reaching more customers and growing sales.

In the latest quarter, O’Reilly’s same-store sales rose 8.7% year on year. This growth was an acceleration from the 7.6% year-on-year increase it posted 12 months ago, which is always an encouraging sign.

Key Takeaways from O’Reilly’s Q3 Results
Sporting a market capitalization of $52.5 billion, more than $82.7 million in cash on hand, and positive free cash flow over the last 12 months, we believe that O’Reilly is attractively positioned to invest in growth.

We enjoyed seeing O’Reilly exceed analysts’ revenue expectations this quarter, driven by better same store sales. That really stood out as a positive in these results. The company also raised its full year outlook for same store sales, revenue, and EPS. On the other hand, its gross margin sadly missed analysts’ expectations. This was a mixed but overall solid quarter for O’Reilly. The stock is up 3.84% after reporting and currently trades at $910 per share.

The author has no position in any of the stocks mentioned in this report.