O'Reilly Beats on Q1 Earnings, Revs - Analyst Blog

O'Reilly Automotive Inc. ORLY posted an 18.4% increase in earnings to $1.61 per share in the first quarter of 2014 from $1.36 in the year-ago quarter. Earnings also exceeded the Zacks Consensus Estimate by 3 cents. Net income improved 13% to $173.9 million (10.1% of sales) from $154.3 million (9.7%) in the first quarter of 2013.

Quarterly revenues scaled up 9% to $1.73 billion from $1.59 billion in the same period a year ago. Revenues marginally surpassed the Zacks Consensus Estimate of $1.72 billion. Comparable store sales increased 6.3% in the reported quarter compared with 0.6% in the first quarter of 2013.

Gross profit ascended 10% to $877.7 million (50.8% of sales) from $798.7 million (50.4% of sales) a year ago. Selling, general and administrative expenses rose 7.9% to $590.6 million (34.2% of sales) from $547.6 million (34.5%) in the year-ago quarter. Operating income increased 14.4% to $287.1 million (16.6% of sales) from $251.1 million (15.8% of sales) for the same period last year.

Store Information

During the quarter, O'Reilly opened 50 net new stores in 23 states. Many of the new stores are in Florida. The total store count stood at 4,216 as of Mar 31, 2014. Sales per weighted average-store increased to $408,000 from $391,000 a year ago.

New Distribution Centers

The distribution center located in Lakeland has started operating. It is providing daily inventory replenishments to the stores located in the area.  Another distribution center located in Naperville, IL, is under construction and will be operational soon. The Devens, MA, distribution center will be inaugurated by the end of the year. O'Reilly believes that these three distribution centers will enhance the network and performance of the company.

Share Repurchases

During the quarter under review, O'Reilly repurchased 0.1 million shares of its common stock for $22 million, reflecting an average price of $148.18. Subsequent to the end of the first quarter and through Apr 23, 2014, the company has repurchased an additional 0.2 million shares for $34 million, implying an average price of $144.52.

Since the inception of the share repurchase program in Jan 2011, O'Reilly has repurchased a total of 41 million shares for $3.41 billion, indicating an average price of $83.20. As of Apr 23, 2014, the company had approximately $590 million worth of shares remaining under its share repurchase program.

Financial Position

O'Reilly had cash and cash equivalents of $511.8 million as of Mar 31, 2014, compared with $205.4 million as of Mar 31, 2013. Long-term debt increased to $1.4 billion as of Mar 31, 2014 from $1.1 billion as of Mar 31, 2013.

In the first three months of 2014, net cash flow from operations increased to $345.5 million from $226.3 million in the previous-year period. Meanwhile, capital expenditures (net) increased to $82.8 million from $73.1 million in the same period of 2013.

Guidance

For second-quarter 2014, O'Reilly projects earnings per share in the range of $1.79–$1.83. The company expects consolidated comparable store sales to increase by 2% to 4%.

For full-year 2014, the company expects earnings per share in the range of $6.82 to $6.92. O'Reilly expects consolidated comparable store sales to increase between 3% and 5% during the year. The company also reiterated revenue guidance of $7 billion to $7.2 billion for 2014, gross margin guidance of 50.9%–51.4%, and operating margin projection of 17% to 17.4%.

O'Reilly expects capital expenditures within the range of $390 million to $420 million and free cash flow between $580 million and $620 million for the year.

Our Take

O'Reilly Automotive is a prominent player in the automotive replacement parts and accessories industry along with Advance Auto Parts Inc. AAP, AutoZone Inc. AZO and CarMax Inc. KMX. It sells its products to both Do-it-Yourself (DIY) customers and Do-it-for-Me (DIFM) or professional installers. Currently, O'Reilly retains a Zacks Rank #2 (Buy).