An Auto Parts Retailer for Your Portfolio

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In 1957, the O'Reilly family opened its first store in Springfield, MO. Since then, O'Reilly Automotive (NASDAQ: ORLY), the aftermarket retailer, has been growing gradually. From a modest beginning in 1957, it has grown to more than 4,000 stores operating in 42 states. The company sells its products to both DIY (do-it-yourself) customers and DIFM (do-it-for-me), or professional installers.

Robust performance

The automotive industry has been witnessing a revival, and market trends indicate that this is going to continue for quite some time in the future. The growth of the automotive industry augurs well for all related ancillary and service industries.

So it was not surprising that O'Reilly grew its revenue by 9.7% to slightly more than $1.7 billion. This beat the consensus estimate of $1.7 billion. Comparable-stores sales increased a solid 6.5% and led to growth in revenue.

The company posted a 37.4% growth in earnings to $1.58 per share in the reported quarter. The earnings per share exceeded consensus estimates by $0.09. 

Revving up

During the reported quarter, the company added 47 stores and closed one store. This increased its total store count to 4,087 in 42 states as of June 30. Average sales per store increased to $419,000 from $404,000 in the year-ago quarter. The company plans to keep adding more new stores to its tally either by way of new additions or through strategic acquisitions.

In January 2011, O'Reilly had instituted a share-repurchase program. Since then, it has repurchased a total of 37.6 million shares for nearly $3.0 billion. As of July 24, the company had approximately $521 million worth of authorization remaining under its share-repurchase program.

Moreover, the company has a strong track record of being profitable and the last reported period was the 18th consecutive quarter of 15% or more in earnings-per-share growth. Looking forward, there are a number of trends that should help growth.

The average age of cars in the USA is a record 11.4 years. This is an all-time high number and an important growth driver for O'Reilly. As more cars get old, the aftermarket retailers will be in a good position to benefit. Older vehicles require more maintenance and as O'Reilly continues to grow its chain of stores, it should benefit more as it will be able to cater to a greater number of old vehicles. 

Other players

Advance Auto Parts (NYSE: AAP) is a rival of O'Reilly that recently announced that it will be opening its 4,000th store in North America. Since 1995, Advance has grown by more than 3,000 stores across the nation either by way of opening new stores or through strategic acquisitions. Its aggressive store-expansion spree is a matter of concern for O'Reilly.

Advance selects the location of its stores, which are pretty close to the areas where customers live and shop and also the garages where they have their vehicles repaired/serviced. As per the 2Q13 report, the company saw a 6.1% increase in sales as a result of acquisition of BWP and due to the addition of 175 stores in the last 12 months. Its store-expansion initiatives are expected to result in higher revenue in the future. 

AutoZone (NYSE: AZO) is also a retailer and distributor of automotive-replacement parts and accessories in the United States. This company is also following the store-expansion route to enhance financial performance. AutoZone opened seven new stores in Mexico recently. In addition, it also opened 33 new stores, relocated three stores, and closed one store in the U.S. As of May 4, the company had a tally of 4,767 stores across 49 states, the District of Columbia and Puerto Rico in the U.S. It also had a tally of 341 stores in Mexico and one store in Brazil.

Its store expansion has resulted in good financial performance. It has a strong history of growth in same-store sales and has been increasing the store count at greater than 4% per year. In the last reported quarter, net sales increased 4.5% year-over-year to $2.2 billion. The company also achieved a 15.8% rise in earnings per share to $7.27.

Conclusion

Aftermarket retailers should continue doing well as the average age of cars increases. O'Reilly's store growth and share repurchases are some more factors to consider that make it a company worth investing in, and investors should definitely consider buying this stock.

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ANUP SINGH has no position in any stocks mentioned. The Motley Fool owns shares of O'Reilly Automotive. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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