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O’Reilly Automotive Inc. (ORLY - Analyst Report) posted a 28% increase in earnings to $1.69 per share in the third quarter of 2013 compared with $1.32 in the year-ago quarter. Earnings also exceeded the Zacks Consensus Estimate by 4 cents. Net income improved 17% to $186.5 million (10.8% of sales) from $159.3 million (9.9%) in the third quarter of 2012.

Quarterly revenues scaled up 8% to $1.73 billion from $1.60 billion in the same period a year ago. However, revenues missed the Zacks Consensus Estimate of $1.76 billion. Comparable store sales increased 4.6% in the reported quarter compared with 1.3% in the third quarter of 2012.

Gross profit ascended 9.2% to $879.2 million (50.9% of sales) from $805.5 million (50.3% of sales) a year ago. Selling, general and administrative expenses rose 6.9% to $578.8 million (33.5% of sales) from $542.2 million (33.9%) in the year-ago quarter. Operating income increased 14.1% to $300.4 million (17.4% of sales) from $263.3 million (16.4% of sales) for the same period last year.

Store Information

During the quarter, O’Reilly opened 50 stores and closed 2 stores, bringing its total store count to 4135 in 42 states as of Sep 30, 2013. Sales per weighted average-store increased to $417,000 from $409,000 a year ago.

New Distribution Centers

O’Reilly plans to relocate the distribution center in Lewiston, Maine to a bigger facility located in Devens, Massachusetts. The center is expected have the capacity to service 280 stores. This center will be operational from the second half of 2014 and will support the company’s future expansion strategy for New England. In 2014, O’Reilly plans to open distribution centers in central Florida and Chicago.

Share Repurchases

During the quarter, O’Reilly repurchased 1.5 million shares of its common stock for $185 million, reflecting an average price of $120.71. During the first nine months of 2013, the company repurchased 6.5 million shares for $687 million at an average price of $104.93. Subsequent to the end of the third quarter and through the date of the earnings release, the company has repurchased an additional 0.2 million shares for $31 million, implying an average price of $125.74.

Since the inception of the share repurchase program in Jan 2011, O’Reilly has repurchased a total of 38.9 million shares for $3.1 billion, reflecting an average price of $80.77. As of Oct 23, 2013, the company had approximately $360 million worth of shares repurchase authorization remaining under its share repurchase program.

Financial Position

O’Reilly had cash and cash equivalents of $363 million as of Sep 30, 2013, compared with $422.7 million as of Sep 30, 2012. Long-term debt increased to $1.4 billion as of Sep 30, 2013 from $1.1 billion as of Sep 30, 2012. This translated into a long-term debt-to-capitalization ratio of 40.7% as of Sep 30, 2013 compared with 32.7% as of Sep 30, 2012.

In the first nine months of 2013, net cash flow from operations declined 30.3% to $719.8 million from $1 billion in the previous-year period. Meanwhile, capital expenditures (net) increased to $298.4 million from $214.7 million in the same period of 2012.

Guidance

For fourth quarter 2013, O’Reilly projects earnings per share in the range of $1.27–$1.31. The company expects consolidated comparable store sales to increase by 3% to 5%.

For full year 2013, the company raised its earnings per share guidance to the range of $5.91 to $5.95 from the earlier range of $5.79 to $5.89. O’Reilly expects consolidated comparable store sales to increase between 3.5% and 4.5% during the year. The company also reiterated revenue guidance of $6.6 billion to $6.7 billion for 2013, upgraded gross margin guidance to 50.5%–50.7% from 50.3%–50.7%, and increased operating margin guidance to a range of 16.2% to 16.5% from the prior guidance of 16.0% to 16.4%.

O’Reilly expects capital expenditures within the range of $395 million to $415 million and free cash flow between $470 million and $500 million for the year.

The company plans to open 190 net, new stores in 2013. Based on opportunities for new stores in both existing and new markets, the company also plans to open 200 new stores in 2014.

Our Take

O'Reilly Automotive is a prominent player in the automotive replacement parts and accessories industry along with Advance Auto Parts Inc. (AAP - Analyst Report), AutoZone Inc. (AZO - Analyst Report) and CarMax Inc. (KMX - Analyst Report). It sells its products to both Do-it-Yourself (DIY) customers and Do-it-for-Me (DIFM) or professional installers. Currently, it retains a Zacks Rank #4 (Sell).
 

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