O'Reilly Profits Up 28%

O’Reilly Automotive Inc. (ORLY - Analyst Report) revealed a 28% increase in profit to $1.10 per share in the third quarter of 2011 from 86 cents per share (excluding special items) in the comparable quarter of 2010. With this, the company has beaten the Zacks Consensus Estimate by 10 cents per share. In absolute terms, profit was $148 million compared with $122 million in the third quarter of 2010.

Sales in the quarter grew 8% to $1.54 billion from $1.43 billion in the comparable quarter of 2010. Comparable store sales (sales for stores open at least one year) rose 4.8% for the quarter versus 11.1% in the same quarter a year ago.

Gross profit increased 9% to $754 million (49.1% of sales) from $693 million (48.6% of sales) for the third quarter of 2010. Selling, general and administrative expenses went up 5% to $513 million from $488 million in the prior-year quarter. Operating income rose 21% to $241 million (15.7% of sales) from $199 million (14.0% of sales) in the third quarter of 2010.

During the quarter, O’Reilly opened 50 new stores, which brings its total store openings to 149 for the first nine months of 2011. With this, the company is on track to reach its goal of 170 (net) store openings in 2011.

Share Repurchase

On August 5, 2011, the O’Reilly’s Board of Directors raised the cumulative authorization under the share repurchase program to $1 billion. During the quarter under study, the company has repurchased 8.2 million shares of its common stock at an average price of $61.51, for a total investment of $502 million.

During the first nine months of 2011, the company has repurchased 14.1 million shares of its common stock at an average price of $59.69, for a total investment of $840 million. Subsequent to the end of the third quarter and until the date of this release, the company has repurchased an additional 300 thousand shares of its common stock at an average price of $65.81, for a total investment of $19 million.

Therefore, as of the date of the company’s release of results, the company had about $141 million worth of shares remaining under its repurchase program.

Financial Position

O’Reilly had cash and cash equivalents of $277 million as of September 30, 2011, a significant increase from $43 million in the corresponding period a year ago. Long-term debt was $798 million as of the above date, up from $431 million as of September 30, 2010. This translated into a lower long-term debt-to-capitalization ratio of 22%, significantly up from 12% at the end of third quarter of 2010.

In the first nine months of the year, net cash flow from operations increased to $840 million from $593 million in the previous year. The increase was primarily attributed to improved profits, higher accounts payable and a decline in inventory. Meanwhile, capital expenditures (net) reduced to $243 million from $275 million in the first nine months of 2010.

Guidance

O’Reilly has projected earnings per share in the range of 80 cents–84 cents and consolidated comparable store sales to increase in the range of 3% to 5% for the fourth quarter of 2011.

For full year 2011, the company anticipates adjusted earnings per share in the range of $3.68 to $3.72 and consolidated comparable store sales to increase by 4% to 5.5%. This compared with the previous guidance of earnings per share of between $3.53 and $3.63 and a rise in consolidated comparable store sales of 3% to 6%.

The company also provided revenue guidance of $5.75 billion to $5.85 billion, gross margin guidance of 48.6% to 48.8%, and operating margin guidance of 14.4% to 14.6%.

Our Take

O’Reilly is continuously benefiting from its dual market strategy and a strong distribution network. As of September 30, 2011, the company raised its total store count to 3,707 stores in 39 states. The retailer’s store base has been strengthened by the acquisition of CSK. These, along with improved results, have led the company to retain a Zacks #2 Rank on its stock, which translates into a short-term (1 to 3 months) rating of Buy.

Peer Performance

O’Reilly’s competitor, Genuine Parts Company (GPC - Analyst Report) posted a 15% rise in profit to $151.8 million in the third quarter of 2011 from $131.8 million in the year-ago quarter. On per share basis, profits were 97 cents, up 17% from 83 cents delivered in the comparable quarter last year, surpassing the Zacks Consensus Estimate by 2 cents.

Read the full analyst report on ORLY

Read the full analyst report on GPC