O’Reilly Automotive Inc. (ORLY) revealed a 21% increase in profit to $118.4 million (excluding the impact of the charges relating to the company’s new financing plan) in the first quarter of 2011 from $97.5 million in the same quarter of 2010. This is equivalent to earnings of 83 cents per share during the quarter, up from 70 cents per share in the first quarter of 2010 and the Zacks Consensus Estimate of 78 cents per share.
The company’s results were attributable to solid consolidated comparable store sales growth led by its dual market strategy and strong distribution network as well as effective cost control measures. Comparable store sales (change in sales for stores open at least one year) rose 5.7% during the quarter versus 6.9% in the same quarter of prior year.
Sales during the quarter scaled up 8% to $1.38 billion from $1.28 billion for the same period a year ago. It was slightly higher than the Zacks Consensus Estimate of $1.37 billion. Gross profit increased 8% to $670 million (48.4% of sales) from $618 million (48.3% of sales) in the first quarter of 2010.
Selling, general and administrative expenses rose 5% to $473 million (34.2% of sales) from $450 million (35.1% of sales) a year ago. Operating income increased 17% to $196 million (14.2% of sales) from $168 million (or 13.2% of sales) in the previous year quarter.
Store Information
During the quarter, O’Reilly opened 55 stores and closed 12 stores, bringing its total store count to 3,613 as of March 31, 2011. The company has opened its first store in West Virginia in the quarter, which increased its operations to 39 states. Sales per weighted average-store increased to $381 from $367 a year ago. The company reiterated its goal to open 170 stores (net) in 2011.
Share Repurchases
During the quarter, O’Reilly began its share repurchase program by repurchasing 2.6 million shares of its common stock at an average price per share of $55.54, bringing its total investment to $145 million. Subsequent to the end of the first quarter till date, the company repurchased an additional 1.0 million shares of its common stock at an average price per share of $56.46, for a total investment of $55 million.
On January 11, 2011, O’Reilly’s Board of Directors authorized a $500 million share repurchase program. As of today, the company has $300 million remaining under its share repurchase program.
Financial Position
O’Reilly had cash and cash equivalents of $230.1 million as of March 31, 2011, a significant increase from $29.9 million in the corresponding period-end a year ago driven by higher operating cash flow.
Long-term debt was $498.8 million as of the above date, down from $702.5 million as of March 31, 2010. This translated into a lower long-term debt-to-capitalization ratio of 14% compared with 20% in the prior year.
In the quarter, net cash flow from operations rose 72% to $294.1 million from $170.6 million in the previous year quarter. The increase in cash flow primarily came on the back of higher profits, write-off of previous debt-issuance costs, lower inventory, decline in accounts receivable and increase in accounts payable. Meanwhile, capital expenditures (net) increased to $94.2 million from $90.3 million in the same quarter of 2010.
Guidance
O’Reilly, a Zacks #4 Rank (Sell) Stock, has projected comparable store sales gain of 3%–5% for the second quarter of 2011. Meanwhile, the company expects comparable store sales to increase by 3%–6% for the full year 2011
O’Reilly reiterated its guidance to generate revenues of $5.7 billion to $5.8 billion for the year. The company upgraded its guidance for operating margin to 14.1%–14.6%, gross margin to 48.4%–48.8% and earnings per share (excluding one-time charges) to $3.49–$3.59.
The company also revised upward its free cash flow guidance to $360 million to $400 million from $320 million and $350 million and reiterated its capital expenditures forecast in the range of $310 million to $340 million.
Peer Performance
O’Reilly’s competitor, Genuine Parts Company (GPC) posted a 26% rise in profit to $126.5 million in the first quarter of 2011 from $100.6 million in the same quarter of last year. On earnings per share basis, the profit increased 27% to 80 cents from 63 cents, surpassing the Zacks Consensus Estimate by 4 cents per share.
The company’s sales in the quarter appreciated 14% to $2.97 billion, exceeding the Zacks Consensus Estimate of $2.86 billion, driven by improvements in all its businesses. However, operating profit ebbed 10% to $656.8 million due to a rise in selling, general and administrative expenses (SG&A). SG&A increased 10% to $634.3 million during the quarter.
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