ORLY O Reilly Automotive Inc

O’Reilly Automotive Inc. (ORLY) reported a 35% jump in adjusted profit to 93 cents per share in the fourth quarter of 2011 from 69 cents per share in the prior-year quarter, surpassing the Zacks Consensus Estimate by 7 cents per share. Adjusted net profit was $121 million compared with $98 million in the fourth quarter of 2010.

Including special items, net income and earnings per share in the quarter stood at $123 million and 94 cents, respectively. This compared favorably with net income of $105.8 million and earnings per share of 74 cents in the prior-year quarter.

Sales in the quarter grew 6% to $1.39 billion from $1.31 billion in the comparable quarter of 2010 but fell short of the Zacks Consensus Estimate of $1.41 billion. Comparable store sales (sales for stores open for at least one year) rose 3.3% for the quarter versus 9.2% in the same quarter a year ago.

Gross profit increased 9% to $695 million from $636 million for the fourth quarter of 2010. Consequently, gross margin expanded 130 basis points to 49.9% from the year-ago quarter. Selling, general and administrative expenses went up 4% to $491 million from $472 million in the prior-year quarter. Adjusted operating income rose 24% to $204 million from $164 million in the fourth quarter of 2010. Adjusted operating margin was 14.7%, a 214 basis point expansion from the year-ago quarter.

Fiscal 2011 Performance

O’Reilly’s adjusted earnings per share in fiscal 2011 were $3.81, a 25% increase from $3.05 earned in the prior year, outperforming the Zacks Consensus Estimate of $3.74. Adjusted net income was $522 million versus $433 million in fiscal 2010. Including special items, net income and earnings per share were a respective $507.7 million and $3.71 compared with $419 million and $2.95 in fiscal 2010.

Revenues upped 7% to reach $5.79 billion but missed the Zacks Consensus Estimate of $6.23 billion. Comparable store sales for the year increased 4.6% compared with 8.8% in fiscal 2010.

Store Update

During the quarter, O’Reilly opened 34 new stores bringing total store openings to 183 for fiscal 2011. With 13 stores closed during the year, the company has met its goal of 170 (net) store openings in 2011.

Share Repurchase

During the quarter under study, the company has repurchased 1.8 million shares of its common stock at an average price of $75.60, for a total investment of $136 million. During fiscal 2011, O’Reilly repurchased 15.9 million shares of its common stock at an average price per share of $61.49, for a total investment of $976 million. 

Following the end of the fourth quarter and till the date of this release, the company has repurchased an additional 0.1 million shares of its common stock at an average price per share of $79.45, for a total investment of $10 million.  The company has approximately $514 million remaining under its share repurchase program.

Financial Position

O’Reilly had cash and cash equivalents of $361 million as of December 31, 2011, a significant increase from $29.7 million as of December 31, 2010. Long-term debt was $796 million at year end, up from $357 million as of December 31, 2010. This translated into a long-term debt-to-capitalization ratio of 21.9%, significantly up from 10.1% at the end of fiscal 2010.

In fiscal 2011, cash flow from operations improved substantially to $1.12 billion from $704 million in the previous year. Free cash flow increased a whopping 134% to $791 million due to working capital improvement and reduced level of capital expenditures.

Guidance

O’Reilly has projected earnings per share in the range of 99 cents–$1.03 and consolidated comparable store sales to increase in a band of 4% to 6% for the first quarter of 2012.

For full year 2012, the company anticipates adjusted earnings per share in the range of $4.27 to $4.37 and consolidated comparable store sales to increase by 3% to 6%. The company also provided revenue guidance of $6.15 billion to $6.25 billion, gross margin in the vicinity of 48.9% to 49.3%, and operating margin to range from 15% to 15.5%.

The company plans to open 180 new stores along with the relocation or renovation of nearly 50 existing stores in fiscal 2012. The company expects capital expenditures in the range of $315 million to $345 million and to earn free cash flow between $600 million and $650 million.

Our Take

O’Reilly is continuously benefiting from its dual market strategy and a strong distribution network. The CSK acquisition is expected to boost the company’s earnings and savings, and will help it to outgrow its competitors. 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.

O'Reilly is the third largest specialty retailer of automotive aftermarket parts, tools, supplies, equipment, and accessories in the U.S., selling products to both Do-it-Yourself (DIY) customers (53% of sales) and Do-it-for-Me (DIFM) or professional installers (47%).

 
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