O'Reilly Automotive (ORLY) Solid Results; Making Progress on CSK Acquisition

Submitted By Trader Mark
I just have to start laughing to myself - here I have a solid company O'Reilly Automotive (ORLY); it beats by a whopping 7 cents ($0.47 v $0.40) with upside guidance for the year (granted, they only increased it by the amount of this quarter's beat) and the stock does nothing after hours - after being down 3% on the day in an up market. Meanwhile I watch the crumbs of the Earth jumping 10-20-30% on disaster earnings but with magic words of "stabilization" from the CEO (imagined or otherwise). All about expectations - it's buy the flea market junk era.

Much like Fidelity National Financial (FNF) this is not an organic story as a large acquisition is being absorbed so the year over year numbers are not apples to apples. The key story here is a good managment @ ORLY taking over stores from CSK and bringing them up to same efficiency + profitability over the next year or so. So far it seems like the path is excellent. But if one executes in an empty forest I guess it does not matter nowadays. Once more if the consumer was "back" we should not be seeing such great strength in this type of company - they should be fleeing back to the new car lots with their newly furnished house ATM. [Apr 1: Automotive Replacement & Accessories Continues to be a Winning Theme] [Jan 15, 2009: Thesis - Automotive Replacement and Accessories]

With EPS guidance in the $1.92 to $1.96 range the stock is no longer cheap but at 19x forward estimates (with some upside to those full year numbers I bet) its cheaper than many crummy retailers who are shrinking and same store sales falling off a cliff. Contrasted to O'Reilly's +5.7% SSS. A look at results

Sales for the three months ended March 31, 2009, totaled $1.16 billion, up 80% from $0.65 billion for the same period a year ago. (again not organic growth)
Gross profit for the first quarter of 2009 increased to $0.54 billion (or 46.6% of sales) from $0.29 billion (or 44.6% of sales) for the first quarter of 2008, representing an increase of 88%. (key here is gross margin expansion of 2% - that's quite impressive)
Selling, General and Administrative expenses increased to $0.43 billion (or 36.9% of sales) for the first quarter of 2009 from $0.21 billion (or 33.2% of sales) for the first quarter of 2008, representing an increase of 100%. (this is a negative because SGA increased nearly 4% - more cost cutting to do)
Net income for the first quarter ended March 31, 2009, totaled $63 million, up 36% from $46 million for the same period in 2008. Diluted earnings per common share for the first quarter of 2009 increased 15.0% to $0.46 on 136.2 million shares compared to $0.40 for the first quarter of 2008 on 116.3 million shares. Adjusted diluted earnings per share, excluding the impact of the acquisition related charge, increased 17.5% to $0.47 from the same period one year ago.
Greg Henslee, CEO and Co-President stated, ``We are very pleased with our performance in the first quarter, highlighted by consolidated comparable store sales growth of 5.7% and a 200 basis point improvement in our gross profit as a percent of sales. Our O'Reilly branded stores performed exceptionally well throughout the quarter, finishing with comparable store sales of 8.2%.
We are excited to report our second consecutive quarter of positive comparable store sales growth in the recently acquired CSK branded stores as well. (if they can get these stores even in the 5% SSS range - should be a boon) Comparable store sales for CSK branded stores open at least one year increased 1.5% for the first quarter ended March 31, 2009. (lots of opportunity in the CSK stores)
``With the opening of 52 net new stores during the quarter, our total store count at March 31 grew to 3,337 stores,'' Ted Wise, COO and Co-President stated. ``Our dedicated store conversion Team Members converted 93 CSK branded stores to the O'Reilly brand over the quarter and in mid-April, we successfully converted CSK's existing Detroit distribution center to the O'Reilly system.

Guidance

The Company estimates diluted earnings per share for the second quarter of 2009 to range from $0.50 to $0.54 and estimates diluted earnings per share for the year ended December 31, 2009, to range from $1.89 to $1.93. Excluding the expected impact of acquisition charges related to CSK of $0.01 per diluted share, adjusted earnings per share is expected to range from $0.51 to $0.55 for second quarter of 2009. Excluding the expected impact of acquisition charges for trade names and trademarks related to CSK of $0.03 for the year ended December 31, 2009, adjusted earnings per share is expected to range from $1.92 to $1.96.

They provided very conservative guidance for same store sales with 3-5% for O'Reilly and 1-3% for CSK in Q2, and 3-5% for the year for O'Reilly with 2-4% for CSK on the year.

O'Reilly Automotive, Inc. is one of the largest specialty retailers of automotive aftermarket parts, tools, supplies, equipment and accessories in the United States, serving both the do-it-yourself and professional installer markets. Founded in 1957 by the O'Reilly family, the Company operated 3,337 stores in 38 states as of March 31, 2009.

[Mar 3, 2009: Autozone (AZO) Surges 10% on Weakening Consumers Sticking to Fixing What they Have]

Long O'Reilly Automotive in fund; no personal position

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