O’Reilly Automotive Inc. (ORLY) posted a 37% rise in profit to $98.5 million or 69 cents per share in the fourth quarter of 2010 from $71.9 million or 52 cents per share in the same quarter of 2009 (all excluding net gain on settlement of note receivable). With this, the auto parts retailer topped the Zacks Consensus Estimate by 5 cents per share and its own earnings per share guidance of 56 cents–60 cents per share.
The company’s results were attributable to an impressive consolidated comparable store sales growth led by its dual market strategy and strong distribution network. Its conversion of the remaining CSK stores and Phoenix distribution center during the quarter also boosted sales.
Sales in the quarter appreciated 12% to $1.31 billion, up from the Zacks Consensus Estimate of $1.29 billion. Consolidated comparable store sales for stores open at least one-year rose 9.2% compared with an increase of 2.7% in the fourth quarter of 2009. Operating income soared 31% to $164 million (12.5% of sales) from $125 million (10.7%) for the comparable period a year ago.
Full Year Results
For full year 2010, O’Reilly revealed a 40% increase in profit to $433.1 million or $3.05 per share from $307.5 million or $2.23 per share in the previous year. The profits were higher than the company’s own guidance of $2.94 to $2.98 per share for the year.
The above figures excluded the charge incurred for the investigation of CSK Auto Corporation – acquired by the company two years ago – by the U.S. Department of Justice.
Sales for the year escalated 11% to $5.4 billion from $4.85 billion in 2009. Operating income increased 33% to $713 million (13.2% of sales) from $538 million (11.1%) a year ago.
Store Information
During 2010, O’Reilly opened 156 stores and 4 distribution centers (DCs) and closed 7 stores. With this, the company’s total store count reached 3,570 and DC count to 23 as of December 31, 2010. The company also converted 884 CSK stores and 1 CSK DC to its own systems. It plans to open 170 new stores in 2011.
Financial Position
O’Reilly had cash and cash equivalents of $29.7 million as of December 31, 2010, an increase from $26.9 million in the corresponding period-end a year ago. Long-term debt was $358.7 million as of the above date, down from $790.7 million as of December 31, 2009. This translated into a lower long-term debt-to-capitalization ratio of 10% compared with 23% in the prior year.
In 2010, net cash flow from operations more than doubled to $703.7 million from $285.2 million in the previous year. This primarily came on the back of higher profits, increase in deferred income taxes and decline in inventory. Meanwhile, capital expenditures reduced to $365.4 million from $414.8 million in 2009.
Outlook
O’Reilly has projected earnings per share (excluding one-time charges) in the range of 74 cents–78 cents and consolidated comparable store sales to increase by 3% to 5% for the first quarter of 2011.
For full year 2011, O’Reilly expects to generate revenues of $5.7 billion to $5.8 billion, comparable store sales to increase by 3% to 6%, operating margin in the range of 13.9% to 14.4%, and earnings per share (excluding one-time charges) in the range of $3.37 to $3.47. The company also expects to generate free cash flow between $320 million and $350 million and incur capital expenditures in the range of $310 million to $340 million.
Our Take
O’Reilly Automotive continues to benefit from its dual market strategy and strong distribution network. The CSK acquisition is expected to boost the company’s earnings and generate savings, and help outgrow its competitors. Moreover, the company’s aggressive store opening strategy is well supported by an improving cash flow. Due to these factors, the company retains a Zacks #2 Rank on its stock, which translated to a short-term (1 to 3 months) rating of “Buy”.
O’Reilly’s competitor, Advance Auto Parts Inc. (AAP), also did well in the fourth quarter. The company reported a 40% rise in profit to $48.1 million or 57 cents per share for the quarter from $34.5 million or 36 cents per share in the same quarter a year ago. The profit even exceeded the Zacks Consensus Estimate by 2 cents per share.
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