O'Reilly (NASDAQ:ORLY) Reports Sales Below Analyst Estimates In Q4 Earnings

Full Report / February 07, 2024

Auto parts and accessories retailer O’Reilly Automotive (NASDAQ:ORLY) missed analysts' expectations in Q4 FY2023, with revenue up 5.1% year on year to $3.83 billion. On the other hand, the company's full-year revenue guidance of $16.95 billion at the midpoint came in slightly above analysts' estimates. It made a GAAP profit of $9.26 per share, improving from its profit of $8.36 per share in the same quarter last year.

O'Reilly (ORLY) Q4 FY2023 Highlights:

  • Revenue: $3.83 billion vs analyst estimates of $3.86 billion (0.8% miss)
  • EPS: $9.26 vs analyst estimates of $9.21 (small beat)
  • Management's revenue guidance for the upcoming financial year 2024 is $16.95 billion at the midpoint, beating analyst estimates by 0.9% and implying 7.2% growth (vs 9.8% in FY2023)
  • Free Cash Flow of $256 million, down 40% from the same quarter last year
  • Gross Margin (GAAP): 51.3%, in line with the same quarter last year
  • Same-Store Sales were up 3.4% year on year
  • Store Locations: 6,157 at quarter end, increasing by 186 over the last 12 months
  • Market Capitalization: $62.23 billion

Serving both the DIY customer and professional mechanic, O’Reilly Automotive (NASDAQ:ORLY) is an auto parts and accessories retailer that sells everything from fuel pumps to car air fresheners to mufflers.

The company understands that DIY customers may have varying levels of expertise in auto repair, so stores feature automotive expert sales associates who can help you find which muffler will best fit your 2021 Mazda CX-5, for example.

For the professional mechanic, O’Reilly offers programs and services designed to help professional mechanics grow their businesses and increase profits. For example, volume discounts on parts and tools, extended warranties, and access to training and technical support resources are highly valued by professional customers.

O’Reilly has a national presence in the US, but it is particularly strong in the Western states. The typical store is roughly 7,000 to 10,000 square feet, organized by product category for easy shopping. In addition to its brick-and-mortar stores, O’Reilly also has an e-commerce site, not coincidentally launched in 1999, the same year as competitors AutoZone and Advance Auto Parts. The site allows customers to buy products to be shipped to their homes or to buy and pick up at the nearest store for convenience and optionality.

Auto Parts Retailer

Cars are complex machines that need maintenance and occasional repairs, and auto parts retailers cater to the professional mechanic as well as the do-it-yourself (DIY) fixer. Work on cars may entail replacing fluids, parts, or accessories, and these stores have the parts and accessories or these jobs. While e-commerce competition presents a risk, these stores have a leg up due to the combination of broad and deep selection as well as expertise provided by sales associates. Another change on the horizon could be the increasing penetration of electric vehicles.

Competitors offering auto parts and accessories include AutoZone (NYSE:AZO), Advance Auto Parts (NYSE:AAP), Genuine Parts (NYSE:GPC), and private company Pep Boys.

Sales Growth

O'Reilly is larger than most consumer retail companies and benefits from economies of scale, giving it an edge over its competitors.

As you can see below, the company's annualized revenue growth rate of 11.7% over the last four years (we compare to 2019 to normalize for COVID-19 impacts) was decent as it opened new stores and grew sales at existing, established stores.

O'Reilly Total Revenue

This quarter, O'Reilly's revenue grew 5.1% year on year to $3.83 billion, missing Wall Street's expectations. Looking ahead, Wall Street expects sales to grow 6.3% over the next 12 months, an acceleration from this quarter.

Number of Stores

A retailer's store count is a crucial factor influencing how much it can sell, and store growth is a critical driver of how quickly its sales can grow.

When a retailer like O'Reilly is opening new stores, it usually means it's investing for growth because demand is greater than supply. Since last year, O'Reilly's store count increased by 186 locations, or 3.1%, to 6,157 total retail locations in the most recently reported quarter.

O'Reilly Operating Retail Locations

Over the last two years, the company has generally opened new stores and averaged 3% annual growth in its physical footprint, which is decent and on par with the broader sector. With an expanding store base and demand, revenue growth can come from multiple vectors: sales from new stores, sales from e-commerce, or increased foot traffic and higher sales per customer at existing stores.

Same-Store Sales

O'Reilly's demand within its existing stores has generally risen over the last two years but lagged behind the broader consumer retail sector. On average, the company's same-store sales have grown by 7.2% year on year. With positive same-store sales growth amid an increasing physical footprint of stores, O'Reilly is reaching more customers and growing sales.

O'Reilly Year On Year Same Store Sales Growth

In the latest quarter, O'Reilly's same-store sales rose 3.4% year on year. By the company's standards, this growth was a meaningful deceleration from the 9% year-on-year increase it posted 12 months ago. We'll be watching O'Reilly closely to see if it can reaccelerate growth.

Gross Margin & Pricing Power

O'Reilly has best-in-class unit economics for a retailer, enabling it to invest in areas such as marketing and talent to stay one step ahead of the competition. As you can see below, it's averaged an exceptional 51.2% gross margin over the last two years. This means the company makes $0.51 for every $1 in revenue before accounting for its operating expenses. O'Reilly Gross Margin (GAAP)

O'Reilly produced a 51.3% gross profit margin in Q4, flat with the same quarter last year. This steady margin stems from its efforts to keep prices low for consumers and signals that it has stable input costs (such as freight expenses to transport goods).

Operating Margin

Operating margin is an important measure of profitability for retailers as it accounts for all expenses keeping the lights on, including wages, rent, advertising, and other administrative costs.

In Q4, O'Reilly generated an operating profit margin of 18.8%, in line with the same quarter last year. This indicates the company's costs have been relatively stable.

O'Reilly Operating Margin (GAAP)

Zooming out, O'Reilly has been a well-managed company over the last two years. It's demonstrated elite profitability for a consumer retail business, boasting an average operating margin of 20.3%. On top of that, its margin has remained more or less the same, highlighting the consistency of its business.


These days, some companies issue new shares like there's no tomorrow. That's why we like to track earnings per share (EPS) because it accounts for shareholder dilution and share buybacks.

In Q4, O'Reilly reported EPS at $9.26, up from $8.36 in the same quarter a year ago. This print was close to Wall Street's estimates, meaning the result was likely already priced into the stock because investors were aware of expectations and traded accordingly.

O'Reilly EPS (GAAP)

Between FY2019 and FY2023, O'Reilly's adjusted diluted EPS grew 115%, translating into a solid 21.1% compounded annual growth rate. This growth is materially higher than its revenue growth over the same period and was driven by excellent expense management (leading to higher profitability) and share repurchases (leading to higher PER share earnings).

Wall Street expects the company to continue growing earnings over the next 12 months, with analysts projecting an average 10.9% year-on-year increase in EPS.

Cash Is King

If you've followed StockStory for a while, you know that we emphasize free cash flow. Why, you ask? We believe in the end, cash is king, and you can't use accounting profits to pay the bills.

O'Reilly's free cash flow came in at $256 million in Q4, down 40% year on year. This result represents a 6.7% margin.

O'Reilly Free Cash Flow Margin

Over the last eight quarters, O'Reilly has shown terrific cash profitability, enabling it to reinvest, return capital to investors, and stay ahead of the competition while maintaining a robust cash balance. The company's free cash flow margin has been among the best in consumer retail, averaging 14.5%. However, its margin has averaged year-on-year declines of 3.9 percentage points. If this trend continues, it could signal that the business is becoming slightly more capital-intensive.

Return on Invested Capital (ROIC)

EPS and free cash flow tell us whether a company was profitable while growing revenue. But was it capital-efficient? Enter ROIC, a metric showing how much operating profit a company generates relative to how much money the business raised (debt and equity).

O'Reilly's five-year average ROIC was 36.8%, placing it among the best retail companies. Just as you’d like your investment dollars to generate returns, O'Reilly's invested capital has produced excellent profits.

The trend in its ROIC, however, is often what surprises the market and drives the stock price. Over the last two years, O'Reilly's ROIC has averaged a 14.5 percentage point increase each year. O'Reilly has historically shown the ability to generate good returns, and its rising ROIC is a great sign. It could suggest its competitive advantage or profitable business opportunities are expanding.

Key Takeaways from O'Reilly's Q4 Results

It was unfortunate that O'Reilly missed analysts' revenue and operating income estimates. That performance was driven by lower-than-expected same-store sales growth of 3.4%, though we note the company was coming off a tough comp period where its same-store sales growth clocked in at 9%.

On the positive side, it was encouraging to see O'Reilly beat Wall Street's EPS projections. Recapping the full year, O'Reilly opened 186 new stores, grew its distribution footprint in Mexico and Puerto Rico, and just closed its acquisition of Groupe Del Vasto in January 2024 to expand its Canadian operations. It also repurchased $3.15 billion of its shares during 2023 at an average price of $883.13 (in Q4, it repurchased $560 million at an average price of $922.86).

For 2024, the company provided full-year revenue guidance that slightly topped analysts' expectations. To arrive at its revenue guidance of $17 billion at the midpoint, O'Reilly expects to open 195 new stores while posting 4% same-store sales growth. Its EPS and free cash flow, however, came in lower. This means it'll be more challenging to sustain its historical pace of share buybacks, which have played a significant role in its return algorithm. 

Overall, this was a mixed quarter for O'Reilly. The company is down 4.9% on the results and currently trades at $1,014.3 per share.

Is Now The Time?

O'Reilly may have had a tough quarter, but investors should also consider its valuation and business qualities when assessing the investment opportunity.

There are several reasons why we think O'Reilly is a great business. For starters, its revenue growth has been solid over the last four years. On top of that, its impressive gross margins are a wonderful starting point for the overall profitability of the business, and its impressive operating margins show it has a highly efficient business model.

O'Reilly's price-to-earnings ratio based on the next 12 months is 25.0x. Looking at the consumer landscape today, O'Reilly's qualities stand out and we like the stock at this price.

Wall Street analysts covering the company had a one-year price target of $1,051 per share right before these results (compared to the current share price of $1,014), implying they saw upside in buying O'Reilly in the short term.

To get the best start with StockStory, check out our most recent stock picks, and then sign up to our earnings alerts by adding companies to your watchlist here. We typically have the quarterly earnings results analyzed within seconds of the data being released, and especially for companies reporting pre-market, this often gives investors the chance to react to the results before the market has fully absorbed the information.