O'Reilly (ORLY)

Auto parts and accessories retailer O’Reilly Automotive (NASDAQ:ORLY) met Wall Street’s revenue expectations in Q3 CY2025, with sales up 7.8% year on year to $4.71 billion. The company’s outlook for the full year was close to analysts’ estimates with revenue guided to $17.7 billion at the midpoint. Its GAAP profit of $0.85 per share was 2.4% above analysts’ consensus estimates.

Company Overview

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.

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.

Reviewing a company’s long-term sales performance reveals insights into its quality. Any business can have short-term success, but a top-tier one grows for years.

With $17.46 billion in revenue over the past 12 months, O'Reilly is one of the larger companies in the consumer retail industry and benefits from a well-known brand that influences purchasing decisions. However, its scale is a double-edged sword because there are only a finite number of places to build new stores, making it harder to find incremental growth. For O'Reilly to boost its sales, it likely needs to adjust its prices or lean into foreign markets.

As you can see below, O'Reilly’s sales grew at a mediocre 9.8% compounded annual growth rate over the last six years (we compare to 2019 to normalize for COVID-19 impacts), but to its credit, it opened new stores and increased sales at existing, established locations.

This quarter, O'Reilly grew its revenue by 7.8% year on year, and its $4.71 billion of revenue was in line with Wall Street’s estimates.

Looking ahead, sell-side analysts expect revenue to grow 6.3% over the next 12 months, a deceleration versus the last six years. We still think its growth trajectory is attractive given its scale and suggests the market is forecasting success for its products.

Number of Stores

A retailer’s store count often determines how much revenue it can generate.

O'Reilly sported 6,538 locations in the latest quarter. Over the last two years, it has opened new stores quickly, averaging 3.3% annual growth. This was faster than the broader consumer retail sector.

When a retailer opens new stores, it usually means it’s investing for growth because demand is greater than supply, especially in areas where consumers may not have a store within reasonable driving distance.

Same-Store Sales

The change in a company's store base only tells one side of the story. The other is the performance of its existing locations and e-commerce sales, which informs management teams whether they should expand or downsize their physical footprints. Same-store sales gives us insight into this topic because it measures organic growth for a retailer's e-commerce platform and brick-and-mortar shops that have existed for at least a year.

O'Reilly’s demand has been spectacular for a retailer over the last two years. On average, the company has increased its same-store sales by an impressive 3.5% per year. This performance suggests its rollout of new stores is beneficial for shareholders. We like this backdrop because it gives O'Reilly multiple ways to win: revenue growth can come from new stores, e-commerce, or increased foot traffic and higher sales per customer at existing locations.

In the latest quarter, O'Reilly’s same-store sales rose 5.6% year on year. This growth was an acceleration from its historical levels, which is always an encouraging sign.

O'Reilly has best-in-class unit economics for a retailer, enabling it to invest in areas such as marketing and talent. As you can see below, it averaged an elite 51.3% gross margin over the last two years. That means O'Reilly only paid its suppliers $48.66 for every $100 in revenue.

O'Reilly’s gross profit margin came in at 51.9% this quarter, in line with the same quarter last year. Zooming out, the company’s full-year margin has remained steady over the past 12 months, suggesting it strives to keep prices low for customers and has stable input costs (such as labor and freight expenses to transport goods).

O'Reilly’s operating margin might fluctuated slightly over the last 12 months but has generally stayed the same, averaging 19.5% over the last two years. This profitability was elite for a consumer retail business thanks to its efficient cost structure and economies of scale. This result isn’t surprising as its high gross margin gives it a favorable starting point.

Looking at the trend in its profitability, O'Reilly’s operating margin might fluctuated slightly but has generally stayed the same over the last year. This raises questions about the company’s expense base because its revenue growth should have given it leverage on its fixed costs, resulting in better economies of scale and profitability.

This quarter, O'Reilly generated an operating margin profit margin of 20.7%, in line with the same quarter last year. This indicates the company’s cost structure has recently been stable.

Although earnings are undoubtedly valuable for assessing company performance, we believe cash is king because you can’t use accounting profits to pay the bills.

O'Reilly has shown terrific cash profitability, driven by its lucrative business model that enables it to reinvest, return capital to investors, and stay ahead of the competition. The company’s free cash flow margin was among the best in the consumer retail sector, averaging 10.2% over the last two years.

Taking a step back, we can see that O'Reilly’s margin dropped by 2.9 percentage points over the last year. This decrease came from the higher costs associated with opening more stores.

O'Reilly’s free cash flow clocked in at $297 million in Q3, equivalent to a 6.3% margin. The company’s cash profitability regressed as it was 5.1 percentage points lower than in the same quarter last year, which isn’t ideal considering its longer-term trend.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).

O'Reilly’s five-year average ROIC was 42.3%, placing it among the best consumer retail companies. This illustrates its management team’s ability to invest in highly profitable ventures and produce tangible results for shareholders.

O'Reilly reported $204.5 million of cash and $8.40 billion of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $3.44 billion of EBITDA over the last 12 months, we view O'Reilly’s 2.4× net-debt-to-EBITDA ratio as safe. We also see its $222.5 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

Revenue was in line, but EPS beat. Looking ahead, full-year revenue and EPS were both raised. Zooming out, we think this was a fine quarter. The stock remained flat at $100.18 immediately following the results.

Updated: December 4, 2025 at 9:36 PM EST

The latest quarterly earnings matters, sure, but we actually think longer-term fundamentals and valuation matter more. Investors should consider all these pieces before deciding whether or not to invest in O'Reilly.

There are multiple reasons why we think O'Reilly is an amazing business. Although the company’s revenue growth was a little slower over the last three years, its impressive operating margins show it has a highly efficient business model. On top of that, O'Reilly’s stellar ROIC suggests it has been a well-run company historically.

O'Reilly’s P/E ratio based on the next 12 months is 30.5x. This multiple isn’t necessarily cheap, but we’ll happily own O'Reilly as its fundamentals shine bright. It’s often wise to hold investments like this for at least three to five years, as the power of long-term compounding negates short-term price swings that can accompany relatively high valuations.

Wall Street analysts have a consensus one-year price target of $110.20 on the company (compared to the current share price of $99.48).