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My favorite company in the automotive sector posted another impressive quarter as many of the important tailwinds I have discussed continue to support the strong performance of the auto parts aftermarket retailers.
O'Reilly Auto Parts (Nasdaq: ORLY ) posted earnings of 86 cents a share on revenue of $1.43 billion. This handily beat earnings estimates of 74 cents a share and revenue of $1.36 billion. This boosted shares to an all-time high on Thursday.
On the heels of an 11.1% increase in same-store sales, the company's $122.4 million profit for the quarter represents a 44% increase over the same quarter last year. Even more impressive is the company's 14.4% adjusted operating margin, which is now at the highest level since O'Reilly became a public company. O'Reilly, unlike competitors Advance Auto Parts (NYSE: AAP ) and AutoZone (NYSE: AZO ) derives a much greater percentage of its revenue from do-it-for-me (DIFM) commercial business, which is generally a lower margin business than more retail-based do-it-yourself business. The company's ability to continually increase commercial DIFM sales, as well as its margins, is extremely impressive. The company's leadership in the DIFM segment has created a competitive advantage that is only bolstered by the persisting industry tailwinds.
O'Reilly CEO Greg Henslee mentioned that sales were boosted by particularly good summer weather in the third quarter. Auto-parts retailers prefer extremely hot weather in the summer and extremely cold weather in the winter. These extremes require greater car maintenance and additional replacement parts.
More importantly for the company is the macro trends that Henslee said continue to persist in the market. With a stagnant economy and unemployment close to 10%, consumers are simply not buying cars like they used to. Instead, people are holding onto cars longer and putting many more miles on them.
The average age and miles driven of vehicles on the road continues to increase, and this is incredibly bullish for the automotive aftermarket parts retailers. The company's sales also continue to benefit from the record number of dealership closings over the past few years. As thousand of dealership bays went away, the service shifted to independent garages. O'Reilly, the leader in the commercial DIFM business, is positioned to continue to receive the most benefit from this dynamic.
While the fourth quarter is usually a slower one for the parts retailers as discretionary spending shifts toward holiday shopping, car maintenance can only be put off for so long. The O'Reilly management team continues to knock the ball out of the park, and I believe this company is still a great fix-it for anyone's portfolio.