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Can O'Reilly Keep Its Growth Up?

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Even in the face of a more challenging environment for aftermarket auto-parts retailers, O'Reilly Auto Parts (Nasdaq: ORLY  ) continues to motor along. On Tuesday the company reported another impressive quarter, showing continued growth on the top and bottom line. Even more impressively, the company posted same-store sales of 5.7%, significantly topping its earlier guidance of 3% to 5%.

While some analysts believe the company has already seen a peak in same-store sales growth, I believe its acquisition of CSK Auto Stores could serve as an important catalyst going forward. O'Reilly acquired the West Coast auto-parts leader for a hefty $1 billion in 2008. Since then, the company's devoted much of its effort and spending toward rebranding its more than 1,000 acquired stores, and even more importantly, moving the CSK outlets onto the O'Reilly point-of-sale and distribution system.

In the first quarter, O'Reilly completed the conversion of all point-of-sale and distribution systems, giving all its stores access to out-of-stock parts by the following day, at the latest. In addition, the store's parts experts will enjoy improved inventory management and other tools. With that out of the way, O'Reilly will finish rebranding the remaining CSK stores over the next few months.

Now that the store conversions are nearly complete, I'm less concerned about O'Reilly's ability to grow its operating margins stably beyond 14%. For the quarter, the company posted operating margins of 14.2%, a 100-basis-point improvement over the previous year.

Everything here looks strong on an operational basis. But with gas prices around $4 per gallon and rising, I can't get too excited about this stock, or that of peers Advance Auto Parts (NYSE: AAP  ) and AutoZone (NYSE: AZO  ) . Less driving means less wear and tear on cars, and these retailers thrive on a nation of cars in need of repair. O'Reilly continues to motor along, but tough same-store sales comparisons and rising gas prices could open big potholes in its path in the months to come.

To follow all news on O'Reilly Auto Parts, add the company to our new watchlist service today!

Andrew Bond owns no shares in the companies listed. You can follow Andrew on Twitter @Bond0 or on his RSS feed. Try any of our Foolish newsletter services free for 30 days. The Fool has a disclosure policy.

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  • Report this Comment On May 18, 2011, at 2:07 AM, tjuarez89 wrote:

    I think that when people actually stop driving and stop needing maintenance on their cars the whole economy will be hurting and there will not be any companys to be bullish on. I still believe in oreilly because I think people still have to drive the same and that means still repair their cars the same but to help free up money in their budget will turn to do-it-yourself companies and put off buying a new car that needs less maintenence or puchasing a car with a few miles logged - leading to continued growth for oreilly.

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