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Why O’Reilly Automotive Stock Rose 13% in July

By Demitri Kalogeropoulos - Aug 6, 2020 at 8:34AM

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Investors were happy to hear that the retailer quickly returned to sales growth in the second quarter.

What happened

O'Reilly Automotive (ORLY 0.63%) stock outpaced a booming market last month as shares gained 13% compared to a 5.5% rally in the S&P 500 in July, according to data provided by S&P Global Market Intelligence.

The increase put the auto parts retailer back ahead of the market so far in 2020, up roughly 7% through early August.

A man shops for auto parts.

Image source: Getty Images.

So what

Late in the month, O'Reilly announced second-quarter results that showed an impressive rebound following temporary COVID-19-related store closures. Comparable-store sales jumped 16% compared to a 2% decrease in the prior quarter. O'Reilly saw strong demand, especially in May and June as economies began reopening and as consumers' incomes were lifted by economic stimulus payments.

The news was even better on the profit side, with cost cuts helping the retailer achieve a 24% operating margin, beating its best previous result by 3 full percentage points. "We were very pleased to see our business rebound, as consumers began to benefit under the CARES Act in the middle of April," CEO Greg Johnson said in a press release.

Now what

Johnson and his team predicted that O'Reilly's record profitability will slip back toward normal as the effects of the stimulus payment wear off. Management also declined to issue an outlook for the rest of 2020, citing potential headwinds including rising unemployment and weak economic growth. Yet the booming Q2 results have left it in a flexible financial position, with operating cash flow landing at $1.6 billion over the last six months compared to $847 million a year ago.

Demitri Kalogeropoulos has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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O'Reilly Automotive, Inc. Stock Quote
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