While Wall Street's attention last year was fixated on high-flying sectors like e-commerce, video conferencing, and telehealth, one sleepy sector had itself a booming 2020.
The aftermarket auto parts retailers saw sales and profits soar after the onset of the pandemic. O'Reilly Automotive (ORLY 2.11%), the largest domestic chain by market capitalization, just reported stellar first-quarter 2021 results on April 28th, demonstrating continued strength in the business even as the country slowly moves past the health crisis.
At the same time, management raised same-store sales (comps) and diluted earnings per share (EPS) forecasts for the full year 2021. This is fantastic news for shareholders.
In the most recent quarter (ended March 31), revenue and comps both skyrocketed 25% versus Q1 of last year. Mind you, the company had an easy year-over-year comparison, but sales did eclipse $3 billion, which was on par with the impressive second and third quarters of 2020.
CEO Greg Johnson credited "continued, broad-based strength across [our] DIY and professional business." During previous earnings calls, it was fully expected that the DIY gains would fall off as consumers eventually spent their extra cash on leisure and entertainment, things that were held off during the pandemic.
So far, that hasn't been the case. A third round of government stimulus checks earlier this year certainly gave consumers incentive to go out and fix up their cars. The DIY customers are increasingly comfortable taking on larger projects, while the professional side stands to benefit as more people start returning to offices. Both customer groups experienced gains in ticket counts and average ticket sizes.
This led management to raise its comps forecast for the full year, from down 2% to flat, to now 1% to 3% growth. Furthermore, they expect diluted EPS to be in the range of $24.75 to $24.95. Compared to previous guidance, this is a $2.05 increase at the midpoint.
Shareholders should take management's confidence at face value. On the earnings call, Johnson mentioned that the strength witnessed in the business subsequent to the end of Q1 led to the upward revision of forecasts, something that "is an exception to [our] normal practice."
This is a positive sign for the company's prospects as the year progresses.
Key data points
Even as total miles driven, which is the most important metric influencing O'Reilly's business, stays below pre-pandemic levels, the company continues to do well. Investors should be cheering at this development. Demand for auto parts will find more support once people start getting on the road again like they did before.
On Sirius XM Holdings' most recent earnings call, CEO Jennifer Witz spoke about the recovery in human mobility: "Driving and commuting in the first quarter was still only 80% of pre-COVID levels, but in recent weeks has climbed to 90% of pre-COVID levels, a positive sign that people are getting back to normal life."
Additionally, searches for driving directions on Apple Maps in the U.S. are 17% higher than they were to start the year. Consumer interest in driving is slowly coming back, which should boost O'Reilly's business.
What does this mean for investors?
O'Reilly Automotive didn't get the attention that other pandemic winners received last year, particularly in the technology sector. But its business not only benefited in 2020, it's showing that the party is far from over.
O'Reilly has been a great stock to own over time, and the company possesses strong competitive advantages in an otherwise boring and under-the-radar industry. Management is extremely confident in the company. After a record-breaking quarter, investors should be too.