O'Reilly Automotive (ORLY) is under some pressure (-17%) this morning after reporting that Q2 (Jun) same store comps came in at +1.7%. This was a good bit below prior guidance of +3-5%.
You're probably familiar with O'Reilly Automotive, but just in case, it's one of the largest retailers of auto-parts in the US. Typical products include hard parts (alternators, starters, fuel pumps, water pumps, batteries, belts, hoses), maintenance items (oil, antifreeze, fluids, filters, wiper blades) and accessories (floor mats, seat covers) etc. ORLY does not sell tires nor does it perform for-fee automotive repairs or installations like Pep Boys.
It's similar to Advanced Auto Parts (AAP), AutoZone (AZO), Pep Boys (acquired by Icahn Enterprises (IEP) in Feb 2016) etc. In terms of size, ORLY has 4,888 stores in 47 states which makes it slightly smaller than AAP and AZO. AZO is the largest overall with 5,915 stores but about 500+ of those are in Mexico and Brazil. Another major operator in the US is AAP with about 5,000+ stores. PBY is much smaller with about 800+ locations although they do more repairs so they are a little different.
It's worth noting that ORLY's customers are a little different. All of these retailers cater to both do-it-yourself (DIY) and professional service provider (PSP) customers (repair shops, auto body shops, car dealers etc.). However, ORLY has more exposure to the PSP market than the others. About 58% of 2016 sales were from its DIY customers and 42% was from PSP customers. That 42% is higher than its rivals and that percentage is expected to grow as a percent of total sales over time.
In fact, ORLY employs 750 full-time sales staff dedicated solely to calling upon and servicing PSP customers. Also, ORLY's stores cater to PSP customers by offering many enhanced services including 1) used oil, oil filter and battery recycling, 2) battery, wiper and bulb replacement, 3) battery diagnostic testing, 4) electrical and module testing, 5) loaner tool program and 6) professional paint shop mixing.
Turning to today's news, the same store comps were clearly disappointing. After exiting Q1 and entering April on an improved sales trend, ORLY says it faced a more challenging sales environment than expected for the remainder of Q2. Its Q2 comps of +1.7% were an improvement over its +0.8% result in Q1 but it was below prior guidance of +3-5%.
So why did comps come up short? ORLY says it faced continued headwinds from a second consecutive mild winter and overall weak consumer demand. While management says it's disappointed with its 1H17 sales results, it remains confident in the long-term health of its industry and in its ability to take market share in this challenging demand environment. Full Q2 results will be released on July 26 after the close with a call the next morning.
In sum, after reporting 4Q16 comps of +4.8% and full year 2016 comps of +4.8%, ORLY has now posted back-to-back soft comps in Q1 and Q2 of 2017. ORLY was a huge growth stock for several years. It was trading at $30 in late 2008 and hit a high of $292.84 in July 2016. It stayed above the $270 range through April 2017 but has taken a downward trend the past three months and with today's weakness it's in the $185 range. AAP -9% and AZO -8% are weak in sympathy.