Positive corporate milestones don't often occur in the throes of a recession.
But the first week in March - the same week the Dow Jones Industrial Average dropped below 6500 for the first time in 12 years - O'Reilly Automotive Inc. (Nasdaq: ORLY) saw its stock price hit a 52-week high at $33.88 per share.
The Springfield-based aftermarket auto parts retailer was one of only three publicly traded companies to notch a 52-week high during a wild week on Wall Street. The Dow ended the week above 6600, but more than 1,400 stocks traded on the New York Stock Exchange and the Nasdaq had tumbled to 52-week lows, according to The Wall Street Journal.
The following week, O'Reilly stock hit another 52-week peak, trading higher than $35 a share - less than four dollars away from its historic April 2007 high.
The Web has been crackling with chatter about the stock's gains in the weeks since O'Reilly announced fourth-quarter sales of $1.1 billion. That's an 84 percent improvement compared to the same period in 2007.
Last year was a momentous one for O'Reilly; the specialty retailer logged $3.58 billion in sales -- for a gross profit of $515 million - and completed its acquisition of Phoenix-based CSK Auto Corp. in July. Through the $1 billion deal, O'Reilly gained 1,350 stores throughout the Western and central United States. The company is now immersed in a store-by-store conversion process aimed at expanding inventory, adjusting price points and playing up O'Reilly's know-how.
Consolidated comparable store sales were up 4 percent in the fourth quarter, with O'Reilly same-store sales jumping 6.2 percent and CSK same-store sales even showing a slight gain at 0.8 percent.
"We hit or exceeded (Wall) Street estimates for what they thought O'Reilly was going to do," said company spokesman Mark Merz. "We would expect the market to respond favorably to favorable results. ... It's certainly validation from the market for all the work we've put in with integration."
Aside from the CSK acquisition and subsequent store changes, O'Reilly - like other auto parts retailers - is benefiting from an economic climate that has more Americans extending the life of their cars rather than buying new ones. Lower prices at the gas pump also favor retailers like O'Reilly, Merz added.
O'Reilly, however, is different from competitors in that its business is almost evenly split between consumers and commercial customers, which company officials refer to as the "do-it-yourself" and "do-it-for-me" sectors. In contrast, Merz said, Memphis, Tenn.-based AutoZone - the country's No. 1 auto parts retailer - caters almost entirely to do-it-yourselfers.
O'Reilly's commercial customers are drawn to the company's large inventory and its ability to fill orders quickly, said Ira Rothberg, an investment analyst with Virginia-based Akre Capital Management.
"We tend to think of O'Reilly not as a retailer, but a distributor," Rothberg said. "Hot-shot delivery is very important in this business. And because O'Reilly is making multiple deliveries from their distribution centers to their stores on a daily basis, they can achieve a higher fill rate than the rest of their competitors."
Many of the parts sought by commercial customers already are on the shelves of O'Reilly stores, said Brian Macauley, another Akre Capital investment analyst. Plus, the company is infusing CSK stores with an estimated $100,000 each in additional inventory, he said.
O'Reilly plans to open distribution centers in California, Washington, Colorado and Utah to serve the western wing of its auto parts empire. By mid-February, nearly 100 CSK stores had been converted to the O'Reilly model, and another 90 should be complete by May, Merz said. The per-store capital expenditure is $100,000 on average, he added.
Akre Capital's analysts pointed to O'Reilly's 1998 acquisition of Hi/Lo Auto Supply as an example of the company's track record of effectively integrating existing stores into its corporate mold.
"Wall Street typically has a very short-term memory," Rothberg said. "If you go back and look at their success with Hi-Lo five quarters post-acquisition, they had grown same-store sales by a cumulative 22.8 percent."
Rothberg said CSK stores with annual sales of $1.3 million should reach $2 million under O'Reilly's leadership. But convincing wary investors to buy O'Reilly stock now may be difficult given the recent market volatility.
Jeff Layman, principal and chief investment officer for Springfield-based BKD Wealth Advisors LLC, acknowledged widespread investor frustration, but he said he's not giving up on the asset class. Some local clients familiar with O'Reilly remain confident in the company's trajectory, Layman said.
"The typical investor feels a little better owning shares of something they feel like they know," he said. "It's wonderful we've got a gem in our backyard in the midst of all that's happening."
The credit crisis hampering many corporations has had little to no effect on O'Reilly's performance, Layman said, noting that the company's debt is relatively small compared to its market capitalization.
"When most companies are issuing disappointing forecasts, they're going the other direction," he said. "One of the kudos they get is they've managed the company well. They haven't taken on onerous amounts of debt. ... And the shares have been rewarded for that."[[In-content Ad]]
