What Factors Drove O’Reilly Auto Parts Stock Down in 2017?



O’Reilly Auto Parts

O’Reilly Auto Parts (ORLY) fell ~13.6% in 2017. In 4Q17, its performance on Wall Street was better than those of automakers (XLY) such as Ford Motor Company (F) and General Motors (GM) but worse than that of its direct peer AutoZone (AZO). Ford and GM rose marginally by 1.5% and 4.3%, respectively, while AutoZone rose 19.5% in the quarter.

Now let’s take a look at the key factors that drove ORLY stock last year.

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Recent fundamentals

In 3Q17, ORLY’s most recently reported quarter, the company reported adjusted EPS (earnings per share) of $3.22, ~11% higher than its EPS of $2.90 in the corresponding quarter of the previous year. With this performance, the company’s also beat Wall Street analysts’ consensus EPS estimate of $3.15. However, ORLY’s weak SSSG (same-store sales growth) and its management’s dismal guidance for 4Q17 turned sentiments negative following its earnings event.

Revenue growth and margins

In 3Q17, O’Reilly’s revenue was $2.3 billion, a rise of 5.4% from its revenue of $2.2 billion in 3Q16. On the negative side, the company’s same-store sales rose 1.8% in 3Q17 compared to the 4.2% rise in its same-store sales in 3Q16. Earlier, ORLY’s management had guided its 3Q17 SSSG to be in the range of 1%–3% year-over-year.

In addition, the company’s 3Q17 gross profit stood at $1.23 billion, ~5.1% higher than its gross profit of $1.17 billion in 3Q16. Considering this slight rise, the company’s gross profit margin remained flat with a minor contraction to 52.6% in 3Q17 compared to 52.7% a year ago.

Stagnation in O’Reilly Auto Parts’ profit margins and a weakening SSSG trend could be two key reasons why its stock ended 2017 in negative territory.

In the next article, we’ll see why AAP stock underperformed its peers in 2017.


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