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Analyzing O’Reilly Automotive’s Profit Margins in 1Q18

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Apr. 26 2018, Updated 5:15 p.m. ET

O’Reilly Automotive’s 1Q18 results

Previously, we looked at O’Reilly Automotive’s (ORLY) 1Q18 revenue. The company reported a moderate 5.9% increase in its revenue, and its same-store sales growth improved significantly YoY (year-over-year). During 1Q18, ORLY opened 78 new stores, part of the company’s plan to open 200 new stores in fiscal 2018. This strategy should expand the company’s consumer base. Let’s look at O’Reilly Automotive’s profit margin in 1Q18.

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ORLY’s 1Q18 profit margin

In 1Q18, ORLY’s gross profit stood at $1.20 billion, ~6% higher than the $1.13 billion it saw in 1Q17 and 3% higher than the $1.16 billion in 4Q17. The company’s gross profit margin expanded to 52.6% in 1Q18 from 52.5% in 1Q17.

O’Reilly Automotive’s operating profit rose 5% YoY to $423 million in 1Q18, and it had an operating profit margin of 18.5%. This margin was slightly lower than the 18.7% seen in 1Q17 but slightly better than 18.4% reported in 4Q17. The company’s adjusted net profit rose strongly, by ~15%, to $305 million in 1Q18. Its net profit margin expanded to 13.4% from 12.3% in 1Q17.

What to expect in 2Q18

According to analysts, O’Reilly’s net profit margin could continue to expand YoY in the next few quarters. Analysts expect the company’s net profit margin to be 13.9% and 14% in 2Q18 and 3Q18, respectively, compared with 12.1% and 12.3% in 2Q17 and 3Q17.

ORLY has guided for a gross profit margin of 52.5%–53.0% in 2Q18, and an operating profit margin of 18.5%–19.0%. Interestingly, auto part retailers such as O’Reilly Automotive have much wider gross profit margins than major auto manufacturers (IYK) such as General Motors (GM), Ford (F), and Fiat Chrysler (FCAU). Higher fixed costs involved in car manufacturing tend to hurt automakers’ profitability. Continue to the next part for a look at ORLY’s valuation going into 2Q18.

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