O'Reilly Auto Parts 1Q07 Earnings: Follow Up Thoughts

I don't like to get caught up in very short term ebbs and flows, but I think it is worth noting that both Asbury (ABG) and O'Reilly Automotive, Inc. (ORLY) mentioned on their conference calls that demand trends in the first few weeks of April were kind of sluggish.

For O'Reilly, the rather sluggish demand in the first three weeks compelled them to tell analysts they only expect same-store sales to be up 3% to 5% in the second quarter. This was despite the fact they had just reported a 6.8% increase in the first quarter and maintained their 4% to 6% guidance range for all of 2007.

This leaves the company expecting to earn somewhere between $0.45 to $0.49 in the second quarter of 2007. And for all of 2007, management thinks the company will earn somewhere between $1.73 to $1.80 per share (including stock option expenses). The 2007 guidance they gave on yesterday's call was slightly better than the $1.71 to $1.78 range they provided on the fourth quarter conference call.

Management also said that in the first quarter they saw an increase both in traffic (the number of people coming into the store) and the ticket (how much each customer spends at the store).

Finally, something that I found interesting was management's statement that they now have 1,700 installer customers in the company's certified auto repair program. I didn't make the cut to ask a question on the call (management assures me it was just that they ran out of time.) But when I followed up with CFO Tom McFall, he indicated that this is a 25% increase over last year. Mr. McFall said that to be a certified shop, it has to meet a certain level of tech training, meet other performance standards, and of course, buy a certain (predetermined) amount of parts from O'Reilly. In return, the shops get access to nationwide warranty program, rebates, training, etc.

As you know, I think these certified auto repair programs are going to be a growing force in the auto repair industry. In one way or another, anyone supplying parts [DIY, online, whatever] to a repair shop needs to create some value beyond just selling a part. So if a repair shop is not a major chain, or under some franchise deal (like with Midas,) I see most repair shops becoming a part of some program or another. And O'Reilly is clearly one of the early leaders in this initiative.

The only other company that I can think of that is ahead of O'Reilly in this endeavor is Genuine Parts Company (GPC) [NAPA Auto Parts Stores]. Genuine Parts management didn't bring up their NAPA Auto Care Centers (which, from what I can tell, is pretty similar to the O'Reilly certified auto repair program,) on their first quarter conference call.

But in the fourth quarter, NAPA only saw a 2% increase in the number of stores in the NAPA Auto Care Center program (although they said parts volumes were up 5%, so those in the program are using NAPA even more.) Although when you've got some 13,000 shops signed up, you clearly have a bigger base, so the percentage increases become smaller.

ORLY 1-yr chart: