O’Reilly also opened 10 new stores in California and it is looking to penetrate this region further, along with other western markets. The company is also focused on expanding its distribution centers in order to provide merchandise to its stores in a fast and efficient manner. O’Reilly recently opened a distribution center in Chicago and it is constructing another one in Lakeland, Fla.
The pick of the lot
These strategies should help the company maintain its robust same-store sale growth going forward and also its lead over peers. In fact, O’Reilly has been delivering better comp growth than both AutoZone and Advance Auto. In the previous quarter, Advance Auto’s same-store sales actually declined 0.3% from the year-ago period. Similarly, AutoZone had witnessed a decline of 0.1% in same-store sales as well.
Hence, it shouldn’t be surprising that O’Reilly has a premium valuation as well. It trades for almost 23 times trailing earnings, while AutoZone and Advance Auto trade at a similar 16 times earnings. Advance Auto has been gradually improving its business, as its same-store sales decline in the previous quarter was better than a decline of 2.7% in the year-ago period.
Advance Auto looks like the next best option in the sector after O’Reilly, as the company seems to be turning around and has been expanding at a fast pace. Its acquisition of BWP earlier this year, a company that supplies aftermarket products to commercial customers, has netted it 124 stores that have been successfully integrated, according to management. The company is also expanding its hub stores to penetrate local markets, and it took its hub count to 354 in the previous quarter, an increase of 34 hubs from last year.
AutoZone is also making some good moves and plans to open 300 stores in the ongoing fiscal year. The largest auto-parts retailer in the U.S. is also looking at further growth in its commercial business, which is underpenetrated, as 68% of its stores presently run a commercial program.
However, the company’s debt is a concern when compared to the other two. It had $4 billion in debt at the end of the last quarter and generated $385 million in operating cash flow, and used $325 million for buying back shares. Its book value per share is also negative while both Advance Auto’s and O’Reilly’s book values are around $18.50 per share.
The bottom line
Despite higher sales of new cars, aftermarket retailers have done very well this year and O’Reilly Automotive Inc (NASDAQ:ORLY) is the pick of the lot. It is witnessing robust growth in same-store sales and earnings, and is focused on gaining more business through strategies discussed above. O’Reilly is benefiting from the growth of the industry and its moves should help it stay ahead of its peers.
The article This May Be the Best Aftermarket Retailer You Can Buy originally appeared on Fool.com.
Fool contributor Harsh Chauhan has no position in any stocks mentioned. The Motley Fool owns shares of O’Reilly Automotive.
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