O'Reilly Automotive Plummets On Disappointing Sales; Mild Winter, Low Hispanic Spending Blamed

O'Reilly Automotive stock crashed as much as 21% on 7 times its average daily volume, its biggest drop since June 2012 dragging the share price to the lowest since October 2014, after the auto-parts retailer said same-store sales misses forecast for the second quarter.

The miss slammed ORLY peers: Advance Auto Parts plunged 16%, AutoZone tumbled 10%, while suppliers Standard Motor Products, Dorman Products and Motorcar Parts of America also dropped sharpdly.

Investors were disappointment as same-store sales rose only 1.7% in Q2, trailing O’Reilly’s own projection for growth of 3-5%, the company said in a statement earlier.

As usual it was the weather's fault: retailers blamed weak consumer demand at the start of the year on delayed tax refunds- although how that impacted second quarter results is not clear -  and a mild winter that reduced the need to replace some car parts. O’Reilly’s Chief Executive Officer Greg Henslee said weak consumer demand continued into the second quarter despite signs of stronger sales earlier this spring according to Bloomberg.

“After exiting the first quarter and entering April on an improved sales trend, we faced a more challenging sales environment than we expected for the remainder of the quarter,” Henslee said. “While we are disappointed with our sales results in the first half of the year, we remain confident in the long-term health of our industry.”

O’Reilly’s sluggish sales rekindled concerns that competition from e-commerce could be eroding demand at brick and mortar stores, Consumer Edge Research analyst David Schick wrote in a note to clients Wednesday.  “While our analysis does not see risk of the entire sector going online - we think the threat is meaningful for some categories and is unlikely to fade until visibility improves,” he said.

The huge miss added to concerns tied to Amazon’s expansion into the industry, adding to the selloff in the group.

Industry analysts, such as RBC's Scot Ciccarelli, said that apart from a mild winter, other possible causes for weak sales could be fewer cars entering peak repair stages of life cycle, less robust spending from Hispanic customers due to political concerns and beefed up competition from Wal-Mart.

As shown summarized below, industry analysts were hard pressed to come up with any positive spin to the disappointing data.

RBC (Scot Ciccarelli)

  • Another miss for a sector under heavy scrutiny; "today’s moves imply that we are seeing a complete washout of the sector"
  • Expects valuation arguments to accelerate given significant pressure on industry multiples
  • Apart from a mild winter, other possible causes for weak sales could be fewer cars entering peak repair stages of life cycle, less robust spending from Hispanic customers due to political concerns and beefed up competition from Wal-Mart
  • Sector perform, PT $201 from $280

JP MORGAN (Christopher Horvers)

  • A good portion of the same store sales miss represents an industry-wide slowdown caused by the delayed "impact of vehicle age dynamics, mild winters and a softer consumer;" a portion of it is ORLY specific, as DIFM (do it for me) segment is more competitive
  • Sees the lateral selloff as overdone; stocks overreacting to ORLY’s pre-announcement; would opportunistically buy AZO and AAP
  • Neutral, PT $210 from $295 to reflect weaker sales and EPS outlook

CONSUMER EDGE (David Schick)

  • Weaker comp. sales confirming "softer trends persist" narrative and resultant questions around e-commerce competition
  • Current headwinds driven by weather, used pricing and higher gas prices with online competition possibly weighing on P/E multiple
  • Doesn’t see risk of entire sector going online, but "threat is meaningful" for some categories and is unlikely to fade until visibility improves
  • Overweight, PT $310

Assuming that it was not the "mild winter" that was to blame for the steep drop in end-demand, today's profit warning is just the latest confirmation that at a time when the Fed is actively hiking interest rates, the US consumer remains in the doldrums, and consumer spending continues to recede, suggesting that the next relevant phase for the US economy is not expansion as the Fed hopes, but contraction, also known as recession.

Comments

lil dirtball pods Wed, 07/05/2017 - 14:28 Permalink

The O'Reilly auto parts in my town is manned by queers behind the counter and they can never find the part I'm looking for in their bullshit computer parts system. I usually end up at Advance, which is mostly black employees, but they always know what I'm talking about and generally have it in stock even if a few pennies more expensive.

In reply to by pods

Lucretius pods Wed, 07/05/2017 - 14:39 Permalink

Rockauto.com ROCKS! Been using them for years (been swinging wrenches for 40 yrs), though they have a simple to use format, their customer service has declined somewhat. Sometimes you need to verify that you are getting the correct part, and it is getting harder to find a phone number for a sales rep, they just want to use the interwebthingy SOLELY, and as one with much experience knows, sometimes there are variations from year to year, make and model, trim level and options.Also, beware... their shipping is steep and seems to prefer to use UPS ground which uses USPS to make the final delivery, adding another step/ day to get your order! Also, for large projects, you can end up with 3-4 different shipping points and hence 3-4 separate shipping charges! All that said, I still highly recommend them, typically half or more less than braindead Aholezone!

In reply to by pods

BuddhistAescetic (not verified) Wed, 07/05/2017 - 13:57 Permalink

White spending can't compete with hispanic spending? Maybe there is truth to unemployed angry hordes of white males anguishing on the sidelines. Can this be proof of confirmation?

junction NEOSERF Wed, 07/05/2017 - 14:09 Permalink

In Queens, NY, the only people you will see doing repair work on their parked cars appear to be of Hispanic background, usually doing work on the brakes of a jacked up car.  Sometimes, these street mechanics hang around the parking lot of auto parts stores, looking for potential customers.  You never see Anglos doing this sort of auto repair anymore.  I can just change the windshield wiper blades, that's it.  By the way, with the warm weather coming up, always remember a bad radiator thermostat is the first thing to consider if your car is starting to overheat.   

In reply to by NEOSERF

Oldwood NEOSERF Wed, 07/05/2017 - 14:17 Permalink

Parts prices are high and repair skills are diminishing. Layer that on super cheapo life-long leases and who's going to fix their cars? I think this is hurting repair shops as well as decent labor is getting more expensive and combined with all the high tech gadgetry, making repair costs just too damned high!These new eight speed transmissions are expensive to repair or replace. One goes out in five years and many will simply buy something else. Auto maintenance can only be saved with eight year low interest, no doc loans. Just think of the bundling Goldman could do with those loans!

In reply to by NEOSERF

PodissNM Oldwood Wed, 07/05/2017 - 14:48 Permalink

Those CVT transmissions are a nightmare too. My buddies wife had an 07 Nissan Murano, took great care of it, thing looked like a brand new car.  Tranny starts slipping, my friend takes it to our trusty local mechanic. Bad news, it's going to cost 5k to fix it, and the blue book value on the car is only 8k. WTF? 

In reply to by Oldwood

pods Osmium Wed, 07/05/2017 - 14:14 Permalink

Yep Rockauto. Great stuff, great prices. (free magnets)Advance, autozone and O'reilly have shitty prices and their parts suck.  I cringe when I need to put something of theirs in.Ex:  I had a starter go in my car. Not something I could wait around on (auto transmission so I couldn't pop start it), so I went to advance and got one. Put it in and it would start once out of 10.  It was a rebuilt.  I promptly ordered one from Rock auto and drove around for a couple days with the shitty one. Got the new one in and swapped them out, worked like a charm.  Went and got a refund and the guy asked me why, I said cause it doesn't work. Then I told him I ordered one I know will work from Rockauto and he shook his head while putting the shitty one back supplier.  Those big places never really test their rebuilts together. They usually just test the parts. They have a huge failure rate.  And it pisses people off like no tomorrow.    With Rock Auto I bought a brand new OEM for cheaper than the rebuilt non-OEM from Advance.  pods

In reply to by Osmium

BuddhistAescetic (not verified) Wed, 07/05/2017 - 14:00 Permalink

When you spend most of your time worrying about your next meal in the U.S.S.A. with the highest child poverty index of any western industrial nation, who has time enough to change their oil? Winning!

Endgame Napoleon BuddhistAescetic (not verified) Wed, 07/05/2017 - 15:29 Permalink

Child poverty, please. If children are going hungry in the USA, it is because mom spent her array of welfare/taxfare on herself.

1) Free EBT food

2) Free rent or subsidized rent in nice, mixed-income apartments

3) Free energy

4) Cash assistance per month

5) Nearly free daycare

6) Child Tax Credit tax-time treat ($3,337--$6,269)

7) Their wages working the 20 required hours per week to meet welfare-reform rules

8) Help from the doting grandparents

9) Charity galore for "working families"

In reply to by BuddhistAescetic (not verified)

Freddie Wed, 07/05/2017 - 14:11 Permalink

Are hispanics the only people dumb enough to pay o'reilly prices?I sometimes buy car wax and other stuff.  Their prices are crazy high.  Like Kohls or other shit retailers.