Morningstar | O'Reilly Remains Poised for Share Growth as It Leverages Its Leading Distribution Infrastructure
As the most fully realized exemplar of the dual-market (commercial and do-it-yourself) approach to auto-parts retailing, narrow-moat O’Reilly has capitalized on favorable industry dynamics to achieve strong returns. The firm has profited from the recovering economy, increases in miles driven and average vehicle age, and the benefits of its expansive distribution network in ensuring part availability, leading to returns on invested capital that have grown 940 basis points since 2010, to 23% in 2018.With a strong operational track record and a national presence, O’Reilly derives significant productivity throughout its infrastructure, with margin growth coming despite increased industrywide reliance on frequent inventory replenishment and other investments in high levels of part availability. While other national chains have attempted to shift toward a similar dual-market approach, we believe O’Reilly’s expertise and customer relationships give it an advantage that will take time for peers to match. This should keep O’Reilly’s relative positioning strong among the national retailers as the industry undergoes a wave of consolidation, with large-scale participants like O’Reilly increasingly favored due to their ability to provide hard-to-find parts to commercial (and, to a lesser extent, DIY) customers more quickly, reliably, and efficiently. We estimate the firm should achieve meaningful share growth in both market segments, to 11% in DIY and 7% in commercial from 9% and 5%, respectively, over the next 10 years.Although O’Reilly’s operating margins grew from 13.6% in 2010 to 19% in 2018, we believe there is still room for incremental expansion as the firm leverages its fixed costs and as its house label products gain increasing acceptance and adoption. The strength of the company’s brand, coupled with its cost advantage, should enable the company to foster new and deepening relationships with its customers by providing a better standard of service, protecting O’Reilly’s results from normalization of industry conditions and competitive threats from smaller and like-sized peers.O'Reilly Automotive is a retailer of automotive aftermarket parts, tools, supplies, equipment and accessories, selling its products to both do-it-yourself and service provider customers. The company's stores carry a product line, including: new and remanufactured automotive hard parts and maintenance items, such as alternators, batteries, brake system components, belts, chassis parts, driveline parts, engine parts, fuel pumps, hoses, starters, temperature control, water pumps, antifreeze, appearance products, engine additives, filters, fluids, lighting, oil and wiper blades; and accessories, such as floor mats, seat covers and truck accessories.
Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. The company offer an extensive line of products and services for individual investors, financial advisors, asset managers, and retirement plan providers and sponsors.
Morningstar provides data on approximately 530,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 18 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its investment advisory subsidiaries and had approximately $185 billion in assets under advisement and management as of June 30, 2016.
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