Deep Dive - O'Reilly Automotive

Becoming the dominant US auto parts retailer in DIY and DIFM

Following our March 2024 deep dive on AutoZone (AZO), we’ll now be digging deeper into O’Reilly Automotive (ORLY).

Deep Dive - AutoZone

In the AZO write-up, we’ve already provided color on how one of the leading US auto parts retailers operates, including:

• demand dynamics in the automotive aftermarket;

• recent financial performance, including AZO’s LIFO accounting headwinds in its FY2022 and FY2023;

• economics of AZO’s business (and why one should never look at reported ROIC to gauge the return on incremental investment decisions);

• international expansion opportunities;

• buyback optionality relative to our base IRR;

Now, we’ll complement the AutoZone deep dive with additional background on ORLY’s track record, capital allocation priorities, importance of management and highly motivated and trained professional parts people, and other qualitative aspects that have led to its to-date triumphs.

Additionally, we’ll go over the competitive landscape, i.e. peers’ recent financial performance, cover the differences between AZO, ORLY and AAP (Advance Auto Parts), and the impact of technological advancements on demand for auto parts.

The deep dive will cover:

• Part I - Industry Drivers & Barriers to Entry

• Part II - Competitive Landscape: ORLY vs. AZO vs. AAP

• Part III - ORLY’s Long-Term Track Record

• Part IV - Recent Financial Performance

• Part V - Management & Expectations Treadmill

• Part VI - Valuation

• Part VII - Risks & Uncertainties

• Part VIII - Conclusion