O'Reilly Automotive Inc (ORLY) (2024)

Vast Distribution Network and Store Footprint Should Drive Continued Share Gains for O'Reilly

With over 6,000 stores across the United States, O’Reilly boasts a resounding presence in the highly fragmented automotive aftermarket. The retailer greatly expanded its footprint in the do-it-yourself subset of the aftermarket via its acquisition of CSK in 2008, and we estimate the firm currently holds a low-double-digit percentage share of the DIY market, second only to AutoZone. Despite facing copious competition from online channels and diversified retailers, O’Reilly’s value proposition is predicated in its knowledgeable staff and ample product availability. Contrary to most non-pure-play auto parts retailers, O’Reilly’s staff assists customers with vehicle diagnosis, the ordering of parts for a specific vehicle’s make and model, and testing the functionality of parts. Given auto repairs are often nondiscretionary and, in some instances, time sensitive, we surmise consumers value the level of expertise provided by O’Reilly’s staff. Furthermore, the firm’s hub-and-spoke supply chain model and favorable supplier relationships provide it with significant localized distribution capacity. As such, the firm is able to quickly distribute products across its local store base to meet time-sensitive consumer demand. We view the firm’s levels of customer service and convenience as difficult to replicate and valuable to customers, allowing O’Reilly to consistently deliver a gross margin in excess of 50%.