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O'Reilly Automotive

O’Reilly Automotive is a dominant player in the U.S automotive aftermarket retail sector. O’Reilly has over 6000 stores across the United States and has been growing their presence in Mexico. Founded in 1957, O’Reilly grew from a single-store operation to one of the largest chains in North America. O’Reilly serves both the DIY crew and the professionals, positioning itself as a one-stop solution for everything from basic maintenance to specialized repairs. O’Reilly has built its business model on operational excellence, strong product inventories, and an excellent supply chain. This enables them to operate at the hyper-local level and not just as a parts distributor. 

O’Reilly’s mission is to be the dominant player in the aftermarket industry by delivering exceptional customer service, product availability, and operational execution. Its vision is tightly focused on strong same-store sales growth, superior supply chain efficiency, and a strong vertical dominance. The company plans to open 200 stores annually, which reinforces its ability to outpace O'Reilly's regional and local competition. O’Reilly’s strengths lie in its rapid delivery, inventory, and a strong data-driven understanding of product turnover. O’Reilly’s core obsession is replicable dominance. 

The boys over at Azar Capital Group, like O’Reilly, will be giving them a good ole ‘BUY’ rating because people are always buying shit for their cars.  The company is also recession-proof, has strong margins, and has an excellent balance sheet that even your grandpa would appreciate. O’Reilly thrives on immediacy; its core moat is not inventory or price but time. With a 30-minute delivery promise in most major markets and a negative working capital model that finances its growth, ORLY generates killer free cash flows with low risk. O’Reilly is a compounding machine, not a short-term money grab. 

Key catalysts include gains in DIY market share, pricing power through supplier rationalization, and an enhanced buyback program. As well as store expansion in underserved markets, as well as continued expansion into Mexico. The professional segment remains strong, and ORLY is making moves to become the preferred partner for thousands of mechanics. Risks include the long-term electrification of vehicles, which could reduce the SKU complexity and service needs. However, the average vehicle age is reaching 12 years, and the EV penetration in the U.S is still below 10%. Any pullback should be treated as an opportunity to load up on this opportunity, not a retreat signal. 

O’Reilly’s core business is the distribution and retailing of automotive components, tools, equipment, and accessories for both domestic and imported vehicles. The revenue split is approximately 55% DIFM (do it for me), which includes garages, fleet operators, and independent repair shops, and 45% DIY consumers. The company offers over 200k SKU’s from alternators and radiators to performance parts and professional grade tools. O’Reilly also offers private label parts that offer high margins and more dominant shelf space, giving the company strong vertical leverage and inventory control. O’Reilly offers critical services to its DIFM customers by offering a 30 minute delivery service in most metro markets. 

97% of O’Reilly’s sales are U.S. based with a growing presence in Mexico. Its geographic strategy centers on hub density and proximity dominance, stores aren’t randomly placed; they are engineered into networks where each store acts as a node in a massive distribution network. This allows O’Reilly to compress its supply chain, increase route density, and offer superior part availability versus regional competitors. In rural markets, they often represent the only serious option with professional trade availability. With further expansion targeting underpenetrated southern and northeastern corridors, O’Reilly is still in its early footprint monetization curve. 

O'Reilly's leadership is strong with company veterans. Their CEO Brad Beckman, was appointed in 2024 but has spent over two decades at the company. He has risen through the ranks from store level roles to top leadership. He obsesses the company on an operational level, he's not a finance guy nor a brand guy but a supply chain machine. The company's CFO, Jeremy Fletcher joined the company in 2016 and has a strong background in strategic planning and capital allocation. The broader executive team shares a common trait, long tenures and in field experience. O’Reilly is an execution culture not consultant driven and the team is in place to scale without compromising velocity or discipline. 

O’Reilly had a strong first quarter in 2025, with store sales increasing by 3.6% and strong DIFM expansion. The company opened 38 new stores in Q1 and is on pace to exceed its 2025 goal of opening 200 stores. Their margins also expanded to 51.3%, driven by O’Reilly’s private label growth and strong inventory control. ORLY (getting sick of typing out the full O’Reilly every time) also repurchased over $900 million in stock in Q1 2025. With tariff volatility on the rise, ORLY control of its supply chain and leverage with manufacturers provides a rare hedge that few sectors can replicate. 

The aftermarket industry is booming and is valued at over $400 billion. ORLY is embedded in a fragmented market where even the largest players collectively command less than 50% of the total market. This fragmentation creates persistent inefficiencies, and ORLY has been able to exploit them through density based expansion, operational superiority, and killer execution. ORLY addressable market is focused on two high volume segments, DIY and DIFM, which are a combined $480 billion. Its major opportunity lies in DIFM, a segment where ORLY’s integrated logistics and in field sales which gives them a strong, scalable edge. The long term opportunity is to expand ORLY’s footprint and push its market share towards 20% in the next decade. 

Several powerful macroeconomic and secular trends are coming in the years to come. First, the average vehicle age has reached an all high of 12 years in the U.S. As cars age, parts fail more often, and repairs become more challenging. Second, the U.S faces a shortage of skilled labor, which is increasing pressure on those who remain to turn vehicles around faster. These mechanics need fast and reliable suppliers. Third, the post-COVID supply chain reset wiped out many weak distributors. ORLY also enjoys a strong advantage that it can push price increases on parts while maintaining volume, effectively turning inflation into a margin amplifier. 

ORLY is less vulnerable than most retail models because its products are physical, urgent, and vehicle-specific. Something that Amazon can’t match, this places ORLY on the offense as the company has a strong supply chain platform and has begun to use AI to optimize store-level inventory based on real-time demand signals. This reduces obsolete inventory, accelerates turns, and ensures SKU precision. Delivery routing is optimized by an algorithm, and e-commerce is structured not as a standalone channel but as a fulfillment expansion of its footprint. 

Consumer behavior is also shifting as younger generations are less inclined to perform DIY repairs. This trend boosts the DIFM segment, which is high-margin and more recurring. Additionally, narratives are driving consumers to hold onto vehicles longer. This extends the repair life of vehicles, increasing part spend per unit. ORLY can deliver parts to professionals within 30 minutes; this is a competitive necessity in an industry where each hour of vehicle downtime is lost revenue for the shop. The company is aligned with the future of vehicle ownership and maintenance in America. 

ORLY’s largest competitors are Auto Zone, Advance Auto Parts, and Genuine Parts Company, which owns NAPA. Among these companies, AutoZone is the closest in scale and particularly strong in the DIY segment with over 7000 stores. However, they have lagged in building a robust DIFM business and lack ORLY’s delivery velocity and field support for commercial customers. Advanced Auto has also struggled with its operational inefficiencies and strategic missteps. Meanwhile, NAPA has a strong foothold in the DIFM market by operating a decentralized, independently owned store model that limits its ability to optimize inventory or control the customer experience. Beneath the national big dawgs are a ton of regional chains and independent players that still command a meaningful local share, especially in rural markets. 

ORLY’s strengths are embedded in its DNA, the company executes with discipline and scale, and it leverages one of the industry's most optimized distribution networks. This adds a layer of complexity that is difficult to copy. A weakness of ORLY is its geographic concentration; the company remains entirely in North America with a growing presence in Mexico. They have no exposure to international markets in Europe and Latin America. Additionally, ORLY is a capital-intensive business that requires upfront investment, working capital, and high inventory across its stores. ORLY has several opportunities, including gaining market share in the DIFM segments in underserved markets, along with its e-commerce fulfillment capabilities. Long-term threats include the rise of EVs, which require fewer parts and less maintenance. As well as Amazon, although they have failed to match the immediacy, specificity, and delivery infrastructure required to challenge ORLY. 

At the heart of ORLY’s moat is its supply chain, strong inventory control, and human capital that have been reinforced by its logistics network that is built around regional hubs and local stores that act as micro distribution centers. ORLY’s private label brands are also another edge, the brands include BrakeBest, MasterPro, and Murray, all of which are growing rapidly and deliver strong margins versus third-party brands. Brand reputation and consistency add another layer to ORLY’s moat, the company is not flashy but trusted amongst professionals. 

Entering the aftermarket parts space at scale is very hard; the barriers to entry are big. You’ll need lots of money, data, vendor networks, and an excellent service. Any new entrant would need to build up a network of thousands of stores, 30+ distribution centers, and manage over 200,000 SKUs with real-time inventory precision. Switching costs, especially for DIFM customers, are not contractual but operational as garages rely on ORLY for part compatibility, speed of service, and technical support. Changing suppliers means risking incorrect parts, delayed repairs, and lost throughput. ORLY doesn’t just fulfill demand, but it has become a non-optional part of its customers' business models. 

ORLY’s balance sheet is tight as fuck. In 2024, the company reported a nice revenue of $16.71 billion, up 6% YoY. Gross profit also rose to $8.55 billion with gross margins of 51%. Net income for the year came in at a whopping $2.39 billion, which was flat YoY due to a one-time adjustment to the company's insurance reserve taken in Q4. Without this charge, adjusted net income was slightly higher. Although the company ended 2024 with $7.92 billion in total debt, balanced across short-term and long-term maturities, while cash reserves were just $130 million. ORLY’s negative working capital model and robust operating cash flow allow them to operate without a large cash buffer. This accounting structure is not a red flag but a capital strategy. 

ORLY loves leverage and is comfortable with it as they have no immediate debt maturities that would threaten liquidity or flexibility. ORLY uses this capital to access the capital markets as a tool to finance its growth while returning capital to shareholders. ORLY doesn’t hold capital but recycles it into share repurchasing shares and reinvestment back into the company. ORLY’s cash flow profile is one of the cleanest in retail, with operating cash flow exceeding $6.4 billion in the trailing twelve months. This is supported by consistent net income and tight non-cash working capital management. Unlike other retailers, ORLY doesn’t need to dilute shareholders or pursue high-risk bets to grow.

Key return and valuation ratios reinforce ORLY’s superiority within its peer group. Its ROIC remains in the 22-27%, well above the company’s weighted average cost of capital of 7%. This capital allocation strategy suggests that every dollar creates real shareholder value. Traditional metrics like PE and its EV/EBITDA may appear to be rich at a glance, but they reflect the company’s operational dominance and durability compared to peers like AutoZone and Advanced Auto Parts. ORLY operates at a premium compared to its peers but has earned it through superior margins, higher ROIC, and more consistent EPS growth. ORLY is a business built for compounding, not quarterly wins, but long-term outperformance baked into every dollar of capital deployed. 

ORLY has continued to expand its product portfolio, pricing capabilities, and geographic reach organically for years. Pricing power remains high across core and private label SKUs, with customers willing to absorb moderate price increases due to the urgency of repairs and a lack of alternatives. At a store level, comparable sales growth has remained in the low single digits, showing steady demand across both DIY and DIFM segments. The firm also continues to deepen inventory per store, increasing the average from around $806k per location in 2024, to increase that by 5% annually. Each incremental SKU and store translates into higher organic revenue and stabilizes the same-day delivery network. With over 6000 stores and plans to add 200 annually, there remains significant runway for market share gains in metro and suburban areas where density is still low. 

While ORLY has primarily focused on organic expansion, they have a small and strong track record of strategic M&A to support its supply chain and geographic diversification. Several major acquisitions include CSK in 2008 and Mexico’s Mayasa in 2019, which enabled them to upgrade their market reach and supply chain outside of the U.S. Recently, ORLY acquired Group Del Vasto in Canada, marking the firm's debut in the Canadian markets. These deals strengthened ORLY’s moat as each acquisition brought on expanded distribution, deeper relations with jobber networks, and strong synergies. Given ORLY’s disciplined integration playbook, future acquisitions could accelerate growth and improve margins.  

There are several major growth drivers that will accelerate ORLY’s growth, including demographic tailwinds, tariffs, and innovation in DIFM. Tariffs are favorable for ORLY as domestic part inflation can be passed through with minimal margin impact. On the margin side, expansion of private label will continue to boost margins along with inventory efficiency gains from AI-powered forecasting. Lastly, incremental cost leveraging across SG&A and logistics from a broader store scale will contribute to margin upside. 

Behind the scenes, ORLY is scaling its backbone through improving its distribution, automation, and tech development. In 2024, ORLY introduced advanced warehousing, which nearly doubled throughput per warehouse. New DC builds, retrofits, and automated retrieval systems, which included cutting-edge robots, enabled a strategic shift toward increasing efficiency and lowering lead times. On the R&D and tech side, investment in inventory optimization and diagnostic tool integration supports its DIFM ecosystem. Although explicit capex for tech initiatives isn’t disclosed, SG&A trends show infrastructure spend persists, with marginal RIO in throughput, delivery speed, and data leverage. Each growth level juices up the others, driving not just incremental growth, but expanding margin efficiency and customer friction reduction. 

ORLY relies on lean inventory flows, overseas sourcing, and complex vendor networks, all of which can create pain points within the company’s supply chain. Disruptions like port strikes, geopolitical tensions, or natural disasters could strain inventory and increase costs. Management and execution risks are also real, as the firm has goals of opening 200 stores annually. This requires strong forecasting accuracy, inventory optimization, and strong labor quality. A slowdown in same-store sales with paired SG&A could hurt margins as well. 

Broader macroeconomic headwinds, including weakening consumer sentiment, rising interest rates, or a recession, could derail demand. In 2024, ORLY lowered its outlook due to softer demand in suspension categories, adjusting comparable store sales expectations down 3%. New cybersecurity mandates could also affect connectivity in vehicles, which may disrupt supplier structures and increase costs. Players like Amazon or Carparts could undercut pricing, especially on commoditized SKUs. While ORLY's delivery speed and private label mix offer some protection, a shift toward lower custom online channels could reduce margins. 

ORLY trades at premium multiples, which reflects high investor expectations. Any slowed growth could hurt stock valuation.  With a 33x PE, 24x EBITDA, and 6x revenue multiples, ORLY is priced like a high-growth software or dominant consumer franchise. ORLY could be seen as a dangerous bet when the core business is exposed to consumer cyclicality, vehicle mix shifts, and operational strain from 200+ stores built per year. ORLY is a world-class business that the market is pricing for perfection; if they miss a beat on growth or execution, they will begin to bleed fast. 

Looking out into the long term, the lads see a strong path to a $150 billion market cap, representing major upside in the long term. Although this path assumes steady growth at 6-8% top-line growth from continued expansion and wallet share from the professional segment. Also, with a continued stock buyback program, EPS could compound at 12%+ CAGR. The aftermarket is growing as vehicles become more complex, and ORLY sits at the center of that shift. They are building the infrastructure and ecosystem to lock in long-term demand. But there is a big risk from challengers like Amazon or Walmart if they can scale a faster and cheaper party delivery model. 

The bad boys over at Azar Capital Group will be giving O’Reilly Automotive a ‘BUY’ rating as they are a compounding machine with strong barriers to entry, supplier supply chains, and a cash-generating machine that's still accelerating. Commercial sales in the DIFM segment are growing faster than retail, driven by deeper integration with mechanical software and rapid delivery expectations. O’Reilly’s new distribution centers are beginning to show strong margin leverage, and as they continue to scale units per delivery, costs will decline, which will unlock operating income and strengthen the company's supply chain even further. 

Disclosure

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