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ORLY Cuts Guidance, Shares Dip

Zacks Equity Research

O’Reilly Automotive Inc. (ORLY) lowered its sales and earnings guidance for the second quarter of the year due to a slow start in April. The automotive aftermarket retailer provided comparable store sales guidance of 2.0% to 2.5% for the quarter compared with the previous outlook of 3% to 5%. The company also expects earnings to be on the lower end of the previously announced range of $1.13 to $1.17 per share for the quarter.

The stock market reacted vehemently to O’Reilly’s projections. Shares of the company plummeted 14.3% to $82.61 after the market closed yesterday, implying that the projection was beyond market expectation.

In fact, the share price fall was the steepest since the company launched its initial public offering in April 1993 and even more surprising when it surged 36.5% year-to-date. It could not even spare O’Reilly’s competitors Advance Auto Parts Inc. (AAP) and AutoZone Inc. (AZO) from experiencing a dip due to rising concern over the future of automotive aftermarket industry.

In the first quarter of the year, O’Reilly posted a 25% increase in profit to $147 million from $118 million in the same quarter of 2011. These are equivalent to earnings per share of $1.14 during the quarter, up 37% from 83 cents in the first quarter of 2011 and the Zacks Consensus Estimate of $1.04 (all excluding non-recurring items).

Sales during the quarter scaled up 11% to $1.5 billion from $1.4 billion in the same period a year ago. Comparable store sales (adjusted for the impact of Leap Day in the quarter) increased 6.1% in the quarter versus 5.7% in the first quarter of 2011.

For full year 2012, O’Reilly expects comparable store sales gain of 3%–6% and revenues of $6.15 billion–$6.25 billion. The company has projected gross margin of 49.4%–49.8% and operating margin of 15.4%–15.9% and expects to earn $4.47–$4.57 per share for the year. The Zacks #3 Rank (Hold) company will release its second quarter results after the market closes on Wednesday, July 25, 2012.

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