O'Reilly Automotive's CEO is not afraid of Amazon

O’Reilly Automotive CEO Gregory Henslee doesn’t view online retailers like Amazon as a threat.

In the fourth-quarter 2016 earnings call on Wednesday morning, UBS Analyst Michael Lasser asked Henslee about the emerging online competition within the space, particularly on the DIY side.

“We’ve not seen much in our business that’s led us to be very concerned about it,” said Henslee. “These online retailers have been around for a long time and I realise that Amazon is the strongest and the best-run… and I’m a customer for household items and other things. But one of the things that — or some of the things that are a barrier to entry for these guys are that we’re in a very technical business.”

Henslee goes on to explain that when a customer has a problem with their car and they don’t know really know what’s wrong, whether its a battery issue, alternator, or starter motor, O’Reilly employees will go out and test it and help customers install what they need.

“We’ll get them lined up with a technician to help solve their problem if they can’t,” said Haslee in the earnings call. “Many times, their problems are what I call driveability problems, they’re related to sensors, or emission system things that cause the check engine light to come on, or a variety of things. We have highly experienced trained professionals in our stores that help them solve these problems.”

“I mean, it’s just a highly technical business. And then on top of all that, learning and developing the science to know what inventory you need in different markets takes time and experience, and that’s — the reason that our company, one of the reasons we’ve done so well is because we’ve been so good at that, plus there’s almost 36,000 parts stores in the U.S. It’s very convenient to get parts and there’s a high immediacy of need when you have a car problem.”

Haslee sees difficulties for online retailers to penetrate the same market, in light of the valuable services provided by O’Reilly’s employees:

“When I think about the relationships that we have with our professional customers and the dependency that they have on us to provide them training and guidance and access to tools and the equipment to keep their tools running and their equipment running. And how quickly they need parts and how if they’re not sure maybe in a model year change where a car might take one of two parts, we’ll send them both and bring the other one back. We’ll match up parts for them. Just, the list goes on and on and on of the things that we do, plus we’re making a distribution center inventory available to them. In many markets, six, eight times a day, which is — I think that the online retailers, while they will — as they have proven over the years — they will continue to take a little bit of market share here and there, I don’t see them nearly as one of our most prominent competitors.”

Here are the fourth-quarter results from O’Reilly Automotive:

  • 18% increase in earnings to $2.59 per share in the fourth quarter of 2016 from $2.19 in the fourth-quarter in 2015.
  • Quarterly revenues went up 8% to $2.10 billion from $1.95 billion a year ago.
  • Comparable store sales increased 4.8% in the reported quarter compared with a 7.7% rise in the prior-year quarter.
  • Gross profit rose 8% to $1.11 billion (53.1% of sales) from $1.03 billion (52.7% of sales) a year ago.
  • Earnings for full-year 2016 increased 17% to $10.73 per share from $9.17 in 2015
  • Revenues for 2016 improved 8% to $8.59 billion from $7.97 billion in 2015

The stock is up 4.36% at $273.61 a share on Wednesday afternoon.

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