Is this the secret to O'Reilly Automotive's stock success? One fund manager thinks so
Pretty much any way you look at it, Springfield-based O'Reilly Automotive's stock has been a strong performer.
• On Tuesday, for example, shares of ORLY closed on the Nasdaq at 231.76, an all-time high for the company.
• How is the auto parts retailer doing compared to competitors? Shares of ORLY are up about 20.1 percent since the beginning of this year, compared to 9.7 percent for shares of AZO (AutoZone) and 1.9 percent for AAP (Advance Auto Parts) are up. And share price has increased about 928 percent since the beginning of 2005.
Sometime that year is when the Hennessy Focus Fund added stock in O'Reilly, and today the retailer is the fund's largest holding. The fund outperformed 94 percent of its peers over the past five years, according to an article published in Bloomberg Markets in May.
In an interview with Bloomberg, Ira Rothberg, co-manager of the Hennessy Focus Fund, discussed the aspect of O'Reilly that he believes makes it a favorable investment — its number of distribution centers.
"If you're a mechanic, you get the car up on the lift, and you see you need parts A, B, and C," Rothberg told Bloomberg. "You call up your favored distributor, and you say, 'When can you get me these parts and do you have all of them?'"
If a company doesn't, it won't remain favored for long, Rothberg said. And that's where, in his mind, O'Reilly has an advantage.
"O'Reilly has many more distribution centers per store than their competitors," Rothberg told Bloomberg.
A spokesperson for O'Reilly did not respond to multiple News-Leader requests for comment regarding the company's distribution center network. But the company has highlighted it in the past, and an "Analyst Day" in August will be held at a distribution center in Illinois.
"Our robust, regional, tiered distribution infrastructure enables us to provide five-night-a-week delivery service to our stores, supplemented in the majority of our stores with multiple daily deliveries of must-have parts from our local distribution center or hub store," the company said in its 2013 annual report. "This robust distribution network reflects a significant capital investment, but the large breadth of inventory we offer builds strong relationships with both our do-it-yourself and professional service provider customers, because we can deliver the right part to our customers quicker than our competitors."
In an April earnings call, the company announced plans to build what would be its 27th distribution center in Selma, Texas, a northeastern suburb of San Antonio. As of the end of March, O'Reilly said it had 4,433 stores in 43 states. (Missing an O'Reilly presence? Vermont, New York, Rhode Island, Connecticut, Delaware, New Jersey and Maryland).
Dividing 4,433 by the 26 distribution centers that appear to currently be operating would give O'Reilly one distribution center for every 170.5 stores. The Selma distribution center would service 225 stores, O'Reilly said in April.
O'Reilly is the third-largest auto parts retailer by locations, trailing Roanoke, Virginia-based Advance Auto Parts and Memphis, Tennessee-based AutoZone.
According to its 2014 annual report, Advance Auto Parts operated 50 distribution centers as of Jan. 3, 2015, with 5,372 stores. That's one center for every 107 stores. That ratio was lower prior to Advance's acquisition of General Parts International in 2014. According to the Charlotte News & Observer, the Advance had 12 distribution centers beforehand for 4,049 stores — or one for every 337.
AutoZone's website indicates the company has eight distribution centers, as well as a "fulfillment center" in Memphis. The company's 2014 annual report says it operates more than 4,900 stores across 49 states. Dividing 4,900 by nine (counting the Memphis facility) would be one distribution center for every 544 stores.