🗞️ O'Reilly Automotive: The 100-Bagger Blueprint

Happy Sunday!

This week we’re talking Tesla’s deliveries beat, Nike’s lackluster quarter, and the blueprint behind one of the best investments of the last 30 years.

Let’s dig in.

News Roundup

• Tesla Deliveries: On Tuesday, Tesla reported its vehicle deliveries for its fiscal year 2024 2nd quarter. The leading EV manufacturer delivered just under 444,000 vehicles for the quarter, which was a ~5% decline from the same period a year ago but still topped Wall Street’s expectations.

  Deliveries are seen as a leading indicator for Tesla’s overall revenue, which is why Tesla’s stock jumped 26% this week, but changes in the average selling price can impact the total sales as well. Tesla is slated to report its full 2nd quarter earnings figures on July 23rd.

• Boeing Acquires Spirit: On Monday, the world’s largest aerospace company by market cap Boeing, announced that it’s acquiring one of its leading suppliers Spirit AeroSystems. The acquisition is an all-stock deal valuing the equity at $4.7 billion, with a total acquisition price of $8.3 billion inclusive of Spirit’s existing debt.

  This acquisition has been rumored for a while, and talks officially began just weeks after a fuselage panel blew out while in the air on a Boeing 737. Boeing CEO Dave Calhoun stated “By reintegrating Spirit, we can fully align our commercial production systems, including our Safety and Quality Management Systems”.

• Nike’s Lackluster Quarter: Leading apparel retailer Nike reported worse than expected results last Friday. The sneaker giant saw a 2% decline in revenue compared to the same period a year ago and even pulled its sales guidance for the full-year. Nike now expects a decline in revenue for the upcoming fiscal year, and cited softer sales from China as a headwind. The underwhelming revenue figures led to a 20% decline in Nike’s stock following the report.

  The day after Nike’s stock collapsed, board member Robert Swan bought roughly $225,000 worth of shares increasing his total position by 14%.

Company Spotlight

O’Reilly: The Blueprint of a 400-Bagger

$10,000 invested in O’Reilly Automotive’s 1993 IPO would today be worth $4.25 million.

In other words, over the last ~30 years, O’Reilly has been a more than 400-bagger for investors.

So how does such a seemingly simple concept generate such staggering returns for investors?

Here’s the O’Reilly blueprint:

1.) A Simple, Replicable Model

O’Reilly’s business model isn’t complex, but they’ve fine-tuned the little details over decades. From iconic signage and ample parking at its stores, to a robust supply chain that can deliver 152,000 SKU’s same-day or overnight, O’Reilly has optimized its business to provide professional and individual customers with the best experience possible.

O’Reily adds ~200 new stores every year and leans on its proprietary software and systems to help power those stores from day 1.

2.) Industry Tailwinds

Beyond having a fine-tuned model that’s easy to replicate across the country, O’Reilly also serves a massive and growing addressable market.

The number of cars on the road in America grows on average 1% every year and the age of that fleet continues to increase as well. As cars age, they grow out of manufacturer warranties and go through more routine maintenance cycles.

This subtle tailwind helps boost O’Reilly’s per store sales, as the number of customers it serves each year continues to grow. This is evident in the company’s average same store sales growth of nearly 6% annually over the last decade.

3.) Scale Economies Shared

As O’Reilly has grown, they’ve generated cost savings across the business. Whether it’s through shared resources across their stores like their parts catalog, lower marketing spend as a percentage of revenue, or cheaper rates from suppliers, O’Reilly benefits from its scale.

But lots of companies have economies of scale, few companies return those cost advantages back to their customers. O’Reilly reinvests its earnings back into the business in a number of ways. Where it can, the company reduces prices for customers when it receives lower prices from suppliers. But O’Reilly also invests in the customer experience with by adding delivery vehicles, building new distribution centers, developing robust in-store software, manufacturing their own cheaper private-label brands, and much more.

All these efforts to improve the customer experience lead to deeper competitive advantages and further incentive for customers to come back.

4.) Rational Capital Allocation

O’Reilly has amplified its returns for shareholders by being extremely diligent and consistent about its capital allocation strategy. The first place the company looks to deploy capital is into its own business, either through opening new stores, expanding its supply chain, or improving its in-store technology.

Second, O’Reilly is willing to acquire competitors when the opportunity makes sense. Typically, this allows O’Reilly to acquire new locations and rebrand them into O’Reilly stores at a discount of what it would cost to build out each location independently.

And lastly, O’Reilly buys back stock… lots of stock. The company has reduced its available shares outstanding by 6% a year over the last decade, which has been a major accelerator of the company’s per share earnings growth.

Meme of the week

It has been quite a ride for Meta shareholders over the last 3 years. From an advertising industry slowdown and concerns over limitless capital expenditures on the metaverse, to the “year of efficiency” and reaccelerated growth, it’s been a rollercoaster of emotions for shareholders.

As a virtual embodiment of this success, the CEO and Founder of Meta Mark Zuckerberg released a video of himself living his best life on Thursday. To honor America’s 4th of July, Zuckerberg was wake-surfing in a full suit while also drinking a beer and holding an American flag.