Is O'Reilly Automotive Worth Buying? This Surprising Q1 Revelation Can Help You Decide.

O'Reilly Automotive (NASDAQ: ORLY) had a decent fiscal 2025 first quarter when you look at its overall results. But when you actually dig into the earnings release a little bit, you see that there's more here than meets the eye.

Here's how this auto parts retailer really managed to increase its earnings year over year in the first quarter of 2025.

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What does O'Reilly Automotive do?

O'Reilly Automotive is, at its core, a retailer. What it sells are auto parts. Not a complex business by any stretch of the imagination, though the company does serve both the do-it-yourself and the professional markets (they each have very different sales dynamics). The company operates around 6,400 stores across North America, which is a pretty big footprint.

Image source: Getty Images.

As a retailer, there are two main ways for the business to grow. The first is via new store openings. Management is planning on opening roughly 200 new locations in 2025. The other way is to do more business in the stores it already owns, which is tracked by same-store sales. In the first quarter, O'Reilly's same-store sales increased 3.6%. That's not bad at all and, when combined with new store openings, should help to drive reasonable top-line growth.

When you look at the income statement from the first quarter of 2025, sales (the top line) increased by 4%. Slow and steady is hard to complain about, given the uncertainty that had consumers worried about the possibility of a recession during most of the first quarter. Earnings, however, were up only roughly 2%, which isn't quite as good as the sales growth.

Digging into O'Reilly's income statement

The difference between sales and earnings is the first sign that investors should take a closer look at O'Reilly's income statement. This is where the story gets a lot more complicated for what is a fairly simple business.

O'Reilly's sales rose 4%, as noted. And while its cost of sales (basically the cost of the auto parts it sold) rose, the gross profit figure advanced year over year. So far, so good. The problem starts when you take one more step down the income statement to look at selling, general, and administrative costs. That's basically what it costs the company to run its stores.

This figure went up year over year, too, and more than offset the gross profit increase. Add in a few more puts and takes along the way, and O'Reilly's net income fell year over year from $547 million in the first quarter of 2024 to $538 million in the first quarter of 2025.

That's not great news. But the interesting thing is that the company's earnings-per-share figure for the quarter rose from $9.20 in the first quarter of 2024 to $9.35 in the first quarter of 2025. Net income was lower, but earnings per share was higher? That doesn't make logical sense until you examine the share count, which fell 3% year over year. So, net income was spread across fewer shares, resulting in the higher earnings figure.

O'Reilly Automotive is doing what needs to be done

To be fair, O'Reilly isn't playing games or doing anything wrong. It is facing a difficult period and doing what it can to continue growing its earnings. In this case, that required buying back stock. A lot of companies do this.

The problem is that the first quarter's results were, perhaps, not quite as strong as a cursory look at the earnings release might indicate. In fact, the earnings advance year over year was around 1.6%, so the stock buyback only offset part of the profit impact of the company's rising costs. If you own O'Reilly or are thinking about buying it, you might want to pay a little more attention to the company's rising operating costs. They could be a bigger headwind than you think.

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Reuben Gregg Brewer has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.