Through the first two weeks of O’Reilly Auto Parts’ second quarter, the combined impact of a pandemic, business closures, stay-at-home guidance and a looming recession looked like a recipe for the perfect storm.  

Then came “the most dramatic swing in demand our business has ever seen,” as CEO Greg Johnson described it.

“[I]n the 63-year history of our company, I can safely say we’ve never seen a quarter like this year’s second quarter,” Johnson said during the company’s July 30 conference call.

As DIY customers began receiving stimulus checks in late April, O’Reilly’s business turned sharply positive, setting the stage for a second quarter that ended with record revenue and earnings. The company reported second-quarter sales of $3.1 billion, up 19% from $2.6 billion in second-quarter 2019. Comparable-store sales jumped 16.2%, while diluted earnings per share rocketed 57% higher to $7.10.

The second quarter, which began on April 1, started where the first quarter left off – with “a continuation of the pressure we saw in our business starting in the middle of March, coinciding with the implementation of stay-at-home recommendations and orders,” Johnson explained. In the third week of April, however, things turned around, although Johnson admitted “we had no way of forecasting the magnitude and the duration of the benefits from these stimulus payments nor could we anticipate what other factors would impact our customers and our business moving forward.”

“Simply put, our sales performance from the third week in April through the remainder of the quarter exceeded all expectations,” Johnson said during the conference call. “During this time frame, our DIY business was the stronger contributor, coming on quickly in the middle of April, improving in May and staying very strong in June. We’re also very pleased with the performance of our professional business. Sales on that side of the business also began to see improvement in the middle of April, but at a more gradual pace than the immediate turnaround in DIY. However, as we progress through the quarter, professional sales continued to strengthen, generating robust comps above our expectations in May and June as stay-at-home orders began lifting and the broader economy began reopening. As a result of this cadence on both sides of our business, total comparable-store sales were similar for May and June, and have remained strong thus far in July.”

Due to the uncertainty brought on by the coronavirus pandemic, O’Reilly withdrew its full-year financial guidance in April. Johnson acknowledged that “just as it would have been tough to predict the sales results we’ve seen, it’s also very difficult to quantify the magnitude of each of the positive macro factors.”

“ … It’s evident from the sharp turn in DIY business that the receipt of governmental stimulus payments under the CARES Act was the first catalyst supporting our sales growth in the quarter,” Johnson explained. “However, given the degree of which robust sales trends have persisted, it’s clear to us that enhanced unemployment benefits have also been a tailwind to the business, and were likely more prominent in driving demand as we moved through the quarter. We also believe that reopening of the economy and the partial recovery of miles driven was a positive factor, especially in our professional business, as our customer-service demographic is more likely to have worked from home during March and April.”

Other possible factors could have included concerns over air travel and other modes of transportation – which could prompt consumers to focus on using and maintaining their personal vehicles – and a shift in customer demand away “from smaller competitors of big-box stores or a more general shift of demand dollars into the automotive aftermarket and away from discretionary expenditures for activities not possible in a COVID environment.”

And let’s not forget the impact of the hot weather, which might have been the headline in any other year.

“There are other beneficial industry dynamics we believe could have contributed to the strong demand in the quarter, but are also difficult to measure over a short period of time,” Johnson added. “We have long-held that times of economic uncertainty motivate consumers to have a more cautious financial outlook, often leading them to postpone the purchase of a new vehicle and invest in maintaining their existing vehicle.”

O’Reilly saw strong demand for products throughout its portfolio, especially in appearance and accessory categories.

“These ticket and category dynamics suggest some of the strong demand we realized in the second quarter as a result of our customers having the ability and desire to work on larger projects as they had more time to spend repairing and maintaining their vehicles,” Johnson said.

‘We Remain Very Cautious’

As difficult as it is to pinpoint exactly which factors played the biggest roles in driving second-quarter demand, it might be even harder to predict what’s going to happen in the second half of 2020.

“As we look forward to the balance of the year, we remain very cautious in our sales outlook and recognize the significant uncertainty that still exists concerning the duration of the current positive market backdrop,” Johnson said during the conference call. “In particular, we can’t project the potential impact an expiration of the enhanced unemployment benefits would have and can’t speculate as to whether there will be additional government stimulus or the degree to which our demand would benefit. We also remain concerned that continued pressure to miles driven from difficult economic conditions and increased work-from-home arrangements could be a headwind if other positive catalysts prove to be temporary.

“Ultimately, we expect to see a moderation of the record-setting sales pace at some point in the back half of 2020, but feel very confident our company can continue to deliver solid sales growth even if the broader economic conditions deteriorate. As important as general market factors were the catalyst for our growth in the second quarter, we could not have delivered such outstanding top-line results without the incredible execution by our team. It’s one thing to have strong demand. It’s another to live up to the challenge of having the right part at the right time to take care of customers, while the business is on fire and we’re allocating additional time to safety precautions. It takes a tremendous amount of hard work to handle the extra volume we saw this quarter and the outstanding contributions of our team were reflected in the strongest profit margins in the history of our company.”