ORLY Q3 Deep Dive: Professional Segment Drives Growth Amid Tariff-Driven Inflation and Cautious Outlook

Auto parts and accessories retailer O’Reilly Automotive (NASDAQ:ORLY) met Wall Street’s revenue expectations in Q3 CY2025, with sales up 7.8% year on year to $4.71 billion. The company’s outlook for the full year was close to analysts’ estimates with revenue guided to $17.7 billion at the midpoint. Its GAAP profit of $0.85 per share was 2.4% above analysts’ consensus estimates.

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StockStory’s Take

O’Reilly Automotive’s third quarter results met revenue expectations but were met with a negative market reaction, reflecting investor concerns about inflation-driven pressures and shifting consumer behavior. Management pointed to strong growth in the professional segment, which benefited from increased ticket counts and broad-based share gains across markets. However, the do-it-yourself (DIY) segment began to experience modest declines in transaction counts due to rising prices. CEO Brad Beckham noted, “We began to encounter modest pressure to DIY transaction counts midway through the third quarter, which we believe reflects some degree of initial short-term reaction by DIY consumers in response to rising price levels.”

Looking ahead, O’Reilly’s guidance is shaped by expectations of continued inflationary pressures and cautious consumer spending, particularly among DIY customers. Management emphasized their focus on operational discipline, supply chain resilience, and expansion into new markets to offset potential headwinds. CFO Jeremy Fletcher highlighted, “We remain cautious in our outlook on the consumer and expect that we could continue to see a conservative stance from consumers and how they manage spending in this environment.” The company’s ability to maintain pricing discipline and manage supply chain complexity will be key as it targets further growth in both domestic and international markets.

Key Insights from Management’s Remarks

Management attributed Q3’s results to robust professional segment demand, pricing adjustments from tariffs, and ongoing investments in supply chain and store expansion.

• Professional segment outperformance: The professional (commercial) business delivered over 10% same-store sales growth, with management crediting strong ticket count growth and share gains as primary contributors. This segment remains less sensitive to inflation and price changes than DIY customers.
• DIY segment under pressure: The DIY segment experienced low single-digit growth, but management observed modest declines in transaction counts, particularly in larger ticket jobs, as some consumers deferred purchases in response to price increases from inflation and tariffs.
• Tariff-driven pricing and supply chain: Management highlighted significant acquisition cost pressures from tariffs, prompting broad-based pricing adjustments. The majority of the tariff impact is now reflected in product costs, and supply chain teams focused on maintaining inventory availability and supplier diversification to mitigate further risks.
• Expansion and distribution investment: O'Reilly opened 55 new stores in Q3, moving toward a target of 200-210 new locations this year, and will increase to 225-235 next year, including entry into Canada. The company’s new Stafford, Virginia distribution center is expected to support growth in untapped Mid-Atlantic markets.
• SG&A cost management: Inflationary pressures, especially in medical and insurance costs, pushed selling, general, and administrative expenses higher per store. Management stated that while expense control remains a priority, maintaining high service levels continues to drive their approach to cost management.

Drivers of Future Performance

O’Reilly’s outlook for the coming quarters centers on managing tariff-related inflation, consumer demand uncertainty, and continued network expansion.

• Tariff and inflation impacts: Management expects mid-single-digit inflation benefits in the near term, largely driven by prior tariff-related cost increases now flowing through pricing. While the worst of the inflation appears behind, future tariff policy changes remain a risk to costs and margins.
• Consumer behavior and DIY softness: The company anticipates continued cautious spending by DIY customers, with the potential for further deferral of higher-cost repairs. Management believes any negative impact could be temporary but is monitoring for prolonged weakness.
• Store network and geographic expansion: O’Reilly plans to accelerate store openings in 2026, including its first locations in Canada, aiming to capture additional market share and offset macroeconomic headwinds. The company views international markets, particularly Mexico and Canada, as significant long-term opportunities.

Catalysts in Upcoming Quarters

In the coming quarters, the StockStory team will be watching (1) whether professional segment growth can offset persistent softness in DIY demand, (2) the pace and success of new store openings in existing and new markets like Canada, and (3) stabilization of SG&A expenses amid continued inflationary pressures. Supply chain resilience and tariff policy shifts will also be important drivers of near-term performance.

O'Reilly currently trades at $97.76, down from $101.19 just before the earnings. Is there an opportunity in the stock?Find out in our full research report (it’s free for active Edge members).

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