# How O'Reilly Automotive makes money

CXProWealth Business Lens · O'Reilly Automotive (ORLY) · Q2 FY2026

Read from the 10-Q for the period 2026-04-01 to 2026-06-30, filed 2026-08-07 with the SEC (accession 0000898173-26-000045): https://www.sec.gov/Archives/edgar/data/898173/000089817326000045/

Business Lens explains how a company earns, spends and keeps its money, from its own filings. It is insight and context, never a view on the shares, a target, or advice. Figures are raw units as filed; percentages are percentage points.

## Headline figures

- Revenue: $4.9B (+8.1% on the year)
- Operating income: $985.7M (operating margin 20.2%)
- Net income: $715.1M (net margin 14.6%)
- Gross margin: 51.4%
- Free cash flow: $698.9M (14.3% of revenue)
- Cash conversion (operating cash flow / net income): 1.41x
- Capital expenditure: 6.3% of revenue

## Where the money goes (Q2 FY2026)

- Sales → Cost of goods sold, including warehouse and distribution expenses: $2.4B
- Sales → Gross profit: $2.5B
- Gross profit → Selling, general and administrative expenses: $1.5B
- Gross profit → Operating income: $985.7M
- Operating income → Total other expense: $61.7M
- Total other expense → Interest expense: $69.9M
- Interest income → Total other expense: $1.6M
- Other, net → Total other expense: $6.6M
- Operating income → Income before income taxes: $924.1M
- Income before income taxes → Provision for income taxes: $209.0M
- Income before income taxes → Net income: $715.1M

## Where the revenue comes from

### MajorCustomers (REVENUE (Disaggregation of Revenue) (Details))

| Member | Value | Share |
|---|---:|---:|
| Professional service provider customer | $2.5B | 50.5% |
| DIY customer | $2.3B | 47.8% |
| Other customers and sales adjustments | $85.6M | 1.7% |

The members sum to total revenue.

## Income statement, as filed

| Line | Q2 FY2026 | Of revenue |
|---|---:|---:|
| Sales | $4.9B | 100% |
| Cost of goods sold, including warehouse and distribution expenses | $2.4B | 48.6% |
| **Gross profit** | $2.5B | 51.4% |
| Selling, general and administrative expenses | $1.5B | 31.3% |
| **Operating income** | $985.7M | 20.2% |
| Interest expense | ($69.9M) | 1.4% |
| Interest income | $1.6M | 0.0% |
| Other, net | $6.6M | 0.1% |
| **Total other expense** | -$61.7M | 1.3% |
| **Income before income taxes** | $924.1M | 18.9% |
| Provision for income taxes | $209.0M | 4.3% |
| **Net income** | $715.1M | 14.6% |
| Earnings per share | $1 | 0.0% |
| Weighted-average common shares outstanding - basic | 825,197,000 |  |
| Earnings per share | $1 | 0.0% |
| Weighted-average common shares outstanding - assuming dilution | 828,875,000 |  |

## History

| Period | Revenue | Operating income | Net income | Operating cash flow | Capital expenditure | Free cash flow |
|---|---:|---:|---:|---:|---:|---:|
| FY2008 | $3.6B | $335.6M | $186.2M | $298.5M | $341.7M | -$43.1M |
| FY2009 | $4.8B | $537.6M | $307.5M | $285.2M | $414.8M | -$129.6M |
| FY2010 | $5.4B | $712.8M | $419.4M | $703.7M | $365.4M | $338.3M |
| FY2011 | $5.8B | $866.8M | $507.7M | $1.1B | $328.3M | $790.7M |
| FY2012 | $6.2B | $977.4M | $585.7M | $1.3B | $300.7M | $950.8M |
| FY2013 | $6.6B | $1.1B | $670.3M | $908.0M | $395.9M | $512.1M |
| FY2014 | $7.2B | $1.3B | $778.2M | $1.2B | $430.0M | $760.4M |
| FY2015 | $8.0B | $1.5B | $931.2M | $1.3B | $414.0M | $931.5M |
| FY2016 | $8.6B | $1.7B | $1.0B | $1.5B | $476.3M | $1.0B |
| FY2017 | $9.0B | $1.7B | $1.1B | $1.4B | $465.9M | $937.7M |
| FY2018 | $9.5B | $1.8B | $1.3B | $1.7B | $504.3M | $1.2B |
| FY2019 | $10.1B | $1.9B | $1.4B | $1.7B | $628.1M | $1.1B |
| FY2020 | $11.6B | $2.4B | $1.8B | $2.8B | $465.6M | $2.4B |
| FY2021 | $13.3B | $2.9B | $2.2B | $3.2B | $442.9M | $2.8B |
| FY2022 | $14.4B | $3.0B | $2.2B | $3.1B | $563.3M | $2.6B |
| FY2023 | $15.8B | $3.2B | $2.3B | $3.0B | $1.0B | $2.0B |
| FY2024 | $16.7B | $3.3B | $2.4B | $3.0B | $1.0B | $2.0B |
| FY2025 | $17.8B | $3.5B | $2.5B | $2.8B | $1.2B | $1.6B |

Latest trend (the newest full year against the year before; a reading, not a forecast):

- Revenue: +6.4% (year before +5.7%): steady
- Operating income: +6.4% (year before +2.0%): accelerating
- Net income: +6.3% (year before +1.7%): accelerating
- Free cash flow: -21.4% (year before -0.1%): slowing

## Operating figures stated in the filing

- Stores in the U.S. and Puerto Rico: 6,541 stores (as of 2026-06-30). "As of June 30, 2026, we operated 6,541 stores in 48 U.S. states and Puerto Rico, 126 stores in Mexico, and 28 stores in Canada." (Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations)
- Stores in Mexico: 126 stores (as of 2026-06-30). "As of June 30, 2026, we operated 6,541 stores in 48 U.S. states and Puerto Rico, 126 stores in Mexico, and 28 stores in Canada." (Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations)
- Stores in Canada: 28 stores (as of 2026-06-30). "As of June 30, 2026, we operated 6,541 stores in 48 U.S. states and Puerto Rico, 126 stores in Mexico, and 28 stores in Canada." (Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations)
- Comparable store sales growth, quarter: 6.0% (as of 2026-06-30). "Comparable store sales increased 6.0% and 4.1% for the three months ended June 30, 2026 and 2025, respectively." (Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations)
- Comparable store sales growth, quarter: 4.1% (as of 2025-06-30). "Comparable store sales increased 6.0% and 4.1% for the three months ended June 30, 2026 and 2025, respectively." (Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations)
- Comparable store sales growth, six months: 7.0% (as of 2026-06-30). "Comparable store sales increased 7.0% and 3.9% for the six months ended June 30, 2026 and 2025, respectively." (Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations)
- Comparable store sales growth, six months: 3.9% (as of 2025-06-30). "Comparable store sales increased 7.0% and 3.9% for the six months ended June 30, 2026 and 2025, respectively." (Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations)
- Net new stores opened, quarter: 51 stores (as of 2026-06-30). "We opened 51 and 110 net, new stores during the three and six months ended June 30, 2026, respectively, compared to opening 67 and 105 net, new stores during the three and six months ended June 30, 2025, respectively." (Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations)
- Net new stores opened, quarter: 67 stores (as of 2025-06-30). "We opened 51 and 110 net, new stores during the three and six months ended June 30, 2026, respectively, compared to opening 67 and 105 net, new stores during the three and six months ended June 30, 2025, respectively." (Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations)
- Net new stores opened, six months: 110 stores (as of 2026-06-30). "We opened 51 and 110 net, new stores during the three and six months ended June 30, 2026, respectively, compared to opening 67 and 105 net, new stores during the three and six months ended June 30, 2025, respectively." (Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations)
- Net new stores opened, six months: 105 stores (as of 2025-06-30). "We opened 51 and 110 net, new stores during the three and six months ended June 30, 2026, respectively, compared to opening 67 and 105 net, new stores during the three and six months ended June 30, 2025, respectively." (Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations)

## Key insights

### Repair shops now buy more than half, margin still rose

Professional customers bought $2.47B, 50.48% of sales, yet gross margin edged up 0.03 points to 51.45% as purchasing savings outran the mix drag.

Professional service provider customers bought $2.47B in the quarter and DIY customers $2.34B, out of $4.89B in sales: 50.48% against 47.77%. The filing says shop sales "carry a lower gross margin percentage than DIY sales," so a mix that moves toward the shops pulls gross margin down on its own. _(from the filing)_
Gross margin still edged up 0.03 points to 51.45%. The filing attributes the gain to "improved acquisition costs and distribution operating efficiencies," which more than offset the mix. Gross profit grew 8.18% to $2.52B, against sales growth of 8.11%. _(from the filing)_
Analysis: the steady margin is two forces of similar size pulling in opposite directions, not a business standing still. The shop side brings volume and daily repeat orders; purchasing and distribution have to keep finding savings at the pace the mix moves for the blended margin to hold. _(analysis)_

### Bigger tickets, not more DIY visits, carry growth

Comparable store sales rose 6.0% against 4.1% a year earlier, driven by higher average tickets while DIY transaction counts fell.

Sales rose 8.11% to $4.89B. Comparable store sales grew 6.0%, against 4.1% in the same quarter a year earlier, and 7.0% for the half year against 3.9%. The filing attributes the gain to higher average tickets for both customer types and more professional transactions, "partially offset by a decrease in transaction counts for DIY customers." _(from the filing)_
The filing gives two reasons tickets are rising: higher average selling prices on a same-SKU basis, and "the increasing complexity and cost of replacement parts." It ties the same cause to the traffic decline: better-engineered vehicles "require less frequent repairs," which "creates pressure on customer transaction counts." _(from the filing)_
Analysis: one trend, more durable and more complex cars, lowers how often a DIY customer comes in and raises what each visit is worth. Growth depends on the second effect staying larger than the first, and part of the ticket gain is pricing rather than volume. _(analysis)_
New stores added less in the quarter: 51 net new stores opened, against 67 in the same quarter a year earlier, though 110 opened in the half year against 105. _(from the filing)_

### Heavier investment cut free cash flow as profit grew

Capital spending took 42.3% of operating cash flow in FY2025 against 13.8% in FY2021, so free cash flow fell while operating income rose.

Between FY2021 and FY2025, operating income rose from $2.92B to $3.46B, but free cash flow fell from $2.76B to $1.59B. Capital spending rose from $442.9M, 3.32% of sales, to $1.17B, 6.57% of sales, while operating cash flow eased from $3.21B to $2.76B. _(from the filing)_
The step came in FY2023, when capital spending reached $1.01B, against $563.3M in FY2022. The filing links the timing of capital spending to store and distribution expansion and enhancement projects. _(from the filing)_
This quarter reads differently: operating cash flow was $1.01B, 1.41 times net income, and free cash flow $698.9M, against $456.1M in the same quarter a year earlier, with capital spending of $307.6M against $300.7M. For the half year the filing ties the cash gain mainly to the "timing of payment for transferrable federal renewable energy tax credits" and higher operating income. _(from the filing)_
Analysis: the quarter's free cash flow is not yet evidence that the investment cycle has ended. Part of the gain is tax timing the filing names, and capital spending in the quarter was close to its level a year earlier. The full-year figures are the better test. _(analysis)_

### Competitive edge

- **One set of shelves serves two customer types** DIY and repair shop customers draw on the same stores and stock, which the filing names first among its competitive advantages.
- **Same-day parts access is what customers pay for** Warehouse and distribution costs sit inside cost of goods, 48.55% of sales, because getting the part to the store fast is the product.
- **Supplier terms let cash run ahead of profit** Supplier finance programs let vendors carry much of the stock, which helps explain FY2025 operating cash flow of $2.76B against net income of $2.54B.

### What to watch

- **Borrowing costs rise faster than operating profit** Interest expense rose 21.86% to $69.9M against operating income growth of 7.79%, taking 7.09% of operating income versus 6.27% a year earlier.
- **Operating costs grew faster than sales** SG&A rose 8.42% against sales growth of 8.11%, reaching 31.3% of sales, and operating margin slipped 0.06 points to 20.15%.
- **Inflation lifts tickets but can squeeze DIY budgets** Same-SKU price increases lifted average tickets, yet the filing warns that inflation and fuel costs outrunning wages could cut consumers' disposable income.

## Investor view

**Professional shops now bring O'Reilly 50.5% of sales, and gross margin still edged up**

### How it makes money

O'Reilly buys auto parts, tools and supplies and resells them through its stores to two kinds of buyer at once: people fixing their own cars and the repair shops that fix cars for others. The filing calls this its "dual market strategy." In the second quarter the shops bought $2.47B and do-it-yourself customers $2.34B, out of $4.89B in sales. _(from the filing)_
The spread between what it pays for parts and what it charges is wide. Gross profit was $2.52B, 51.45% of sales, after a cost of goods line that already includes warehouse and distribution expense. Staff, store rent and everything else in SG&A took $1.53B, 31.3% of sales, which left operating income of $985.7M, a 20.15% margin. _(from the filing)_
What the customer pays for is availability and choice. The filing credits a "strategic distribution and hub store network that provides same day and over-night inventory access" for its stores, and a "good," "better," and "best" range in most product lines, where sales and gross profit dollars are "generally, highest" in the top tier. The chain had 6,541 stores in the U.S. and Puerto Rico, 126 in Mexico and 28 in Canada. _(from the filing)_
Demand follows the vehicle fleet. The filing names miles driven, registered vehicles, new vehicle sales and average vehicle age as the long-run drivers, and says older, out-of-warranty cars "generate strong demand" because they need more maintenance. Weather makes the business seasonal: operating margin was 18.45% of sales in the first quarter of this year and 20.15% in the second, which the filing says is historically one of the two strongest. _(from the filing)_

### What shifted

Sales rose 8.11% to $4.89B. Comparable store sales grew 6.0%, against 4.1% in the same quarter a year earlier, and newer stores added the rest. The filing attributes the comparable gain to higher average tickets for both customer types and more professional transactions, "partially offset by a decrease in transaction counts for DIY customers." _(from the filing)_
The mix moved toward the shops. Professional customers were 50.48% of sales against 47.77% for DIY. The filing says that shift weighed on gross margin, because shop sales "carry a lower gross margin percentage than DIY sales," but "improved acquisition costs and distribution operating efficiencies" more than covered it: gross margin edged up 0.03 points to 51.45%. _(from the filing)_
Below gross profit, costs grew faster than sales. SG&A rose 8.42% against sales growth of 8.11%, adding 0.09 points to reach 31.3% of sales; the filing points to "inflationary pressure in costs and higher costs relating to medical and casualty insurance programs." Operating margin slipped 0.06 points to 20.15%. Interest expense rose 21.86% to $69.9M on "higher average outstanding borrowings," and net margin fell 0.16 points to 14.62%. _(from the filing)_
Per share, the quarter reads stronger than in total. Net income grew 6.95% to $715.1M, while diluted earnings per share rose to $0.86 from $0.78, because the diluted share count fell to 828.9 million from 858.4 million. The company pays no dividend; share repurchases are how it returns cash. _(from the filing)_
Cash generation improved. Operating cash flow was $1.01B, 1.41 times net income, and free cash flow was $698.9M, 14.29% of sales, against $456.1M in the same quarter a year earlier. For the half year the filing ties the gain mainly to the "timing of payment for transferrable federal renewable energy tax credits" and higher operating income, so part of it is timing. _(from the filing)_

### Risks in the filing

The quarterly report says the risk factors in the latest annual report have not materially changed. Its forward-looking statement lists the main ones: the economy, inflation, consumer debt levels, product demand, competition, weather, and trade disputes including new or higher tariffs. _(from the filing)_
Operations: availability of key products and supply chain disruptions, business interruptions including war and terrorism, damage to or failure of information technology systems including cyber-attacks, and the ability to hire and keep qualified staff. The filing also names challenges in international markets and the performance of acquired businesses. _(from the filing)_
Finance: the company's "increased debt levels," the credit ratings on its public debt, and "historical growth rate sustainability." It says it cannot assure that cash flow and liquidity stay at recent levels, and that weaker demand could affect its ability to meet the covenants of its credit agreement, which set a minimum fixed charge coverage and a maximum leverage ratio. _(from the filing)_
Demand: better-engineered vehicles "require less frequent repairs," which "creates pressure on customer transaction counts." The filing also warns that broad inflation or fuel cost increases that outrun wage growth could cut consumers' disposable income. _(from the filing)_
Two of the named risks already show in this quarter's numbers. Debt: interest expense grew much faster than operating income as borrowing rose. Transaction pressure: DIY visits fell, and growth was carried by ticket size and by professional customers. Neither has yet stopped operating profit from growing. _(analysis)_

## Founder view: mechanisms

### Two customer types share one inventory

O'Reilly stocks one set of parts and sells it to two buyers with different economics. DIY customers pay a higher margin and value advice at the counter. Repair shops pay less per part but buy every day, in volume, and need speed. Because both draw on the same shelves, trucks and distribution centres, the shop business adds sales without a second inventory, and the DIY business keeps the blended margin above what a pure wholesaler would earn. _(analysis)_

### Parts availability is the product

A mechanic with a car on the lift pays for speed, not for the cheapest part. O'Reilly's distribution centres and hub stores keep inventory close to every store so an uncommon part can arrive the same day or overnight. That availability is what lets it charge more than a slower seller, and it is why distribution costs sit inside cost of goods: getting the part there is part of what is sold. _(analysis)_

### Suppliers fund the shelves

O'Reilly sells much of its stock before it has to pay for it. Long supplier payment terms, stretched further by supplier finance programs in which banks pay suppliers early and O'Reilly pays the bank on the original due date, mean vendors carry a large part of the inventory. Growth consumes less cash than a retailer this size would normally need, and operating cash flow can run ahead of earnings. _(analysis)_

### A good, better, best price ladder

Most product lines come in three quality tiers. The customer chooses, but counter staff are trained to explain why the better part is worth it, and the filing says sales and gross profit dollars are highest in the top tier. As parts grow more complex and expensive, the ladder lets average tickets rise without list price increases being the only lever. _(analysis)_

### Buying back shares with cash flow and debt

O'Reilly pays no dividend. It returns cash by repurchasing shares, funded by operating cash flow and by borrowing against steady earnings. Fewer shares divide the profit each year, so earnings per share grows faster than net income. The trade-off is a balance sheet with more debt and, here, a shareholders' deficit, which is sustainable only while earnings stay steady enough to service it. _(analysis)_

## Member research

Signed-in members read, on the page: what O'Reilly Automotive's numbers depend on from here, and the playbook behind each mechanism (what needs scale, what transfers, how to test it, the metric that would show it).

## Sources

- O'Reilly Automotive 10-Q for the period to 2026-06-30: https://www.sec.gov/Archives/edgar/data/898173/000089817326000045/ (2026-08-07)

Methodology business-lens-1.0 · schema 1.2.0 · run business-lens-2026-11-02 · as of 2026-11-02