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.

Should you invest $1,000 in O'Reilly Automotive right now?

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The S&P 500 index rose 24% in 2023 and climbed another 23% in 2024, putting together a stellar 24-month return. Investors were pleased with the outcome.

However, this year is so far shaping up to be a disappointment. The S&P 500 is around 15% below its peak, a record that was established in February. Investors are worried that President Donald Trump's trade policies will tip the economy into a recession, so they're taking some risk off the table.

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If you're worried that the market is going to drop even further, then there's one stock to keep an eye on. It's actually up 17% this year, showcasing investor confidence in the business.

Steady as they come

In the past couple of years, the investment community has been enamored with businesses at the forefront of artificial intelligence (AI). The belief is that this technology will disrupt many industries, and so they've generally shifted their portfolios to gain exposure.

O'Reilly Automotive (NASDAQ: ORLY) could not be further from the AI boom. It's a boring aftermarket auto parts retailer that is a steady performer, regardless of macro conditions. And I think the market sees this durability, which is why the share price has jumped double-digits so far in 2025.

Through its 6,378 stores, of which 6,265 are in the U.S., and via its omnichannel presence, O'Reilly sells things like batteries, brakes, motor oil, wiper blades, and filters to both do-it-yourself customers and professional mechanics. Basically, people buy merchandise from O'Reilly to fix up their cars.

In a positive economic backdrop, consumers tend to drive more, increasing the wear and tear on their vehicles. This supports demand for the company. And in difficult economic times, people will hold off buying a new car. Instead, money will go toward maintaining the cars they already own. Again, O'Reilly benefits.

While tariffs are on everyone's mind these days, they might actually end up benefiting O'Reilly as people are discouraged from shopping for new cars because of higher prices. This all-weather appeal might be too hard for investors to ignore.

Strong financials

One of the most important metrics for a retailer is same-store sales (SSS), as it indicates changes in revenue from locations that have typically been open at least a year. O'Reilly has an unbelievable track record, increasing SSS in 32 straight years. The management team expects this figure to rise 2% to 4% this year, which would keep the streak alive.

The business has found a way to maintain its growth trajectory no matter what is happening externally. Unsurprisingly, this has led to strong profit gains, with earnings per share increasing at a compound annual rate of 18.7% in the past decade. With new store openings a key part of the strategy, the bottom line is set to keep growing.

Not on sale

Since mid-April 2015, shares of O'Reilly have catapulted 546% higher. This fantastic gain meaningfully outpaces the broader S&P 500. Consequently, the valuation isn't cheap. Investors who want to own this stock must be comfortable paying a price-to-earnings ratio of 34.2. That's over 40% more expensive than the trailing five- and 10-year average multiples.

The market is clearly very bullish on O'Reilly. That perspective is easy to understand. However, the valuation is too steep, even though this is a high-quality business.

O'Reilly has been a huge winner in the past. But I think it's best for investors to add the stock to the watch list for now. Wait for any sizable pullbacks before considering putting money to work.

Should you invest $1,000 in O'Reilly Automotive right now?

Before you buy stock in O'Reilly Automotive, consider this:

The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and O'Reilly Automotive wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.

Consider when Netflix made this list on December 17, 2004... if you invested $1,000 at the time of our recommendation, you’d have $532,771!* Or when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $593,970!*

Now, it’s worth noting Stock Advisor’s total average return is 781% — a market-crushing outperformance compared to 149% for the S&P 500. Don’t miss out on the latest top 10 list, available when you join Stock Advisor.

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Neil Patel and his clients have 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.