01—Abstract
Summary
Summary of the 10-K filed March 30, 2001. Cited figures are marked; the original filing is the authoritative source.
O'Reilly Automotive (ORLY) closed fiscal 2000 with record results: product sales rose 18.1% to $890.4 milliona from $754.1 million, driven by 101 net new stores (672 year-end, up from 571) and a 4.0% increase in same-store product sales.
Net income grew 13.3% to $51.7 millionb, or $1.00 per diluted share, versus $0.92 in 1999. Gross margin held roughly flat at 43.0%, while operating, selling, general and administrative expenses held at 32.9% of sales, so operating income grew 17.1% to $90.0 million. Higher interest expense on increased borrowings pushed other expense to $6.9 million, but the effective tax rate was essentially unchanged at 37.8%.
The balance sheet and cash flow picture is more mixed. Inventory rose to $372.1 millionc from $293.9 million, and operating cash flow fell sharply to $5.8 million from $29.7 million as inventory build absorbed cash. The company funded expansion through a December 2000 sale-leaseback of 90 properties for $52.3 million, which reduced revolver borrowings, and a new $50 million synthetic operating lease facility.
Total debt, including short-term notes payable of $35.0 milliond and long-term debt of $90.5 million, remained manageable against shareholders' equity of $463.7 million. Management plans to open about 120 stores in 2001 and about 145 in 2002, with the sites for 2001 already identified.
Key risks for investors include geographic concentration (about 40% of stores in Texas), dependence on key O'Reilly family members who control significant voting power (about 19.2% ownership), and the company's reliance on continued store growth to drive results. The company also reported a favorable verbal settlement of the Hi/LO battery class action lawsuit, which management does not expect to be materially adverse.
02—Key points
Key Highlights
- Product sales increased 18.1% to $890.4 million in 2000, with same-store sales up 4.0%.
- Net income rose 13.3% to $51.7 million; diluted EPS was $1.00 versus $0.92 in 1999.
- Store count reached 672 at year-end after a net addition of 101 stores, including 63 in Texas.
- Gross margin was stable at 43.0%, and operating income grew 17.1% to $90.0 million.
- Operating cash flow dropped to $5.8 million from $29.7 million, driven by a $78.1 million inventory build.
- A $52.3 million sale-leaseback of 90 properties and a $50 million synthetic lease facility support continued expansion.
- Plans call for about 120 new stores in 2001 and 145 in 2002, with 2001 sites already identified.
03—Questions
Frequently Asked Questions
How profitable was O'Reilly Automotive in 2000 and how did it compare to 1999?
Net income was $51.7 million in 2000, up 13.3% from $45.6 million in 1999. Diluted EPS rose to $1.00 from $0.92. Net margin declined slightly to 5.8% of product sales from 6.1%, mainly because of higher interest expense.
What is driving the company's sales growth?
Growth came from two sources: 101 net new stores opened during 2000, which contributed most of the 18.1% sales increase, and a 4.0% increase in same-store sales. Management attributes the same-store gains to a broader product selection, expanded promotions and advertising, improved store layouts, and a continued focus on professional installers.
Why did operating cash flow decline so sharply in 2000?
Operating cash flow fell to $5.8 million from $29.7 million mainly because inventory rose $78.1 million to support store growth and the broader product line. Higher receivables and vendor receivables also contributed, partly offset by higher net income and payables. Management described the inventory build as the primary cause.
How is the company financing its store expansion?
The company used a $52.3 million sale-leaseback of 90 properties completed in December 2000 to reduce revolver borrowings, and it entered a $50 million synthetic operating lease facility to fund future store development. It also relies on operating cash flow and its $152.5 million unsecured credit facility, which carried a 7.0% effective rate and matures in January 2003.
What are the main risks to investing in O'Reilly Automotive?
Key risks include intense competition from larger chains such as AutoZone and Advance; dependence on store growth to sustain results; concentration of about 40% of stores in Texas, which exposes the company to regional economic and weather conditions; reliance on key executives; and control by the O'Reilly family, which owns about 19.2% of shares and can exercise significant voting influence over major corporate decisions.
04—Continue