01—Abstract
Summary
Summary of the 10-K filed March 29, 2002. Cited figures are marked; the original filing is the authoritative source.
O'Reilly Automotive (ORLY) closed fiscal 2001 with its strongest year to date, driven by aggressive store expansion and solid same-store growth.
Product sales rose 22.7% to $1.09 billiona from $890.4 million, supported by 121 net new stores, an 8.8% increase in same-store sales for stores open at least one year, and the October 2001 acquisition of Mid-State Automotive, which added 82 stores and two distribution centers. Operating income grew 26.4% to $113.8 million, and net income rose 28.3% to $66.4 million, or $1.26 per diluted share. Gross margin slipped modestly to 42.8% from 43.0%, while operating expenses fell to 32.4% of sales from 32.9%, reflecting operating leverage.
The balance sheet expanded alongside the business. Inventory increased to $447.8 millionb, and total assets reached $856.9 million. Long-term debt rose to $165.6 million, largely because of a $100 million senior notes private placement in May 2001 that replaced revolver borrowings.
Shareholders' equity increased to $556.3 millionc. Operating cash flow improved to $50.0 million from $5.8 million, while capital expenditures of $68.5 million were funded through operations and borrowings. Management expects to open about 100 stores in 2002 and about 120 in 2003, and states that existing cash, operating cash flow, and credit facilities are sufficient for its needs.
Investors should weigh several risks. Roughly 37%d of stores are in Texas, which concentrates exposure to regional economic and weather conditions. The O'Reilly family controls about 14.8% of the shares and retains significant voting influence.
The company also faces the Coalition for a Level Playing Field Robinson-Patman Act lawsuit, which management believes lacks merit. The bank credit facility expires in January 2003 and will need to be refinanced, and the company pays no cash dividends.
02—Key points
Key Highlights
- Product sales grew 22.7% to $1.09 billion in 2001, driven by 121 net new stores, an 8.8% same-store sales increase, and the Mid-State acquisition
- Net income increased 28.3% to $66.4 million, with diluted EPS of $1.26 versus $1.00 in 2000
- Operating income rose 26.4% to $113.8 million, and operating SG&A leverage improved to 32.4% of sales from 32.9%
- Gross margin declined slightly to 42.8% from 43.0% as the company absorbed merchandise and warehouse cost pressures
- Operating cash flow recovered to $50.0 million from $5.8 million, while capital spending was $68.5 million
- Long-term debt rose to $165.6 million after a $100 million senior notes placement, and equity grew to $556.3 million
- Plans call for about 100 new stores in 2002 and about 120 in 2003, with 875 stores at year-end 2001 across 16 states
03—Questions
Frequently Asked Questions
What drove O'Reilly's revenue growth in 2001?
Product sales grew 22.7% to $1.09 billion. The main drivers were 121 net new stores opened during the year, an 8.8% same-store sales increase for stores open at least one year, and the October 2001 acquisition of Mid-State Automotive, which contributed 82 stores.
How healthy is O'Reilly's balance sheet and liquidity?
Total assets were $856.9 million and shareholders' equity was $556.3 million. Long-term debt increased to $165.6 million, mainly from a $100 million senior notes issuance in May 2001. Working capital rose to $429.5 million. Management says cash, operating cash flow, and credit facilities are sufficient for its needs. The $140 million bank facility expires in January 2003.
What are the main risks to investing in O'Reilly?
Key risks include geographic concentration, with about 37% of stores in Texas and sensitivity to regional economic and weather conditions; intense competition from AutoZone, Advance, and others; dependence on key personnel; and significant voting control held by the O'Reilly family (about 14.8%). The company also faces the Robinson-Patman Act lawsuit, which management believes is without merit.
Does O'Reilly pay dividends, and what is its growth plan?
No cash dividends have been declared since 1992, and the company does not expect to pay dividends in the foreseeable future. Growth is funded by reinvesting in the business. Plans include about 100 new stores in 2002 and about 120 in 2003, selective acquisitions of independent parts stores and chains, and expanded distribution capacity.
04—Continue