01—Abstract
Summary
Summary of the 10-K filed March 27, 2003. Cited figures are marked; the original filing is the authoritative source.
O'Reilly Automotive (ORLY) closed 2002 with 981 company-operated stores across 17 contiguous Central and Southern states, up from 875 a year earlier after 106 net new openings.
Product sales rose 20.2% to $1.31 billiona, driven by the store growth and a 3.7% increase in same-store sales. Net income grew 23.6% to $82.0 million, or $1.53 per diluted share, versus $1.26 in 2001. Operating margin edged up to 10.6% of sales from 10.4%, though gross margin compressed to 42.2% from 42.8% as lower-margin jobber sales and new distribution costs weighed on results.
The balance sheet remains conservative, with total assets of $1.01 billionb, shareholders' equity of $650.5 million, and long-term debt of $190.5 million. Operating cash flow more than doubled to $104.5 million, while capital expenditures of $102.3 million went mainly to new stores, relocations, and remodels. Management plans roughly 130 openings in 2003 and 145 in 2004, and it believes existing cash and credit facilities are sufficient to fund that expansion.
Key risks for investors include geographic concentration, with about 37% of stores in Texas and exposure to regional weather and economic conditions, along with dependence on the O'Reilly family and key executives, and significant voting control held by the family, which owns about 13% of shares. Floating-rate debt of about $90 millionc carries modest sensitivity, and the company faces intense competition from AutoZone, Advance, and CSK. The company also settled a Robinson-Patman Act suit with an undisclosed, immaterial amount.
02—Key points
Key Highlights
- Product sales up 20.2% to $1.31B in 2002, driven by 106 net new stores and 3.7% same-store sales growth
- Net income rose 23.6% to $82.0M; diluted EPS $1.53 vs. $1.26 in 2001
- Gross margin contracted 60 bps to 42.2%, reflecting mix shift toward independent jobbers and higher distribution costs
- Operating cash flow more than doubled to $104.5M; capex of $102.3M funded store growth
- Store network reached 981 locations; plans for approximately 130 openings in 2003 and 145 in 2004
- Balance sheet is conservative: long-term debt of $190.5M against $650.5M of shareholders' equity
- Concentration risk: about 37% of stores in Texas, and the O'Reilly family holds roughly 13% of shares with significant voting control
03—Questions
Frequently Asked Questions
How fast is O'Reilly growing its store base and sales?
The company added 106 net stores in 2002, bringing the total to 981, and expects about 130 openings in 2003 and 145 in 2004. Product sales grew 20.2% in 2002, combining new-store growth with a 3.7% increase in same-store sales.
Are margins improving or deteriorating?
Operating margin improved slightly to 10.6% from 10.4%, helped by OSG&A falling to 31.6% of sales from 32.4%. Gross margin fell to 42.2% from 42.8%, mainly because of increased sales to lower-margin independent jobbers and higher costs at newly acquired distribution centers.
How financially sound is the company?
Leverage is modest, with long-term debt of $190.5M against $650.5M of equity. Operating cash flow of $104.5M covered most of the $102.3M capital spending. Management believes existing cash, operating cash flow, and its $150M credit facility are sufficient for both short- and long-term needs.
What are the main risks to the investment case?
Key risks include heavy geographic concentration (about 37% of stores in Texas and sensitivity to regional weather and economy), dependence on key executives, and family control that limits takeover prospects. Competition from AutoZone, Advance Auto Parts, and CSK is intense in dense markets, and about $90M of floating-rate debt adds some interest-rate exposure.
Does the company pay dividends?
No. O'Reilly has not declared cash dividends since 1992 and does not expect to pay any in the foreseeable future, so shareholder returns depend on share price appreciation.
04—Continue