01—Abstract
Summary
Summary of the 10-K filed March 15, 2004. Cited figures are marked; the original filing is the authoritative source.
O'Reilly Automotive (ORLY) closed fiscal 2003 with its strongest year on record, reporting product sales of $1.51 billiona, up 15.2% from $1.31 billion in 2002, driven by 128 net new stores and a 7.8% increase in same-store sales.
Gross margin held steady at 42.2% of product sales, while operating, selling, general and administrative expenses fell to 31.3% of sales from 31.6%, lifting operating income 19.5% to $165.3 millionb. Net income rose 22.1% to $100.1 million, and diluted EPS reached $1.84 versus $1.53 a year earlier. The company describes eleven consecutive years of record revenue and earnings growth since its 1993 IPO.
Balance sheet and cash flow strengthened meaningfully. Operating cash flow nearly doubled to $172.8 million, long-term debt fell to $121.0 millionc from $190.5 million, and shareholders' equity grew to $784.3 million. Inventory rose to $554.3 million, but accounts payable more than doubled to $176.5 million, reflecting extended vendor payment terms and pay-on-scan arrangements that help fund growth.
Capital expenditures of $136.5 milliond were largely tied to new stores and remodels. Looking ahead, management plans to open about 140 stores in 2004 and 150 in 2005, with capital spending of $125 million to $135 million in 2004.
Key risks include geographic concentration (about 34% of stores in Texas), weather sensitivity, dependence on key executives, and significant voting control held by the O'Reilly family, which owns roughly 10% of shares. The company pays no cash dividends and reinvests all earnings into expansion.
02—Key points
Key Highlights
- Product sales grew 15.2% to $1.51 billion, supported by 128 net new stores and 7.8% same-store sales growth
- Net income rose 22.1% to $100.1 million; diluted EPS of $1.84 vs. $1.53 in 2002
- Operating margin improved modestly to 10.9% of sales, with SG&A leverage from 31.6% to 31.3% of sales
- Operating cash flow nearly doubled to $172.8 million; long-term debt reduced to $121.0 million from $190.5 million
- Store network reached 1,109 locations across 18 states, with plans for approximately 140 new stores in 2004
- Dual DIY and professional installer strategy: about 53% DIY and 47% professional installer product sales
- Concentrated risk profile: roughly 34% of stores in Texas and significant voting control held by the O'Reilly family
03—Questions
Frequently Asked Questions
How fast is O'Reilly growing and is that growth coming from new stores or existing stores?
Growth comes from both. Product sales rose 15.2% in 2003, with 128 net new stores contributing and same-store sales up 7.8%, the strongest comparable-store gain in the period shown. The company ended 2003 with 1,109 stores, up from 981 at year-end 2002.
Is the company generating enough cash to fund its expansion?
Yes, based on the filing. Operating cash flow was $172.8 million in 2003, up from $104.5 million in 2002, against $136.5 million of capital expenditures. Management says cash from operations, bank credit facilities and trade credit will fund both short- and long-term needs. Vendor payment terms helped, with accounts payable rising to $176.5 million.
What are the main risks investors should consider?
Key risks include intense competition from AutoZone, Advance Auto Parts, CSK Auto and others, sensitivity to Texas economic and weather conditions (about 34% of stores are there), dependence on key executives such as David O'Reilly and Ted Wise, and the O'Reilly family's significant voting control. The company also faces execution risk on its aggressive store-opening plan and on acquisitions.
Does O'Reilly pay dividends?
No. The company has not declared cash dividends since 1992 and does not anticipate paying them in the foreseeable future. Earnings are reinvested in store growth and share repurchase is not part of the program described in the filing.
How much debt does the company carry and what are its refinancing needs?
Long-term debt, net of current portion, fell to $121.0 million at year-end 2003. The main pieces are $100 million of unsecured senior notes due 2006 and 2008 and $20.0 million drawn on a $150 million credit facility expiring in July 2005. Interest rate exposure is limited, since a 100 basis point rise in floating rates would add only about $16,667 per month in interest expense.
04—Continue