10-KPeriod: FY2006

O REILLY AUTOMOTIVE INC Annual Report, Year Ended Dec 31, 2006

Filed March 1, 2007For Securities:ORLY

Summary

O'Reilly Automotive, Inc. (ORLY) demonstrated strong performance in its 2006 fiscal year, continuing a trend of revenue and earnings growth. The company operated 1,640 stores across 25 contiguous states, serving both "do-it-yourself" (DIY) and professional installer customers. A key strategic advantage highlighted is its dual-market approach, which accounts for approximately 52% of sales from DIY customers and 48% from professional installers. The company emphasized its "Professional Parts People" and extensive product selection as critical differentiators. O'Reilly's growth strategy focused on aggressively opening new stores, with plans for approximately 190-195 new locations in 2007, alongside selective strategic acquisitions. The company also highlighted its robust distribution network and experienced management team. While acknowledging a competitive market and sensitivity to regional economic and weather conditions, O'Reilly expressed confidence in its ability to maintain growth through its proven business model and expansion initiatives.

Key Highlights

  • 1O'Reilly operated 1,640 stores across 25 contiguous U.S. states by the end of 2006.
  • 2The company successfully serves both 'do-it-yourself' (DIY) and professional installer customer segments, with sales split nearly evenly (52% DIY, 48% professional).
  • 3O'Reilly plans aggressive store expansion, targeting 190-195 new stores in 2007 and 210-215 in 2008.
  • 4The company emphasizes its 'Professional Parts People' and their technical proficiency as a key competitive advantage.
  • 5A strong, experienced management team with an average tenure of over 15 years leads the company.
  • 6The company reported fourteen consecutive years of record revenues and earnings growth leading up to 2006.
  • 7O'Reilly's distribution system, with 14 centers, provides same-day or overnight access to over 100,000 SKUs for its stores.

Frequently Asked Questions

O'Reilly Automotive's core strategy revolves around operating as a leading specialty retailer of automotive aftermarket parts, tools, supplies, equipment, and accessories. Their key competitive advantages include a proven ability to execute a dual-market strategy serving both DIY and professional installer customers, superior customer service delivered by technically proficient 'Professional Parts People', a strategic and efficient distribution system, and an experienced management team. They focus on offering an extensive product selection and convenient store locations.

O'Reilly plans to achieve future growth by aggressively opening new stores in existing and new contiguous markets, aiming for approximately 190-195 new stores in 2007 and 210-215 in 2008. They also intend to selectively pursue strategic acquisitions to strengthen their market position and continually enhance store design and location.

The primary risks identified include intense competition in the highly fragmented automotive aftermarket, potential challenges in achieving projected growth rates due to factors beyond their control (like economic conditions and weather), risks associated with integrating acquisitions, sensitivity to regional economic and weather conditions, dependence on key personnel, and the potential volatility of their common stock price due to market fluctuations and the possibility of future share sales.

O'Reilly manages its inventory through a network of 14 strategically located distribution centers that provide same-day or overnight access to over 100,000 SKUs for its stores. They utilize advanced inventory management and distribution systems that electronically link stores to distribution centers for efficient control. The company purchases from over 400 vendors and has good relationships with them, often taking advantage of vendor incentive programs and extended dating terms.