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O REILLY AUTOMOTIVE INC Annual Report, Year Ended Dec 31, 2007

Filing Date
Filed March 3, 2008
Period End
December 31, 2007
Security
ORLY
In the record · 2016–202610-K1110-Q338-K177

ORLY filed 11 annual reports (10-K), 33 quarterly reports (10-Q) and 177 current reports (8-K) between 2016 and 2026.

  1. Material agreement8-K · Apr ’17Apr ’17
  2. Material agreement8-K · May ’19May ’19
  3. Leadership change8-K · Jul ’21Jul ’21
  4. Leadership change8-K · May ’25May ’25

01—Abstract

Summary

Summary of the 10-K filed March 3, 2008. Cited figures are marked; the original filing is the authoritative source.

O'Reilly Automotive (ORLY) closed fiscal 2007 with record results: sales rose 10.5% to $2.52 billiona, operating income grew 8.1% to $305.2 million, and net income reached $194.0 million, or $1.67 diluted EPS, up from $1.55 in 2006.

Growth came mainly from 190 net new stores (1,830 total at year-end) and a 3.7%b increase in same-store sales. Gross margin expanded 30 basis points to 44.4% on better product mix, lower acquisition costs, and distribution efficiencies, while SG&A deleveraged modestly to 32.3% of sales from 31.7%, driven by store payroll, advertising, depreciation, and stock compensation. The company's dual DIY/professional installer model remains central, with roughly 52% of sales to DIY customers and 48% to installers.

Balance sheet strength is notable. Shareholders' equity rose to $1.59 billion, and long-term debt fell to $75.1 millionc from $110.2 million, with no borrowings outstanding under the $100 million credit facility at year-end. Operating cash flow increased to $299.4 million, and capital expenditures of $282.7 million were largely directed at store expansion and the new Lubbock distribution center.

Management guides to about 205 new stores and $275d-285 million of 2008 capex, funded by operating cash flow and existing credit lines. Key risks for investors include macroeconomic pressure on discretionary spending, higher energy costs that have held miles driven flat, and weather sensitivity.

Roughly 26% of stores are in Texas, which concentrates regional exposure. Same-store growth of 3.7% was below the company's historical rates, so the 2008 outlook depends on whether the store-growth engine can keep offsetting softer comparable sales.

02—Key points

Key Highlights

  1. Record fiscal 2007 sales of $2.52 billion (+10.5%) and net income of $194.0 million (+8.9%), with diluted EPS of $1.67 versus $1.55 in 2006.
  2. Same-store sales rose 3.7%, above 2006's 3.3% but below historical trends, which management attributes to pressure on consumer discretionary income and flat miles driven.
  3. Gross margin improved to 44.4% of sales from 44.1%, driven by product mix, lower acquisition costs from imports, and distribution efficiencies.
  4. SG&A rose to 32.3% of sales from 31.7%, reflecting store payroll, advertising, depreciation on new technology, and higher stock compensation.
  5. Net store count grew by 190 to 1,830 across 26 states, and the company plans about 205 new stores and one distribution center (Lubbock, TX) in 2008.
  6. Balance sheet strengthened: long-term debt fell to $75.1 million, equity reached $1.59 billion, and operating cash flow rose to $299.4 million.
  7. Concentration risk: about 26% of stores are in Texas, and the company does not sell tires or perform repairs; the 2008 capex plan is $275-285 million.

03—Questions

Frequently Asked Questions

  1. How did O'Reilly's profitability trend in 2007?

    Operating income rose 8.1% to $305.2 million, and net income rose 8.9% to $194.0 million. Operating margin slipped slightly to 12.1% from 12.4% because SG&A grew faster than gross profit, even though gross margin improved.

  2. What is driving O'Reilly's growth?

    Growth comes primarily from new store openings, which contributed about $72.5 million of 2007 sales growth, plus a full year of sales from 2006 stores ($83.5 million) and same-store sales gains ($82.6 million). The dual DIY and professional installer strategy supports this expansion.

  3. Is O'Reilly's balance sheet healthy enough to fund expansion?

    Yes. Long-term debt declined to $75.1 million, no credit facility borrowings were outstanding at year-end, and about $71.4 million was available under the revolver. Management expects to fund 2008 expansion from operating cash flow and existing credit facilities.

  4. What are the main risks to the investment case?

    Key risks include softer consumer spending from higher interest rates and fuel costs, sensitivity to weather and to the Texas and Southern regional economies, competition from larger chains like AutoZone and Advance Auto, dependence on key executives, and the possibility that new-store productivity or acquisitions disappoint.

04—Continue

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