What drove the increase in product sales?

Product sales increases were primarily driven by the opening of 38 net new stores in the second quarter of 2004 (61 for the first six months) and a comparable store sales increase of 3.8% in the second quarter (7.8% for the first six months).

How did O'Reilly Automotive manage to improve its gross profit margin?

The improvement in gross profit margin was attributed to lower acquisition costs of inventory, a favorable change in product sales mix, and improved efficiencies in their distribution centers.

What is the company's strategy for funding its expansion?

O'Reilly plans to finance its expansion program, which includes opening new stores, through cash generated from operating activities and available borrowings under its existing credit facilities. They have a $150 million revolving credit facility, with $134.2 million available as of June 30, 2004.

How is stock-based compensation treated in the financial statements?

The company elected to use the intrinsic value method for stock options, meaning no expense is recorded for stock options. However, pro forma net income and EPS are provided, reflecting the estimated expense under the fair value method, which shows a reduction in net income and EPS if that method were applied.

ORLY 10-Q Quarterly Report Q2 FY2004 — Revenue, Net Income, EPS

Summary

O'Reilly Automotive, Inc. reported strong financial performance for the second quarter and first six months ended June 30, 2004. The company demonstrated robust sales growth, driven by both comparable store sales increases and significant store expansion. Gross profit margins improved due to lower inventory acquisition costs, favorable product mix, and distribution efficiencies. While operating expenses increased to support growth, they remained well-managed as a percentage of sales. The company's net income saw substantial year-over-year increases for both the quarter and year-to-date periods. Financially, O'Reilly maintains a healthy liquidity position, with a significant increase in cash and cash equivalents. Operating cash flow strengthened considerably, supporting ongoing capital expenditures for store growth and debt reduction. The company has ample borrowing capacity under its revolving credit facility, ensuring it can fund its aggressive expansion plans and meet its working capital needs. Management is confident in its ability to fund future growth through operating cash flow and existing credit facilities.

Key Highlights

1Product sales increased by 10.7% to $435.2 million in Q2 2004 and by 14.5% to $838.5 million in the first six months of 2004 compared to the prior year.
2Comparable store sales grew by 3.8% in Q2 2004 and 7.8% in the first six months of 2004.
3Gross profit margin improved to 43.2% in Q2 2004 and 42.6% in the first six months of 2004, up from 42.2% and 41.9%, respectively, in the prior year, driven by lower acquisition costs and improved efficiencies.
4Net income rose by 21.3% to $32.7 million in Q2 2004 and by 28.1% to $59.8 million in the first six months of 2004, indicating strong profitability.
5The company opened 38 net new stores in Q2 2004 and 61 net new stores in the first six months of 2004, with plans to open 79 more in the remainder of the year.
6Cash and cash equivalents significantly increased from $21.1 million at year-end 2003 to $88.1 million as of June 30, 2004.
7Net cash provided by operating activities increased by over 42% to $160.9 million for the first six months of 2004 compared to the same period in 2003.

O REILLY AUTOMOTIVE INC Quarterly Report for Q2 Ended Jun 30, 2004

Summary

Key Highlights

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