10-QPeriod: Q1 FY2005

O REILLY AUTOMOTIVE INC Quarterly Report for Q1 Ended Mar 31, 2005

Filed May 9, 2005For Securities:ORLY

Summary

O'Reilly Automotive, Inc. (ORLY) reported strong top-line growth for the first quarter of 2005, with product sales increasing by 15.6% year-over-year to $466.2 million. This growth was driven by both new store openings (37 net new stores) and a healthy 7.1% increase in comparable store sales. Gross profit also saw a corresponding increase of 15.7%, maintaining a stable gross margin of 42.1%. Despite increased operating expenses related to store expansion, operating income grew by 21.7%, reflecting improved economies of scale and labor productivity. The company's financial position remains solid, with total assets growing to over $1.5 billion. Cash and cash equivalents saw a significant increase, rising from $69.0 million at the end of 2004 to $89.3 million. While operating cash flow decreased year-over-year, this was attributed to increased inventory levels supporting expansion and the opening of a new distribution center. O'Reilly continues to actively invest in growth, with significant capital expenditures for property and equipment, and plans to open an additional 123 stores by the end of 2005. The company expects its existing cash, operating cash flow, and credit facilities to sufficiently fund its expansion plans and ongoing operations.

Key Highlights

  • 1Product sales grew 15.6% to $466.2 million in Q1 2005, driven by 37 net new stores and 7.1% comparable store sales growth.
  • 2Gross profit increased 15.7% to $196.2 million, with gross margin holding steady at 42.1%.
  • 3Operating income rose 21.7% to $53.6 million, with OSG&A expenses as a percentage of sales decreasing due to economies of scale.
  • 4Net income before cumulative accounting change was $33.2 million, a 21.7% increase from $27.3 million in Q1 2004.
  • 5Cash and cash equivalents increased by $20.2 million to $89.3 million during the quarter.
  • 6The company plans aggressive expansion, opening 123 additional stores in the remainder of 2005.
  • 7O'Reilly maintains a strong liquidity position with $128.8 million in available borrowing capacity under its credit facility, with no outstanding balances at quarter-end.

Frequently Asked Questions

The primary driver of O'Reilly's sales growth was a combination of expanding its store footprint, with 37 net new stores opened, and a robust 7.1% increase in comparable store sales for existing locations.

Operating, selling, general, and administrative (OSG&A) expenses increased by $17.0 million, largely to support the expanded operations. However, as a percentage of product sales, OSG&A decreased from 31.2% to 30.6%, indicating improved economies of scale and labor productivity. This efficiency, coupled with higher sales, led to a significant increase in operating income.

O'Reilly has ambitious expansion plans, aiming to open 123 additional stores in the remainder of 2005. The company expects to finance this growth through cash generated from its operating activities and its existing bank credit facilities.

O'Reilly currently uses the intrinsic value method for stock options, meaning it does not record stock-based compensation expense in its reported net income. However, the company provides pro forma disclosures reflecting what net income and EPS would be if the fair value method were applied, which would have reduced reported net income in Q1 2005 and Q1 2004.