10-QPeriod: Q3 FY2005

O REILLY AUTOMOTIVE INC Quarterly Report for Q3 Ended Sep 30, 2005

Filed November 8, 2005For Securities:ORLY

Summary

O'Reilly Automotive, Inc. (ORLY) reported strong growth in its third quarter and the first nine months of 2005. Total product sales increased significantly year-over-year, driven by both new store openings and comparable store sales growth. The company also experienced an improvement in gross profit margin due to reduced merchandise costs and lower warehouse and delivery expenses. Financially, the company shows a healthy income statement with increased net income. However, operating cash flows decreased slightly due to smaller increases in accounts payable compared to the prior year, while investing activities saw a substantial rise in cash used, primarily due to the acquisition of Midwest Auto Parts Distributors and increased capital expenditures for new stores. The company maintains a strong liquidity position with ample availability under its revolving credit facility and expresses confidence in its ability to fund ongoing expansion and operational needs.

Key Highlights

  • 1Product sales increased by 19.3% to $542.9 million in Q3 2005 and by 18.3% to $1.5 billion for the first nine months of 2005 compared to the prior year periods.
  • 2Comparable store sales grew by 6.1% in Q3 2005 and 7.6% for the first nine months of 2005.
  • 3Gross profit margin remained stable at 43.5% of product sales in Q3 2005 and slightly increased to 43.2% for the nine-month period, driven by reduced vendor costs and warehouse expenses.
  • 4Net income rose to $48.6 million in Q3 2005 ($0.43 per share basic) and $124.8 million for the nine months ($1.12 per share basic).
  • 5The company acquired Midwest Auto Parts Distributors for $63 million on May 31, 2005.
  • 6A two-for-one stock split was declared and effected on May 20, 2005.
  • 7Net cash provided by operating activities decreased by $14.5 million to $183.1 million for the first nine months of 2005, primarily due to a smaller increase in accounts payable.
  • 8Net cash used in investing activities significantly increased to $214.5 million for the nine months of 2005, mainly due to the Midwest acquisition and increased capital expenditures.

Frequently Asked Questions

O'Reilly acquired Midwest Auto Parts Distributors for $63 million on May 31, 2005. The acquisition contributed to the overall increase in product sales and was a primary driver for the significant increase in net cash used in investing activities for the nine months ended September 30, 2005.

O'Reilly demonstrated improved profitability. Gross profit increased both in dollar amount and as a percentage of sales in the first nine months of 2005 compared to 2004. Net income also saw a substantial increase, rising from $34.7 million in Q3 2004 to $48.6 million in Q3 2005, and from $117.6 million to $124.8 million for the nine-month period. This improvement was partly offset by the absence of a one-time accounting change benefit seen in the prior year's nine-month results.

O'Reilly has $51.6 million in cash and cash equivalents at the end of Q3 2005. While operating cash flow decreased slightly, the company has a $100 million unsecured revolving credit facility, of which $73.9 million was available at the end of the quarter. They anticipate sufficient resources to fund ongoing expansion and meet short-term and long-term capital needs.

The filing notes the upcoming adoption of SFAS No. 123R, Share-Based Payment, effective January 1, 2006, which will require companies to recognize stock-based compensation expense at fair value. This is expected to impact reported operating cash flows in the future. The company also uses the intrinsic value method for stock options currently but provides pro forma disclosures.