10-QPeriod: Q2 FY2007

O REILLY AUTOMOTIVE INC Quarterly Report for Q2 Ended Jun 30, 2007

Filed August 10, 2007For Securities:ORLY

Summary

O'Reilly Automotive Inc. (ORLY) reported strong financial results for the second quarter and the first six months of 2007. The company demonstrated robust sales growth driven by both new store openings and comparable store sales increases, indicating effective expansion strategies and strong in-store execution. Profitability also saw an improvement, with gross profit increasing both in dollar amount and as a percentage of sales, attributed to better product mix and lower acquisition costs. The company generated significant positive cash flow from operations, allowing for reinvestment in its growth initiatives, particularly its store expansion program. Despite increased capital expenditures for new stores, O'Reilly maintained healthy liquidity with a strong balance sheet and available credit facilities, positioning it well to fund future growth and meet its financial obligations.

Key Highlights

  • 1Sales increased by 8.8% to $643 million in Q2 2007 compared to Q2 2006, and by 11.4% to $1.26 billion for the first six months of 2007.
  • 2Comparable store sales grew by 2.0% for the first three months and 4.3% for the first six months of 2007.
  • 3Gross profit margin improved to 44.7% in Q2 2007 from 44.1% in Q2 2006, and to 44.3% for the first six months of 2007 from 43.8% in 2006.
  • 4Net income increased to $51.9 million in Q2 2007 ($0.45 per share) from $49.3 million ($0.44 per share) in Q2 2006.
  • 5Cash flow from operations significantly increased to $191.9 million for the first six months of 2007, up from $123.8 million in the prior year period.
  • 6The company opened 91 net new stores in the first six months of 2007, expanding its retail footprint to 1,731 stores.
  • 7O'Reilly maintained strong liquidity with $92.5 million in cash and cash equivalents and $68.4 million in available borrowing capacity under its credit facility at June 30, 2007.

Frequently Asked Questions

O'Reilly's sales growth was driven by a combination of factors, including the addition of 91 net new stores opened in the first six months of 2007, increased sales from stores opened in 2006, and a notable increase in comparable store sales. The company also cited improved product selection, increased promotional efforts, and enhanced store merchandising and layouts as contributors.

The company reported a reduction in net inventory investment, which contributed to improved cash flow from operations. This was achieved through better leverage on inventory and extending payment terms with vendors. O'Reilly also noted improved product acquisition costs due to increased imports from lower-cost providers and enhanced negotiating leverage with vendors.

O'Reilly anticipates continued store unit and sales growth consistent with historical rates. The company plans to open an additional 99 to 104 stores during the remainder of 2007. Funding for this expansion is expected to come from cash generated by operating activities and available borrowings under its existing credit facilities, supplemented by trade credit.

The company stated that it is not a party to any legal proceedings other than routine claims and lawsuits arising in the ordinary course of business, which are not expected to have a material adverse effect. Regarding taxes, O'Reilly adopted FIN 48 for accounting for uncertainty in income taxes, with no adjustment required at adoption. The company has ongoing tax examinations and noted approximately $11.6 million in net unrecognized tax benefits as of June 30, 2007.