10-QPeriod: Q1 FY2009

O REILLY AUTOMOTIVE INC Quarterly Report for Q1 Ended Mar 31, 2009

Filed May 11, 2009For Securities:ORLY

Summary

O'Reilly Automotive, Inc. (ORLY) reported strong sales growth in the first quarter of 2009, driven significantly by the acquisition of CSK Auto Corporation. Total sales increased by 80.1% year-over-year to $1.16 billion, reflecting both organic growth in comparable O'Reilly branded stores (up 8.2%) and the substantial contribution from the newly integrated CSK stores. Despite the impressive top-line performance, net income saw a more modest increase of 35.6% to $62.8 million, resulting in diluted EPS of $0.46, up from $0.40 in the prior year. This divergence is attributed to increased selling, general, and administrative expenses, higher interest expenses related to acquisition financing, and the amortization of acquisition-related intangibles. Operationally, the company is focused on integrating the CSK acquisition, including rebranding CSK stores to the O'Reilly brand and optimizing inventory. While cash flow from operations decreased due to increased inventory investment, the company maintained a strong liquidity position with significant availability under its asset-based revolving credit facility. Investors should note the ongoing legal proceedings related to the CSK acquisition, though management believes they will not materially impact the company's financial condition.

Financial Highlights

24 data points
Beta

Revenue

$1.16B

46.6% Gross Margin

Net Income

$62.84M

5.4% Net Margin

EPS (Diluted)

$0.03

Cash & Equivalents

$37.40M

Free Cash Flow

-$64.71M

Financial Statements
Beta
Revenue$1.16B
Cost of Revenue$621.08M
Gross Profit$542.67M
SG&A Expenses$429.33M
Operating Income$113.34M
Interest Expense$12.06M
Net Income$62.84M
EPS (Basic)$0.03
EPS (Diluted)$0.03
Shares Outstanding (Basic)2.03B
Shares Outstanding (Diluted)2.04B

Key Highlights

  • 1Total sales surged by 80.1% to $1.16 billion, primarily due to the CSK acquisition and organic growth.
  • 2Comparable store sales for O'Reilly branded stores increased by a healthy 8.2%.
  • 3Net income grew by 35.6% to $62.8 million, resulting in diluted EPS of $0.46, up from $0.40 in Q1 2008.
  • 4Gross profit margin improved to 46.6% from 44.6%, driven by product mix, cost efficiencies, and higher margins from acquired CSK stores.
  • 5Operating income increased significantly by 52.8% to $113.3 million.
  • 6The company operated 3,337 stores by the end of the quarter, a substantial increase from 1,867 stores in the prior year, reflecting the integration of CSK.
  • 7Cash flow from operations decreased by 27.2% to $86.6 million, largely due to increased inventory investment in acquired stores.

Frequently Asked Questions

The primary driver of the significant sales increase is the acquisition of CSK Auto Corporation, which added a substantial number of stores and sales to O'Reilly's operations. Additionally, comparable store sales for existing O'Reilly branded stores showed healthy growth.

Net income growth was slower than sales growth due to several factors, including increased selling, general, and administrative expenses related to the larger operational footprint, higher interest expenses from debt used to finance the CSK acquisition, and non-cash charges like the amortization of acquired intangible assets (trade names and trademarks).

The integration of CSK Auto Corporation is progressing well. The company has rebranded a significant number of CSK stores to the O'Reilly brand and is working on optimizing inventory levels in these acquired locations. The company plans to open approximately 150 new stores in 2009, in addition to the stores acquired from CSK.

Yes, O'Reilly is involved in resolving governmental investigations and legacy litigation related to CSK Auto Corporation prior to its acquisition. While O'Reilly has reserved for potential liabilities and is incurring legal expenses, management currently believes these matters will not have a material adverse effect on the company's consolidated financial condition, results of operations, or cash flows.