10-QPeriod: Q3 FY2010

O REILLY AUTOMOTIVE INC Quarterly Report for Q3 Ended Sep 30, 2010

Filed November 8, 2010For Securities:ORLY

Summary

O'Reilly Automotive, Inc. (ORLY) reported strong financial performance for the nine months ended September 30, 2010, with sales increasing by 11% to $4.09 billion. This growth was driven by a robust 8.6% increase in comparable store sales and the strategic opening of new stores. The company effectively managed its expenses, with Selling, General, and Administrative (SG&A) expenses growing at a slower pace than sales, leading to a significant 33% increase in operating income to $549 million. Net income also saw a substantial rise of 33% to $314 million, translating to diluted earnings per share of $2.23. The company also demonstrated strong cash flow generation, with net cash provided by operating activities increasing significantly to $593 million, largely due to improved inventory management and increased net income. While investing activities showed a decrease in cash used, indicating a moderation in capital expenditures post-CSK integration, financing activities were characterized by net repayments on the credit facility, highlighting a focus on debt reduction. The company also successfully terminated a portion of its credit facility (FILO tranche), improving its financial flexibility.

Financial Highlights

46 data points
Beta

Revenue

$1.43B

48.6% Gross Margin

Net Income

$116.54M

8.2% Net Margin

EPS (Diluted)

$0.05

Total Assets

$5.02B

Cash & Equivalents

$43.19M

Free Cash Flow

$142.63M

Financial Statements
Beta
Revenue$1.43B
Cost of Revenue$732.47M
Gross Profit$693.41M
SG&A Expenses$488.48M
Operating Income$199.03M
Interest Expense$9.76M
Net Income$116.54M
EPS (Basic)$0.06
EPS (Diluted)$0.05
Shares Outstanding (Basic)2.08B
Shares Outstanding (Diluted)2.13B

Key Highlights

  • 1Sales grew 11% year-over-year to $4.09 billion for the first nine months of 2010.
  • 2Comparable store sales increased by 8.6% for the nine-month period, demonstrating strong performance in existing locations.
  • 3Operating income rose 33% to $549 million, showcasing improved operational efficiency and leverage.
  • 4Net income increased by 33% to $314 million, with diluted EPS reaching $2.23.
  • 5Net cash provided by operating activities significantly increased to $593 million, reflecting strong cash generation and improved working capital management.
  • 6The company actively managed its debt, repaying borrowings on its credit facility and terminating the FILO tranche.
  • 7A charge of $5.9 million (or $20.9 million for the nine-month period) was recognized related to the legacy CSK DOJ investigation, impacting reported results but management provided adjusted figures excluding this charge.

Frequently Asked Questions

The primary drivers of sales growth were a significant increase in comparable store sales (8.6%) and the strategic opening of new stores. The company also benefited from factors like customers maintaining their current vehicles longer, a stabilizing economy, and extreme weather conditions in some markets.

O'Reilly actively managed its debt by using increased cash from operations and reduced capital expenditures to make net repayments on its asset-based revolving credit facility. Additionally, the company exercised its right to terminate the FILO tranche of its credit facility, reducing outstanding borrowings and increasing financial flexibility.

The company recorded a charge of $5.9 million in Q3 2010 ($20.9 million for the nine months) related to the resolution of the DOJ investigation into CSK's pre-acquisition accounting practices. This charge is not expected to be tax-deductible and impacted reported net income and EPS. The company also provided 'adjusted' non-GAAP figures to illustrate performance excluding this charge.

The company plans to open approximately 150 new stores in 2010 and anticipates accelerating this growth to approximately 170 new stores in 2011. This store expansion is expected to be funded by cash generated from existing operations.