10-QPeriod: Q3 FY2013

O REILLY AUTOMOTIVE INC Quarterly Report for Q3 Ended Sep 30, 2013

Filed November 8, 2013For Securities:ORLY

Summary

O'Reilly Automotive, Inc. reported strong financial results for the third quarter and the first nine months of 2013. The company demonstrated robust sales growth, with a 7% increase in net sales for the nine-month period, driven by comparable store sales growth and expansion through new store openings. Profitability also improved significantly, with operating income up 14% for the quarter and net income increasing by 17% year-over-year for the three months ended September 30, 2013. The company's strategic focus on customer service, inventory availability, and an expanding store base continues to yield positive results. O'Reilly successfully managed its cost of goods sold and selling, general, and administrative expenses, leading to improved operating and net income margins. The company also highlighted a strong balance sheet with ample liquidity, supported by consistent cash flow from operations and an undrawn revolving credit facility, enabling continued investment in growth initiatives and share repurchases.

Financial Highlights

46 data points
Beta

Revenue

$1.73B

50.9% Gross Margin

Net Income

$186.49M

10.8% Net Margin

EPS (Diluted)

$0.11

Total Assets

$6.17B

Cash & Equivalents

$363.01M

Free Cash Flow

$157.50M

Financial Statements
Beta
Revenue$1.73B
Cost of Revenue$848.86M
Gross Profit$879.16M
SG&A Expenses$578.78M
Operating Income$300.38M
Interest Expense$13.29M
Net Income$186.49M
EPS (Basic)$0.11
EPS (Diluted)$0.11
Shares Outstanding (Basic)1.62B
Shares Outstanding (Diluted)1.65B

Key Highlights

  • 1Net sales increased by 7% to $5.03 billion for the first nine months of 2013, compared to the same period in 2012.
  • 2Operating income grew by 14% to $300 million for the third quarter of 2013, compared to the prior year.
  • 3Net income rose by 17% to $186 million for the third quarter of 2013, compared to the prior year.
  • 4Diluted earnings per share (EPS) saw a significant increase of 28% to $1.69 for the third quarter of 2013.
  • 5The company opened 163 net new stores in the first nine months of 2013, expanding its footprint to 4,135 stores.
  • 6Gross profit margin improved to 50.9% for the third quarter, up from 50.3% in the prior year's quarter, driven by cost improvements and efficiencies.
  • 7The company maintained strong liquidity, with cash and cash equivalents increasing to $363 million and no outstanding borrowings on its revolving credit facility as of September 30, 2013.

Frequently Asked Questions

O'Reilly's sales growth was driven by a combination of factors including comparable store sales increases (up 4.6% for the third quarter), the opening of new stores (163 net new stores in the first nine months), and an increase in average ticket values for both DIY and commercial customers. The growth in hard parts sales and professional service provider sales also contributed significantly.

The company improved its gross profit margin to 50.9% through acquisition cost improvements, pricing management, and distribution center operating efficiencies. Selling, general, and administrative expenses increased in dollar terms due to supporting store growth but decreased as a percentage of sales, primarily due to leverage from comparable store sales increases on fixed store occupancy and headquarters costs. These factors combined led to a 14% increase in operating income for the third quarter.

O'Reilly maintained a strong liquidity position with $363 million in cash and cash equivalents at the end of the third quarter of 2013. The company had no outstanding borrowings on its $600 million unsecured revolving credit facility. Liquidity is primarily generated from operations, which provided $719.8 million in cash flow for the nine months ended September 30, 2013. This strong operational cash flow, along with available credit, is funding new store openings, capital expenditures, and share repurchases.

The company noted that while difficult macroeconomic conditions have influenced consumer behavior, leading some to 'trade down' to lower-quality products, O'Reilly's strategy of offering 'good, better, best' alternatives and focusing on customer service has allowed it to navigate these challenges. The increase in the average age of vehicles on the road is seen as a positive driver for aftermarket parts demand. The decrease in unemployment rates is also expected to boost vehicle miles driven and, consequently, demand for automotive parts.