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O Reilly Automotive Inc. has a market cap of $10.46 billion; its shares were traded at around $76.92 with a P/E ratio of 21.5 and P/S ratio of 1.9. O Reilly Automotive Inc. had an annual average earning growth of 16.7% over the past 10 years. GuruFocus rated O Reilly Automotive Inc. the business predictability rank of 5-star.
Highlight of Business Operations:Gross profit for the third quarter ended September 30, 2011, increased to $754 million (or 49.1% of sales) from $693 million (or 48.6% of sales) for the same period one year ago, representing an increase of 9%. Gross profit for the nine months ended September 30, 2011, increased to $2.14 billion (or 48.7% of sales) from $1.98 billion (or 48.6% of sales) for the same period one year ago, representing an increase of 8%. The increase in gross profit dollars was primarily a result of the increase in sales from new stores and the increase in comparable stores sales at existing stores. The increase in gross profit as a percentage of sales was primarily due to a favorable product mix and improved inventory shrinkage, partially offset by the impact of increased commercial sales as a percentage of the total sales mix. The improvement in product mix was primarily driven by increased sales in the hard part categories, which typically generate a higher gross profit as a percentage of sales. Increasing hard part sales is the result of strong demand as consumers retain and maintain their vehicles beyond manufacturer warranty and our enhanced and more comprehensive inventory levels in the hard part categories offered in the CSK stores. The improved inventory shrinkage is driven by our converted CSK stores, which are now managed using the O’Reilly point-of-sale system (“POS”), installed in all CSK stores as they converted to the O’Reilly distribution systems throughout 2009 and 2010. The O’Reilly POS provides our store managers with better tools to track and control inventory, resulting in improved inventory shrinkage. Commercial sales in the acquired CSK markets are growing at a faster rate than total DIY sales as a result of the enhanced distribution model in those markets, which supports the implementation of our dual market strategy. Commercial sales typically carry a lower gross profit as a percentage of sales than DIY sales, as volume discounts are granted on wholesale transactions to professional service providers, therefore creating pressure on our gross profit as a percentage of sales.
Operating income for the third quarter ended September 30, 2011, increased to $241 million (or 15.7% of sales) from $199 million (or 14.0% of sales) for the same period one year ago, representing an increase of 21%. Operating income for the nine months ended September 30, 2011, increased to $660 million (or 15.0% of sales) from $549 million (or 13.4% of sales) for the same period one year ago, representing an increase of 20%. The increases in operating income during the three and nine months ended September 30, 2011, are primarily due to the impacts discussed above, as well as a $6 million and $15 million charge to operating income during the three and nine months ended September 30, 2010, respectively, related to the previously announced legacy CSK DOJ investigation (See Note 10 – Legal Matters to the condensed consolidated financial statements).
Total other expense for the third quarter ended September 30, 2011, decreased to $6 million (or 0.4% of sales) from $9 million (or 0.6% of sales) for the same period one year ago, representing a decrease of 32%. Total other expense for the nine months ended September 30, 2011, increased to $42 million (or 0.9% of sales) from $29 million (or 0.7% of sales) for the same period one year ago, representing an increase of 46%. The decrease in total other expense for the quarter was driven by decreased interest expense on a lower average interest rate on outstanding borrowings, a lower facility fee on our Revolver and lower amortization of debt issuance costs on our Revolver and senior notes in the current period as compared to the borrowing rates, facility fee and amortization of debt issuance costs on our ABL Credit Facility and outstanding exchangeable notes during the same period one year ago. The increase in total other expense for the nine months ended September 30, 2011, was primarily due to one-time charges during the current period that related to our new financing transactions that were completed in January of 2011. The one-time charges included a non-cash charge to write off the balance of debt issuance costs related to our previous credit facility in the amount of $22 million and a charge related to the termination of our interest rate swap agreements in the amount of $4 million.
Our provision for income taxes for the third quarter ended September 30, 2011, increased to $87 million (or 5.6% of sales) from $74 million (or 5.2% of sales) for the same period one year ago, representing an increase of 18%. Our provision for income taxes for the nine months ended September 30, 2011, increased to $234 million (or 5.3% of sales) from $207 million (or 5.1% of sales) for the same period one year ago, representing an increase of 13%. The increase in our provision for income taxes is due to the increase in our taxable income. Our effective tax rate for the third quarter ended September 30, 2011, was 36.8% of income before income taxes compared to 38.7% for the same period one year ago. Our effective tax rate for the nine months ended September 30, 2011, was 37.8% of income before income taxes compared to 39.7% for the same period one year ago. The decrease in the effective tax rate for the three and nine months ended September 30, 2011, was primarily the result of the charges during the three and nine months ended September 30, 2010, for the legacy CSK DOJ investigation (See Note 10 – Legal Matters to the condensed consolidated financial statements), which were not deductible for tax purposes.
Adjusted operating income for the nine months ended September 30, 2011, increased 16% to $660 million (or 15.0% of sales) from $570 million (or 13.9% of sales), which was adjusted for the impact of the charges related to the CSK DOJ investigation discussed above, for the same period one year ago. Adjusted net income for the nine months ended September 30, 2011, excluding the impact of the charges related to the new financing transactions discussed above, increased 20% to $401 million (or 9.1% of sales) from $335 million (or 8.2% of sales), which was adjusted for the impact of the charges related to the legacy CSK DOJ investigation as discussed above, for the same period one year ago. Adjusted diluted earnings per common share for the nine months ended September 30, 2011, excluding the impact of the charges related to the new financing transactions discussed above, increased 22% to $2.88 from $2.37, which was adjusted for the impact of the charges related to the legacy CSK DOJ investigation as discussed above, for the same period one year ago. The table below outlines the impact of the charges related to the new financing transactions and legacy CSK DOJ investigation for the nine months ended September 30, 2011 and 2010 (amounts in thousands, except per share data):
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