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O\'Reilly Automotive Inc. Reports Operating Results (10-Q)

August 07, 2009 | About:
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O\'Reilly Automotive Inc. (ORLY) filed Quarterly Report for the period ended 2009-06-30.

O\'Reilly Automotive Inc. is a specialty retailer and supplier of automotive aftermarket parts tools supplies equipment and accessories to both ``do-it-yourself`` customers and professional mechanics or service technicians. O\'Reilly stores carry an extensive product line consisting of new and remanufactured automotive hard parts such as alternators starters fuel pumps water pumps and brake shoes and pads maintenance items such as oil antifreeze fluids engine additives and appearance products accessories such as floor mats and seat covers. O\'Reilly Automotive Inc. has a market cap of $5.33 billion; its shares were traded at around $39.26 with a P/E ratio of 22.9 and P/S ratio of 1.5. O\'Reilly Automotive Inc. had an annual average earning growth of 19% over the past 10 years. GuruFocus rated O\'Reilly Automotive Inc. the business predictability rank of 4.5-star.

Highlight of Business Operations:

Sales increased $547 million, or 78% from $704 million in the second quarter of 2008, to $1.25 billion in the second quarter of 2009. Sales for the first six months of 2009 were $2.42 billion, an increase of $1.06 billion or 79% over sales for the first six months of 2008. The following table presents the components of the increase in sales for the three months and six months ended June 30, 2009 (in millions):

Gross profit increased $287 million, or 90% from $317 million (or 45.0% of sales) in the second quarter of 2008 to $604 million (or 48.2% of sales) in the second quarter of 2009. Gross profit increased $0.54 billion, or 89%, from $0.61 billion (or 44.8% of sales) for the six months ended June 30, 2008, to $1.15 billion (or 47.5% of sales) for the six months ended June 30, 2009. The increase in gross profit dollars was primarily a result of the increase in sales resulting from the acquisition of CSK and sales from new stores. The increase in gross profit as a percentage of sales is primarily the result of changes in product mix, lower product acquisition cost, distribution system improvements, sales from acquired CSK stores and a favorable pricing environment on certain commodity based products. Our product mix was improved by the continued customization of our merchandise selections at each store based on vehicle demographics and customer demands in each stores market. The product buying synergies realized were due to improved negotiating leverage with vendors as a result of large purchase volume increases driven by the CSK acquisition. Improvements in our distribution system were the result of capital projects designed to create operating expense efficiencies. Gross margin percentages on sales at CSK stores are typically higher than existing OReilly branded stores primarily because a greater portion of these sales are made to DIY customers, which typically have higher gross margin percentages, and overall price levels that are specific to the markets in which the acquired stores are located. The reductions in commodity prices, without corresponding decreases in retail pricing is expected to normalize over the remainder of the year.

Selling, general and administrative expenses (SG&A) increased $225 million, or 98%, from $229 million (or 32.5% of sales) in the second quarter of 2008 to $454 million (or 36.3% of sales) in the second quarter of 2009. SG&A increased $440 million, or 99%, from $443 million (or 32.8% of sales) for the six months ended June 30, 2008 to $883 million (or 36.6% of sales) for the six months ended June 30, 2009. The increase in SG&A as a percentage of sales was attributable to the addition of the acquired CSK stores, which have a higher expense structure than the core OReilly store base, and the additional store payroll required to complete the ongoing product-line changeovers for acquired CSK stores.

Interest expense increased $10 million, from $1 million (or 0.1% of sales) during the second quarter of 2008 to $11 million (or 0.9% of sales) in the second quarter of 2009. Interest expense increased $21 million, from $2 million (or 0.2% of sales) during the six months ended June 30, 2008, to $23 million (or 1.0% of sales) during the six months ended June 30, 2009. The increase in interest expense is the result of borrowings under our new asset-based revolving credit facility that were used to fund the CSK acquisition and ongoing capital expenditures related to the integration of the operations of CSK.

As a result of the impacts discussed above, net income for the second quarter increased $30 million from $56 million in 2008 (7.9% of sales) to $86 million in 2009 (6.8% of sales). Net income for the six months ended June 30, 2009, increased $46 million from $102 million for the same period in 2008 (7.6% of sales) to $148 million in 2009 (6.1% of sales).

Our diluted earnings per common share for the second quarter of 2009 increased 29% to $0.62 on 137.5 million shares compared to $0.48 for the second quarter of 2008 on 116.5 million shares. Diluted earnings per common share for the six months ended June 30, 2009, increased 23% to $1.08 on 136.8 million shares compared to $0.88 for the same period in 2008 on 116.4 million shares. Our second quarter and year-to-date results include a charge related to the July 11, 2008, acquisition of CSK. The non-cash charge to amortize the value assigned to CSKs trade names and trademarks, which will be amortized over the next approximately one and a half years, to coincide with the anticipated conversion of CSK branded store locations to OReilly branded locations, is included in SG&A. Adjusted diluted earnings per share, excluding the impact of this acquisition related charge, was $0.63 for the second quarter of 2009, reflecting an increase of 31%, from the same period a year ago. For the first six months of 2009, adjusted diluted earnings per share, excluding the impact of the acquisition related charge, increased 25% to $1.10 from the same period one year ago. The impact of the individual acquisition related charge was as follows:

Read the The complete ReportORLY is in the portfolios of Chuck Akre of Akre Capital Management, LLC, Ruane Cunniff of Ruane & Cunniff & Goldfarb Inc, Ken Heebner of CAPITAL GROWTH MANAGEMENT LP, PRIMECAP Management, Jean-Marie Eveillard of Arnhold & S. Bleichroeder Advisers, LLC.

Rating: 4.0/5 (6 votes)

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