ORLY

O'Reilly Automotive, Inc. (ORLY)

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O'Reilly Automotive (ORLY)

Q4 2010 Earnings Call

February 17, 2011 11:00 am ET

Executives

Thomas McFall - Chief Financial Officer, Principal Accounting Officer and Executive Vice President of Finance

Gregory Henslee - Chief Executive Officer and Co-President

Ted Wise - Co-President and Chief Operating Officer

Analysts

Michael Lasser - Barclays Capital

Colin McGranahan - Bernstein Research

Alan Rifkin - BofA Merrill Lynch

Kate McShane - Citigroup Inc

Anthony Cristello - BB&T Capital Markets

Christopher Horvers - JP Morgan Chase & Co

Daniel Wewer - Raymond James & Associates

Brian Nagel - Oppenheimer & Co. Inc.

Michael Baker - Deutsche Bank AG

Patrick Palfrey - RBC Capital Markets, LLC

Presentation

Operator

Good morning. My name is Lushae, and I will be your conference operator today. At this time, I would like to welcome everyone to the 2010 O'Reilly Automotive Fourth Quarter and Full Year Earnings Conference Call. [Operator Instructions] I will now turn the call over to your host, Mr. McFall, Chief Financial Officer. Sir, you may begin your conference.

Thomas McFall

Thank you, Lushae. Good morning, everyone, and welcome to our conference call. Before I introduce Greg Henslee, our CEO, we have a brief statement.

The company claims the protection of the safe harbor for forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements can be identified by forward-looking words such as expect, believe, anticipate, should, plan, intend, estimate, project, will or similar words.

In addition, statements contained within this conference call that are not historical facts are forward-looking statements such as statements discussing, among other things, expected growth, store development, CSK DOJ investigation resolution, integration and expansion strategy, business strategies, future revenues and future performance. These forward-looking statements are based on estimates, projections, beliefs and assumptions that are not guarantees of future events and results.

Such statements are subject to risks, uncertainties and assumptions including, but not limited to, competition, product demand, the market for auto parts, the economy in general, inflation, consumer debt levels, governmental approvals, our ability to hire and retain qualified employees, risks associated with the integration of acquired businesses such as the integration of CSK Auto Corporation, weather, terrorist activities, war and the threat of war.

Actual results may materially differ from anticipated results described or implied in these forward-looking statements. Please refer to the Risk Factors sections of the company's Form 10-K for the year ended December 31, 2009, for more details.

At this time, I'd like to introduce Greg Henslee.

Gregory Henslee

Thanks, Tom. Good morning, everyone, and welcome to our fourth quarter and year end 2010 conference call. Participating on the call with me this morning, of course, is Tom McFall, our Chief Financial Officer; and Ted Wise, our Chief Operating Officer.

David O'Reilly, our Executive Chairman, is also present. First, I'd like to congratulate all of Team O'Reilly on the outstanding results, both for the quarter and for the year. Our performance across all markets in the fourth quarter continued at a strong pace, and we should all be very proud of our industry-leading comparable store sales performance in 2010.

Our outstanding performance is a result of the great job our team members do, living up to the reputation O'Reilly Auto Parts has built over the years. Customers, both do-it-yourself and professional, have very high expectations of us based on their past experiences and our reputation in each market. Our customers have come to expect that we will always provide the best customer service in our business. That we always have industry-leading parts availability at competitive prices. That we carry the best assortment of quality products, and more than anything, that we offer friendly and professional assistance to every customer that gives us the opportunity.

We sell auto parts, but we're in the Customer Service business, and we've done a great job of proving that this past year. Congratulations, Team O'Reilly, on the outstanding results. It's now been a little over two and a half years since July of 2008, when we purchased CSK Auto. It's been quite a journey from the 1,830 stores and 14 distribution centers we operated in the central and eastern parts of the country at the end of 2007, to the 3,570 stores and 23 full-service distribution centers we operate coast-to-coast today. Some of the key accomplishments over the past three years include the addition of 1,740 stores, including those acquired with CSK; the completion of a very robust distribution network in the western states, this includes our distribution center openings in Seattle, Moreno Valley, California, Salt Lake City, Denver and Stockton, California; the implementation of a hub store network in the Western U.S.; the adjustments away from the promotional retail price-dependent strategies CSK used to everyday low-price strategy that we use in the O'Reilly stores; the changeover of the products CSK carried in their stores and distribution centers to the brands and categories that O'Reilly carries, along with the simultaneous enhancement of inventory coverage that's resulted in the customizing of each store and easy inventory to fit their market; the complete conversion of computer systems in the acquired stores and distribution centers to the O'Reilly point-of-sale supply chain and back-office systems; the display area reset and re-signing of the majority of the CSK locations, with the remainder to be completed in the first half of this year; along with a long list of other accomplishments, including beginning to implement our dual-market strategy in the western states.

At the end of 2007, the last full year we operated prior to acquiring CSK, we ended the year having generated $2.5 billion in revenue, 44.4% gross margin and 12.1% operating margin.

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