O'Reilly Auto Parts 2011 Annual Report Download - page 42

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The following table presents the components of the increase in sales for the year ended December 31, 2010 (in millions):
Increase in Sales for the year ended
December 31, 2010, compared to the
same period in 2009
Store sales:
Comparable store sales $417
Non-comparable store sales:
Sales for stores opened throughout 2009, excluding stores open at least one year that are
included in comparable store sales
56
Sales in 2009 for stores that have closed (5)
Sales for stores opened throughout 2010 74
Non-store sales:
Including sales of machinery, sales to independent parts stores and team member sales 8
Total increase in sales $550
We believe that the increased sales achieved by our stores were the result of superior inventory availability, a broader selection of
products offered in most stores, a targeted promotional and advertising effort through a variety of media and localized promotional
events, continued improvement in the merchandising and store layouts of the stores, compensation programs for all store Team
Members that provide incentives for performance and our continued focus on serving professional service providers. The
improvement in comparable store sales for the year was driven both by increased transaction counts and higher average ticket values.
We believe that the increase in transaction counts was a result of the customer’s focus on better maintaining their current vehicles, the
stabilization of the economy and gas prices during the year and the growth of our commercial business in the acquired CSK markets.
The improvement in average ticket value was primarily the result of a larger percentage of our total sales derived from higher priced
hard parts categories.
We opened 149 net, new stores during the year ended December 31, 2010, compared to 142 net, new stores for the year ended
December 31, 2009. At December 31, 2010, we operated 3,570 stores compared to 3,421 stores at December 31, 2009.
Gross profit:
Gross profit for the year ended December 31, 2010, increased to $2.62 billion (or 48.6% of sales) from $2.33 billion (or 48.0% of
sales) for the same period one year ago, representing an increase of 13%. The increase in gross profit dollars was primarily a result of
the increase in sales from new stores and the increase in comparable store sales at existing stores. The increase in gross profit as a
percentage of sales was the result of improved product mix, lower product acquisition costs and decreased inventory shrinkage at
converted CSK stores, partially offset by the impact of increased commercial sales as a percent of the total sales mix and reduced
leverage on the expanded number of distribution centers. The improvement in product mix was primarily driven by increased sales in
the hard part categories, which typically generate a higher gross margin percentage than other categories. Increasing hard part sales
were the result of strong consumer demand as consumers retained their vehicles longer and our enhanced and more comprehensive
inventory levels in the hard part categories in the CSK stores, supported by a more extensive and robust distribution network. Lower
product acquisition costs were derived from improved negotiating leverage with our vendors as the result of large purchase volume
increases associated with the acquisition of CSK. The benefit of this improvement in gross margin was realized in the first and second
quarters of 2010 as compared to the same periods in 2009 when we renegotiated these vendor contracts. Our gross margin results for
the third and fourth quarters of 2010 reflected comparable periods of improved purchasing leverage. The decrease in inventory
shrinkage at converted CSK stores was the result of the more robust O’Reilly point of sale system (―POS‖), which was installed in all
CSK stores when they converted to the O’Reilly distribution systems. The O’Reilly POS provides our store managers with better
tools to track and control inventory resulting in improved inventory shrinkage. Commercial sales are growing at a faster rate than DIY
sales as a result of the enhanced distribution model in our western markets, which supports the implementation of our dual market
strategy in these areas. Commercial sales typically carry a lower gross margin percentage than DIY sales, as volume discounts are
granted on wholesale transactions to professional customers, and create pressure on our gross margin as a percent of sales. The
reduced leverage on distribution center costs was the result of the additional distribution centers, which were opened in conjunction
with the CSK integration plan. New Team Members in these distribution centers were not yet fully proficient with distribution
operations, resulting in inefficiencies.
Selling, general and administrative expenses:
SG&A for the year ended December 31, 2010, increased to $1.89 billion (or 35.0% of sales) from $1.79 billion (or 36.9% of sales) for
the same period one year ago, representing an increase of 6%. The increase in total SG&A dollars was primarily the result of
additional employees, facilities and vehicles to support our increased store count and dual market strategy in the acquired CSK stores,
as well as increased incentive compensation for Team Members resulting from strong comparable store sales. The decrease in SG&A
as a percentage of sales was primarily attributable to increased leverage of fixed costs on very strong comparable store sales levels.
FORM 10-K