O'Reilly Auto Parts 2010 Annual Report Download - page 41

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Net income:
As a result of the impacts discussed above, net income increased $112 million, or 36%, from $307 million (6.3% of sales) in 2009 to
$419 million (7.8% of sales) in 2010.
Earnings per share:
Our diluted earnings per common share for the year ended December 31, 2010, increased 32% to $2.95 on 142 million shares
compared to $2.23 for the year ended December 31, 2009, on 138 million shares.
Adjustments for nonrecurring and non-operating events:
Our year-to-date results include a nonrecurring charge related to the ongoing, legacy DOJ investigation of CSK as well as a
nonrecurring, non-operating gain in other income related to the settlement of a note receivable acquired from CSK. Adjusted
operating income, excluding the impact of the charge related to the DOJ investigation of CSK, increased 37% to $734 million (13.6%
of sales) for the year ended December 31, 2010, from $538 million (11.1% of sales) for the same period in 2009. Adjusted net
income, excluding the impact of the charge related to the DOJ investigation of CSK and the gain on the settlement of the note
receivable increased 41% to $433 million (8.0% of sales) for the year ended December 31, 2010, from $307 million (6.3% of sales)
for the same period in 2009. Adjusted diluted earnings per common share, excluding the impact of the charge related to the DOJ
investigation of CSK and the gain on the settlement of the note receivable, increased 37% to $3.05 for the year ended December 31,
2010, from $2.23 for the same period in 2009.
The table below outlines the impact of the charge and the gain for the year ended December 31, 2010, as compared to the same period
in 2009 (amounts in thousands, except per share data):
For the Year Ended December 31,
2010 2009
Amount % of Sales Amount % of Sales
Operating income $ 712,776 13.2 % $ 537,619 11.1 %
Legacy CSK DOJ investigation charge 20,900 0.4 % -- -- %
Adjusted operating income $ 733,676 13.6 % $ 537,619 11.1 %
Net income $ 419,373 7.8 % $ 307,498 6.3 %
Legacy CSK DOJ investigation charge 20,900 0.4 % -- -- %
Gain on settlement of note receivable, net of tax (7,215) (0.2) % -- -- %
Adjusted net income $ 433,058 8.0 % $ 307,498 6.3 %
Diluted earnings per common share $ 2.95 $ 2.23
Legacy CSK DOJ investigation charge 0.15 --
Gain on settlement of note receivable, net of tax (0.05) --
Adjusted diluted earnings per common share $ 3.05 $ 2.23
The financial information presented in the table above is not derived in accordance with United States generally accepted accounting
principles (“GAAP”). These items include adjusted operating income, adjusted operating margin, adjusted net income and adjusted
diluted earnings per share. We do not, nor do we suggest investors should, consider such non-GAAP financial measures in isolation
from, or as a substitute for, GAAP financial information. We believe that the presentation of financial results and estimates excluding
the impact of the CSK DOJ investigation charge and the gain on the settlement of the CSK note receivable provides meaningful
supplemental information to both management and investors that is indicative of our core operations. We exclude these items in
judging our performance and believe this non-GAAP information is useful to investors as well. The material limitation of these non-
GAAP measures is that such measures are not reflective of actual GAAP amounts. We compensate for this limitation by presenting,
in the table above, the accompanying reconciliation to the most directly comparable GAAP measures.
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2009 Compared to 2008
Sales:
Sales increased $1.27 billion, or 36%, from $3.58 billion in 2008 to $4.85 billion in 2009. The following table presents the
components of the increase in sales for the year ended December 31, 2009 (in millions):
Increase in Sales for the Year
Ended December 31, 2009,
compared to the same period
in 2008
Comparable store sales $ 189
Stores opened throughout 2008, excluding stores open at
least one year that are included in comparable stores
sales 72
Sales of stores opened throughout 2009 73
Non-store sales including machinery, sales to independent
part stores and team members 4
Sales in 2008 for stores that have merged or closed (2)
Acquired CSK store sales, excluding sales that are included
in comparable store sales (sales after 7/11/2009, the one
year anniversary of the acquisition) 935
Total increase in sales $ 1,271
Comparable store sales are calculated based on the change in sales of stores open at least one year and exclude sales of specialty
machinery, sales to independent parts stores, sales to team members and sales during the one- to two-week period certain CSK
branded stores were closed for conversion. Comparable store sales for stores operating on the O’Reilly systems increased 5.4% for
the year ended December 31, 2009. The O’Reilly systems comparable store sales results consisted of a 6.6% increase for the core
O’Reilly and post conversion Schuck’s stores, a 2.1% increase from the 123 converted Checker stores and a 11.9% decrease in
comparable stores sales from the 141 converted Murray’s stores. Comparable store sales for stores operating on the legacy CSK
system increased 3.0% for the year ended December 31, 2009. Consolidated comparable store sales increased 4.6% for the year ended
December 31, 2009, versus 1.5% for the year ended December 31, 2008.
We believe that the increased sales achieved by our stores are 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 was primarily driven by an increase in transaction counts, while average ticket remained flat
with the prior year. The flat average ticket value was attributable to more complex and costly repair parts, consistent with ongoing
industry trends offset by competitive price reductions in the acquired CSK stores and the addition of a wider assortment of entry level
products in those stores.
Store growth:
We opened 149 new O’Reilly branded stores and one new Schuck’s store in 2009. At December 31, 2009, we operated 3,421 stores
compared to 3,285 stores at December 31, 2008. Due to the acquisition and integration of CSK, we anticipate new store unit growth
to be limited to 150 new stores in 2010, excluding the previously disclosed consolidation and closure of underperforming stores
related to the acquisition of CSK; however, we anticipate that continued store unit growth consistent with our historical openings will
continue in the future.
Gross profit:
Gross profit increased $699 million, or 43%, from $1.63 billion (45.5% of sales) in 2008 to $2.33 billion (48.0% of sales) in 2009.
The increase in gross profit dollars was primarily a result of the inclusion of a full year of sales from acquired CSK stores in 2009
versus roughly one half of a year of sales from acquired CSK stores in 2008, the increase in sales from new stores and an increase in
comparable store sales from existing stores. The increase in gross profit as a percentage of sales is the result of lower product
acquisition cost, changes in our product mix, distribution system improvements and a favorable pricing environment on certain
commodity based products. Product acquisition costs improved primarily due to continued negotiating leverage with our vendors as a
result of our significant growth related to the acquisition of CSK. We anticipate continued improvements in product acquisition costs
at a moderate rate in 2010 from a full year of the benefit from improved leverage with our vendors as we anniversary product line
changeovers in the acquired CSK stores throughout the year. We improved our product mix by continuing to implement strategies to
differentiate our merchandise selections at each store based on customer demand and vehicle demographics in the store’s market and
through ongoing Team Member training initiatives focused on selling products with greater gross margin contribution. Additionally,
gross margin percentage improved as a result of an increased percentage of our total sales mix to DIY customers. Prior to the
FORM 10-K