O'Reilly Auto Parts 2010 Annual Report Download - page 5

provides better controls for operations
management to improve gross margins,
reduce inventory shrink and maximize
Team Member productivity.
Fully Aligned Product Offering. During
2009, we completed the alignment of the
hard part product lines in the acquired
CSK stores, and in 2010, we completed
the alignment of the front room categories.
With all of the product offerings aligned
and the DC and POS systems installed
chain-wide, we are positioned to bring all
of our industry leading, store specific
inventory tools to bear and refine the
product mix in the acquired stores.
Front End and Sign Conversions.
Through the end of the year, we have
converted 51% of the acquired stores
front ends to O’Reilly graphics and
signage and 63% of the exterior signs
to O’Reilly. We will complete all of the
conversions by mid-2011, which will
allow us to end our co-branding strategy
and focus entirely on building the
O’Reilly Brand.
While the physical conversion of the
acquired CSK stores nears completion, we
are still targeting significant operational
enhancements to bring the execution and
results of the acquired stores up to our
expectations. The key areas of focus are
identified below:
Developing Store Operations Leadership.
Our Dual Market Strategy requires our
store managers to operate as entrepreneurs.
of our business in attractive west coast
markets by acquiring an existing chain that
complemented our geographic footprint.
The acquisition gave us the opportunity to
improve the underperforming CSK stores,
to reduce our consolidated product
acquisition costs and to realize operating
expense efficiencies. We designed the
integration plan for the acquired CSK
stores as a multiyear, multiphase project.
During 2010, we achieved several key
milestones in the integration process,
which are identified below:
Completion of the Distribution Center
Build-Out. In 2010, we opened new DCs
in Southern California; Denver; and Salt
Lake City. In addition, we relocated
CSK’s existing northern California DC to
a larger facility and converted the existing
Phoenix DC to O’Reilly systems. These
DCs, along with the Seattle DC, which
opened in 2009, and the Detroit DC,
which converted to O’Reilly systems in
2009, now allow us to service all stores
five nights a week. Completion of this
robust distribution network expansion
was a major milestone in the integration
plan, as it is a critical tool in the imple-
mentation of our Dual Market Strategy.
Conversion of Store Point of Sale
Systems. Coinciding with the completion
of the distribution infrastructure expansion,
the store POS system conversion was
completed. The O’Reilly POS system
provides key tools for our store teams
to utilize in executing our Dual Market
Strategy. The O’Reilly POS system
the past ten years. We believe the age
of vehicles on the road will continue to
increase as consumers gain confidence in
the road worthiness of vehicles at higher
mileages. This continued aging of the light
vehicle fleet will mean vehicles will go
through more routine maintenance cycles on
a go-forward basis, which will continue to be
a tailwind for the automotive aftermarket.
new store growth
We opened 149 net, new stores in 2010
and we continue to see great opportunities
for strong and profitable new store growth
in the future. The fragmented nature of the
automotive aftermarket, combined with the
advantage of scale of a large chain, makes
ongoing new store growth an attractive
capital investment for our Company. With
the completion of our distribution infra-
structure expansion in our western markets
during 2010, we now have the growth
capacity to open 650 new stores within
our existing distribution infrastructure
with each DC having new store growth
capacity. We plan to open 170 new stores
in 2011 and, in the years following, we
would anticipate increasing our annual
new store openings to capitalize on the
attractive opportunities we see in all of
the markets we serve.
integrAtion of AcQuired pArts stores
Our 2008 acquisition of 1,342 CSK stores
represented a significant commitment to
expanding our brand throughout the
Western U.S. The primary motivation for
the acquisition was to increase the scale
O’REILLY AUTO M OTIVE 2010 AN NUAL REPORT PAGE 3
‘06 ‘07 ‘08 ‘09 ‘10
282 305
336
538
713
operAting income
(In Millions)
‘06 ‘07 ‘08 ‘09 ‘10
3.3
3.7
1.5
4.6
8.8
sAme-store sAles
(Percentage Increase)
‘06 ‘07 ‘08 ‘09 ‘10
1.55 1.67
1.48
2.23
2.95
eArnings per shAre
(Assuming Dilution)