O'Reilly Auto Parts 2011 Annual Report Download - page 8

Growing Brand
Awareness
We have and will continue to
work hard to establish O’Reilly
as the most trusted source for
customers’ automotive needs.
Our company strives to drive
customers into our stores. From
retail sales flyers, radio ads,
and sports sponsorships, our
goal is to create a strong brand
awareness. These advertising
programs do generate customer
traffic; however, we continue to
believe our best advertising is
the referrals we receive from
customers who have experienced
the top-notch problem-solving
skills of our professional
parts people.
The automotive aftermarket
continued to see a favorable external
macro-economic environment in
2011. Annual miles driven in the U.S.
is an important driver for demand in
the automotive aftermarket and has
historically been a key barometer for
the health of the industry. However,
in recent years, the degree to which
miles driven in the U.S. affects
aftermarket demand has been
impacted by the aging of the vehicle
population and the corresponding
increase in the miles driven on older
on to their existing vehicles for
longer periods of time. The average
age of the U.S. vehicle population
increased to 10.8 years in 2011. Miles
driven on older vehicles results in a
better yield for auto parts demand
since these vehicles are outside of
manufacturer warranty periods,
undergo more routine maintenance
cycles and incur more frequent
mechanical failures. This trend
towards holding on to vehicles for
longer periods accelerated with the
U.S. economic downturn over the
consumers will continue to feel the
pressure of increasing prices at the
gas pump with both of these factors
acting as a headwind to demand for
our business. However, we believe
the change in the value perception of
vehicle ownership will persist with
the willingness of consumers to keep
their vehicles and drive them at
higher mileages mitigating the
impact of macro-economic pressures
from unemployment and gas prices.
This scenario is consistent with our
expectations heading into 2011 which
played out with our solid comparable
store performance in a challenging
economic environment. To the extent
the U.S. economy recovers and
unemployment decreases, the
resulting increase in commuter
miles will drive higher demand for
the aftermarket and we believe will
offset any corresponding increase in
new vehicle sales.
New Store Growth
With the bulk of the physical integra-
tion of the CSK stores in our rear
view mirror, 2011 proved to be a
productive year for new store growth.
We opened 170 net new stores during
the year, an increase of 21 stores
from the 149 net new stores that we
opened in 2010. Our growth strategy
remains two-fold: entering new
markets in regions contiguous to our
existing distribution network and
backfilling in existing regions where
we have outstanding opportunities to
more fully penetrate the market. As a
result, a bulk of our growth in 2011
was in Southeast, East Coast and
Ohio Valley markets, including the
opening of our first store in West
Virginia, our 39th state.
Our plan is to open 180 stores
in 2012, and we expect to have the
ability to incrementally increase that
number over time. Although we
certainly have the capital resources
to open more stores than currently
planned, we remain disciplined and
focused on only opening stores we
are confident can achieve our return
vehicles. Total miles driven in the
U.S. was slightly lower in 2011 versus
2010, primarily due to a lack of
commuter miles driven resulting
from unemployment above historical
levels and pressures from increased
gas prices. The total number of
vehicles on the road has remained
fairly constant, as new car sales have
been below historical averages over
the last two years and vehicle scrap
rates have not increased. The
headwinds in miles driven and a flat
vehicle population were offset by the
continuing trend of an increasing
vehicle age as consumers are holding
past several years as consumers
have realized that, with proper
maintenance, older vehicles can be
reliably driven at higher miles due to
the improved quality of vehicles
manufactured in the past decade. We
believe this has led to a change in
overall consumer sentiment towards
vehicle ownership and we believe
consumers will continue to keep
their vehicles even longer as the
economy recovers maintaining the
trend of an aging vehicle population.
Looking forward to 2012, we
expect the rate of unemployment to
remain relatively high and believe
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