O'Reilly Auto Parts 2012 Annual Report Download - page 39

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Our comparable store sales increase for the year ended December 31, 2012, was driven by an increase in average ticket values,
partially offset by a decrease in DIY customer transaction counts. The improvement in average ticket values was a result of the
continued growth of the more costly, hard part categories, as a percentage of our total sales. The growth in the hard part categories is
driven by the increase of professional service provider customer sales as a percentage of our total sales mix and the continued growth
in DIY hard part sales, as consumers continue to maintain and repair their vehicles. The strong increases in our professional service
provider customer transaction counts, driven by our acquired markets, have been offset by pressured DIY transaction counts. DIY
customer transaction counts continue to be negatively impacted by macroeconomic pressures on disposable income, including
sustained unemployment levels above historical averages. Both DIY and professional service provider customer transaction counts
also continue to be negatively impacted by better-engineered and more technically advanced vehicles, which have been manufactured
in recent years. These vehicles require less frequent repairs and the component parts are more durable and last for longer periods of
time; however, when repairs are required, the cost of the repair is typically greater.
We opened 180 net, new stores and acquired 56 stores during the year ended December 31, 2012, compared to 170 net, new stores for
the year ended December 31, 2011. At December 31, 2012, we operated 3,976 stores in 42 states compared to 3,740 stores in 39
states at December 31, 2011. We anticipate new store unit growth to increase to 190 net, new stores in 2013.
Gross profit:
Gross profit for the year ended December 31, 2012, increased to $3.10 billion (or 50.1% of sales) from $2.84 billion (or 49.0% of
sales) for the same period one year ago, representing an increase of 9%. The increase in gross profit dollars was primarily a result of
the increases in sales from new stores and the increases in comparable store sales at existing stores. The increase in gross profit as a
percentage of sales was primarily due to distribution center (“DC”) efficiencies, acquisition cost improvements and improved
inventory shrinkage, partially offset by the impact of increased commercial sales as a percentage of the total sales mix. DC
efficiencies are the result of continued leverage on our increased sales volumes and more tenured and experienced DC Team Members
in our maturing DCs. In addition, during 2012 we increased our store-level inventories as a component of our focus on providing
higher service levels. The costs to move this additional inventory into the stores were more efficient than routine restocking activity
and, as a result, we realized a one-time benefit from capitalized distribution costs. This capitalization of costs benefited gross margin
by approximately 20 basis points versus the prior year, however, we do not anticipate realizing this excess benefit in future periods.
Acquisition cost improvements are the result of our ongoing negotiations with our vendors to improve our inventory purchase costs.
The improved inventory shrinkage is driven by our continued focus on inventory control and accountability through our distribution
and store networks. Commercial sales typically carry a lower gross profit as a percentage of sales than DIY sales, as volume discounts
are granted on wholesale transactions to professional service provider customers, therefore, creating pressure on our gross profit as a
percentage of sales.
Selling, general and administrative expenses:
Selling, general and administrative expenses (“SG&A”) for the year ended December 31, 2012, increased to $2.12 billion (or 34.3% of
sales) from $1.97 billion (or 34.1% of sales) for the same period one year ago, representing an increase of 7%. The increase in total
SG&A dollars was primarily the result of additional employees, facilities and vehicles to support our increased store count. The slight
increase in SG&A as a percentage of sales was primarily the result of our focus on store staffing levels to continue to deliver industry-
leading customer service while adjusting to the slower sales environment, as well as an overall deleverage on soft comparable store
sales.
Operating income:
As a result of the impacts discussed above, operating income for the year ended December 31, 2012, increased to $977 million (or
15.8% of sales) from $867 million (or 15.0% of sales) for the same period one year ago, representing an increase of 13%.
Other income and expense:
Total other expense for the year ended December 31, 2012, decreased to $36 million (or 0.6% of sales), from $51 million (or 0.9% of
sales) for the same period one year ago, representing a decrease of 30%. The decrease in total other expense for the year ended
December 31, 2012, was primarily due to one-time charges related to our financing transactions that were completed in January of
2011 (discussed in detail below), partially offset by increased interest expense on higher average outstanding borrowings and
increased amortization of debt issuance costs as compared to the prior year.
Income taxes:
Our provision for income taxes for the year ended December 31, 2012, increased to $356 million (37.8% effective tax rate) from $308
million (37.8% effective tax rate) for the same period one year ago, representing an increase of 15%. The increase in our provision for
income taxes was due to the increase in our taxable income.
Net income:
As a result of the impacts discussed above, net income for the year ended December 31, 2012, increased to $586 million (or 9.5% of
sales), from $508 million (or 8.8% of sales) for the same period one year ago, representing an increase of 15%.