O'Reilly Auto Parts 2013 Annual Report Download - page 31

FORM 10-K
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Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
In Management’s Discussion and Analysis, we provide a historical and prospective narrative of our general financial condition, results
of operations, liquidity and certain other factors that may affect our future results, including:
 an overview of the key drivers of the automotive aftermarket industry;
 key events and recent developments within our company;
 our results of operations for the years ended 2013, 2012 and 2011;
 our liquidity and capital resources;
 any contractual obligations to which we are committed;
 any off-balance sheet arrangements we utilize;
 our critical accounting estimates;
 the inflation and seasonality of our business;
 our quarterly results for the years ended December 31, 2013, and 2012; and
 recent accounting pronouncements that may affect our company.
The review of Management’s Discussion and Analysis should be made in conjunction with our consolidated financial statements, related
notes and other financial information, forward-looking statements and risk factors included elsewhere in this annual report.
FORWARD-LOOKING STATEMENTS
We claim the protection of the safe-harbor for forward-looking statements within the meaning of the Private Securities Litigation Reform
Act of 1995. You can identify these statements by forward-looking words such as “expect,” “believe,” “anticipate,” “should,” “plan,”
“intend,” “estimate,” “project,” “will” or similar words. In addition, statements contained within this annual report that are not historical
facts are forward-looking statements, such as statements discussing among other things, expected growth, store development, integration
and expansion strategy, business strategies, future revenues and future performance. These forward-looking statements are based on
estimates, projections, beliefs and assumptions and are not guarantees of future events and results. Such statements are subject to risks,
uncertainties and assumptions, including, but not limited to, competition, product demand, the market for auto parts, the economy in
general, inflation, consumer debt levels, governmental regulations, our increased debt levels, credit ratings on public debt, our ability to
hire and retain qualified employees, risks associated with the performance of acquired businesses, weather, terrorist activities, war and
the threat of war. Actual results may materially differ from anticipated results described or implied in these forward-looking statements.
Please refer to the “Risk Factors” section of this annual report on Form 10-K for the year ended December 31, 2013, for additional factors
that could materially affect our financial performance. Forward-looking statements speak only as of the date they were made, and we
undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or
otherwise, except as required by applicable law.
OVERVIEW
We are a specialty retailer of automotive aftermarket parts, tools, supplies, equipment and accessories in the United States. We are one
of the largest U.S. automotive aftermarket specialty retailers, selling our products to both do-it-yourself (“DIY”) customers and professional
service providers – our “dual market strategy”. Our stores carry an extensive product line consisting of new and remanufactured automotive
hard parts, maintenance items, accessories, a complete line of auto body paint and related materials, automotive tools and professional
service provider service equipment. Our extensive product line includes an assortment of products that are differentiated by quality and
price for most of the product lines we offer. For many of our product offerings, this quality differentiation reflects “good”, “better”, and
“best” alternatives. Our sales and total gross margin dollars are highest for the “best” quality category of products. Consumers’ willingness
to select products at a higher point on the value spectrum is a driver of sales and profitability in our industry. Our stores also offer
enhanced services and programs to our customers: used oil, oil filter and battery recycling; battery, wiper and bulb replacement; battery
diagnostic testing; electrical and module testing; check engine light code extraction; loaner tool program; drum and rotor resurfacing;
custom hydraulic hoses; professional paint shop mixing and related materials; and machine shops. As of December 31, 2013, we operated
4,166 stores in 42 states.
Operating within the retail industry, we are influenced by a number of general macroeconomic factors including, but not limited to, fuel
costs, unemployment rates, consumer preferences and spending habits, and competition. The difficult conditions that affected the overall
macroeconomic environment in recent years continue to impact O’Reilly and the retail sector in general. We believe that the average
consumer’s tendency has been to “trade down” to lower quality products during the recent challenging macroeconomic conditions. We
have ongoing initiatives aimed at tailoring our product offering to adjust to customers’ changing preferences; however, we also continue
to have initiatives focused on marketing and training to educate customers on the advantages of “purchasing up” on the value spectrum.