O'Reilly Auto Parts 2013 Annual Report Download - page 34

FORM 10-K
28
The following table presents the components of the increase in sales for the year ended December 31, 2013 (in millions):
Increase in Sales for the Year Ended December 31, 2013,
Compared to the Same Period in 2012
Store sales:
Comparable store sales $ 259
Non-comparable store sales:
Sales for stores opened throughout 2012, excluding stores open at
least one year that are included in comparable store sales 74
Sales in 2012 for stores that have closed (3)
Sales for stores opened throughout 2013 and acquired VIP stores 134
Non-store sales:
Includes sales of machinery and sales to independent parts stores and
Team Members 3
Total increase in sales $ 467
We believe the increased sales achieved by our stores are the result of store growth and the high levels of customer service provided by
our well-trained and technically proficient Team Members, superior inventory availability, enhanced services and programs offered in
most stores, a broader selection of product offerings in most stores with a dynamic catalog system to identify and source parts, a targeted
promotional and advertising effort through a variety of media and localized promotional events, continued improvement in the
merchandising and store layouts of our stores, compensation programs for all store Team Members that provide incentives for performance
and our continued focus on serving both DIY and professional service provider customers.
Our comparable store sales increase for the year ended December 31, 2013, was driven by an increase in average ticket values for both
DIY and commercial business, and an increase in customer transaction counts for commercial business, slightly offset by a small decrease
in customer transaction counts for DIY business. The improvements in average ticket values were the 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 was driven by the increase
of professional service provider 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 existing vehicles. The increases in our professional service provider customer transaction counts
were driven by the chainwide growth of our professional business, while macroeconomic pressures on disposable income continue to
negatively impact DIY customer transaction counts. 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, on average, greater.
We opened 190 net, new stores during the year ended December 31, 2013, compared to 180 net, new stores and 56 acquired stores for
the year ended December 31, 2012. At December 31, 2013, we operated 4,166 stores in 42 states compared to 3,976 stores in 42 states
at December 31, 2012. We anticipate new store unit growth to increase to 200 net, new stores in 2014.
Gross profit:
Gross profit for the year ended December 31, 2013, increased to $3.37 billion (or 50.7% of sales) from $3.10 billion (or 50.1% 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 increase
in comparable store sales at existing stores and sales from new stores. The increase in gross profit as a percentage of sales was primarily
due to acquisition cost improvements, improved inventory shrinkage and distribution system efficiencies, partially offset by a smaller
amount of capitalized distribution costs in the current year, the non-cash impact to gross margin resulting from the depletion of our last-
in, first-out ("LIFO") reserve and the impact of increased commercial sales as a percentage of our total sales mix. 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.
Distribution system efficiencies are the result of continued leverage on our increased sales volumes and more tenured and experienced
DC Team Members in our maturing DCs. The decrease in capitalized distribution costs in the current year is the result of the larger than
typical benefit from capitalized distribution costs in the prior year associated with our initiative to increase our store-level inventories.
The costs to move this additional inventory into the stores in the prior year were more efficient than routine restocking activity; as a
result, we realized a larger than normal benefit from capitalized distribution costs. The depletion of our LIFO reserve during the year
resulted from the acquisition cost improvements we have realized over time. The Company's policy is not to write up inventory in excess
of replacement cost and, accordingly, we are now effectively valuing our inventory at replacement cost. During 2013, our LIFO cost
was written down by approximately $21.6 million to reflect replacement cost. We expect to incur pressure from product acquisition cost
reductions in the first quarter of 2014; however, at this time, we do not anticipate material charges for the last three quarters of 2014.
Unforeseen significant acquisition cost decreases could occur and may create additional LIFO gross margin headwinds during 2014.