O'Reilly Auto Parts 2014 Annual Report Download - page 33

FORM 10-K
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of the continued growth of the more costly, hard part categories as a percentage of our total sales. The overall growth in our hard part
categories continues to be driven by our faster growing professional service provider sales, which are primarily comprised of hard part
categories and by the increasing complexity and cost of replacement parts necessary to maintain the current population of better engineered
and more technically advanced vehicles. 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 replacement parts is, on average, greater. While the less
frequent repairs required by these better engineered and manufactured vehicles does create pressure on transaction counts, both DIY and
professional service provider customer transaction counts were positive for the year ended December 31, 2014. The increases in
professional service provider customer transaction counts were primarily driven by our acquired markets and the continued growth of
less mature stores. The increases in DIY transaction counts were driven by our ongoing focus on staffing our stores with knowledgeable
parts professionals to assist our DIY customers during high DIY traffic periods, including nights and weekends.
We opened 200 net, new stores during the year ended December 31, 2014, compared to 190 net, new stores for the year ended December 31,
2013. At December 31, 2014, we operated 4,366 stores in 43 states compared to 4,166 stores in 42 states at December 31, 2013. We
anticipate total new store growth to increase to 205 net, new store openings in 2015.
Gross profit:
Gross profit for the year ended December 31, 2014, increased to $3.71 billion (or 51.4% of sales) from $3.37 billion (or 50.7% of sales)
for the same period one year ago, representing an increase of 10%. 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 for
the year ended December 31, 2014, was primarily due to product acquisition cost improvements, partially offset by the non-cash last-in,
first-out ("LIFO") negative impact resulting from continued product acquisition cost reductions. Acquisition cost improvements are the
result of our ongoing negotiations with our vendors to improve our inventory purchase costs. During the third quarter of 2013, we fully
depleted our LIFO reserve due to acquisition cost improvements we realized over time. Our policy is to not write up inventory in excess
of replacement cost and, accordingly, we are effectively valuing our inventory at replacement cost. During the year ended December 31,
2014, our LIFO cost was written down by approximately $41 million to reflect replacement cost.
Selling, general and administrative expenses:
Selling, general and administrative expenses ("SG&A") for the year ended December 31, 2014, increased to $2.44 billion (or 33.8% of
sales) from $2.27 billion (or 34.1% of sales) for the same period one year ago, representing an increase of 8%. The increase in total
SG&A dollars was primarily the result of additional Team Members, facilities and vehicles to support our increased store count. The
decrease in SG&A as a percentage of sales was primarily the result of increased leverage of store occupancy costs on strong comparable
store sales results.
Operating income:
As a result of the impacts discussed above, operating income for the year ended December 31, 2014, increased to $1.27 billion (or 17.6%
of sales) from $1.10 billion (or 16.6% of sales) for the same period one year ago, representing an increase of 15%.
Other income and expense:
Total other expense for the year ended December 31, 2014, increased to $48 million (or 0.7% of sales), from $45 million (or 0.7% of
sales) for the same period one year ago, representing an increase of 8%. The increase in total other expense for the year ended December 31,
2014, was primarily the result of increased interest expense on higher average outstanding borrowings.
Income taxes:
Our provision for income taxes for the year ended December 31, 2014, increased to $444 million (36.3% effective tax rate) from $389
million (36.7% effective tax rate) for the same period one year ago, representing an increase of 14%. The increase in our provision for
income taxes was the result of higher taxable income in the current year, driven by our strong operating results. The decrease in our
effective tax rate was primarily due to increased benefits from employment tax credits in the current year.
Net income:
As a result of the impacts discussed above, net income for the year ended December 31, 2014, increased to $778 million (or 10.8% of
sales), from $670 million (or 10.1% of sales) for the same period one year ago, representing an increase of 16%.
Earnings per share:
Our diluted earnings per common share for the year ended December 31, 2014, increased 22% to $7.34 on 106 million shares from $6.03
on 111 million shares for the same period one year ago.