O’Reilly Automotive Earnings Call Nuggets: CSK Stores, DIY Side

On Thursday, O’Reilly Automotive Inc (NASDAQ:ORLY) reported its third quarter earnings and discussed the following topics in its earnings conference call. Take a look.

CSK Stores

Alan Rifkin – Barclays: Couple of questions if I may. Greg, in the past, you had talked about the former CSK stores over the longer course of time getting to $1.8 million per store. I think it’s been a little while since you updated that number. Can you maybe give us an update as to where that is today and do you still think the $1.8 million is an achievable number?

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Gregory L. Henslee – Co-President and CEO: Yeah, we do. The CSK stores are divided into different sections of the country and the Upper Midwest stores have not performed as well as the Western stores and we relate that primarily to just the weather effect that we’ve seen throughout the industry as a result of the milder winter last year. Speaking of the Western stores for just a moment, they’ve continued to perform very well and we are well down the road to getting to our $1.8 million goal, and we would expect that we will do that, and what Tom would you guess, somewhere in 2014 probably.

Thomas G. McFall – CFO, EVP of Finance: Alan, as you know, we are getting away from giving regional performance as it causes competitive issues for us, but we continue to make very good progress, we continue to be very comfortable we will hit the $1.8 million number and then we will set a new goal from there. Alan, just to add something to that for you, when we set that, part of the rationale was that many of the markets that we do business in today, big metro markets like I don’t know, Houston or Dallas, Fort Worth or just other large markets, where we have a large population base, lot of miles driven, lot of vehicles, our stores today exceed that $1.8 million average in many markets, and it’s not a stretch for us to expect that in these larger markets up west, it’s just taking time as we expected and as we talked about when we bought CSK to ramp the stores up to that rate, and we fully expect that we will get that in some markets even past that.

Alan Rifkin – Barclays: Just to follow up if I may, so Greg with more and more of the competition certainly targeted at the commercial side of the business, which is, long being your mainstay side of the business, I mean what incrementally are you guys doing to defend your share on that side of the business?

Gregory L. Henslee – Co-President and CEO: As I talked about earlier, we are putting – strategically placing more inventory out in the stores and kind of beefing up our hub network, we continue to educate our team members on the best ways to manage relationships, the best ways to use our professional custom promotions, to maintain relationships with customers and the main opportunity with any relationship with a professional customer is just the level of service that you provide. So, we are making sure that our team members have the facilities and assets they need to give the best customer service in the industry. We think we have been very successful in defending against the more retail competitors as they’ve come into that business, so we feel like we’ve done a good job defending our market share there.

Alan Rifkin – Barclays: One last one, if I may, the (390K) DC in Lakeland, Florida is even large number than we thought. First of all, how many stores do you think you can ultimately have in the southern portion of state and how many of the 190 earmarked to 2013 will be in Florida?

Gregory L. Henslee – Co-President and CEO: I’ll let Ted to give some color on that.

Ted F. Wise – Co-President and COO: Alan, we are thinking probably in the 300 to 350 rage for Florida total and DC will handle that and that will take care of the entire state and then as far as the expansion in 2013, like I said we’ve got about 51 stores opened now and we would expect to probably have another 25 opened next year. We’re going to some degree kind of push those back towards the end of the year to make sure from a service level standpoint that the DC is opened relatively quick after stores opened in the Central part. Like I said we have two hub stores, super hub stores opened now in central Florida which will help a lot as far as the same day service on parts availability in addition to over (indiscernible) of our Atlanta and Mobile DC, so I think there will probably about 25 of our stores be in Central Florida next year.

Gregory L. Henslee – Co-President and CEO: Something to add to that Alan is that your part of the rationale with the square footage there is to take some pressure off our Atlanta and our Mobile DCs which are servicing some of that area now which is a little bit of a stretch for the ideal range for those distribution centers.

DIY Side

Gary Balter – Credit Suisse: Alan asked about the professional side. Could you talk about what you’re doing on the DIY side? That seems to have been the weaker area and remains the weaker area. What efforts are doing (inside that)?

Gregory L. Henslee – Co-President and CEO: Well, we’re doing a lot of work on the product offerings that we have in place to draw the DIY customer more to – in many cases expanding our private label products, making sure that we’re price competitive on the entry-level products. From a store staffing perspective, we’re working to make sure that our stores are staffed for nights and weekends, which is typically when the DIY business happens for most part. From a system’s standpoint, I talked earlier about our electronic catalog. A big part or a big push with this electronic catalog is the content that exists to express to a customer that’s maybe working on their own car, the things they might do to fix a car, help them diagnose a problem, just give our part specialist better information when discussing with a DIY customer the process that they might go through to repair a car, and all those things over time we think culminates into a higher level of customer service to the DIY customer, and we think it’s working for us. As we’ve talked about in the past, our average DIY volume per store versus some of our competitors leaves us with an obvious opportunity to grow market share there and we’re working today to do that.

Gary Balter – Credit Suisse: And just a follow-up and you’ve kind of addressed the gross margin a number of times during the call, but one of your competitors earlier this week talked about promotional activity in the sector. It was very hard to see in your strong gross margin results and it doesn’t sound like that has anything to do with the guidance you’ve given for Q4. What are you seeing in the environment right now?

Gregory L. Henslee – Co-President and CEO: The promotions that we all run are pretty similar. There are promotions on the DIY side that would be for commonly used items, maintenance items like oil changes and motor oil and stuff like that, and run them pretty similarly priced. I guess the variance between us would be the frequency which we run on, the link we run on, the number of products we run at one-time. So, we’ve not seen any major change among any of our competitors with what they do there. What we have seen on the do-it-for-me side is just the work that a company coming into the do-it-for-me side will do to draw customer to them, and since in many cases, those companies don’t have a service advantage or availability advantage or any advantage other than the fact that they might be able to offer a customer lower price for a period of time to maybe change buying habits or something. My guess would be that when that was spoken, it was more on the promotions on the do-it-for-me side.

A Closer Look: O’Reilly Automotive Earnings Cheat Sheet>>