O'Reilly Automotive Inc.

Company Overview

Business Model: O’REILLY AUTOMOTIVE, INC. is one of the largest specialty retailers of automotive aftermarket parts, tools, supplies, equipment, and accessories in the United States, Puerto Rico, Mexico, and Canada. The Company operates a dual market strategy, selling products to both do-it-yourself ("DIY") customers and professional service provider customers. In 2024, approximately 52% of sales were derived from DIY customers and 48% from professional service provider customers. The extensive product line includes new and remanufactured automotive hard parts, maintenance items, accessories, auto body paint, tools, and service equipment. The Company also offers enhanced services such as battery diagnostic testing, replacement services, check engine light code extraction, a loaner tool program, and recycling services.

Market Position: O’REILLY AUTOMOTIVE, INC. aims to be the dominant auto parts provider in its markets by offering superior customer service and value to both DIY and professional service provider customers. Key competitive advantages include its proven dual market strategy, superior customer service delivered by technically proficient store personnel ("Professional Parts People"), a strategic regional tiered distribution network, and an experienced management Team. The Company operates profitably in both densely and less densely populated areas, leveraging its broad inventory and product knowledge. The U.S. automotive aftermarket is estimated at $414 billion, with O’REILLY AUTOMOTIVE, INC.'s addressable market (auto parts share of professional service provider sales at wholesale and DIY sales at retail) estimated at $150 billion to $160 billion.

Recent Strategic Developments:

• Acquisition: On January 22, 2024, O’REILLY AUTOMOTIVE, INC. completed the strategic acquisition of Groupe Del Vasto ("Vast Auto"), an auto parts supplier headquartered in Montreal, Quebec, Canada. This acquisition marked the Company's entrance into the Canadian automotive aftermarket, adding two distribution centers, six satellite warehouses, 23 company-owned stores, and a network of independent jobber and professional customers across Eastern Canada.
• New Store Expansion: The Company opened 198 net, new stores in 2024 and plans to open 200 to 210 net, new stores in 2025, increasing market penetration and expanding into new, contiguous markets.
• Omnichannel Growth: O’REILLY AUTOMOTIVE, INC. is enhancing its digital platforms (www.OReillyAuto.com, www.OReillyPro.com, and the O’Reilly Pro mobile application) to provide a seamless research and buying experience across in-person, phone, and digital channels.
• Distribution Network Enhancement: In 2024, the Company relocated its Springfield Distribution Center and Atlanta Distribution Center to larger, more efficient facilities and converted its North Little Rock Distribution Center into a large Hub. A new Distribution Center in Stafford, Virginia, is planned for 2025 to further enhance store servicing capabilities.

Geographic Footprint: As of December 31, 2024, O’REILLY AUTOMOTIVE, INC. operated 6,378 stores in total. This includes 6,265 stores across 48 states in the United States and Puerto Rico, 87 stores in Mexico, and 26 stores in Canada. The Company also operates 31 distribution centers and 11 satellite warehouses in Mexico and Canada.

Financial Performance

Revenue Analysis

Profitability Metrics:

• Gross Margin: 51.2%
• Operating Margin: 19.5%
• Net Margin: 14.3%

Investment in Growth:

• Capital Expenditures: $1.02 billion
• Strategic Investments: The Company's capital expenditures primarily supported distribution enhancement and expansion projects, as well as an increase in owned new store openings. Information technology investments are also noted as a driver of increased selling, general and administrative expenses. The acquisition of Vast Auto involved a net cash outlay of $161.3 million. The Company also has a total commitment of approximately $340 million to purchase transferable federal renewable energy tax credits, with the final closing payment anticipated by April 2026.

Capital Allocation Strategy

Shareholder Returns:

• Share Repurchases: $2.08 billion (1.94 million shares) in 2024, at an average price of $1,072.47 per share. As of February 28, 2025, approximately $2.5 billion remained under the Company's share repurchase program.
• Dividend Payments: The Company has not declared cash dividends since April 22, 1993, and does not anticipate paying any cash dividends in the foreseeable future.
• Future Capital Return Commitments: The Board of Directors has authorized additional share repurchase amounts, with the latest authorizations effective for varying periods, including one announced on November 22, 2024, for an additional $1 billion.

Balance Sheet Position:

• Cash and Equivalents: $130.2 million (as of December 31, 2024)
• Total Debt: $5.52 billion (as of December 31, 2024)
• Net Cash Position: -$5.39 billion (as of December 31, 2024)
• Credit Rating: The Company's interest rate margins and facility fees on its unsecured revolving credit facility and commercial paper program are based upon the better of the ratings assigned to its debt by Moody’s Investor Service, Inc. and Standard & Poor’s Rating Services.
• Debt Maturity Profile: | Year | Scheduled Maturities | |------|----------------------| | 2025 | $200.0 million | | 2026 | $1,250.0 million | | 2027 | $750.0 million | | 2028 | $500.0 million | | 2029 | $500.0 million | | Thereafter | $2,350.0 million | | **Total Principal** | **$5,550.0 million** |

Cash Flow Generation:

• Operating Cash Flow: $3.05 billion
• Free Cash Flow: $1.99 billion
• Cash Conversion Metrics:
  • Inventory Turnover: 1.7 times (for the last 12 months ended December 31, 2024)
  • Accounts Payable to Inventory: 128.0% (as of December 31, 2024)

Operational Excellence

Production & Service Model: O’REILLY AUTOMOTIVE, INC. operates a dual market strategy, providing superior customer service and product availability to both DIY and professional service provider customers. This is supported by highly-motivated, technically-proficient store personnel ("Professional Parts People") who undergo extensive and ongoing training. The Company's mission emphasizes being the dominant auto parts provider through a higher level of customer service and value.

Supply Chain Architecture: The Company utilizes a robust, regional, tiered distribution network designed to optimize product availability and inventory levels.

• Distribution Centers (DCs): As of December 31, 2024, O’REILLY AUTOMOTIVE, INC. operated 31 DCs with approximately 13.1 million operating square feet. These DCs typically provide same-day or overnight access to over 153,000 stock keeping units ("SKUs") to stores. Most DCs are electronically linked and have access to multiple other DCs' inventory.
• Hub Stores: The network includes 396 strategically located Hub stores, averaging 15,900 square feet and carrying an average of 55,000 SKUs, with some carrying up to 107,000 SKUs. Hub stores provide delivery service and same-day access to an expanded selection of SKUs for surrounding stores.
• Delivery: More than 95% of stores receive multiple same-day deliveries and deliveries on weekends of hard-to-find parts from DCs and Hub stores.

Key Suppliers & Partners:

• O’REILLY AUTOMOTIVE, INC. purchases automotive products from over 645 suppliers. The five largest suppliers accounted for approximately 26% of total purchases in 2024, with the largest accounting for approximately 8% and the next four largest each accounting for approximately 3% to 6%. The Company has no long-term contracts with material purchase commitments with any suppliers and believes alternative supply sources exist at competitive costs.
• The Company maintains supplier finance programs with third-party financial institutions, allowing participating suppliers to assign payment obligations. As of December 31, 2024, obligations outstanding under these programs totaled $4.81 billion.

Facility Network:

• Stores: As of December 31, 2024, the Company operated 6,378 stores, with approximately 49 million total square feet in its 6,265 domestic stores. Stores are typically freestanding buildings or prominent end caps on major traffic thoroughfares.
• Distribution: The 31 DCs comprise approximately 13.1 million operating square feet. The total DC network provides a growth capacity of approximately 500 to 650 domestic stores.
• Corporate Office: Corporate office operations are primarily in Springfield, Missouri, totaling 0.6 million square feet, substantially all of which is owned.

Operational Metrics:

• Over 95% of stores receive multiple same-day deliveries and weekend deliveries of hard-to-find parts from Distribution Centers and Hub stores.
• The Company utilizes routing software to enhance logistics efficiencies and labor management software to improve DC productivity and overall operating efficiency.

Market Access & Customer Relationships

Go-to-Market Strategy:

• Direct Sales: The Company employs approximately 810 full-time sales staff dedicated solely to calling upon and servicing professional service provider customers.
• Channel Partners: Professional service provider customers are supported through dedicated Professional Service Specialists in stores, multiple daily deliveries, and the Certified Auto Repair program.
• Digital Platforms: Online ordering is available for professional customers via www.OReillyPro.com and the O’Reilly Pro mobile application, with local delivery. DIY customers can order online through www.OReillyAuto.com, featuring "chat with a parts professional" and parts lookup assistance, with options for pick-up-in-store or home delivery.

Customer Portfolio:

• Customer Mix: In 2024, approximately 52% of sales were to DIY customers and 48% to professional service provider customers.
• Customer Concentration: The Company's customer base consists of a large number of relatively small customers, which helps to spread credit risk.

Geographic Revenue Distribution: Consolidated revenue is primarily generated within the United States, with immaterial revenues associated with international operations.

Competitive Intelligence

Market Structure & Dynamics

Industry Characteristics: The U.S. automotive aftermarket industry is estimated to be approximately $414 billion, according to the Auto Care Association. Key demand drivers include the total number of vehicle miles driven, the total number of registered vehicles, and the average age of these vehicles. The average age of the U.S. vehicle population has increased to 12.5 years in 2023, up 10.6% from 2013, which drives demand for aftermarket parts as older, out-of-warranty vehicles require more frequent maintenance and repairs. The industry is highly fragmented, leading to ongoing consolidation opportunities for national chains.

Competitive Positioning Matrix:

Direct Competitors

Primary Competitors:

• AutoZone, Inc.: A national retail and wholesale automotive parts chain.
• Advance Auto Parts: A national retail and wholesale automotive parts chain.
• CARQUEST: A national automotive parts distributor/association.
• NAPA: A national automotive parts distributor/association.
• Regional retail and wholesale automotive parts chains: Local and regional competitors.
• Wholesalers or jobber stores: Independent operators, some associated with national distributors.
• Automobile dealers: Offer parts and services, often for newer vehicles.
• Mass merchandisers and online retailers: Such as Wal-Mart Stores, Inc. and Amazon.com, Inc., carrying automotive replacement parts, maintenance items, and accessories.

Emerging Competitive Threats:

• Online and mobile platforms: Allow customers to quickly compare prices and product assortment, potentially leading to pricing pressure.
• Changes in vehicle technology: Including electric, hybrid, and internal combustion engines, may result in less frequent repairs, longer-lasting parts, or elimination of certain repairs.
• Restrictions on access to telematics, diagnostic tools, and repair information: Imposed by original equipment manufacturers ("OEMs") or governmental regulations, potentially forcing vehicle owners to rely on dealers for maintenance and repairs.

Competitive Response Strategy: O’REILLY AUTOMOTIVE, INC. maintains its competitive advantage by focusing on its dual market strategy, superior customer service, continuous improvement of its distribution and store networks, and enhancing its omnichannel capabilities. The Company aggressively opens new stores, grows sales in existing locations, and selectively pursues strategic acquisitions to consolidate the fragmented aftermarket.

Risk Assessment Framework

Strategic & Market Risks

Market Dynamics:

• Deteriorating Economic Conditions: Adverse impact on product demand, consumer debt levels, credit access, and financial health of customers/suppliers. Mitigation: Demand for many products is non-discretionary; dual market strategy allows for broader customer base.
• Competition: Highly competitive market, including larger national chains, smaller regional players, and online retailers. Mitigation: Focus on superior customer service, product availability, technical proficiency, and strategic distribution network.
• Regional Economic and Weather Conditions: Inclement weather discourages store visits, while extreme temperatures can enhance demand. Coastal regions face increased unrecoverable losses from natural disasters. Mitigation: Diversified geographic footprint, robust supply chain to manage demand fluctuations.
• Changes in Vehicle Technology: Electric, hybrid, and internal combustion engine advancements may lead to less frequent repairs or elimination of certain parts. Restrictions on telematics/diagnostic access could shift repairs to dealers. Mitigation: Continuous refinement of inventory, ongoing training for "Professional Parts People" to adapt to evolving vehicle needs.

Operational & Execution Risks

Supply Chain Vulnerabilities:

• Supplier Dependency: Reliance on key suppliers; financial/operational difficulties of suppliers, industry consolidation, or off-shoring of manufacturing could increase costs or disrupt supply. Mitigation: Relationships with over 645 suppliers, no long-term material purchase commitments, belief in alternative supply sources.
• Supply Chain Disruptions: Work stoppages, labor strikes, public health crises, shipping/transportation disruptions, currency fluctuations, or tariffs could impact product availability and costs. Mitigation: Robust regional tiered distribution network, Company-owned fleet for deliveries.
• Business Interruptions: Disruption or closure of distribution centers or other facilities due to natural disasters, war, or other events. Mitigation: Business continuity and disaster recovery programs, redundant systems, and geographically diversified operations.
• Capacity Constraints: Production bottlenecks or limitations in distribution capacity. Mitigation: Ongoing distribution network enhancements, including DC expansions and relocations, to support future growth.

Financial & Regulatory Risks

Market & Financial Risks:

• Debt Levels: Increased debt could make it difficult to satisfy financial obligations, increase vulnerability to adverse economic conditions, limit flexibility, and require substantial cash flow for debt service. Mitigation: Compliance with debt covenants (fixed charge coverage ratio of 6.11x and leverage ratio of 1.89x as of Dec 31, 2024).
• Credit Rating Downgrade: Could increase cost of capital, impact market value/liquidity of senior notes, and limit access to attractive supplier financing. Mitigation: Maintaining strong financial health and compliance with debt covenants.
• Foreign Exchange: Fluctuations in Mexican peso and Canadian dollar exchange rates can impact financial performance. Mitigation: Generally entering into transactions denominated in respective functional currencies, viewing international investments as long-term.

Regulatory & Compliance Risks:

• Industry Regulation: Subject to federal, state, and local laws regarding hazardous substances, recycling, and property operations. Mitigation: Compliance with existing laws, third-party agreements for recycling programs.
• Environmental Legislation: Initiatives to limit greenhouse gas emissions and climate change bills could increase costs. Mitigation: Compliance with current regulations, investment in renewable energy tax credits.
• Employment Legislation: Subject to minimum wage and other employment regulations. Changes could impact labor costs. Mitigation: Competitive compensation programs, focus on talent retention.
• Data Privacy: Complex and evolving regulatory environment for information security and data privacy. Breach could lead to reputational damage, costs, or litigation. Mitigation: Comprehensive cybersecurity risk management program, security awareness training, dedicated security operations team, vulnerability management, network segmentation, multi-factor authentication, third-party partner engagement.

Geopolitical & External Risks

Geopolitical Exposure:

• International Operations: Risks include local laws/customs, complex international tax regulations, U.S. laws applicable to foreign operations, and political/socio-economic conditions. Mitigation: Dedicated international development leadership, compliance with Foreign Corrupt Practices Act.
• Trade Relations: Changes in U.S. trade policies, sanctions, tariffs, or import limitations could affect product sourcing and costs. Mitigation: Diversified supplier base, no long-term material purchase commitments.

Innovation & Technology Leadership

Research & Development Focus: O’REILLY AUTOMOTIVE, INC. invests in enhancing its information technology systems and tools to support its omnichannel growth strategy. This includes growing the functionality and user-friendliness of its digital platforms (www.OReillyAuto.com, www.OReillyPro.com, and the O’Reilly Pro mobile application) and a robust point-of-sale system integrated with a proprietary electronic catalog containing product images, schematics, and technical specifications. The Company also enhances labor management software and routing software for distribution efficiency.

Intellectual Property Portfolio: The Company holds numerous registered service marks and trademarks in the United States, including BENNETT AUTO SUPPLY®, BESTEST®, O’REILLY AUTO PARTS®, and SUPER START®. These brands are considered important for competitive differentiation.

Leadership & Governance

Executive Leadership Team

Leadership Continuity: The Company has a philosophy to "promote from within," with the vast majority of senior managers, district managers, and store managers having progressed through internal roles. This approach, augmented by strategic hires with automotive aftermarket experience, contributes to an experienced leadership Team.

Board Composition: The Board of Directors has an Audit Committee composed of independent directors (Thomas T. Hendrickson, John R. Murphy, Dana M. Perlman, and Andrea M. Weiss). Thomas T. Hendrickson, Chairperson of the Audit Committee, qualifies as an audit committee financial expert.

Human Capital Strategy

Workforce Composition: As of January 31, 2025, O’REILLY AUTOMOTIVE, INC. employed 93,047 Team Members, comprising 78,111 full-time and 14,936 part-time employees. Of these, 75,940 were employed at stores, 12,111 at Distribution Centers, and 4,996 at corporate and regional offices. The mix of full-time workforce has grown from 65% in January 2020 to 84% in January 2025, reflecting the increasingly technical nature of the business and the need for knowledgeable "Professional Parts People."

Talent Management:

• Acquisition & Retention: The Company's philosophy is to "promote from within" first, leveraging internal talent for management opportunities. This is complemented by strategic hires with strong automotive aftermarket experience, customer service excellence, and technical proficiency.
• Training: Extensive and ongoing training programs cover store and distribution center operations, customer service, and technical proficiency in automotive products. Parts specialists undergo comprehensive automotive systems and product knowledge training and are encouraged to become O’Reilly Certified Parts Professionals and ASE certified. Sales Team Members receive specialized sales call training and quarterly advanced training.
• Employee Value Proposition: The Company offers competitive, benchmarked compensation programs designed to incentivize Team Members to "run it like you own it," including financial incentives for store Team Members based on individual or store performance. Share-based compensation is offered from the district manager level upwards.

Diversity & Development: O’REILLY AUTOMOTIVE, INC. is committed to fostering a culture of engagement and inclusion, valuing diverse perspectives and talents. Programs are designed to expand opportunities for all Team Members and prepare them for increased responsibilities. Engagement and inclusion efforts are supported by Team Member surveys, collaborative learning, and network groups.

Environmental & Social Impact

Environmental Commitments:

• Recycling Programs: The Company offers recycling programs for used oil, oil filters, and batteries at certain stores as a service to customers, managed through agreements with third-party suppliers.
• Renewable Energy: O’REILLY AUTOMOTIVE, INC. invests in tax credit funds that promote renewable energy and has a conditional agreement to purchase transferable federal renewable energy tax credits, with a total commitment of approximately $340 million.

Social Impact Initiatives:

• Team Member Focus: The Company emphasizes treating Team Members with honesty and respect, fostering an inclusive environment, and providing a healthy work/life balance. Significant resources are committed to instilling a "Live Green" culture.
• Community Engagement: The Company markets its brand through automotive event sponsorships and on-site appearances throughout the country.

Business Cyclicality & Seasonality

Demand Patterns:

• Seasonal Trends: The Company's business is seasonal, with store sales, profits, and inventory levels historically higher in the second and third quarters (April through September) due to weather conditions impacting customer buying patterns.
• Economic Sensitivity: Demand for many products is non-discretionary, but sales are influenced by the economic health of customers, including factors like inflation, fuel prices, unemployment, and consumer debt levels.
• Industry Cycles: Demand is driven by the number of U.S. miles driven, total registered vehicles, and average vehicle age. The increasing average age of vehicles (12.5 years in 2023) supports demand for aftermarket products as older vehicles require more maintenance.

Planning & Forecasting: The Company continuously refines inventory levels and assortments based on sales movement, market vehicle registration data, failure rates, and management's assessment of market changes and trends. Distribution expansion strategies are planned to support new store openings and market penetration.

Regulatory Environment & Compliance

Regulatory Framework: O’REILLY AUTOMOTIVE, INC. is subject to federal, state, and local laws and governmental regulations concerning its business operations, Team Member and customer health and safety. This includes regulations related to the handling, storage, and disposal of hazardous substances, and the recycling of batteries and used lubricants.

Trade & Export Controls: The Company's international operations and supply chain are subject to U.S. and international trade policies, sanctions, tariffs, import limitations, and export controls. Changes in these policies could affect product sourcing and costs.

Legal Proceedings: The Company is involved in litigation incidental to the ordinary course of business, including matters related to motor vehicle accidents, regulatory inquiries, and other legal proceedings. The Company accrues for probable losses and legal costs, and does not currently believe these matters will have a material adverse effect on its financial position, results of operations, or cash flows.

Tax Strategy & Considerations

Tax Profile:

• Effective Tax Rate: The Company's effective tax rate for the year ended December 31, 2024, was 21.6%, a decrease from 21.9% in 2023. This decrease was primarily due to a greater benefit from renewable energy tax credits and higher excess tax benefits from share-based compensation.
• Geographic Tax Planning: Income taxes have not been accrued for the unremitted earnings of foreign subsidiaries, as such earnings are intended to be reinvested indefinitely.

Insurance & Risk Transfer

Risk Management Framework: O’REILLY AUTOMOTIVE, INC. employs a combination of insurance and self-insurance mechanisms to manage potential liabilities from workers’ compensation, general liability, vehicle liability, property loss, and Team Member health care benefits. Third-party insurance coverage is obtained to limit exposure for individual claims, with the exception of certain health care liabilities, employment-related claims, and regulatory matters.

Risk Transfer Mechanisms: The Company's agreements with third-party suppliers for recycling programs contain provisions designed to limit its potential liability under applicable environmental regulations for damage or contamination caused by recycled materials. Self-insurance liabilities are estimated based on historical claims experience, projected costs, and growth patterns, with certain liabilities recorded at their net present value. As of December 31, 2024, self-insurance reserves (discounted) totaled $268.3 million.