O'Reilly Automotive CEO Discusses Q3 2010 Results - Earnings Call Transcript

O'Reilly Automotive CEO Discusses Q3 2010 Results - Earnings Call Transcript
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O'Reilly Automotive Inc. (



Q3 2010 Earnings Call

October 28, 2010 11:00 am ET


Tom McFall- CFO and EVP, Finance

Greg Henslee - CEO

Ted Wise - COO

David O'Reilly - Executive Chairman


Scot Ciccarelli - RBC Capital Markets

Brian Nagel - Oppenheimer

Michael Lasser - Barclays Capital

Steven Greg - Mandelin Research

Kate Mcshane - Citi Investment

Alan Rifkin - Bank of America

Matthew Fassler - Goldman Sachs

Colin McGranahan - Bernstein


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Previous Statements by ORLY
» O'Reilly Automotive Q2 2010 Earnings Call Transcript
» O’Reilly Automotive, Inc. Q1 2010 Earnings Call Transcript
» O’Reilly Automotive, Inc. Q4 2009 Earnings Call Transcript
» O’Reilly Automotive Inc. Q3 2009 Earnings Call Transcript

Good morning. My name is Carlene. I'll be your conference operator today. At this time, I would like to welcome everyone to the 2010 Third Quarter Earnings Release Conference Call. All lines will remain on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. (Operator instructions)

Thank you. Mr. McFall, you may begin your conference.



Thank you, Carlene. Good morning, everyone, and welcome to the O'Reilly conference call. Before I introduce Greg Henslee, our CEO, we have a brief statement. The company claims the protection of the Safe Harbor for forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements can be identified by forward-looking words such as expect, believe, anticipate, should, plan, intend, estimate, project, will or similar words.

In addition, statements contained within this conference call 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 that 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 approvals, our ability to hire and retain qualified employees, risks associated with the integration of acquired businesses, including the acquisition of CSK Auto Corporation, 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 the company's Form 10-K for the year-ended December 31, 2009 for more details.

At this time, I would like to introduce Greg Henslee.

Greg Henslee

Thanks Tom. Good morning everyone and welcome to our third quarter conference call. Participating on the call with me this morning is, of course, Tom McFall, our Chief Financial Officer, and Ted Wise, our Chief Operating Officer. David O'Reilly, our Executive Chairman, is also present.

I'd like to start off by once again congratulating team O'Reilly on the outstanding results. Our performance across all markets in the third quarter was very strong and we should all be proud of our performance so far this year. Especially impressive is the continued outstanding performance of the core O'Reilly stores.

We have asked many of our more senior team members to take on the task of attending the CSK conversions and it has been the first couple of weeks after conversion training the converted store team members. Even with these distractions, our core stores have continued to gain market share and post very impressive comparable store sales gains.

At the same time, the work that we put into these conversions is clearly very improved as we continue to gain market share in the converted stores. The strong comparable store sales that we have been able to archive in the converted stores have been the team effort, and every team of O'Reilly member should be very proud of the success we are having with these conversions.

Our outstanding sales performance is the direct result of the incredible customer service levels we provide at each of our locations and I want to thank you for your commitment to providing the best customer service in our industry and to the continued success of our company.

Before moving on to discussion of our operational performance during the quarter, I want to comment on the $5.9 million reserve we accrued in the third quarter to fund settlement of the legacy CSK Department of Justice issue.

As discussed during our second quarter earning release, this investigation is related to the alleged wrongdoing at CSK Auto in 2006 and prior. As most of you know, we did not purchase the company until July of 2008. Part of our due diligence process prior to this purchase was of course, evaluating the exposure the company could have related to the alleged issues.

After extensive work, we reached the conclusion that the actions of the Department of Justice and the Securities Exchange Commission would most likely stop short of penalizing or charging CSK based on the level of cooperation with the SEC and the DOJ, the merits of our acquisition, prior actions by the SEC and the DOJ, our track record of solid management, SOX compliance along with many other factors.

As expected in March of 2009 the SEC determined to close the matter with respect to CSK without fine or penalty. With respect to the DOJ investigation, O'Reilly has continue to cooperate with and engage in discussions with the DOJ to resolve CSK's legacy accounting issues, and we have now reached an agreement in principle with the DOJ. Subject to final documentation, the DOJ, CSK, and O'Reilly will enter into a non prosecution agreement and the company will pay a one-time monetary penalty in the amount of $20.9 million.

As you may recall we reserved 15 million for this matter during our second quarter this year and an additional $5.9 million reserve that we made this past quarter will resolve the matter.

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