aftermarket automotive parts retailers competitive structure

MBA Investment Fund, LLC. Aftermarket Auto Parts Retailers

Tyler Bond 1 October 2004

AFTERMARKET AUTOMOTIVE PARTS RETAILERS The automotive parts retail industry was born with the mass production of automobiles. The industry, previously dominated by mom-and-pop auto parts stores and service stations continues to evolve to this day. Chains such as AutoZone and Advance Auto Parts began building out retail networks within target markets in the 1970�s. Today the big players in the market continue to penetrate markets once dominated by independent stores. The dominant chains in the industry are Advance Auto Parts, AutoZone, CSK Auto, Pep Boys Manny Moe and Jack, and O�Reilly�s. COMPETITIVE STRUCTURE Despite the consolidation in the industry over the last two decades, the industry remains fragmented. The big five auto parts retailers accounted for approximately one third of the industry�s revenues in 2003, up from 17% in 1995. Even with the growth of the big retailers, the overall number of retail auto parts stores declined by about 5,000 over the same time period. The growth of the big players in the industry has come at the expense of independent retailers via a simple strategy. Dominant retailers utilize a more sophisticated distribution system capable of holding more inventory, and manages that inventory more effectively due to scale. The primary competitive factors that come into play in the industry are customer service, marketing, selection, purchasing and distribution. The large retailers have a sustainable competitive advantage over independent retailers in four out of five of those factors. Marketing � The big five retailers have deeper pockets when it comes to marketing. Not only do they have the ability to spend more in absolute terms on marketing than the independent stores, but they also can spend it more effectively. The retail chains are able to spread the marketing expenses over more stores where the independent chains have fewer stores. Also, by having a larger nationwide or regional presence benefits the large retailers in that its brand is more recognizable and customers know what to expect regardless of which store they are shopping. The scope of the large retailers� marketing efforts results in better store traffic and ultimately more sales for the chains. Purchasing and Distribution � As previously mentioned, the supply chain and distribution of the large auto parts retailers has been critical to their success. The typical distribution system for the large retailers is similar to the hub-and-spoke concept used in the airline industry. Retailers position large distribution centers within a large market and smaller distributions within larger stores in smaller markets. The large distribution centers support the stores within its large urban markets and also carries slower turning inventory available for quick delivery to other locations. The smaller distribution centers are typically larger retail outlets that have additional storage capacity in the store. These stores carry additional SKU�s that smaller, stand alone stores do not carry. These SKU�s are easily accessible by other stores within their area for customers. The size of the distribution channels for large retailers results in better purchasing power with vendors. Their ability to hold a large amount of inventory allows them to purchase in larger



quantities and gives them more bargaining power with vendors. The size and reach of an AutoZone is much greater than an independent store. Included in the distribution and purchasing process for the retailers are superior information systems. The big five retailers have all focused on improving category management (selling more products at higher margins). Knowing when to order and how much to order for the stores is critical in continuing to capture market share. Selection � Selection is perhaps the most important factor when competing in the auto parts industry. If a consumer is changing his/her water pump and �Johnny�s Auto Parts� doesn�t have what he needs, that consumer is not likely to wait around for Johnny to order the part. The needs of the customer base are typically immediate making customer loyalty less sticky. Large retailers are at a huge advantage in the selection they offer customers. Not only do the large retailers have the ability to hold more parts in inventory, but they also have more parts within short reach in the supply chain. Advance Auto Parts� typical retail store holds between 16,500 and 26,500 stock keeping units (SKU�s) with an additional 100,000 SKU�s available for next day delivery in most locations. Most independent stores have only what is in stock and must order from their supplier to get parts not held in inventory. Even if one AutoZone location does not have the part needed by its customer it is still at an advantage when compared to an independent store. The distribution systems transfer parts between the large distribution centers and the smaller local distribution centers frequently making the cost of doing business considerably lower. The consolidation of the aftermarket auto parts retailers is expected to continue. Large retailers should continue gaining market share at the expense of independent stores. The result of more effective marketing, better purchasing and distribution, and greater selection is a lower cost structure for the big stores. Independent stores simply cannot compete with the scale of the large retailers. As competition continues to intensify with the large retailers competing companies will continue to focus on category management, supply chain efficiencies, and diversifying into similar businesses. PRODUCT MIX The industry�s product mix can be broken down into three areas: Replacement parts, maintenance items, and accessories. Replacement parts typically include both new and rebuilt parts used in repairing vehicles (alternators, water pumps, batteries, brake pads, etc.). Maintenance items are items used to maintain performance and aesthetics of vehicles (motor oil, fuses, other fluids, car wash & wax formulas, etc.). Accessory items are the more discretionary, personal preference items. These include floor mats, fuzzy dice, air fresheners, seat covers, etc. In addition to the accessory items, most stores also provide an assortment of candy, sodas, and other snacks at the check out counter. As previously mentioned, product mix and category management are essential in competing in this sector. The company�s forecast demand for parts by collecting information from customers, by analyzing past trends in parts breakdowns, and by monitoring warranty expirations on vehicles in their respective areas. Vendor



relationships are important in sharing data and analyzing industry trends. All of the major players in the market operate on a Good/Better/Best approach to inventory management. Stores typically hold multiple SKU�s for each product. The product lines are reflective of varying levels of quality and warranty. The strategy is meant to appeal to a wide range of customer needs. The Good category is designed to offer products at comparable price points as the competition. This category appeals to the more price sensitive customers who are less concerned about warranty. The Better and Best categories are designed to offer higher quality products (typically higher margin) for customers more concerned about quality and want warranty protection. The Better/Best category is attractive for the professional installers due to the warranty protection. Private labeling is a growing trend in automotive parts retailing. Most of the chains offer parts under their own private label. AutoZone is well known for this with over 50% of revenues coming from private labels (Duralast and Valucraft). The other chains are less aggressive with the use of private label brands, currently averaging 20% - 25% of sales. I expect to see Advance and O�Reilly begin selling more private label brands to help improve margins. CUSTOMER SEGMENTS The Do-It-Yourself (DIY) market is comprised of individuals performing routine maintenance on their vehicles. These consumers purchase replacement parts, lubricants, and other ancillary products from aftermarket parts retailers. The most common types of maintenance performed by this segment are basic in nature (oil changes, batteries, radiator flushes, etc.). The DIY segment represents roughly half of sales for the aftermarket parts retailers. In 2003, the DIY segment represented approximately $34.2 billion of sales, roughly 44% of the industry. The segment has shown strong growth over the last five years, and is expected to continue growing at over 3.5% per year.

Do-It-Yourself Segment Growth

Source: AAIA (Automotive Aftermarket Industry Association)



It is estimated that about $60 billion of routine vehicle maintenance is not performed each year. The industry is targeting this both at the company level and the industry level to raise awareness and encourage maintenance. Advance Auto Parts, for example, has a consumer education program that includes in-store kiosks with brochures covering safety, reliability, performance, and appearance tips. In addition, the company distributes a monthly circular focused on seasonal car care topics. The industry has also funded a �Be Car Aware Campaign� that focuses its message on three areas: safety, dependability, and pride of ownership. The campaign, led by the Automotive Aftermarket Industry Association (AAIA) believes that �reversing unperformed maintenance will increase profitability in the aftermarket, conserve energy, improve highway safety, and benefit the environment.� (Source: AAIA The Do-It-For-Me segment (DIFM) is also important for the industry. This segment caters to the needs of professional installers, mechanics, and garages performing maintenance for individual consumers. These customers are typically less price sensitive than individuals since they pass through costs to the end consumer. The margins in the DIFM market are a bit tighter due to competition among suppliers. The DIFM market is a newer market for many aftermarket retailers, but has begun to grow faster than the DIY segment. As illustrated below in the graph, the DIFM segment has increased at just over 4% per year over the last five years. In 2003, the DIFM segment represented approximately 66% of retailers� sales.

Do-It-For-Me Segment Growth

Source: AAIA (Automotive Aftermarket Industry Association) NAPA and Carquest (both are franchise companies) are considered the industry leaders in the DIFM market accounting for approximately 16% of the DIFM market in 2003. Aftermarket retailers, however, have begun to gain market share. AutoZone, Advance, O�Reilly, and CSK accounted for approximately 5% of the market in 2003. The senior management of aftermarket retailers views company ownership of stores as a strategic competitive advantage due to consistency of the product offering and parts availability. I believe the key to market penetration for the retailers lies within its core competencies. The DIFM market requires a different set of competencies than does the DIY segment. Employees must possess a great deal of expertise to effectively service commercial customers. Retailers must have a deep breadth of products, and parts associates must coordinate the sale and delivery of products to commercial customers. The retail chains are well positioned to continue market penetration. Companies such as Advance,



O�Reilly, and AutoZone possess efficient supply chains that are effective in managing the needs of commercial customers. In addition, the companies� large regional presence makes them a logical option for commercial customers operating branded chains. RECENT ISSUES Weather � Mid-summer 2004, several of the auto parts retailers announced slower than expected sales and the group sold off. Milder weather during the winter and spring months proved to be detrimental to the group. Demand for replacement parts is helped by extreme weather. Hot summers and cold winters lead to more wear and tear on vehicles and the need for more replacement parts. Adding to the weakness of the sector, several hurricanes hit the southeast in August and September. A large percentage of several of the retailers� customers reside in the southeast and Florida specifically. Advance Auto, for example, has 17% of its stores in Florida. Sales were hurt by stores being damaged, and/or closed due to the storms. Gas Prices � High fuel costs have a negative effect on sales for the industry. The demand for gasoline is relatively inelastic. That is to say, regardless of price (up to some point) consumers will continue to fill up the tank. The impact of higher fuel costs are generally felt in the areas of discretionary spending and total miles driven. Many consumers include the cost of gasoline with the total cost of maintenance for their vehicle. The fear within the industry is that higher prices at the pump could lead to fewer dollars spent on routine maintenance. Higher gas prices have also had an effect on the number of miles driven in the United States. In 2003, the total number of miles driven in the US increased to approximately 2.87 trillion. The increase was .8% over 2002, but less than the average increase of 2.47% per year over the last nine years. If gas prices remain high, it could hurt the industry. Recent Results and Economic Data � On 10/19/04, Advance announced that it had met its guidance for 3rd quarter earnings. This announcement was a positive for the sector for a couple of reasons. First, 17% of AAP�s stores are located in Florida which was hit by several hurricanes during the quarter. Despite the losses from hurricanes, the company saw an increase in same store sales for the quarter of 3%. Second, the company stated that the first weeks of Q4 have seen accelerating sales. It is the belief of some analysts that there is some built up demand in the market for maintenance that has been postponed. In June of 2004, consumer spending dropped .7%, the largest drop since 9/11. This drop contributed to the sell off of this sector during the summer. Economic growth during the third quarter of 2004, however, paints a nicer picture for the group. Consumer spending grew at an annualized rate of 4.6%, the fastest in a year. The wildcard for the economy remains to be fuel costs. The overriding question is if and when high oil costs will lead to inflation. This sector is more resistant to economic cycles, but fewer dollars available for automobile maintenance could hurt the sector.



INDUSTRY POSITIVES Fragmented Market � The aftermarket industry has historically been and continues to be a relatively fragmented market. Despite the fact that the industry has continued to consolidate over the last ten years, the top five retailers (AAP, AZO, CAO, PBY, ORLY) only represented about 31% of revenues in 2003. The total number of aftermarket retail stores has shrunk by about 5,000 since 1995. The number of aftermarket retail stores was roughly 35,600 at the end of 2003. The top five retailers made up 24.2% of the number of stores as of the end of 2003 versus 8.5% at the end of 1995. The continued fragmentation of the industry has the large chains poised to continue opening new stores in markets currently not served by the large chains. While it is likely to see the aggregate number of stores close, it will be at the expense of independent chains and not the top five retailers of the group. Growth will come in areas that allow the retailers to leverage the existing supply chain and brand awareness. Large retailers hold significant competitive advantages over independently owned stores. The large store base enables large retailers to carry a greater number of items in inventory. Supply chain efficiencies also allow the large retailers to open new stores at a relative lower cost. The efficiencies in distribution, purchasing, and marketing gives a cost advantage to the large retailers that cannot be attained by smaller independent operators. The scalability of the large retailers� businesses will enable them to gain market share from independent chains. Popularity of Sport Utility Vehicles (SUV�s) � The popularity of SUV�s and light trucks has been and should continue to be a positive for the industry. As illustrated in the chart below, the number of light trucks (includes SUV�s) sold as a percentage of total vehicles increased dramatically over the last ten years.

Light Trucks as a Percentage of Total Vehicles

Source: AAIA (Automotive Aftermarket Industry Association)



The maintenance cost for SUV�s and light trucks is higher than for passenger cars. According to AAA, the maintenance cost per mile for SUV�s is 13% higher than passenger cars. The parts for SUV�s are more expensive than passenger cars and generally are higher margin ticket items for retailers. Penetration of DIFM market � As previously mentioned, the large retailers account for a small percentage of the DIFM market. The market is currently dominated by NAPA and Carquest franchises. The industry�s focus on serving commercial clients should result in benefits in revenues and operating margins. The DIFM market is an add-on service that is scalable to the existing business. Companies like Advance Auto and AutoZone are rapidly expanding this service to existing stores and leveraging the supply chain to develop a strong foothold in the market. The incremental capital needed for a store to offer commercial services is small, and the resulting top-line growth is often significant. The DIFM market is important to the industry due to its size, the industry�s low market share, and its fragmented structure. In addition, if the DIY market begins to shift in favor of DIFM services, the industry will benefit from its DIFM service as a defensive position. The DIFM segment is a critical component of industry growth, and should serve as an earnings growth driver going forward. Favorable Consumer Market � The replacement parts market is a stable industry with steady growth. While industry demand is impacted by some short term factors such as mild weather and high fuel prices, the industry is favorably positioned. In 2003, the total aftermarket retail sales were approximately $106 Billion. The AAIA expects 2004 sales to be approximately 4.2% higher than in 2003, and growth of 4% is expected in 2005. Growth is fueled by an increase in the number of cars coming off of warranty, more miles driven, and the popularity of SUV�s and light trucks. In addition, the average life of vehicles has increased to 9.1 years from about 8.4 years over the last ten years. The increase in life for vehicles results in better demand for replacement parts. Pricing Power for Retailers � The market reach of the large retailers has led to significant bargaining power with vendors. More effective purchasing practices are expected to increase margins for the growth companies in the sector (Advance and O�Reilly), and are expected to result in better working capital management for the more mature AutoZone. AutoZone has recently rolled out a pay-on-scan initiative that pushes the cost of inventory to its suppliers. Rationalization and Category Management � Sales per square foot is a big focus for any retail group and is an ongoing focus for auto parts retailers. AutoZone is the leader in sales per square foot, but ORLY and AAP are making headway in this area. The companies have followed a methodical approach to opening new stores and have remodeled stores to be more interactive with customers. The industry as a whole is also improving its category management. The result is higher gross margins. Part of the category management focus has been the collection and transfer of data from the front line stores to vendors and procurement managers. AZO�s pay-on-scan initiative is a prime example of this trend. In addition, the retailers� information systems help



employees in their sales efforts by prompting them to up-sell customers to the �better� or �best� category and to offer complementary products when purchases are made. INDUSTRY NEGATIVES Complexity of Vehicles � The proliferation of SUV and light truck sales is a double-edged sword for the industry. While the replacement parts for these vehicles are generally higher ticket items and higher margin items for the retailers, they also tend to be more complex. The complexity of today�s vehicles could serve as a deterrent for those in the DIY market. Where the DIY market loses, the DIFM market should gain. The importance of the DIFM market cannot be emphasized enough for this industry. High Fuel Costs � The impact of high gas prices on the industry are two-fold. First, gas prices have a direct impact on the number of miles driven domestically. A decrease in number of miles driven domestically results in less wear and tear on vehicles, and ultimately less demand for the group�s services. Second, it is feared that higher gas prices persisting will result in less discretionary dollars spent on vehicle maintenance. The inflationary effect of higher oil prices could exasperate this second point. The higher cost of replacement parts could cause drivers to wait longer to replace parts which will be a negative effect on the top line for the group. Drop in Light Truck/SUV sales � The continued popularity of SUV�s is important to the industry. A significant change in consumer vehicle preference could hurt the industry. The high fuel costs and higher maintenance costs of SUV�s and trucks could serve as a factor that shifts consumer preferences to more economical vehicles. There is no data to suggest such shift is occurring, but the topic warrants mentioning. Aging Customer Base � As is often noted, the US population is aging. The fastest growing segment of the population is that of senior citizens. A minimal quality of health and physical ability is required to perform routine maintenance. The age and health of the retailers� customer base could hurt the DIY segment. The Wal-Mart Question� When assessing the long-term viability of any specialty retail group, you have to think about Wal-Mart and the big box discount retail stores. Wal-Mart could pose a risk to the aftermarket auto parts retailers if it places a focus on auto accessories or repair supplies. Wal-Mart could also hurt the group if it were to expand its automotive service offering. DIY consumers are price sensitive. If Wal-Mart can make maintenance services cheap enough, it is reasonable to believe that the DIY market could suffer. The threat posed by discount retailers is not currently a concern due to two factors. First, there is currently very little overlap between the group and the deep discounters in product offering. The second factor has to do with inventory requirements. The aftermarket parts business requires a significant amount of inventory, and the inventory doesn�t turn fast. Wal-Mart�s inventory turnover is approximately 7.5x or 49 days. The group�s average inventory turnover is 1.7x or 214 days. Given the slow inventory turns and working capital requirements, Wal-Mart and other deep discounters are not likely to enter the market and do not pose a serious threat to the industry.



Tough Comps � In the short run, the industry is facing difficult comparisons for same store sales. The past two years have been very good for the industry. The strength in comps continued into the first quarter of 2004 for several retailers. The last half of 2004, and first half of 2005 hold difficult comps for the sector. The rapid sales growth for stores is now built-in to the comps basis making the coming quarters difficult in comparison. Advance and O�Reilly are better positioned than others in that those two names have a newer store base which tends to produce better sales growth as they become more mature.

Same Store Sales Growth

-4.00%-2.00%0.00%2.00%4.00%6.00%8.00%

10.00%12.00%14.00%

Q10

2

Q20

2

Q30

2

Q40

2

Q10

3

Q20

3

Q30

3

Q40

3

Q10

4

Q20

4

Q30

4

Q40

4(E

)

2005

(E)

Advanced Auto PartsAutoZoneCSK AutoO'Reilly Auto Parts

*Excludes retailers with service bays. Quarters are calendar quarters. VALUATION The valuations across the sector reflect the competitive positioning of the names, and the relevant performance. The average forward P/E for the group is 12.18x. On an EV-to-EBIDTA basis the group trades at a multiple of 7.3x. The difference in multiples within the group can be attributed to debt levels and net margins. On average, the group is trading at a discount to its historical P/E multiple and EV/EBITDA multiple of 19x and 12.2x respectively. When looking at more recent multiples, the group does not seem to be trading at as much of a discount. Over the past five years, the group has traded at a forward P/E multiple of 14.5x and an EV/EBITDA multiple of 9.9x.

Stock Name Ticker

LT Debt-to-

Capital

Gross Margin (TTM)

Net Margin (TTM)

EBITDA Margin (TTM)

ROC (TTM)

Fwd PE

(NTM)EV-to-

EBITDA Advance Auto Parts Inc. AAP 17.59% 46.17% 4.95% 11.54% 9.63% 12.48 6.73 AutoZone Inc. AZO 91.48% 48.90% 10.04% 19.61% 16.84% 10.62 7.57 CSK Auto Corp. CAO 70.77% 47.81% 1.22% 9.06% 4.97% 10.43 7.31 Pep Boys-Manny Moe & Jack Inc. PBY 18.64% 28.82% 1.81% 8.20% 4.01% 11.42 5.81 O'Reilly Automotive Inc. ORLY 8.03% 42.58% 7.00% 14.12% 8.69% 15.95 9.10 Median 18.64% 46.17% 4.95% 11.54% 8.69% 11.42 7.31 Mean 41.30% 42.86% 5.00% 12.51% 8.83% 12.18 7.30



StockVal®AUTOPARTS RETAILERS E-Wtd (AUTOPARTS) Price 35.41994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

PRICE / YEAR-FORWARD EARNINGS7

14

21

28

35

42

49

HI 48.5 LO 11.0 ME 19.4 CU 11.5

10-14-199410-18-2004

ENTERPRISE VALUE/EBITDA6

8

10

12

14

16

18

HI 17.3 LO 7.1 ME 12.2 CU 8.4

10-14-199410-18-2004

PRICE / YR-FORWARD EPS ESTS / GRE0.2

0.4

0.6

0.8

1.0

1.2

1.4

HI 1.3 LO 0.4 ME 0.9 CU 0.7

10-14-199410-18-2004

INVESTMENT OPINION From an investment point, the industry is attractive. The sector experienced a weak calendar third quarter due to slower comps and weather, and there is some uncertainty about fourth quarter results. However, the durability of the sector is hard to question. Industry demand is relatively stable, and as compared to other retailers less sensitive to discretionary spending. The sector had a great run from 2003 through the first half of 2004, and the sell off during the summer was a bit overdone.

AUTOPARTS RETAILERS E-Wtd (AUTOS)StockVal® PRICE 35.4 DATE 10-18-2004

2000 2001 2002 2003 200411111212

1414

1616

181820202222

2525

28283131

3535

40404444

50

56

University of Texas at Austin

CROSSOVER INDEX (OVERBOUGHT/OVERSOLD)-2-2

-1-1

00

+1+1

+2+2



I expect the group to trade in line with its five year average multiples in relation to both the market and the S&P retail group. This suggests an upside for the group of 15% - 20% over the next six to twelve months. This expansion in multiple will be driven by execution within the sector. The fourth quarter announcements should end most of the uncertainty surrounding the group�s performance, and should lead to better price performance from the individual names. I am more bullish on names that can benefit from both increases in market share and margin growth (ORLY, and AAP), and less bullish on the names that are more mature and less capable of achieving margin improvements and improving same store sales (PBY, CSK, and AZO).

StockVal®AUTOPARTS RETAILERS E-Wtd (AUTOS) Price 37.91994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

PRICE RELATIVE TO S&P RETAILING INDUSTRY GROUP (RLX)0.18

0.20

0.22

0.25

0.28

0.31

0.34

0.38

0.42

0.47

0.52

0.58

0.65

0.72

0.80

0.89

0.99

1.10

HI 1.09 LO 0.19 ME 0.52 CU 0.45

10-21-199410-26-2004



October 2004

Advance Auto Parts, Inc. (AAP) Consumer Staples Analyst: Tyler Bond Stock Rating: Buy Current Price: $39.12 �05 Price Target: $45.00 Implied % Change: 15.03%

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

ADVANCE AUTO PARTS INC (AAP)PRICE 33.8 DATE 10-18-2004StockVal®

14141515

1717

1919

21212323

26262828

3131

35353838

4242

47

5257


Price Change % Diff SP51-Day 0.18 -0.351-Week -4.15 -3.224-Weeks -4.77 -4.0413-Weeks -9.83 -10.9826-Weeks -13.86 -13.49QTD -1.89 -1.84YTD -17.08 -17.272003 66.46 40.08

FYE Dec 2003 EPS 2.16

First Call Data 2004 2005 2006Mean Estimate 2.51 2.94↓ 3.56Change +16% +17% +21%High 2.55 3.12 3.68Low 2.48 2.77 3.45Total 13 13 3 # Up 0 1 0 # Down 11 8 1 House EstimatePE Ratio 13.4 11.5 9.5

Revenues ($Mil) 3,692Market Value ($Mil) 2,527Shares Out (Mil) 74.9Daily Volume (Thou) 900Daily Volume ($Mil) 30.4Dividend Estimate NonePayout RatioRetention RateDividend Yield

Data Page # 1



BUSINESS PROFILE Advance Auto Parts is the second largest retailer of auto-parts and accessories in the country (based on sales and store count). The company operates over 2,580 parts stores in 39 states, primarily in the Southeast, Northeast, and Mid-Atlantic states. Its stores operate under the Advance Discount Parts, Discount Auto Parts, and Western Auto brand names. The company was founded in 1932 and began focusing on automotive only in the 1970�s. AAP�s customers can be broken down into two groups. The do-it-yourself (DIY) group consists of individuals that repair and maintain their vehicles through the use of replacement parts, accessories, and lubricants. The do-it-for me (DIFM) segment is a commercial service where AAP supplies parts to professional customers. The DIY segment accounts for 84% of sales, and the DIFM segment accounts for 16% of sales. PERFORMANCE

Since going public in 2001, AAP has outperformed the market considerably. The stock�s price performance can be attributed to management�s acquisition strategy, which elevated the company to second in sales and stores after its purchase of Discount Auto Parts, and solid execution. The company�s revenues have grown from $2.2 Billion in 2000 to about $3.5 Billion in 2003. Earnings have grown from $16.6 million in 2000 to $182.6 million in 2003. In June of 2004, the entire sector experienced a significant sell off of approximately 20%. The sell off was due to weaker, and in AutoZone�s case negative, same store sales reported by several of the names in the sector. In July, AAP announced it expected its same store sales to be approximately 5% for the second quarter, down from 6.9% in the first quarter. In August, the company guided lower for the third quarter stating it expected to earn 68 to 71 cents versus analyst estimates of 72 cents. In addition, the company announced the authorization of a share buyback of $200 million. Concern about hurricanes in Florida kept pressure on the shares of the stock through the third quarter of 2004. Many analysts believed AAP would miss earnings due to weather, and lower same store sales.



THESIS My interest in this industry was peaked this summer after same store sales slowed and the sector sold off considerably. My belief that AAP was oversold and represents a good investment opportunity is based on several factors. AAP has and continues to take market share from others in the industry. Market share gains are mainly at the expense of independent stores, but the company has shown success in competing in areas once dominated entirely by AutoZone. Their ability to gain market share is rooted in management�s effectiveness in improving same store sales, leveraging efficiencies to drive higher margins, and growing square footage. AAP is on pace to reach sales of approximately $3.7 Billion in 2004 despite weather problems in Florida (approximately 17% of AAP�s stores are in Florida). In its 3rd quarter of 2004, the company reported earnings (.68 per share) in the low end of its range despite four devastating hurricanes hitting Florida during the quarter. Most analyst were bracing for an earnings miss. AAP however continues to show improvements and better comps than many of its peers. AAP had same store sales growth of 3% during the third quarter versus AZO�s same store sales growth of -3% and CSK�s same store growth of -2.5%. The recent earnings announcement reinforces my belief that AAP is well positioned for growth and can achieve its guidance as stated by management. The company expects to earn $.42 to $.46 per share in the fourth quarter. There is upside potential to this guidance. Lower financing costs via its new, lower rate credit facility, stronger same stores sales growth, and share buybacks could provide some upside for earnings. I rate the stock a buy based on the company�s favorable growth prospects, current valuation level, and the company�s ability to achieve operating improvements. VALUATION

StockVal®ADVANCE AUTO PARTS INC (AAP) Price 38.92000 2001 2002 2003 2004 2005


9

12

15

18

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24

HI 21.4 •

LO 9.0 ME 14.9 CU 13.8

11-30-200110-22-2004

PRICE / YEAR-FORWARD EARNINGS RELATIVE TO S&P 500 INDEX WITH OPERATING EPS (SPX)0.5

0.6

0.7

0.8

0.9

1.0

1.1

HI 1.00 •

LO 0.58 ME 0.81 CU 0.86

11-30-200110-22-2004


9

12

15

18

21

HI 19.3 •

LO 6.9 ME 10.9 CU 7.9

11-30-200110-22-2004



Multiples Relative to the S&P 500: AAP is currently trading at 13.8x next twelve months earnings. Relative to the SPX, AAP is trading at a slight premium (5.8%) to its historical level against the index. The stock�s current multiple is substantially lower than its median for its trading history. Based off its historical earnings multiple, the stock is currently trading at a relative discount of approximately 8%. On an EV/EBITDA basis, AAP is cheap relative to where it has traded over the past several years. AAP is currently trading at about 7.9x EV/EBITDA versus its historical mean of almost 11x EV/EBITDA. This recent discount is primarily due to the uncertainty surrounding the second half of 2004. Most of the uncertainty, however, seems to be behind the company, and such a discount is unwarranted. The company�s superior performance and growth potential justifies a higher multiple. I feel as though the stock should trade in line with its historical earnings multiple of approximately 15x. Comparables: The big five aftermarket auto parts retailers (AutoZone, Advanced Auto, Pep Boys, O�Reilly�s and CSK) tend to trade together. Advanced and O�Reilly represent the best prospects for growth in the sector and therefore trade at a premium to the group. When calculating the company�s value based off of comps, it suggests that AAP is overvalued. I believe AAP�s premium to the group is warranted due to its superior growth prospects and execution. The multiples for AZO and CSK brings down the average multiple considerable due to the lack of growth expected from those two names.

Valuing Advance Auto Parts Inc. using Comparables

Implied Value using average P/E 33.97 Implied Value using average EV/EBITDA 40.16 Average 37.06

Implied Change from Current Price -5.26% DCF: In valuing AAP using discounted cash flows, I assumed sales growth of 7% for FY2004 and 8% for FY2005 before declining to 7% for FY2007 and FY2008. Sales growth will be driven by a combination of same sales growth, and square footage growth. Comps should benefit by the company�s store remodeling program which will convert stores to what it calls a 2010 format, and continued advertising. Gross margins are expected to expand due to a better mix of the higher margin DIFM market and better category management leading to higher ticket item sales. The company�s recent margin improvements have been the result of better gross margins. SG & A costs are assumed to decline to 36.5% (from 37.38%) of sales over the next five. The company has indicated that it intends to maintain the same ad expense level going forward, but that it has identified areas for operating improvements. The company is targeting operating margin improvements to increase operating income to 11% � 12% of sales. Capex is assumed to continue growing as the company reformats existing stores and adds new stores to its existing store base. Tax rates and working capital requirements are expected to remain relatively stable. Using a terminal growth rate of 5% (slightly better than the industry) and a calculated WACC of approximately 12%, the value of AAP is approximately $41.00 per share.



Price Target: I believe AAP is fairly valued at approximately $45.00 per share. Given the company�s favorable growth prospects, historical valuation levels, and ability to achieve operating improvements, I believe the stock warrants a premium multiple relative to its peers. The target price is arrived at by applying a forward multiple of 15x to its expected 2005 earnings of $3.02. The price is supported by its historical EV/EBITDA multiple of 10.9x and a DCF that generates a value in excess of $44.00 per share. The stock is attractive for investment under $39.00 per share, and looks expensive at over $45.00 per share. INVESTMENT MERITS Same Store Sales Growth � Advance is focused on continued improvement in sales from existing stores. The factors that should drive continued sales growth at existing stores includes category management, store reformats, commercial sales, and continued advertising. Category management � Category management is typically associated with driving margin improvement, but it is also effective in improving the top line. In 2002, AAP implemented a point of sale system called APAL (Advance Part Accessories Lookup). This system has helped improve service and sales. The system helps employees match appropriate parts and supplies to customers and prompts employees to cross-sell products. Management attributes annual sales increases of 2% to this system. The company has also focused on strengthening vendor relationships and information sharing with its suppliers. The net effect of these efforts is better product selection, sales, and improving margins. Store remodeling � AAP has and will continue reformatting stores to the 2010 format. These reformatted stores are expected to yield significant sales results for AAP. The 2010 format replaces lengthy counters with workstations which allow more interaction with customers. In addition, the reformat focuses on improving product adjacencies (putting complimentary items together). By the end of 2004, it is expected that more than 1100 stores will be in the 2010 format. The company intends on converting approximately 200-250 existing stores to this format per year. Remodeled stores have averaged comps in the double-digits on average during the first year. The comp improvements tend to last into subsequent years with high single digit comps averaged in year two of the 2010 format. Commercial sales � Commercial sales represent a significant growth opportunity for AAP. The company has continued to expand its number of stores offering commercial services (currently about 70% of its stores offer commercial services). Commercial sales as a percentage of revenue increased from 12.1% in 1999 to 15.8% in 2003. AAP is well positioned to continue its penetration into the commercial market from its existing stores. The company offers ASE training to its employees and believes it has the largest number of ASE certified parts specialists in the industry. The company�s skilled employee base coupled with its deep product line makes it attractive for commercial customers.



Margin Improvements � AAP has continued to make progress in its margins. EBIT margins have increased from just over 1% in 1999 to 8.8% in 2003 (see graph below).

12/1999 12/2000 12/2001 12/2002 12/2003 06/2004 0

1

2

3

4

5

6

7

8

9EBIT Margin

Advance Auto Parts Inc.

Gross margins are the key to AAP�s continued margin improvements. Management attributed the EBIT improvement in 2003 to category management. The company�s acquisition of Discount Auto Parts has allowed it to take advantage of its purchasing power by entering into longer-term contracts with vendors at more favorable pricing. The merchandising focus has been on higher-margin products. The company also has become more efficient in its supply chain after the DAP acquisition. The commercial segment�s gross margins are lower than the DIY market; however the scalability of that business should have a positive impact on EBIT margins. Healthy balance sheet � Unlike some of its competitors, AAP�s balance sheet is not overloaded with debt. AAP has decreased its debt-to-capital ratio from over 82% in 1999 to 40% at the end of 2003. At the end of Q2 2004, debt-to-capital was less than 30%. The company has used free cash flow to pay down debt. While the company has no stated acquisition strategy, in a market as fragmented as this one, it would not be surprising to see AAP purchase a regional chain in a new market. AAP is well positioned financially for future growth. Earnings visibility � The uncertainty surrounding AAP�s performance seems to be in the past. The company met its guidance for the third quarter in a very difficult environment. Q4 of 2004 could be a difficult quarter, but it is widely believed that the company will be able to meet its guidance. There are several earnings levers that could benefit the company and help it meet guidance going forward. First, the company has a share buy-back program authorized. Second, the company has recently entered into a new credit facility which will reduce financing costs. Finally, many believe the company is close to becoming an investment grade borrower which would make future debt issues cheaper.



INVESTMENT RISKS Most of the risks inherent in this name are macro in nature: Prolonged higher fuel prices � High fuel prices have a two pronged effect on the industry. First, when fuel costs are high fewer miles are driven. When fewer miles are driven there is less wear-and-tear on automobiles and less demand for replacement parts. Second, fuel costs can result in less income available for preventative maintenance. If it costs more to fill up the tank, then consumers may skip some maintenance to make up the difference. Weather � Extreme weather is good for AAP because it leads to more break-downs and the need for replacement parts. Wet weather is a negative for the company due to most DIY repairs being performed outdoors. AAP�s largest concentration of customers is in Florida (431 out of 2580 stores). This summer�s hurricanes had a negative impact on Q3, and if additional severe weather occurred in the southeast it would have a negative impact on the company. Top line focus from AZO � To date, AutoZone (AAP�s largest competitor) has taken no direct action to stop AAP�s penetration into the market. The company has instead focused on improving existing locations and efficiencies. If AutoZone changed tactics and began aggressively protecting market share by focusing on volume gains, AAP�s performance could be negatively affected. Change in Management � In September 2004, the company announced that its Chairman/CEO Lawrence Castellani will retire in May of 2005. The new CEO will be Mike Coppola who most recently acted as EVP and COO of the company. The transition is expected to be smooth, and by all accounts, Mr. Coppola shares a similar vision and direction of the company with Mr. Castellani.



October 2004 AutoZone Incorporated (AZO) Consumer Staples Analyst: Tyler Bond Stock Rating: Hold Current Price: $81.81 �05 Price Target: $85.00 Implied % Change: 3.89%

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

AUTOZONE INCORPORATED (AZO)PRICE 79.5 DATE 10-18-2004StockVal®

1515

1818

21212424

2828

3333

39394545

5353

62627272

8585

99

116

136


Price Change % Diff SP51-Day 1.57 1.051-Week 3.25 4.174-Weeks 5.28 6.01QTD 2.91 2.96YTD -6.70 -6.892003 20.61 -5.772002 -1.60 21.762001 151.93 164.97

FYE Aug 2004 EPS 6.60

First Call Data 2005 2006 2007Mean Estimate 7.32↓ 8.09↓ 9.77↑

Change +11% +11% +21%High 7.60 8.74 10.08Low 7.14 6.64 9.46Total 18 14 2 # Up 3 1 0 # Down 14 4 0 House EstimatePE Ratio 10.9 9.8 8.1


Data Page # 1



BUSINESS PROFILE AutoZone is the largest retailer of aftermarket auto parts in the North America. The company currently operates a chain of just under 3,500 stores in the United States and Mexico. AZO has stores in 48 states and the Washington, D.C. and 49 stores in Mexico. The company also sells some parts on the internet through its website, autozone.com. AZO�s customers can be broken down into three separate groups: DIY, DIFM, and diagnostic. The largest segment is the DIY segment which targets individuals performing routine maintenance for their own vehicles. The DIY segment represented approximately 84% of FY2004 revenues. The commercial segment (DIFM) serves repair garages and accounted for approximately 13% of revenues during FY2004. The other segment represents the remaining 3% of revenues for FY2004. This segment sells ALLDATA automotive diagnostic and repair software to the commercial segment and to DIY customers. PERFORMANCE

The stock has outperformed the market by about 2x over the past five years. The company has benefited from its market leadership over the past decade, but its hold on the market is slipping. The company is losing market share to Advanced Auto and O�Reilly. While the company has lost market share due to competition, it has continued to grow EPS. The company�s sales have grown at a CAGR of 4.6% over the last five years. For FY2004, sales were $5.64 billion up from $4.48 billion for FY2000. Margin improvements resulted in earnings growing from $276.6 million to $566.2 million in FY2000 and FY2004 respectively. EPS grew from $2 per share to $6.60 per share while



the number of shares outstanding shrank from 121.5 million in 2000 to 79.6 million in 2004. In June, the company announced that same-store sales were declining more than expected. This announcement coupled with negative releases from other names in the industry led to a significant sell off of AZO and the group mid-summer 2004. The group saw an up-tick in performance mid-October, led by a positive earnings report from Advanced Auto. THESIS On the surface, AutoZone looks like a good value play for investors. The company has one of the best operating margins in retail and is by far the most efficient company in this sector. AZO is the largest aftermarket retailer, and is well positioned to serve the commercial market. The stock is trading at a discount to the market, to its peer group, and to its historical multiple levels. I believe, however, that the stock is fairly valued and that the name has entered into a more mature phase where historical valuations are not as relevant. The company has failed to generate positive comps in recent quarters and has increased debt to above 90% of total capital. Instead of positioning itself for continued expansion, the company seems to be more focused on leveraging its existing supply chain by growing in existing market areas. AZO�s recent focus has been on growing earnings via margin improvements and share buybacks as opposed to unit development. I rate the stock a hold due to its favorable positioning and ability to leverage its supply chain. I don�t see significant catalysts available for the company to expand its multiple. VALUATION

StockVal®AUTOZONE INCORPORATED (AZO) Price 80.01999 2000 2001 2002 2003 2004 2005


0.4

0.6

0.8

1.0

HI 0.98 LO 0.27 ME 0.64 CU 0.68

10-22-199910-22-2004


8

10

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16

18

HI 17.3 LO 6.3 ME 8.8 CU 7.4

10-22-199910-22-2004


10

12

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16

18

20

HI 18.3 LO 8.7 ME 12.5 CU 10.9

10-22-199910-22-2004



Multiples Relative to the S&P 500: AZO is trading at a forward multiple of roughly 11x its next twelve months earnings, a discount to its mean multiple over the last five years. Relative to the S&P 500, AZO is trading at a discount of approximately 32% relative to the index. This discount is consistent with where the stock has traded over the last five years. On an EV/EBITDA basis, AZO is trading at 7.4x versus its five year mean of 8.8x. On the surface it appears as though AZO is cheap relative to its historical multiple on both an EV/EBITDA basis and forward earnings multiple.

StockVal®AUTOZONE INCORPORATED (AZO) Price 80.01999 2000 2001 2002 2003 2004 2005

PRICE / YEAR-FORWARD EARNINGS RELATIVE TO AUTOPARTS RETAILERS (AUTOS) E-Wtd0.65

0.70

0.75

0.80

0.85

0.90

0.95

1.00

1.05

1.10

HI 1.09 LO 0.66 ME 0.86 CU 0.90

10-22-199910-22-2004

ENTERPRISE VALUE/EBITDA RELATIVE TO AUTOPARTS RETAILERS (AUTOS) E-Wtd0.75

0.80

0.85

0.90

0.95

1.00

1.05

1.10

1.15

1.20

HI 1.2 LO 0.8 ME 0.9 CU 0.8

10-22-199910-22-2004

Multiples relative to the group: Relative to the big five auto-parts retailers (AAP, AZO, PBY, ORLY, CAO) AutoZone is trading at a discount (10%) relative to the average EV/EBITDA multiple, and a 12% discount relative to where it has historically traded versus the group. When reviewing its P/E multiple relative to the group, AZO is trading at a slight premium (4%) to its historical valuation against the group, but at a 20% discount to the group. Valuing AZO against its comparable group suggests that the stock is undervalued currently. The suggested fair value based off of comparables is approximately $93.00 per share.

Valuing AutoZone Inc. using Comparables

Implied Value using average P/E 93.43 Implied Value using average EV/EBITDA 93.19 Average 93.31

Implied Change from Current Price 14.06% DCF: Computing a DCF for AutoZone is relatively straightforward since the company is in a very mature phase. The company�s sales growth is assumed to be 5% per year over



the next five years. Sales growth is expected to be in-line with the overall growth of the industry over that time frame. Gross margins are assumed to remain constant over then next five years at 48.8%. SG & A costs are assumed to remain constant, and the company�s interest expense is expected to increase. The average net margins for AZO are expected to be at just over 10% for the next five years. For the purpose of computing a value per share for the stock, I held the number of shares constant. The company has been very aggressive with its share buyback�s. Actual EPS could come in significantly higher than my projections as a result of lower share counts. Using a calculated WACC of 8.66% and a terminal growth rate of 3.0% gives a suggested value for AZO of approximately $88.00 per share. Price Target: I believe AZO is fairly valued at approximately $85.00 share (a 4% discount to current share price). This price target is derived from applying a forward multiple of 12x, slightly lower than historical mean and less than the sector�s five year average, to my FY2005 estimate of $7.10 per share. This is supported by a DCF that yields a value of approximately $88.00 per share. The stock should trade at a discount both to its peers and the market due to the company�s leverage, increased competition in the sector, and inability to grow same store sales. At a price level in the low 70�s the name could be a good value play, at its current level it is fairly valued, and at a price above $90, I consider the stock expensive. INVESTMENT MERITS Market Leader � AutoZone is the market leader. AZO has the largest number of stores in the industry and faces little competition from AAP and ORLY in the western states. The company�s broad footprint makes it more stable, but also susceptible to competition in some areas. AutoZone is expected to continue increasing its number of stores at a rate of approximately 6% per year. In addition, the company has a �store refresh� plan that is remodeling its older stores. The �store refresh program� requires little incremental capital, and management has anecdotally noted that it has helped comps. Acceleration of Commercial segment � A major focus across the industry lies in the commercial segment, and AZO is well positioned to benefit from the DIFM segment. The company accounted for less than 2% of the market in 2003, and it is expected that the company can gain market share in this fragmented market. AZO�s extensive distribution system gives local store access to over 350,000 SKU�s. In April of 2003, AZO entered into an agreement to take over Midas� distribution business. This agreement gave AZO instant credibility in the commercial segment. Midas has a network of over 1500 shops. The company is focused on lowering delivery times and enhancing customer service. It also has a sales force dedicated to both national and local accounts. Supply chain and Category Management � Historically, AZO has been the market leader in terms of operating margins. For FY2004, operating margins were 17.7%, up from 10.5% in FY1999. Management expects margin improvements to continue, but at a slower pace. The main source of margin expansion has been gross margins for AZO.



08/1997 08/1998 08/1999 08/2000 08/2001 08/2002 08/2003 08/2004

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18EBIT Margin

AutoZone Inc.

The factors driving higher gross margins are higher private-label sales, scalability of the supply chain, lower warranty costs, and category management. Management has commented on its intention of continuing its efforts in private label sales, and encouraging customers to trade up to higher quality (higher margin) parts. The company recently initiated a pay-on-scan system with many of its vendors. This essentially pushes the costs of inventory onto its vendors. This should help operating margins going forward. Management focus on ROIC � The company�s management has maintained a strong focus on ROI across the company. New stores take approximately five years to fully mature, and are measured against a hurdle rate of 15% ROI. This focus has led to superior performance for the company. Solid Management � As previously mentioned, AZO boasts the best margins in the business. The company is also has the highest sales per square foot at about $273, the next closest competitor is ORLY at $225. The rest of the group has sales per square foot of less than $200 on average. In addition, AZO has the best inventory turnover in the group. AZO�s turnover is 1.9x, or 188 days, versus an average of 1.5x, or 294 days for CAO, AAP, ORLY (PBY excluded due to service bays). INVESTMENT RISKS High Debt Levels � AZO is currently operating with extremely high levels of debt. Over the past several years, total debt and debt as a percentage of capital have increased dramatically. Debt has more than doubled over the past six years, increasing from $888 million in 1999, to $1.8 billion at the end of FY2004. Debt-to-capital has increased over that time period from 40.2% to 91%. A great deal of the debt issued has been used to finance a share buyback program.



The company�s debt is BBB rated, and coverage ratios and cash flow are solid. The concerning issue is the amount of overhang from the debt. There is the potential for AZO to under-invest in the business and give up market share to AAP and ORLY. It should also be noted that Eddie Lampert�s ESL Partners Fund recently increased its holding of the stock to 20.5 million shares (25% of shares outstanding). Mr. Lampert�s intentions are unclear at this point. Prolonged higher fuel prices: High fuel prices have a two pronged effect on the industry. First, when fuel costs are high fewer miles are driven. When fewer miles are driven there is less wear-and-tear on automobiles and less demand for replacement parts. Second, fuel costs can result in less income available for preventative maintenance. If it costs more to fill up the tank, then consumers may skip some maintenance to make up the difference. Weather: Extreme weather is good for the industry because it leads to more break-downs and need for replacement parts. Wet weather is a negative for the company since most DIY projects are performed outdoors. AZO�s weak summer sales were blamed in part on milder weather. Weak Comps � Over the last two years, AZO has shown weak same store sales comparisons in a period when its competitors were showing robust growth. In 2004, the company is expected to have same store sales growth of -1%, and in 2005 the company is expected to post same store sales growth of 2%. Its main competitors, AAP and ORLY are both showing strong same store sales growth despite a difficult environment in 2004. At this point, it is not clear that AZO will be able to reverse this trend. The long term impact of slowing same store sales growth will be loss of market share to AAP and ORLY. Earnings Quality �AZO�s earnings growth has come from a variety of different factors. The company�s earnings have benefited from the result of reversing warranty accruals, and shifting inventory to accounts receivables to change over to the pay-on-scan for some vendors. In addition, the company has been aggressive in buying back stock in order to make its EPS numbers each period. The company�s management is focused on driving EPS growth, but is not always the result of improved operations. Given the amount of earnings levers that have been pulled, it is questionable as to how long EPS growth can continue at its current pace.



October 2004

O�Reilly Automotive Incorporated (ORLY) Consumer Staples Analyst: Tyler Bond Stock Rating: Hold Current Price: $42.60 �05 Price Target: $44.00 Implied % Change: 3.28%

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

O'REILLY AUTOMOTIVE INCORPORATED (ORLY)PRICE 38.1 DATE 10-18-2004StockVal®

44

556677

99

1111

14141717

2121

2626

32323939

48

59

73


Price Change % Diff SP51-Day 1.52 1.001-Week -1.37 -0.454-Weeks -7.06 -6.33QTD -0.60 -0.55YTD -1.30 -1.492003 52.47 26.092002 -30.66 -7.292001 36.34 49.38

FYE Dec 2003 EPS 1.84

First Call Data 2004 2005 2006Mean Estimate 2.19↓ 2.59 3.16Change +19% +18% +22%High 2.22 2.66Low 2.16 2.47 3.05Total 13 12 2 # Up 0 1 # Down 11 8 House EstimatePE Ratio 17.4 14.7 12.0


Data Page # 1



BUSINESS PROFILE O�Reilly Automotive was founded by the O�Reilly family in 1957. It operates primarily in the mid-western and southwestern United States. The company has over 1100 stores total. Its stores are located in Texas, Oklahoma, Missouri, Kansas, Iowa, Arkansas, Louisiana, Nebraska, and Illinois. The highest concentration of stores is in Texas where 380 stores are located. The company sells aftermarket parts, tools, supplies, and accessories to both the commercial and consumer segment. O�Reilly�s heritage is in the commercial segment and the company�s current balance between commercial and retail customers is relatively even. The DIY segment represents approximately 53% of revenues, and sales to the DIFM segment represent the remaining 47%. The company also distributes parts to independent auto parts stores via its subsidiary, Ozark Automotive Distributors. PERFORMANCE

Like the rest of the sector, the stock has outperformed the market by a wide margin over the past five years. The company�s revenues grew from $754 million in 1999 to over $1.5 billion in 2003. Revenue growth has been driven by both new store development and better sales production from existing stores. The company has grown EPS at a CAGR of approximately 17%. While most of the growth in earnings has come from the top-line, management has shown the ability to grow margins. Gross margins remain below the industry average, but the company has successfully controlled SG & A costs. SG&A expenses have decreased by 164 basis points over the past five years.



There has been recent weakness in the sector due to slower comps during the late 2nd quarter weeks and the entire 3rd quarter. AutoZone led the charge lower with poor comps coming in mid-summer. The problem was furthered by mild weather, hurricanes disrupting operations, high gas prices, and lower consumer spending during the summer. THESIS O�Reilly�s positioning within the sector makes it an interesting stock. The company is known for its professional service making it attractive for both the DIFM and DIY markets. While the company is expected to grow revenues significantly via new stores and acquisitions, I believe the market price already reflects the growth opportunities of the company. ORLY has the opportunity to benefit from operating improvements going forward. Its gross margins are below the industry average (excluding PBY which skews the margins due to its service bays), and its SG & A expenses have been improving. The market has priced in significant growth for the company both in revenues and in margins. My concern with the company is that it may start to disappoint on margins and not deliver on the operating leverage expected from its supply chain. New stores require a significant amount of inventory, and any slowdown in comps could lead to a disappointment from the stock. I rate the stock a hold based primarily on my belief that the stock�s growth is already priced in by the market. VALUATION

StockVal®O'REILLY AUTOMOTIVE INCORPORATED (ORLY) Price 40.61999 2000 2001 2002 2003 2004 2005


0.4

0.6

0.8

1.0

1.2

1.4

HI 1.24 LO 0.37 ME 0.86 CU 1.01

10-22-199910-22-2004


12

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18

21

24

27

HI 25.1 LO 9.9 ME 17.2 CU 16.2

10-22-199910-22-2004


8

10

12

14

16

18

HI 16.3 LO 6.4 ME 10.7 CU 10.3

10-22-199910-22-2004

Multiples Relative to the S & P 500: ORLY is currently trading at a forward multiple of 16.2x. This is a discount of just under 6% relative to its historical multiple of 17.2x. Relative to the SPX, the stock is trading at a premium of 1%. Historically, the stock has



traded at a discount of 14% to the market. On an EV/EBTIDA basis ORLY is trading at a multiple of 10.3x, a slight discount to its five year average of 10.7x.

StockVal®O'REILLY AUTOMOTIVE INCORPORATED (ORLY) Price 40.61999 2000 2001 2002 2003 2004 2005

PRICE / YEAR-FORWARD EARNINGS RELATIVE TO AUTOPARTS RETAILERS (AUTOS) E-Wtd0.7

0.8

0.9

1.0

1.1

1.2

1.3

1.4

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1.6

HI 1.58 LO 0.72 ME 1.20 CU 1.34

10-22-199910-22-2004

ENTERPRISE VALUE/EBITDA RELATIVE TO AUTOPARTS RETAILERS (AUTOS) E-Wtd0.7

0.8

0.9

1.0

1.1

1.2

1.3

1.4

1.5

1.6

HI 1.6 LO 0.8 ME 1.1 CU 1.2

10-22-199910-22-2004

Multiples Relative to the group: Relative to a group of comparable companies (AZO, AAP, PBY, ORLY, CAO), the stock appears slightly overvalued. On a relative P/E basis, the company is trading at a premium of 34% to the group versus its five year average premium to the group of 20%. On a relative EV/EBITDA basis, the stock also appears to be a bit expensive. It is currently trading at a premium of 20% to the group versus its five year average premium of 10%. While I do believe the premium for ORLY is warranted due to its superior expense management and leverage to the commercial market, the uncertainty with comps going forward makes the current valuations unattractive for investors. DCF: When valuing ORLY using a discounted cash flow approach, there were several major factors that came in to play. 1) The top-line growth for ORLY has been significant and the analyst community expects this to continue. The top-line is expected to continue growing at better faster than the industry average, but I believe that this growth will begin slowing. My model assumes that top-line will grow 13.5% for FY2004 (on pace for this), and then decline by 100 bps per year over the next five years. 2) Since growth is primarily through acquisitions and new stores, capital expenditures have a significant impact on the DCF. CAPEX for FY2004 is expected to be near $130 million, and are expected to grow at a slower rate than sales. 3) Depreciation as a percentage of gross PPE is expected to grow as a result of increased capital expenditures over the past several years. The model assumes that depreciation/gross ppe increases from roughly 7% to 9.5% over the next five years. 4) ORLY�s working capital needs are significant. The company holds a great deal of inventory. Newer stores require a higher amount of working capital only increasing the impact to free cash flow. The company�s exposure to the DIFM market requires it to maintain parts inventory that is higher margin and lower turnover. The model assumes that working capital management improves over time with better category management. Working capital for FY2004 is expected to be 25% declining as a percentage of sales to 21% over the next four years. Using a calculated WACC of



10.79% and a terminal growth rate of 5%, the estimated value of ORLY comes to approximately $42 per share. Price Target: ORLY is fairly valued at approximately $44 per share, a slight premium to its current price. This price is derived by taking its five year average forward P/E multiple of 17.2x and applying it to the company�s expected 2005 earnings of $2.56 (slightly below the street�s mean expectation). This price is supported by my DCF which yields a price of $42 per share. I like the stock�s story, and would consider buying it on weakness. The stock is currently trading in a range which I consider fairly valued. The stock is cheap below $37 and expensive above $45 per share. INVESMENT MERITS Commercial Heritage, DIFM positioning � When ORLY was founded in 1957, the company sold exclusively to commercial customers. To this day, delivering parts and extending credit to professional installers remains a vital part of the business. The company�s commercial program is called First Call and is offered via all of its stores. The company has store staff dedicated to the commercial service, and it offers same-day delivery in about 95% of its stores. ORLY currently represents less than 2% of the DIFM market in terms of revenues nationwide. The DIFM market is expected to grow faster than the DIY market. ORLY�s experience in catering to this group should yield significant benefits in market share and margins in the DIFM market. As previously mentioned, the commercial segment is an extremely scalable business and ORLY is already positioned well to take advantage of this growth. Rapid expansion/Comps � ORLY has aggressive expansion goals for the next two years. The company is expected to grow its store count by 12 � 13% over the next few years. Approximately 30% of the new stores are expected to be acquisitions. A young store base is considered a positive for ORLY due to two factors. First, it expands the company�s footprint. The store growth is expected to occur within the company�s existing geographic markets making the existing supply chain an asset. The company can spread the fixed costs associated with the distribution infrastructure helping improve margins. Second, comps are better for newer stores. ORLY expects comp growth of 20% for stores in the second year with comps remaining in the teens for the third year. Approximately half of ORLY�s stores are between one and four years old currently. This number is expected to decline to approximately 43% by the end of FY2006. Margin Improvements � ORLY is one of the better managed companies in the industry when concerning costs. In the past, management has been effective in controlling costs. The company is expected to continue improving margins by focusing on costs, more effective category management, and by leveraging vendor relationships. EBIT margins were 11.4% for the last twelve months, up 100 basis points from five years ago. As the company expands its market footprint, it should benefit from the scalability of its supply chain and distribution network. SG & A costs as a percentage of sales have decreased by over 150 bps since 1999. While both gross and EBIT margin improvements are expected going forward, it is not expected to be an immediate earnings driver.



INVESTMENT RISKS DIY Market � The expansion of the DIY market has benefited ORLY considerably. Any significant slow down in consumers performing routine maintenance would have a negative impact on the company. As mentioned in the industry overview, the growing complexity of vehicles is not expected to slow down considerably. ORLY is better positioned for a decrease in the DIY market compared to its competitors with 47% of revenues already coming from the DIFM market. Concentrated Supplier Base � For its last fiscal year (2003), approximately 38% of its purchases came from five suppliers. A disruption in ORLY�s supplier relationships would result in a negative impact for the company�s operating results. The concentration in the supply base can be attributed to the company�s strategy of selling national brand products. National brands make up approximately 80% of ORLY�s sales. Several of the brands market exclusively through O�Reilly. Managing Growth � ORLY is targeting rapid growth in over the next several years. Of its new stores, 30% are expected to come from acquisitions. As with any acquisition, integration can be difficult and could lead to lower margins for the company. During the second quarter of 2004, ORLY saw operating margins contract slightly with an increase in sales. Given that the company will be operating a high number of new stores and a new Atlanta distribution center, margins may contract in the short term. Prolonged higher fuel prices: High fuel prices have a two pronged effect on the industry. First, when fuel costs are high fewer miles are driven. When fewer miles are driven there is less wear-and-tear on automobiles and less demand for replacement parts. Second, fuel costs can result in less income available for preventative maintenance. If it costs more to fill up the tank, then consumers may skip some maintenance to make up the difference. Weather: Extreme weather is good for the industry because it leads to more break-downs and need for replacement parts. Wet weather is a negative for the company since most DIY maintenance is performed outdoors. ORLY�s summer sales were hurt by milder weather. For the second and third calendar quarter of 2004, ORLY saw same store sales increase a total of 7.2% after a 12.4% increase in the first quarter.

MB

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t Aut

o Pa

rts R

etai

lers

Tyle

r Bon

d 36

Oct

ober

200

4

His

toric

al:

Fore

cast

:

Aug-

00Au

g-01

Aug-

02Au

g-03

Aug-

0420

05E

2006

E20

07E

2008

E20

09E

98-0

204

-07

Sale

s R

even

ue44

82.7

048

18.2

053

25.5

054

57.1

056

37.0

059

18.8

562

14.7

965

25.5

368

51.8

171

94.4

05.

90%

5.00

% A

nn G

row

th R

ate

(%)

na7.

48%

10.5

3%2.

47%

3.30

%5.

00%

5.00

%5.

00%

5.00

%5.

00%

Cos

t of G

oods

Sol

d26

02.4

027

74.8

029

50.1

029

42.1

028

80.4

030

30.4

531

81.9

733

41.0

735

08.1

336

83.5

32.

57%

5.00

% G

ross

Pro

fit18

80.3

020

43.4

023

75.4

025

15.0

027

56.6

028

88.4

030

32.8

231

84.4

633

43.6

835

10.8

7 G

ross

Mar

gin

(%)

41.9

5%42

.41%

44.6

0%46

.09%

48.9

0%48

.80%

48.8

0%48

.80%

48.8

0%48

.80%

44.7

9%48

.80%

Sell,

Gen

& A

dm E

xp13

68.3

014

98.9

016

04.4

016

06.5

017

57.9

018

46.6

819

39.0

220

35.9

721

37.7

622

44.6

5 E

xpen

se M

argi

n (%

)30

.52%

31.1

1%30

.13%

29.4

4%31

.19%

31.2

0%31

.20%

31.2

0%31

.20%

31.2

0%30

.48%

31.2

0%

Earn

Bef

ore

Int &

Tax

512.

0054

4.50

771.

0090

8.50

998.

7010

41.7

210

93.8

011

48.4

912

05.9

212

66.2

1 O

pera

ting

Mar

gin

(%)

11.4

2%11

.30%

14.4

8%16

.65%

17.7

2%17

.60%

17.6

0%17

.60%

17.6

0%17

.60%

14.3

1%17

.60%

Inte

rest

Exp

ense

79.6

010

2.10

80.5

086

.60

92.8

010

0.00

100.

0010

0.00

100.

0010

0.00

Non

-Op

Loss

(Gai

n)(2

.80)

155.

40(0

.60)

(11.

10)

0.00

0.00

0.00

0.00

0.00

0.00

Earn

Bef

ore

Tax

435.

2028

7.00

691.

1083

3.00

905.

9094

1.72

993.

8010

48.4

911

05.9

211

66.2

1 P

reta

x M

argi

n (%

)9.

71%

5.96

%12

.98%

15.2

6%16

.07%

15.9

1%15

.99%

16.0

7%16

.14%

16.2

1%12

.00%

16.0

3%

Inco

me

Tax

Expe

nse

167.

6011

1.50

263.

0031

5.40

339.

7035

3.14

372.

6839

3.19

414.

7243

7.33

Tax

Rat

e (%

)38

.51%

38.8

5%38

.06%

37.8

6%37

.50%

37.5

0%37

.50%

37.5

0%37

.50%

37.5

0%38

.16%

37.5

0%

Earn

b/f

Extra

Item

s17

5.50

428.

1051

7.60

564.

3056

6.20

588.

5762

1.13

655.

3169

1.20

728.

88Ex

tra L

oss

(Gai

n)0.

000.

000.

000.

000.

000.

000.

000.

000.

000.

00M

inor

ity In

tere

st0.

000.

000.

000.

000.

000.

000.

000.

000.

000.

00

Net

Inco

me

(Los

s)17

5.50

428.

1051

7.60

564.

3056

6.20

588.

5762

1.13

655.

3169

1.20

728.

88 N

et M

argi

n (%

)3.

92%

8.89

%9.

72%

10.3

4%10

.04%

9.94

%9.

99%

10.0

4%10

.09%

10.1

3%8.

58%

10.0

2%

Earn

ing

Per S

hare

: B

asic

1.32

3.80

4.96

5.95

6.83

7.10

7.49

7.90

8.34

8.79

Dilu

ted

1.31

3.76

4.83

5.82

6.66

6.92

7.31

7.71

8.13

8.58

Com

mon

Sha

re O

ut:

Bas

ic13

2.90

112.

8010

4.40

94.9

082

.90

82.9

082

.90

82.9

082

.90

82.9

0 D

ilute

d13

3.90

113.

8010

7.10

97.0

085

.00

85.0

085

.00

85.0

085

.00

85.0

0

Auto

Zone

Inc.

Hist

oric

al a

nd F

orec

aste

d In

com

e St

atem

ents

CAG

R/A

vera

ge:

MB

A In

vest

men

t Fun

d, L

LC.

A

fterm

arke

t Aut

o Pa

rts R

etai

lers

Tyle

r Bon

d 37

Oct

ober

200

4

His

toric

al:

Fore

cast

:

Aug

-00

Aug

-01

Aug-

02Au

g-03

Aug

-04

2005

E20

06E

2007

E20

08E

2009

ETe

rm V

alue

Rev

enue

4482

.70

4818

.20

5325

.50

5457

.10

5637

.00

5918

.85

6214

.79

6525

.53

6851

.81

7194

.40

EBIT

512.

0054

4.50

771.

0090

8.50

998.

7010

41.7

210

93.8

011

48.4

912

05.9

212

66.2

1Ta

x R

ate

38.5

1%38

.85%

38.0

6%37

.86%

37.5

0%37

.50%

37.5

0%37

.50%

37.5

0%37

.50%

NO

PAT

314.

8233

2.96

477.

5956

4.51

624.

2065

1.07

683.

6371

7.81

753.

7079

1.38

Ann

Dep

reci

atio

n11

7.90

122.

6011

8.30

109.

7010

6.90

120.

8612

1.63

127.

7113

4.10

140.

80 D

epr/P

PE

(%)

8.26

%7.

48%

6.73

%6.

41%

6.43

%6.

43%

6.43

%6.

43%

6.43

%6.

43%

Annu

al C

APE

X24

9.70

169.

3011

7.20

182.

2018

4.87

236.

7524

8.59

261.

0227

4.07

287.

78 C

APE

X/R

ev (%

)5.

57%

3.51

%2.

20%

3.34

%3.

28%

4.00

%4.

00%

4.00

%4.

00%

4.00

%An

nual

Chg

WC

(32.

73)

(72.

29)

(90.

38)

(145

.30)

21.1

48.

468.

889.

329.

7910

.28

(C

A-C

L)/R

ev (%

) 5.

01%

3.16

%1.

16%

-1.5

3%-1

.11%

3.00

%3.

00%

3.00

%3.

00%

3.00

%

Free

Cas

h Fl

ow:

215.

7535

8.55

569.

0763

7.31

525.

0952

6.72

547.

7957

5.18

603.

9463

4.13

1048

1.01

2003

E20

04E

2005

E20

06E

2007

ETe

rm V

alue

Free

Cas

h Fl

ow52

6.72

547.

7957

5.18

603.

9463

4.13

1048

1.01

Dis

coun

t Fac

tor

1.09

1.18

1.28

1.39

1.51

1.51

PV o

f FC

F48

4.75

463.

9644

8.33

433.

2341

8.64

6919

.35

Sum

of P

V o

f CF,

1-5

2248

.91

PV o

f Ter

min

al V

alue

6919

.35

$88.

052.

50%

3.00

%3.

50%

4.00

%4.

50%

5.00

%Va

lue

of F

irm91

68.2

68.

00%

93.1

8$

102.

46$

11

3.81

$

127.

99$

14

6.23

$

170.

54$

Less

: MV

of D

ebt

1869

.30

8.55

%82

.75

$

90

.20

$

99

.13

$

11

0.02

$

123.

59$

14

0.99

$

To

tal E

quity

Val

ue72

98.9

68.

66%

80.8

9$

88.0

4$

96.5

7$

106.

93$

11

9.78

$

136.

15$

Shar

es O

ut82

.90

9.00

%75

.53

$

81

.84

$

89

.30

$

98

.24

$

10

9.18

$

122.

85$

9.50

%68

.59

$

73

.90

$

80

.10

$

87

.42

$

96

.20

$

10

6.94

$

Eq

uity

Val

ue P

er S

hare

$88.

0510

.00%

62.5

8$

67.1

0$

72.3

1$

78.3

9$

85.5

8$

94.2

1$

11.0

0%52

.66

$

56

.03

$

59

.84

$

64

.20

$

69

.23

$

75

.10

$

11

.50%

48.5

3$

51

.47

$

54

.77

$

58.5

2$

62

.80

$

67.7

4$

Auto

Zone

Inc.

His

toric

al a

nd F

orec

aste

d C

ash

Flow

Sta

tem

ents

Dis

coun

ted

Free

Cas

h Fl

ow A

naly

sis

Term

inal

Gro

wth

Rat

e

WACC

Sens

itivi

ty A

naly

sis

MB

A In

vest

men

t Fun

d, L

LC.

A

fterm

arke

t Aut

o Pa

rts R

etai

lers

Tyle

r Bon

d 38

Oct

ober

200

4

Sour

ce:

Term

inal

Gro

wth

Rat

e:3.

00%

Assu

mpt

ion;

bas

ed o

n 2%

infla

tion

plus

real

gro

wth

Annu

al C

hg G

ross

PP

&E:

5.00

%As

sum

ptio

n; A

vg. A

nnua

l Cha

nge,

199

8-20

02: 1

3.30

%

WAC

C:

Ind

Deb

t/MV

Equi

ty10

.91

MR

Q, c

alcu

alte

d %

Deb

t91

.60%

Cal

cula

ted

% E

quity

8.40

%C

alcu

late

d

Bet

a0.

76Bl

oom

berg

, 2-y

r raw

bet

a vs

. SPX

Mar

ket R

isk

Prem

6.00

%Ib

bots

on A

ssoc

iate

s, S

BBI 2

003

Yea

rboo

k R

F R

ate

4.77

%Lo

ng B

ond

Yiel

d, 1

0/28

/04

Cos

t of E

quity

9.33

%C

alcu

late

d

Ind

LT

Cre

dit S

prea

d1.

48%

Bloo

mbe

rg, 1

2/31

/02;

Baa1

-30-

yr T

-bon

d sp

read

Cos

t of D

ebt

6.25

%C

alcu

late

d

Tax

Rat

e37

.50%

Assu

mpt

ion

AT

Cos

t of D

ebt

3.91

%C

alcu

late

d

Deb

t Bet

a2.

20

Assu

mpt

ion

WAC

C C

alcu

latio

n8.

66%

Cal

cula

ted

Base

Ass

umpt

ions

for D

CF

Anal

ysis

:

Auto

Zone

Inc.

MB

A In

vest

men

t Fun

d, L

LC.

A

fterm

arke

t Aut

o Pa

rts R

etai

lers

Tyle

r Bon

d 39

Oct

ober

200

4

His

toric

al:

Fore

cast

:

Dec

-99

Dec

-00

Dec

-01

Dec

-02

Dec

-03

2004

E20

05E

2006

E20

07E

2008

E99

-03

04-0

8

Sale

s R

even

ue75

4.10

890.

4010

92.1

013

12.5

015

11.8

017

03.8

019

08.2

521

18.1

623

29.9

825

39.6

818

.99%

10.9

4% A

nn G

row

th R

ate

(%)

na18

.07%

22.6

5%20

.18%

15.1

8%12

.70%

12.0

0%11

.00%

10.0

0%9.

00%

Cos

t of G

oods

Sol

d42

8.80

507.

7062

4.30

759.

1087

3.50

959.

7510

93.4

312

11.5

913

30.4

214

47.6

219

.47%

10.8

2% G

ross

Pro

fit32

5.30

382.

7046

7.80

553.

4063

8.30

744.

0581

4.82

906.

5799

9.56

1092

.06

Gro

ss M

argi

n (%

)43

.14%

42.9

8%42

.83%

42.1

6%42

.22%

43.6

7%42

.70%

42.8

0%42

.90%

43.0

0%42

.67%

43.0

2%

Sell,

Gen

& A

dm E

xp24

8.80

292.

7035

4.00

415.

1047

3.10

531.

5959

3.47

656.

6371

6.47

774.

60 E

xpen

se M

argi

n (%

)32

.99%

32.8

7%32

.41%

31.6

3%31

.29%

31.2

0%31

.10%

31.0

0%30

.75%

30.5

0%32

.24%

30.9

1%

Earn

Bef

ore

Int &

Tax

76.5

090

.00

113.

8013

8.30

165.

2021

2.46

221.

3624

9.94

283.

0931

7.46

Ope

ratin

g M

argi

n (%

)10

.14%

10.1

1%10

.42%

10.5

4%10

.93%

12.4

7%11

.60%

11.8

0%12

.15%

12.5

0%10

.43%

12.1

0%

Inte

rest

Exp

ense

6.50

9.70

9.40

9.60

8.70

8.50

8.50

8.50

8.50

8.50

Non

-Op

Loss

(Gai

n)(3

.00)

(3.2

0)(3

.70)

(3.3

0)(3

.70)

0.00

0.00

0.00

0.00

0.00

Earn

Bef

ore

Tax

73.0

083

.50

108.

1013

2.00

160.

2020

3.96

212.

8624

1.44

274.

5930

8.96

Pre

tax

Mar

gin

(%)

9.68

%9.

38%

9.90

%10

.06%

10.6

0%11

.97%

11.1

5%11

.40%

11.7

9%12

.17%

9.92

%11

.58%

Inco

me

Tax

Expe

nse

27.4

031

.50

40.4

049

.00

60.0

076

.49

79.8

290

.54

102.

9711

5.86

Tax

Rat

e (%

)37

.53%

37.7

2%37

.37%

37.1

2%37

.45%

37.5

0%37

.50%

37.5

0%37

.50%

37.5

0%37

.44%

37.5

0%

Earn

b/f

Extra

Item

s45

.60

52.0

067

.70

83.0

010

0.20

127.

4813

3.04

150.

9017

1.62

193.

10Ex

tra L

oss

(Gai

n)0.

000.

000.

000.

000.

000.

000.

000.

000.

000.

00M

inor

ity In

tere

st0.

000.

000.

000.

000.

000.

000.

000.

000.

000.

00

Net I

ncom

e (L

oss)

45.6

052

.00

67.7

083

.00

100.

2012

7.48

133.

0415

0.90

171.

6219

3.10

Net

Mar

gin

(%)

6.05

%5.

84%

6.20

%6.

32%

6.63

%7.

48%

6.97

%7.

12%

7.37

%7.

60%

6.21

%7.

24%

Earn

ing

Per S

hare

: B

asic

0.94

1.02

1.30

1.56

1.86

2.36

2.46

2.79

3.18

3.58

Dilu

ted

0.92

1.01

1.28

1.55

1.84

2.34

2.44

2.77

3.15

3.54

Com

mon

Sha

re O

ut:

Bas

ic48

.70

51.2

052

.10

53.1

053

.90

54.0

054

.00

54.0

054

.00

54.0

0 D

ilute

d49

.70

51.7

052

.80

53.7

054

.50

54.5

054

.50

54.5

054

.50

54.5

0

O'R

eilly

Aut

omot

ive,

Inc.

His

toric

al a

nd F

orec

aste

d In

com

e St

atem

ents

CAG

R/A

vera

ge:

MB

A In

vest

men

t Fun

d, L

LC.

A

fterm

arke

t Aut

o Pa

rts R

etai

lers

Tyle

r Bon

d 40

Oct

ober

200

4

His

toric

al:

Fore

cast

:

Dec

-99

Dec

-00

Dec

-01

Dec

-02

Dec

-03

2005

E20

06E

2007

E20

08E

2009

ETe

rm V

alue

Rev

enue

754.

1089

0.40

1092

.10

1312

.50

1511

.80

1703

.80

1908

.25

2118

.16

2329

.98

2539

.68

EBIT

76.5

090

.00

113.

8013

8.30

165.

2021

2.46

221.

3624

9.94

283.

0931

7.46

Tax

Rat

e37

.53%

37.7

2%37

.37%

37.1

2%37

.45%

37.5

0%37

.50%

37.5

0%37

.50%

37.5

0%N

OPA

T47

.79

56.0

571

.27

86.9

610

3.33

132.

7913

8.35

156.

2117

6.93

198.

41An

n D

epre

ciat

ion

17.9

024

.80

30.5

036

.90

42.4

062

.61

88.0

511

6.18

145.

2218

1.53

Dep

r/ G

ross

PPE

(%)

6.11

%7.

68%

7.77

%7.

51%

6.77

%8.

00%

9.00

%9.

50%

9.50

%9.

50%

Annu

al C

APEX

86.0

082

.00

68.5

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aftermarket automotive parts retailers competitive structure

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