O’Reilly Expects Heavy Cap-Ex Spending In 2020

O’Reilly Expects Heavy Cap-Ex Spending In 2020

The company has a number of major projects on tap this year.

O’Reilly Automotive is coming off its 27th consecutive year of record revenue and operating income. But 2019 was a record year for O’Reilly in another category: cap-ex spending.

Spending on capital expenditures totaled $628 million for O’Reilly in 2019 – up from $504.3 million in 2018 – in “a very busy year” for the company, according to COO Jeff Shaw. O’Reilly opened 202 net new stores in 2019 and converted 20 Bennett Auto Supply stores to O’Reilly stores. O’Reilly acquired Florida-based Bennett Auto Supply in late 2018.

In 2019, O’Reilly opened a new distribution center in Twinsburg, Ohio, and launched two other DC projects that are scheduled to be completed this year.

“Also during the fourth quarter, we were able to acquire existing distribution space contiguous to our Springfield DC and corporate campus,” Shaw added during the company’s Feb. 6 conference call.

For 2020, O’Reilly’s guidance is for cap-ex spending between $625 million and $675 million. Over the past three years, O’Reilly has averaged $480 million in cap-ex spending.

“Part of the reason for the elevated [cap-ex] level are the 2019 projects that roll into 2020,” Shaw explained. “However, the more exciting reasons are the projects we have slated for this year.”

Those projects include converting all store computer systems to Linux hardware, “which will eliminate the times the store computer system is down and the store teams are forced to use paper catalogs and write manual sales tickets,” according to Shaw.

“Currently, our store systems run partially on a Linux server and partially on our IBM AS/400,” Shaw explained. “Both pieces of equipment are a single point of failure for our stores.”

Investments in energy-saving initiatives for O’Reilly stores will drive the cap-ex spend as well. The company is in the process of converting store lighting to more-efficient LED technology. “We’ve been so pleased with the savings from lower electricity usage and maintenance – combined with the superior image in the stores – that we’re accelerating this project,” Shaw said.

The conversion to LED technology has put the spotlight on “wear and tear” in some high-volume stores. Consequently, O’Reilly will remodel more store interiors than usual this year, according to Shaw.

Also on the docket, O’Reilly plans to “aggressively modernize our fleet of semi-trucks in 2020,” with a focus on improved safety.

“We continue to have a very good accident rate. However, the cost of each accident continues to grow significantly for all large fleet operators,” Shaw asserted. “To better protect the safety of our team members and others while working to minimize our losses, we’re testing a variety of crash-avoidance and monitoring tools to improve the accident rate of our store-based fleet, and those projects are included in our cap-ex plan for 2020.”

Ongoing investments in O’Reilly’s “omnichannel efforts” will drive cap-ex spending as well.

“We will continue to invest heavily in enhancing our omnichannel capabilities to meet our customers on their terms with solutions that meet their specific needs, whether they visit a store, call or click,” Shaw said. “This initiative puts pressure on our expenses as well as our capital expenditures.” For 2020, O’Reilly is expecting full-year revenue between $10.7 billion and $11 billion.

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