# TO OUR FELLOW SHAREHOLDERS

_Source: `DeepSeekOCR_Ardian_pruned_1k/consumer-cyclical-auto-parts/NASDAQ_ORLY_2019/NASDAQ_ORLY_2019.mmd` · pages 2-8_

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TO OUR FELLOW SHAREHOLDERS:

"Our consistently excellent performance is a testament to the dedication and hard work of the team members in all of our stores, distribution centers and offices throughout the United States and Mexico who are intensely driven to become the dominant auto parts supplier in all of our market areas."

On behalf of over 82,000 enthusiastic and professional O'Reilly Team Members, we take great pride in writing to you, our shareholders, to report that the O'Reilly Culture of excellent customer service is thriving and once again resulted in another year of strong, profitable growth. Our 2019 performance culminated in our 27th consecutive year of generating positive comparable store sales growth, while also producing record revenue and operating income results, every year since we became a publicly traded company in April of 1993.

Our profitable growth in 2019 was driven by an industry-leading 4.0% increase in comparable store sales. Our growth was accelerated with the opening of 200 net, new greenfield stores across 37 states, coupled with the acquisition of Bennett Auto Supply in south Florida after the close of business on December 31, 2018, adding 20 net, new locations. Finally, we capped off our strong growth year in 2019 in late November with our inaugural expansion outside of the United States with the acquisition of Mayasa Auto Parts, headquartered in Guadalajara, Mexico. We are pleased with our team's ability to drive strong results across our existing business and in these exciting new markets, and we are looking forward to continuing to grow the O'Reilly brand in 2020 and beyond.
GREG JOHNSON
Chief Executive Officer
and Co-President

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JEFF SHAW
Chief Operating Officer
and Co-President

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BRAD BECKHAM
Executive Vice President of
Store Operations and Sales

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THOMAS MCFALL
Executive Vice President
and Chief Financial Officer

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Our consistently excellent performance is a testament to the dedication and hard work of the team members in all of our stores, distribution centers and offices throughout the United States and Mexico who are intensely driven to become the dominant auto parts supplier in all of our market areas. We win business by consistent execution, outshutting and outworking the competition every day, and being the friendliest, most knowledgeable parts store in town.

The Mexican automotive aftermarket presents an attractive, profitable growth opportunity for us, and we have worked diligently over the past few years to identify the right team to partner with to expand our proven dual market strategy outside the borders of the United States. Mayasa is a family business founded over 65 years ago and has a very similar history and culture to O'Reilly. They currently operate 21 Orma-branded auto parts stores and supply over 2,000 independent jobber customers through six distribution centers. 2020 will be a learning and planning year as we work hand-in-hand with the experienced Mayasa leadership team to evaluate the scalability of their systems and, more
importantly, leverage their strong field operations teams, who will be the backbone of our long-term expansion plans. We are excited for the great opportunity we have to grow our footprint in Mexico over time, but more importantly, for the addition of over 1,100 Mayasa team members who share our passion for excellent customer service. We extend our warmest welcome to the Mayasa team and look forward to a strong, profitable future.
As we work hard to win our customers' business every day and drive our Company to new record performance, our priority continues to be grounded in sustainable profitable growth. Through unwavering expense control and a relentless focus on consistent, excellent customer service, our Team delivered a 5.8% increase in operating profit dollar growth in 2019, which was on top of a 5.2% increase in 2018. We achieved operating profit dollar growth while continuing to prioritize customer service initiatives during 2019, building on our solid foundation for continued long-term success. Our solid growth in operating income and the ongoing execution of our share repurchase program resulted in a 11% increase in diluted earnings per share, marking our 11th consecutive year of annual diluted earnings per share increases in excess of 10%.

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Our commitment to driving industry-leading results through excellent customer service is supported by the continued strength of the long-term drivers for demand in our industry. U.S. consumers continue to steadily increase the annual

In 2019, we completed the acquisition of Mayoreo de Autopartes y Aceites, S.A. de C.V. ("Mayasa Auto Parts"), a specialty retailer of automotive aftermarket parts headquartered in Guadalajara, Jalisco, Mexico. Mayasa Auto Parts operates six distribution centers, 21 Orma Autopartes stores and serves over 2,000 independent jobber locations in 28 Mexican states.

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miles they drive each year, again tallying over three trillion miles in 2019, which represents the largest fundamental driver of demand for our industry, as these consistent miles driven produce ongoing wear and tear to vehicle components and the corresponding demand for the products we sell. In addition, healthy levels of new car sales and stable, low scrappage rates incrementally increase the total size of the vehicle fleet, which is now approximately 272 million vehicles. At the same time, advancements in vehicle engineering and manufacturing have produced vehicles capable of being reliably driven at higher and higher mileages, pushing the average vehicle age to 11.7 years old. We believe this growing and aging vehicle fleet will result in continued growth of routine maintenance cycles and ongoing repairs, which are beneficial to the long-term demand for our industry. The steady growth in miles driven has been supported by sustained healthy levels of total employment as people commute to from their homes to their workplaces; this positive backdrop also contributes to solid consumer confidence, another positive for our business.

Parts availability remains the number one buying decision in our industry. The growing and aging vehicle population and the increasing complexity of vehicles requires an increasing number of SKUs to meet the needs of our customers. Our proven ability to deploy the right inventory closest to the customer is a key competitive advantage for our Company. We are very proud of, and continue to expand and improve on, our robust, tiered, regional distribution network comprised of 28 strategically located distribution centers, each with the capacity to deliver hard-to-find parts into the hands of customers faster than our competitors. A key differentiator for our Company is our multiple times a week store replenishment frequency directly from one of our distribution centers, which carry on average 159,000 SKUs, allowing our stores to stock a broader and more diverse inventory assortment. Each store inventory is tailored to the local market based on vehicle registration data, market demographic information and customer purchasing patterns and consists of an average of 22,000 unique SKUs. The personalized store inventory and nightly distribution network replenishment is augmented by access, multiple times per day, to hard-to-find parts from nearby distribution centers or from one of our 356 Hub stores. Our Hub store network is comprised of 85 Super Hubs, which stock on average 68,000 SKUs, and 271 Hub stores, which stock on average 42,000 SKUs. We continually evaluate and expand our distribution footprint to support our store growth, exemplified by the opening of our new distribution center in Twinsburg, Ohio, in 2019, as well as the new distribution center projects underway in Lebanon, Tennessee, and Horn Lake, Mississippi, both of which will open during 2020. Our industry-leading parts availability allows our Team Members to practice our "Never Say No" commitment to customer service, and we will continue to make appropriate investments in our store level inventories and distribution network to guarantee our stores will always have the ability to provide the parts our customers need faster than the competition.

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Our strategic priorities for the use of our shareholders' capital continue to be to reinvest in our existing store base and distribution network, grow organically through greenfield new store openings and the associated expansion of our distribution network to support new stores, and consolidate the industry through prudent acquisitions of existing auto parts suppliers. We remain pleased with the performance of our new stores, and we continue to see exciting growth opportunities in less mature regions in the Northeast, Middle Atlantic and Southern Florida, as well as strategic backfill opportunities in our more established markets. In 2020, we plan to open approximately 180 net, new stores, and the key ingredient to the success of these stores will be the teams of friendly, knowledgeable Professional Parts People who will staff these stores and live out our Culture of teamwork, honesty, respect, enthusiasm and hard work. Our top priority continues to be to identify, hire, train, develop and retain outstanding Team Members who benefit from our "promote from within" philosophy and perpetuate our Culture throughout the Company.

Our Team's commitment to excellent customer service and expense control also resulted in our generation of \(1.0 billion in free cash in 2019, after reinvesting \)628 million in capital projects at our stores, DCs and offices. During 2019, we returned excess capital of \(1.4 billion to you, our shareholders, through our share repurchase program. Since we began this program in 2011, we have returned \)12.5 billion through the repurchase of 77 million shares, at an average price of \(162.72 per share. We continue to view the disciplined execution of our share repurchase program as an effective means of returning capital after we have exhausted all opportunities to profitably grow the business and drive a high rate of return for our shareholders. We remain committed to a balanced capital structure that supports our investment-grade credit ratings and provides the flexibility to take advantage of future growth opportunities while also providing outstanding returns for our shareholders.

As we conclude this year's shareholder letter, we would like to commit to you, our shareholders, we will roll up our sleeves every day to drive our Company's success and perpetuate a Culture that remains the foundation for our future success. Since our beginning in 1957, our Team Members' dedication to excellent customer service has paved the way for O'Reilly's growth into an industry-leading auto parts supplier and will continue to drive our success on the road ahead. We are very grateful to you, our shareholders, for your continued trust and confidence, and we look forward to extending our long record of profitable growth in 2020.
Vincent Benjamin, Retail Service
Specialist, O'Reilly 6316-Sunrise, FL.

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