O’Reilly Automotive will open a new distribution center (DC) in northern Mississippi and close its existing DC in Little Rock, Arkansas, the company said during its first-quarter earnings call.
O’Reilly has purchased a 580,000-square-foot facility in Horn Lake, Mississippi, which is about 20 miles south of Memphis, Tennessee. The new DC will serve the Memphis market and support store growth in the central and southern states, according to the company.
“We plan to complete the infill work for this new DC in the back half of 2020, and at that time we’ll consolidate the operations and convert our existing DC in Little Rock, Arkansas, into a superhub store,” said Jeff Shaw, chief operating officer and co-president, during O’Reilly’s April 25 conference call.
Initially, the Horn Lake DC will have the capacity to service 250 stores, according to Shaw.
Shaw noted the strategy is similar to O’Reilly’s plan for its new Nashville-area DC, set to open in the first half of 2020. Last year, O’Reilly purchased a 410,000-square-foot facility in the Nashville suburb of Lebanon, Tennessee, which will replace its existing leased DC in Nashville. The new, larger facility in Lebanon will enable the company to consolidate its Nashville and Knoxville DCs, the latter of which will become a superhub.
The Knoxville and Little Rock distribution centers are “legacy DCs” from previous O’Reilly acquisitions, Shaw noted, and lack “the footprint to hold the necessary number of SKUs that we needed to hold to support a market and the capacity as well.”
There’s a third DC project in the works as well. Last year, O’Reilly began construction of a 405,000-square-foot greenfield facility in Twinsburg, Ohio, near Cleveland. The company expects the new DC to open in the fourth quarter.
O’Reilly executives fielded a number of questions about the company’s distribution strategy during the April 25 conference call. Greg Henslee, executive vice chairman of the board, said distribution has become a hot topic for investors and analysts in recent years “as our larger, publicly traded competitors have gotten more into the do-it-for-me side of the business” and have realized “availability is the key to being successful in that business.”
“This is an old discussion here at O’Reilly,” Henslee said. “If we look back 20 or 30 years, we were talking about how we make more parts available to each store.”
Currently, O’Reilly has 27 distribution centers and 342 hub stores, Shaw noted.
O’Reilly’s DC projects, along with its conversion of recently acquired Bennett Auto Supply stores in Florida, are driving capital-expenditure (cap-ex) spending to record levels for the company. In the first quarter, cap-ex spending was $153 million, up $38 million from first-quarter 2018. O’Reilly still expects to spend up to $675 million on cap-ex projects in 2019, which would be a company record.