SecProbe.io

CORRESP
1
filename1.htm

April 23, 2008

VIA
EDGAR AND OVERNIGHT MAIL

Securities
and Exchange Commission

100
F Street, NE

Washington
, D.C.  20549

Attn:                    Ronald E. Alper

                                                Division of
Corporate Finance

                                                Re:                               O’Reilly Automotive, Inc.

                                                                                                Form 10-K for the Fiscal Year Ended December 31, 2007

                                                                                                Filed March 3,
2008

                                                                                                Definitive Proxy Statement on Schedule 14A

                                                                                                Filed March 24, 2008

                                                                                                File No. 0-21318

Ladies
and Gentlemen:

We are writing in response to the comments contained
in a letter from the staff of the Securities and Exchange Commission dated April 9,
2008 to O’Reilly Automotive, Inc., with respect to our Form 10-K for
Fiscal Year Ended December 31, 2007 and our Definitive Proxy Statement on
Schedule 14A.  For the convenience of the
staff, we have set forth the comments contained in the comment letter along
with our responses.  All responses in our
letter are provided on a supplemental basis and all changes will be made in our
future filings.

Form 10-K for the Year Ended December 31, 2007

Management’s Discussion and Analysis of Financial Condition
and Results of Operations, page 21 (Annual Report to Shareholders)

1.                                       Please include an overview that discusses the events, trends, and
uncertainties that management views as most critical to the company’s revenues,
financial position, liquidity, plan of operations and results of
operations.  In an effort to assist you
in this regard, please refer to the Commission Guidance Regarding Management’s
Discussion and Analysis of Financial Condition and Results of Operations,
Release Nos. 33-8350 (December 19, 2003) at
http://www.sec.gov/rules/interp/33-8350.htm.
This guidance is intended to elicit more meaningful disclosure in
MD&A in a number of areas, including the overall presentation and focus of
MD&A, with

Securities and Exchange Commission

April 23, 2008

Page 2

general emphasis on the discussion and analysis of
known trends, demands, commitments, events and uncertainties, and specific
guidance on disclosures about liquidity, capital resources and critical
accounting.

Response:

In
future filings, we will include in MD&A an overview that discusses the
events, trends, and uncertainties that we view as most critical to the
company’s revenues, financial position, liquidity, plan of operations and
results of operations.  Our proposed
revised disclosure is as follows:

OVERVIEW

We
are one of the largest specialty retailers of automotive aftermarket parts,
tools, supplies, equipment and accessories in the United States, selling our
products to both do-it-yourself (DIY) customers and professional
installers.  Our stores carry an
extensive product line consisting of new and remanufactured automotive hard
parts, maintenance items and accessories and a complete line of auto body paint
and related materials, automotive tools and professional installer service
equipment.

We
view the following factors to be the key drivers of current and future demand
for the products that we sell:

Number
of miles driven and number of vehicles — the total number of miles driven in
the US heavily influences the demand for the repair and maintenance products
that we sell.  The long-term trend in the
number of vehicles on the road and the total miles driven in the U.S. has
exhibited robust growth over the prior 10 years.  Since 1998, the total number of miles driven
in the United States has increased at an annual rate of approximately
1.6%.  The total number of vehicles on
the road has increased from 191 million registered light vehicles in 1998 to
237 million in 2007.  Total number of
miles driven remained relatively unchanged in 2006 and 2007 as many consumers
responded to rising fuel prices and other economic constraints in part by
curtailing automobile usage.  We believe
that the long-term trend in miles driven will resemble historical growth rates
primarily because of the increasing number of vehicles on the road.

Average
vehicle age — changes in the average age of vehicles on the road impacts demand
for automotive aftermarket products.  As
the average age of a vehicle increases, the vehicle goes through more routine
maintenance cycles requiring replacement parts such as brakes, belts, hoses, batteries,
and filters.  The sale of these products
is a key component of our business.  The
average age of the vehicle population has increased over the past decade from 8.9
years for passenger cars and 8.3 years for light trucks in 1998 to 10.1 and 8.8

Securities and Exchange Commission

April 23, 2008

Page 3

years,
respectively, in 2007.  We expect that
consumers will continue to choose to keep their vehicles longer and drive them
at higher mileages and that the increasing trend in average vehicle age will
continue.

Unperformed
maintenance — according to estimates compiled by the Automotive Aftermarket
Industry Association, the annual amount of unperformed or underperformed
maintenance in the United States totaled $60 billion for 2007.  This metric represents the degree to which
routine vehicle maintenance recommended by the manufacturer is not being
performed.  Consumer decisions to avoid
or defer maintenance affect demand for our products and the total amount of
unperformed maintenance represents potential future demand.  We believe that challenging macroeconomic
conditions in 2006 and 2007 contributed to an increase in unperformed
maintenance.

Product
quality differentiation — we provide our customers with an assortment of
products that are differentiated by quality for most of the products that we
sell.  For many of our product offerings,
this quality differentiation reflects “good”, “better”, and “best” alternatives.  Our sales and total gross margin dollars are
highest for the “best” category of products.
Consumers’ willingness to select products at a higher point on the value
spectrum is a driver of demand and profitability in our industry.  We believe that the average consumer’s
tendency has been to “trade-down” to lower quality products during recent
challenging economic conditions.  We have
ongoing initiatives targeted to marketing higher quality products to our customers
and expect our customers to be more willing to purchase up on the value
spectrum in the future.

We
recorded net sales of $2.52 billion for the year ended December 31, 2007,
an increase of 10.5% compared to $2.28 billion in 2006.  We recorded diluted earnings per common share
of $1.67 for the year ended December 31, 2007 compared to $1.55 in
2006.  Our 2006 and 2007 results are
below historical levels of growth and reflect the impact that challenging
macroeconomic conditions had on our consumers and the specific drivers of our
business as discussed above.  We believe
that consumers are facing constraints on their discretionary income as a result
of increased interest rates, higher energy costs and general economic
conditions.  While the current economic
conditions have affected our short-term results, we believe that the impact of
current economic conditions on consumer demand is not permanent, and we remain
confident that the long-term drivers of demand in the automotive aftermarket
business are positive.

Our
strategy continues to be to expand market share in existing markets and
aggressively grow our existing store base.
We feel that our dual market strategy of targeting both the
do-it-yourself retail customer and commercial installer positions the company
extremely well to take advantage of growth in the

Securities and Exchange Commission

April 23, 2008

Page 4

automotive
aftermarket business.  We continue to
remain focused on profitable expansion of our store base through entry into
geographic regions contiguous to our existing markets, incremental store growth
in compelling markets within our current regions and selective
acquisitions.  We believe our investment
in store growth will be funded with the significant cash flows generated by our
existing operations and through available borrowings under our credit facility.

Definitive Proxy on Schedule 14A

Compensation of Executive Officers, page 10

Compensation Discussion and Analysis, page 10

Overview of Our Compensation Programs, page 10

2.                                       You indicate that your human resources department provides the
compensation committee with industry benchmark information.  Please clarify how this information is used
in making compensation decisions.  If you
benchmark compensation, you are required to identify the companies that
comprise the benchmark group.  If you
have benchmarked different elements of your compensation against different
benchmarking groups, please identify the companies that comprise each
group.  This disclosure should include a
discussion of where actual payments fall within targeted parameters.  To the extent actual compensation was outside
a targeted percentile range, include an explanation of the reasons for
this.  See Item 402(b)(2)(xiv) of Regulation
S-K.

Response:

The Committee uses the industry benchmark information compiled by the
human resources department as a context in reviewing the overall compensation
levels and maintaining a reasonable and competitive compensation program.  The Committee does not use this data to set
specific compensation targets or parameters for any of the different elements
of compensation for a position.  Rather,
the Committee evaluates the overall performance of the Company and the
individual performance of management to set compensation at reasonable and
competitive levels.  In future filings,
we will supplement our disclosure to describe the Committee’s use of benchmark
information in making compensation decisions and list the specific companies
that comprise the peer group.  Our
proposed revised disclosure is as follows:

Overview of
Our Compensation Programs

The
key elements of the compensation packages for our executive officers are base
salary, annual cash bonuses and long-term, stock-based incentives.  In determining the composition of elements in
each compensation package, the Compensation Committee looks to create a
balanced reward, utilizing both market-driven influences and external
compensation benchmarks as well as

Securities and Exchange Commission

April 23, 2008

Page 5

current cash considerations.
To ensure that the Company thrives in the competitive working environment, the
Compensation Committee consults industry resources, references and benchmarks
to determine competitive market ranges and reasonable levels of compensation.

In
reviewing the compensation packages of each of our executives and senior
management, the Compensation Committee tallies the corresponding dollar value
of each element of an individuals compensation, including salary, bonus,
accumulated realized and unrealized stock option gains, the dollar value to
such individual and cost to the company of all perquisites and other personal
benefits, the earnings and accumulated payout obligations under the company’s
non-qualified deferred compensation program and under several potential
severance and change in control scenarios. For new appointments to executive
management, the Company’s management presents compensation recommendations to
the Committee for consideration.

The
Company’s Human Resources department provides the Committee with industry
benchmark information and compensation survey data.   The Committee considers the Company’s
relative performance compared with an established group of peer companies in
the automotive aftermarket industry.  The
companies comprising our 2007 peer group are: AutoZone, Advance Auto Parts,
Genuine Parts, CSK Auto, and The Pep Boys.
The Committee also considers broad-based survey data compiled by Mellon
Consultants of total compensation for top management at companies with total
revenues comparable to the total revenues of the Company.  The Committee uses the industry and market
survey data as a context in reviewing the overall compensation levels and
maintaining a reasonable and competitive compensation program.  The Committee does not use this data to set
specific compensation targets for a position.
Rather, the Committee evaluates the overall performance of the Company
and the individual performance of management to set compensation at reasonable
and competitive levels.

Bonuses, page 10; Long-Term, Stock-Based Incentives, page 11

3.                                      You refer to targets and performance goals.  You have not provided quantitative disclosure
of all of the terms of the necessary targets to be achieved for your executive
officers to earn their annual bonuses and long-term stock-based incentives.  Please disclose the specific performance
targets used to determine incentive amounts or provide a supplemental analysis
as to why it is appropriate to omit these targets pursuant to Instruction 4 to
Item 402(b) of Regulation S-K.  If
part of the compensation is based upon qualitative performance factors, please
note that qualitative goals generally need to be presented to conform to the
requirements of Item 402(b)(2)(v).  To
the extent that it is appropriate to omit specific targets, please provide the
disclosure pursuant to Instruction 4 to Item 402(b) of Regulation

Securities and Exchange Commission

April 23, 2008

Page 6

S-K.  General
statements regarding the level of difficulty, or ease, associated with
achieving performance goals either corporately or individually are not
sufficient.  In discussing how likely it
will be for the company to achieve the target levels or other factors, provide
as much detail as necessary without providing information that poses a
reasonable risk of competitive harm.

Response:

Our
long-term, stock-based incentives are awarded by the Compensation Committee to the Chairman of the Board, Chief Executive
Officer, Chief Operating Officer and Chief Financial Officer annually on
a discretionary basis and are not determined based upon pre-established
quantitative or qualitative targets or performance goals.  The Committee determines the awards in
conjunction with annual performance reviews based upon an assessment of the
responsibilities and seniority of each executive and other factors it deems
appropriate.  In regard to our bonus
plan, we have noted your comment and propose the revised disclosure below:

Bonuses

The Compensation Committee
has established a bonus plan for our Chairman of the Board, Chief Executive
Officer, Chief Operating Officer and Chief Financial Officer based upon certain
objective performance goals. Upon achievement of such performance goals, these
executive officers receive a bonus based upon a percentage of their respective
base salaries for the attainment of a defined performance goal. The
Compensation Committee has designed these performance goals to address multiple
facets of financial performance, including sales performance, operating income
performance, financial returns and various balance sheet measures. Our actual
performance in each of these areas is compared to the targets pre-determined by
the Committee, in order to determine the bonus amount achieved by each
executive officer. The targets are determined by reviewing the performance of industry
peers and other comparable companies, our historical performance and trends in
the automotive aftermarket and retail industry.
Targets are set forth in ra