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O'Reilly Automotive, Inc. Reports Second Quarter 2018 Results

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  • Second quarter comparable store sales increase of 4.6%
  • 38% increase in second quarter diluted earnings per share to $4.28
  • Net cash provided by operating activities increased 23%

SPRINGFIELD, Mo., July 25, 2018 (GLOBE NEWSWIRE) -- O'Reilly Automotive, Inc. (the "Company" or "O'Reilly") (NASDAQ:ORLY), a leading retailer in the automotive aftermarket industry, today announced record revenues and earnings for its second quarter ended June 30, 2018.

2nd Quarter Financial Results
Greg Johnson, O'Reilly's CEO and Co-President, commented, "We are very pleased to report another profitable quarter, highlighted by a solid 4.6% increase in comparable store sales, which exceeded the top of our guidance range for the second quarter.  Our top-line performance, driven by Team O'Reilly's commitment to providing consistent, excellent customer service, and our relentless focus on profitable growth resulted in a 38% increase in diluted earnings per share to $4.28 for the second quarter.  I would like to thank each of our nearly 80,000 Team Members for their dedication and hard work, which continues to be the catalyst for our long-term success."

Sales for the second quarter ended June 30, 2018, increased $165 million, or 7%, to $2.46 billion from $2.29 billion for the same period one year ago.  Gross profit for the second quarter increased 7% to $1.29 billion (or 52.5% of sales) from $1.20 billion (or 52.4% of sales) for the same period one year ago.  Selling, general and administrative expenses ("SG&A") for the second quarter increased 9% to $809 million (or 33.0% of sales) from $743 million (or 32.4% of sales) for the same period one year ago.  Operating income for the second quarter increased 5% to $479 million (or 19.5% of sales) from $457 million (or 20.0% of sales) for the same period one year ago.  The Company's second quarter 2017 operating income included the benefit of a $9 million reduction in its legal accruals following the expiration of the statute of limitations related to a legacy claim, which decreased second quarter 2017 SG&A and increased second quarter 2017 operating margin by 40 basis points.

Net income for the second quarter ended June 30, 2018, increased $70 million, or 25%, to $353 million (or 14.4% of sales) from $283 million (or 12.3% of sales) for the same period one year ago.  Diluted earnings per common share for the second quarter increased 38% to $4.28 on 83 million shares versus $3.10 on 91 million shares for the same period one year ago.

Year-to-Date Financial Results
Sales for the first six months of 2018 increased $292 million, or 7%, to $4.74 billion from $4.45 billion for the same period one year ago.  Gross profit for the first six months of 2018 increased 7% to $2.49 billion (or 52.5% of sales) from $2.33 billion (or 52.4% of sales) for the same period one year ago.  SG&A for the first six months of 2018 increased 8% to $1.59 billion (or 33.5% of sales) from $1.47 billion (or 33.1% of sales) for the same period one year ago.  Operating income for the first six months of 2018 increased 5% to $902 million (or 19.0% of sales) from $861 million (or 19.4% of sales) for the same period one year ago.

Net income for the first six months of 2018 increased $110 million, or 20%, to $658 million (or 13.9% of sales) from $548 million (or 12.3% of sales) for the same period one year ago.  Diluted earnings per common share for the first six months of 2018 increased 33% to $7.89 on 83 million shares versus $5.93 on 92 million shares for the same period one year ago.

Mr. Johnson continued, "We are establishing our third quarter comparable store sales guidance at a range of 2% to 4%.  We expect solid business trends to continue; however, during the quarter we face the headwind from an additional Sunday, our lowest volume day, and short-term pressure to miles driven, as consumers adjust to increasing gas prices.  Based on our strong year-to-date performance, we are increasing our full-year earnings per share guidance from a range of $15.30 to $15.40 to a range of $15.70 to $15.80."

Mr. Johnson concluded, "We opened 128 net, new stores during the first half of 2018, and we are very well positioned to achieve our target of 200 net, new stores.  Our new stores continue to perform well, and we remain confident in our ability to grow our market share in both new and existing areas.  Overall, the long-term demand drivers in our industry remain solid, including a growing and aging vehicle fleet driven over three trillion miles each year, and we are extremely confident in our Team's ability to continue to provide industry-leading customer service, supported by unsurpassed parts availability.  We would like to again thank Team O'Reilly for our solid results in the first half of 2018, and we look forward to building on that success during the second half of the year."

Share Repurchase Program
During the second quarter ended June 30, 2018, the Company repurchased 1.6 million shares of its common stock, at an average price per share of $264.38, for a total investment of $416 million.  During the first six months ended June 30, 2018, the Company repurchased 3.8 million shares of its common stock, at an average price per share of $256.64, for a total investment of $966 million.  Subsequent to the end of the second quarter and through the date of this release, the Company repurchased an additional 0.5 million shares of its common stock, at an average price per share of $281.68, for a total investment of $132 million.  The Company has repurchased a total of 70.5 million shares of its common stock under its share repurchase program since the inception of the program in January of 2011 and through the date of this release, at an average price of $143.76, for a total aggregate investment of $10.13 billion.  As of the date of this release, the Company had approximately $618 million remaining under its current share repurchase authorization.

2nd Quarter Comparable Store Sales Results
Comparable store sales are calculated based on the change in sales for stores open at least one year and exclude sales of specialty machinery, sales to independent parts stores and sales to Team Members.  Online sales, resulting from ship-to-home orders and pick-up-in-store orders, for stores open at least one year, are included in the comparable store sales calculation.  Comparable store sales increased 4.6% for the second quarter ended June 30, 2018, on top of 1.7% for the same period one year ago.  Comparable store sales increased 4.0% for the six months ended June 30, 2018, on top of 1.3% for the same period one year ago.

3rd Quarter and Updated Full-Year 2018 Guidance
The table below outlines the Company's guidance for selected third quarter and updated full-year 2018 financial data:

       
  For the Three Months Ending
September 30, 2018
  For the Year Ending
December 31, 2018
Comparable store sales 2% to 4%   2% to 4%
Total revenue     $9.4 billion to $9.6 billion
Gross profit as a percentage of sales     52.5% to 53.0%
Operating income as a percentage of sales     18.5% to 19.0%
Effective income tax rate     22% to 23%
Diluted earnings per share (1) $4.20 to $4.30   $15.70 to $15.80
Net cash provided by operating activities     $1.62 billion to $1.75 billion
Capital expenditures     $490 million to $520 million
Free cash flow (2)     $1.1 billion to $1.2 billion
       


(1) Weighted-average shares outstanding, assuming dilution, used in the denominator of this calculation, includes share repurchases made by the Company through the date of this release. 
   
(2) Free cash flow is a non-GAAP financial measure.  The table below reconciles Free cash flow guidance to Net cash provided by operating activities guidance, the most directly comparable GAAP financial measure:


   
(in millions) For the Year Ending
December 31, 2018
Net cash provided by operating activities $ 1,620   to $ 1,750  
Less: Capital expenditures 490   to 520  
  Excess tax benefit from share-based compensation payments 30   to 30  
Free cash flow $ 1,100   to $ 1,200  
               

Non-GAAP Information
This release contains certain financial information not derived in accordance with United States generally accepted accounting principles ("GAAP").  These items include adjusted debt to earnings before interest, taxes, depreciation, amortization, share-based compensation and rent ("EBITDAR") and free cash flow.  The Company does not, nor does it suggest investors should, consider such non-GAAP financial measures in isolation from, or as a substitute for, GAAP financial information.  The Company believes that the presentation of adjusted debt to EBITDAR and free cash flow provide meaningful supplemental information to both management and investors that is indicative of the Company's core operations.  The Company has included a reconciliation of this additional information to the most comparable GAAP measure in the table above and the selected financial information below.

Earnings Conference Call Information
The Company will host a conference call on Thursday, July 26, 2018, at 10:00 a.m. Central Time to discuss its results as well as future expectations.  Investors may listen to the conference call live on the Company's website at www.OReillyAuto.com by clicking on "Investor Relations" and then "News Room."  Interested analysts are invited to join the call.  The dial-in number for the call is (847) 619-6397; the conference call identification number is 47086777.  A replay of the conference call will be available on the Company's website through Thursday, July 25, 2019.

About O'Reilly Automotive, Inc.
O'Reilly Automotive, Inc. was founded in 1957 by the O'Reilly family and is one of the largest specialty retailers of automotive aftermarket parts, tools, supplies, equipment and accessories in the United States, serving both the do-it-yourself and professional service provider markets.  Visit the Company's website at www.OReillyAuto.com for additional information about O'Reilly, including access to online shopping and current promotions, store locations, hours and services, employment opportunities and other programs.  As of June 30, 2018, the Company operated 5,147 stores in 47 states.

Forward-Looking Statements
The Company claims the protection of the safe-harbor for forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.  You can identify these statements by forward-looking words such as "estimate," "may," "could," "will," "believe," "expect," "would," "consider," "should," "anticipate," "project," "plan," "intend" or similar words.  In addition, statements contained within this press release that are not historical facts are forward-looking statements, such as statements discussing, among other things, expected growth, store development, integration and expansion strategy, business strategies, the impact of the U.S. Tax Cuts and Jobs Act, future revenues and future performance.  These forward-looking statements are based on estimates, projections, beliefs and assumptions and are not guarantees of future events and results.  Such statements are subject to risks, uncertainties and assumptions, including, but not limited to, the economy in general, inflation, product demand, the market for auto parts, competition, weather, risks associated with the performance of acquired businesses, our ability to hire and retain qualified employees, consumer debt levels, our increased debt levels, credit ratings on public debt, governmental regulations, terrorist activities, war and the threat of war.  Actual results may materially differ from anticipated results described or implied in these forward-looking statements.  Please refer to the "Risk Factors" section of the annual report on Form 10-K for the year ended December 31, 2017, for additional factors that could materially affect the Company's financial performance.  Forward-looking statements speak only as of the date they were made and the Company undertakes no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by applicable law.

   
For further information contact: Investor & Media Contact
  Mark Merz (417) 829-5878
   

O'REILLY AUTOMOTIVE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)

           
  June 30, 2018   June 30, 2017   December 31, 2017
  (Unaudited)   (Unaudited)   (Note)
Assets          
Current assets:          
Cash and cash equivalents $ 36,868     $ 26,528     $ 46,348  
Accounts receivable, net 241,142     203,673     216,251  
Amounts receivable from suppliers 78,950     61,876     76,236  
Inventory 3,091,719     2,959,315     3,009,800  
Other current assets 52,038     38,197     49,037  
Total current assets 3,500,717     3,289,589     3,397,672  
           
Property and equipment, at cost 5,384,634     5,035,242     5,191,135  
Less: accumulated depreciation and amortization 1,949,750     1,805,844     1,847,329  
Net property and equipment 3,434,884     3,229,398     3,343,806  
           
Goodwill 789,104     786,938     789,058  
Other assets, net 42,035     39,773     41,349  
Total assets $ 7,766,740     $ 7,345,698     $ 7,571,885  
           
Liabilities and shareholders' equity          
Current liabilities:          
Accounts payable $ 3,314,671     $ 3,091,888     $ 3,190,029  
Self-insurance reserves 74,018     70,198     71,695  
Accrued payroll 81,245     70,538     77,147  
Accrued benefits and withholdings 73,006     59,099     69,308  
Income taxes payable 13,676     31,803      
Other current liabilities 262,302     242,607     239,187  
Total current liabilities 3,818,918     3,566,133     3,647,366  
           
Long-term debt 3,253,538     2,604,062     2,978,390  
Deferred income taxes 94,430     98,048     85,406  
Other liabilities 214,864     208,143     207,677  
           
Shareholders' equity:          
Common stock, $0.01 par value:          
Authorized shares – 245,000,000          
Issued and outstanding shares –          
80,987,794 as of June 30, 2018,          
87,998,971 as of June 30, 2017, and          
84,302,187 as of December 31, 2017 810     880     843  
Additional paid-in capital 1,247,837     1,296,674     1,265,043  
Retained deficit (863,657 )   (428,242 )   (612,840 )
Total shareholders' equity 384,990     869,312     653,046  
           
Total liabilities and shareholders' equity $ 7,766,740     $ 7,345,698     $ 7,571,885  
                       

Note:  The balance sheet at December 31, 2017, has been derived from the audited consolidated financial statements at that date but does not include all of the information and footnotes required by United States generally accepted accounting principles for complete financial statements.

O'REILLY AUTOMOTIVE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(In thousands, except per share data)

       
  For the Three Months Ended
June 30,
  For the Six Months Ended
 June 30,
  2018   2017   2018   2017
Sales $ 2,456,073     $ 2,290,829     $ 4,738,754     $ 4,447,088  
Cost of goods sold, including warehouse and distribution expenses 1,167,435     1,090,767     2,248,858     2,115,879  
Gross profit 1,288,638     1,200,062     2,489,896     2,331,209  
               
Selling, general and administrative expenses 809,488     742,617     1,587,900     1,470,607  
Operating income 479,150     457,445     901,996     860,602  
               
Other income (expense):              
Interest expense (30,862 )   (20,827 )   (59,079 )   (40,231 )
Interest income 597     470     1,169     1,176  
Other, net 988     (762 )   1,193     3  
Total other expense (29,277 )   (21,119 )   (56,717 )   (39,052 )
               
Income before income taxes 449,873     436,326     845,279     821,550  
Provision for income taxes 96,800     153,505     187,300     273,795  
Net income $ 353,073     $ 282,821     $ 657,979     $ 547,755  
               
Earnings per share-basic:              
Earnings per share $ 4.32     $ 3.14     $ 7.96     $ 6.02  
Weighted-average common shares outstanding – basic 81,733     90,030     82,624     91,012  
               
Earnings per share-assuming dilution:              
Earnings per share $ 4.28     $ 3.10     $ 7.89     $ 5.93  
Weighted-average common shares outstanding – assuming dilution 82,536     91,299     83,430     92,347  
                       

O'REILLY AUTOMOTIVE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 (In thousands)

   
  For the Six Months Ended 
June 30,
  2018   2017
       
Operating activities:      
Net income $ 657,979     $ 547,755  
Adjustments to reconcile net income to net cash provided by operating activities:      
Depreciation and amortization of property, equipment and intangibles 130,792     114,959  
Amortization of debt discount and issuance costs 1,649     1,344  
Deferred income taxes 9,024     8,049  
Share-based compensation programs 10,152     10,353  
Other 4,653     6,037  
Changes in operating assets and liabilities:      
Accounts receivable (29,550 )   (10,797 )
Inventory (81,614 )   (179,866 )
Accounts payable 124,642     155,124  
Income taxes payable 26,439     58,173  
Other 21,067     (624 )
Net cash provided by operating activities 875,233     710,507  
       
Investing activities:      
Purchases of property and equipment (224,117 )   (227,506 )
Proceeds from sale of property and equipment 2,936     752  
Other (424 )   (1,967 )
Net cash used in investing activities (221,605 )   (228,721 )
       
Financing activities:      
Proceeds from borrowings on revolving credit facility 1,429,000     1,782,000  
Payments on revolving credit facility (1,650,000 )   (1,066,000 )
Proceeds from the issuance of long-term debt 498,660      
Payment of debt issuance costs (3,923 )   (1,827 )
Repurchases of common stock (965,867 )   (1,342,591 )
Net proceeds from issuance of common stock 31,178     26,718  
Other (2,156 )   (156 )
Net cash used in financing activities (663,108 )   (601,856 )
       
Net decrease in cash and cash equivalents (9,480 )   (120,070 )
Cash and cash equivalents at beginning of the period 46,348     146,598  
Cash and cash equivalents at end of the period $ 36,868     $ 26,528  
       
Supplemental disclosures of cash flow information:      
Income taxes paid $ 150,990     $ 203,780  
Interest paid, net of capitalized interest 55,556     37,151  
           

O'REILLY AUTOMOTIVE, INC. AND SUBSIDIARIES
SELECTED FINANCIAL INFORMATION
 (Unaudited)

   
  For the Twelve Months Ended
June 30,
Adjusted Debt to EBITDAR: 2018   2017
(In thousands, except adjusted debt to EBITDAR ratio)      
GAAP debt $ 3,253,538     $ 2,604,062  
Add: Letters of credit 36,943     41,196  
  Discount on senior notes 4,700     2,854  
  Debt issuance costs 16,762     9,083  
  Six-times rent expense 1,851,396     1,743,720  
Adjusted debt $ 5,163,339     $ 4,400,915  
         
GAAP net income $ 1,244,028     $ 1,072,278  
Add: Interest expense 110,197     77,640  
  Provision for income taxes 417,505     572,095  
  Depreciation and amortization 249,678     226,395  
  Share-based compensation expense 19,200     19,359  
  Rent expense 308,566     290,620  
EBITDAR $ 2,349,174     $ 2,258,387  
         
Adjusted debt to EBITDAR 2.20
    1.95  
       


   
  June 30,
  2018   2017
Selected Balance Sheet Ratios:      
Inventory turnover (1) 1.4     1.5  
Average inventory per store (in thousands) (2) $ 601     $ 600  
Accounts payable to inventory (3) 107.2 %   104.5 %
Return on assets (4) 16.3 %   14.7 %
           


       
  For the Three Months Ended
June 30,
  For the Six Months Ended
June 30,
  2018   2017   2018   2017
Reconciliation of Free Cash Flow (in thousands):              
Net cash provided by operating activities $ 442,956     $ 333,807     $ 875,233     $ 710,507  
Less: Capital expenditures 109,274     116,874     224,117     227,506  
  Excess tax benefit from share-based compensation payments 13,290     9,165     19,608     32,479  
Free cash flow $ 320,392     $ 207,768     $ 631,508     $ 450,522  
                               


                 
Store and Team Member Information:                
                   
  For the Three Months Ended
 June 30,
  For the Six Months Ended
 June 30,
  For the Twelve Months Ended
June 30,
  2018   2017   2018   2017   2018   2017
Beginning store count 5,097     4,888     5,019     4,829     4,934     4,660  
New stores opened 54     50     132     110     220     232  
Stores acquired                     48  
Stores closed (4 )   (4 )   (4 )   (5 )   (7 )   (6 )
Ending store count 5,147     4,934     5,147     4,934     5,147     4,934  
                                   


       
  For the Three Months Ended
 June 30,
  For the Twelve Months Ended
June 30,
  2018   2017   2018   2017
Total employment 79,598   75,692        
Square footage (in thousands) 37,781   35,940        
Sales per weighted-average square foot (5) $ 64.94   $ 63.64   $ 249.98   $ 249.18
Sales per weighted-average store (in thousands) (6) $ 476   $ 463   $ 1,827   $ 1,811
                       


(1)  Calculated as cost of goods sold for the last 12 months divided by average inventory.  Average inventory is calculated as the average of inventory for the trailing four quarters used in determining the denominator.
(2)  Calculated as inventory divided by store count at the end of the reported period.
(3)  Calculated as accounts payable divided by inventory.
(4)  Calculated as net income for the last 12 months divided by average total assets.  Average total assets is calculated as the average of total assets for the trailing four quarters used in determining the denominator.
(5)  Calculated as sales less jobber sales, divided by weighted-average square footage.  Weighted-average square footage is determined by weighting store square footage based on the approximate dates of store openings, acquisitions, expansions or closures.
(6)  Calculated as sales less jobber sales, divided by weighted-average stores.  Weighted-average stores is determined by weighting stores based on their approximate dates of openings, acquisitions or closures.

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