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O’Reilly Automotive, Inc. Reports Second Quarter 2019 Results

  • Second quarter comparable store sales increase of 3.4%
  • 36 basis point increase in second quarter gross margin to 52.8%
  • 4% increase in second quarter operating profit dollars

SPRINGFIELD, Mo., July 24, 2019 (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, 2019.

2nd Quarter Financial Results
Greg Johnson, O’Reilly’s CEO and Co-President, commented, “I would like to thank Team O’Reilly for their commitment to consistently providing excellent service to our customers every day.  For the quarter, our comparable stores sales growth was 3.4%, which was in the lower end of our 3% to 5% guidance range as unseasonably cool and rainy weather in many of our markets was a headwind to summer, heat related categories.  The challenging weather also caused significant delays in construction and new store openings, resulting in lower than planned non-comparable store sales volumes for the quarter.  As a result of these top-line headwinds and continued pressure to SG&A, our diluted earnings per share for the second quarter of $4.51 came in $0.04 below our guidance range.  Despite the challenges we have seen in the seasonal demand environment thus far in 2019, we remain confident in the solid demand drivers supporting our industry and in our Team’s ability to provide unsurpassed levels of service to our customers, and as a result, we are maintaining our full-year comparable store sales guidance at a range of 3% to 5%.”

Sales for the second quarter ended June 30, 2019, increased $134 million, or 5%, to $2.59 billion from $2.46 billion for the same period one year ago.  Gross profit for the second quarter increased 6% to $1.37 billion (or 52.8% of sales) from $1.29 billion (or 52.5% of sales) for the same period one year ago.  Selling, general and administrative expenses (“SG&A”) for the second quarter increased 8% to $870 million (or 33.6% of sales) from $809 million (or 33.0% of sales) for the same period one year ago.  Operating income for the second quarter increased 4% to $498 million (or 19.2% of sales) from $479 million (or 19.5% of sales) for the same period one year ago.

Net income for the second quarter ended June 30, 2019, increased $1 million to $354 million (or 13.7% of sales) from $353 million (or 14.4% of sales) for the same period one year ago.  Diluted earnings per common share for the second quarter increased 5% to $4.51 on 78 million shares versus $4.28 on 83 million shares for the same period one year ago.

Year-to-Date Financial Results
Sales for the first six months of 2019 increased $262 million, or 6%, to $5.00 billion from $4.74 billion for the same period one year ago.  Gross profit for the first six months of 2019 increased 6% to $2.65 billion (or 52.9% of sales) from $2.49 billion (or 52.5% of sales) for the same period one year ago.  SG&A for the first six months of 2019 increased 7% to $1.70 billion (or 34.1% of sales) from $1.59 billion (or 33.5% of sales) for the same period one year ago.  Operating income for the first six months of 2019 increased 5% to $943 million (or 18.9% of sales) from $902 million (or 19.0% of sales) for the same period one year ago.

Net income for the first six months of 2019 increased $17 million, or 3%, to $675 million (or 13.5% of sales) from $658 million (or 13.9% of sales) for the same period one year ago.  Diluted earnings per common share for the first six months of 2019 increased 8% to $8.56 on 79 million shares versus $7.89 on 83 million shares for the same period one year ago.

Mr. Johnson continued, “During the second quarter, we opened 43 stores across 15 states, which was short of our planned openings for the period as a result of the wet weather conditions; however, the delays we experienced in the second quarter are temporary and we still expect to open at least 200 net, new stores in 2019.  Our distribution network expansion projects continue to progress on schedule, with the anticipated opening of our 28th distribution center in Twinsburg, Ohio, during the fourth quarter of this year.  Continually investing to enhance our distribution capabilities has allowed us to deliver excellent customer service and drive sustained, profitable store growth, and we remain committed to providing best-in-class parts availability, unparalleled technical knowledge and unsurpassed service levels to our customers.”

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 3.4% for the second quarter ended June 30, 2019, on top of 4.6% for the same period one year ago.  Comparable store sales increased 3.3% for the six months ended June 30, 2019, on top of 4.0% for the same period one year ago.

Share Repurchase Program
During the second quarter ended June 30, 2019, the Company repurchased 1.6 million shares of its common stock, at an average price per share of $366.76, for a total investment of $599 million.  During the first six months ended 2019, the Company repurchased 2.6 million shares of its common stock, at an average price per share of $359.63, for a total investment of $921 million.  Subsequent to the end of the second quarter and through the date of this release, the Company repurchased an additional 0.2 million shares of its common stock, at an average price per share of $380.79, for a total investment of $63 million.  The Company has repurchased a total of 75.0 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 $156.36, for a total aggregate investment of $11.73 billion.  As of the date of this release, the Company had approximately $1.02 billion remaining under its current share repurchase authorizations.

3rd Quarter and Updated Full-Year 2019 Guidance
The table below outlines the Company’s guidance for selected third quarter and updated full-year 2019 financial data:

  For the Three Months Ending
September 30, 2019
  For the Year Ending
December 31, 2019
Comparable store sales 3% to 5%   3% to 5%
Total revenue     $10.0 billion to $10.3 billion
Gross profit as a percentage of sales     52.7% to 53.2%
Operating income as a percentage of sales     18.7% to 19.2%
Effective income tax rate     23.5%
Diluted earnings per share (1) $4.73 to $4.83   $17.37 to $17.47
Net cash provided by operating activities     $1.6 billion to $1.8 billion
Capital expenditures     $625 million to $675 million
Free cash flow (2)     $1.0 billion to $1.1 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, 2019
Net cash provided by operating activities $ 1,635   to $ 1,790  
Less: Capital expenditures 625   to 675  
  Excess tax benefit from share-based compensation payments 10   to 15  
Free cash flow $ 1,000   to $ 1,100  


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 25, 2019, 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 48760868.  A replay of the conference call will be available on the Company’s website through Friday, July 24, 2020.

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, 2019, the Company operated 5,344 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, 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, tariffs, 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, information security and cyber-attacks, 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, 2018, and subsequent Securities and Exchange Commission filings 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, 2019 (1)   June 30, 2018   December 31, 2018
  (Unaudited)   (Unaudited)   (Note)
Assets          
Current assets:          
Cash and cash equivalents $ 55,809     $ 36,868     $ 31,315  
Accounts receivable, net 262,227     241,142     192,026  
Amounts receivable from suppliers 77,750     78,950     78,155  
Inventory 3,262,426     3,091,719     3,193,344  
Other current assets 42,361     52,038     48,262  
Total current assets 3,700,573     3,500,717     3,543,102  
           
Property and equipment, at cost 5,885,507     5,384,634     5,645,552  
Less: accumulated depreciation and amortization 2,131,156     1,949,750     2,058,550  
Net property and equipment 3,754,351     3,434,884     3,587,002  
           
Operating lease, right-of-use assets 1,895,099          
Goodwill 808,391     789,104     807,260  
Other assets, net 43,529     42,035     43,425  
Total assets $ 10,201,943     $ 7,766,740     $ 7,980,789  
           
Liabilities and shareholders’ equity          
Current liabilities:          
Accounts payable $ 3,516,150     $ 3,314,671     $ 3,376,403  
Self-insurance reserves 77,120     74,018     77,012  
Accrued payroll 87,531     81,245     86,520  
Accrued benefits and withholdings 75,119     73,006     89,082  
Income taxes payable 9,507     13,676     11,013  
Current portion of operating lease liabilities 304,034          
Other current liabilities 290,931     262,302     253,990  
Total current liabilities 4,360,392     3,818,918     3,894,020  
           
Long-term debt 3,783,738     3,253,538     3,417,122  
Operating lease liabilities, less current portion 1,631,719          
Deferred income taxes 113,533     94,430     105,566  
Other liabilities 167,879     214,864     210,414  
           
Shareholders’ equity:          
Common stock, $0.01 par value:          
Authorized shares – 245,000,000          
Issued and outstanding shares –          
76,690,215 as of June 30, 2019,          
80,987,794 as of June 30, 2018, and          
79,043,919 as of December 31, 2018 767     810     790  
Additional paid-in capital 1,258,930     1,247,837     1,262,063  
Retained deficit (1,115,015 )   (863,657 )   (909,186 )
Total shareholders’ equity 144,682     384,990     353,667  
           
Total liabilities and shareholders’ equity $ 10,201,943     $ 7,766,740     $ 7,980,789  

Note:  The balance sheet at December 31, 2018, 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.

(1)     The Company adopted Accounting Standard Codification 842 - Leases (“ASC 842”) during the first quarter ended March 31, 2019, using the additional, optional transition method, which does not require prior periods to be restated.

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,
  2019   2018   2019   2018
Sales $ 2,589,874     $ 2,456,073     $ 5,000,482     $ 4,738,754  
Cost of goods sold, including warehouse and distribution expenses 1,221,587     1,167,435     2,352,905     2,248,858  
Gross profit 1,368,287     1,288,638     2,647,577     2,489,896  
               
Selling, general and administrative expenses 870,213     809,488     1,704,717     1,587,900  
Operating income 498,074     479,150     942,860     901,996  
               
Other income (expense):              
Interest expense (34,538 )   (30,862 )   (68,829 )   (59,079 )
Interest income 603     597     1,157     1,169  
Other, net 832     988     3,935     1,193  
Total other expense (33,103 )   (29,277 )   (63,737 )   (56,717 )
               
Income before income taxes 464,971     449,873     879,123     845,279  
Provision for income taxes 111,290     96,800     204,290     187,300  
Net income $ 353,681     $ 353,073     $ 674,833     $ 657,979  
               
Earnings per share-basic:              
Earnings per share $ 4.56     $ 4.32     $ 8.65     $ 7.96  
Weighted-average common shares outstanding – basic 77,613     81,733     78,047     82,624  
               
Earnings per share-assuming dilution:              
Earnings per share $ 4.51     $ 4.28     $ 8.56     $ 7.89  
Weighted-average common shares outstanding – assuming dilution 78,412     82,536     78,854     83,430  

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

  For the Six Months Ended
 June 30,
  2019   2018
       
Operating activities:      
Net income $ 674,833     $ 657,979  
Adjustments to reconcile net income to net cash provided by operating activities:      
Depreciation and amortization of property, equipment and intangibles 132,275     130,792  
Amortization of debt discount and issuance costs 1,887     1,649  
Deferred income taxes 8,364     9,024  
Share-based compensation programs 11,015     10,152  
Other 4,277     4,653  
Changes in operating assets and liabilities:      
Accounts receivable (74,978 )   (29,550 )
Inventory (69,103 )   (81,614 )
Accounts payable 138,522     124,642  
Income taxes payable (833 )   26,439  
Other 20,745     21,067  
Net cash provided by operating activities 847,004     875,233  
       
Investing activities:      
Purchases of property and equipment (295,608 )   (224,117 )
Proceeds from sale of property and equipment 3,138     2,936  
Investment in tax credit equity investments (1,717 )    
Return of tax credit equity investments 127      
Other 712     (424 )
Net cash used in investing activities (293,348 )   (221,605 )
       
Financing activities:      
Proceeds from borrowings on revolving credit facility 1,629,000     1,429,000  
Payments on revolving credit facility (1,760,000 )   (1,650,000 )
Proceeds from the issuance of long-term debt 499,955     498,660  
Payment of debt issuance costs (3,988 )   (3,923 )
Repurchases of common stock (920,717 )   (965,867 )
Net proceeds from issuance of common stock 26,778     31,178  
Other (190 )   (2,156 )
Net cash used in financing activities (529,162 )   (663,108 )
       
Net increase (decrease) in cash and cash equivalents 24,494     (9,480 )
Cash and cash equivalents at beginning of the period 31,315     46,348  
Cash and cash equivalents at end of the period $ 55,809     $ 36,868  
       
Supplemental disclosures of cash flow information:      
Income taxes paid $ 194,503     $ 150,990  
Interest paid, net of capitalized interest 64,201     55,556  

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

  For the Twelve Months Ended
June 30,
Adjusted Debt to EBITDAR: 2019   2018
(In thousands, except adjusted debt to EBITDAR ratio)      
GAAP debt $ 3,783,738     $ 3,253,538  
Add: Letters of credit 39,109     36,943  
  Discount on senior notes 3,930     4,700  
  Debt issuance costs 18,332     16,762  
  Six-times rent expense 1,971,174     1,851,396  
Adjusted debt $ 5,816,283     $ 5,163,339  
         
GAAP net income $ 1,341,341     $ 1,244,028  
Add: Interest expense 131,879     110,197  
  Provision for income taxes 386,590     417,505  
  Depreciation and amortization 260,420     249,678  
  Share-based compensation expense 21,039     19,200  
  Rent expense (i) 328,529     308,566  
EBITDAR $ 2,469,798     $ 2,349,174  
         
Adjusted debt to EBITDAR   2.35       2.20  

(i)     The table below outlines the calculation of Rent expense and reconciles Rent expense to Total lease cost, per ASC 842, the most directly comparable GAAP financial measure, for the six and twelve months ended June 30, 2019 (in thousands):

Total lease cost, per ASC 842, for the six months ended June 30, 2019 $ 197,839  
Less: Variable non-contract operating lease components, related to property taxes and insurance, for the six months ended June 30, 2019 29,433  
Rent expense for the six months ended June 30, 2019 168,406  
Add: Rent expense for the six months ended December 31, 2018, as previously reported prior to the adoption of ASC 842 160,123  
Rent expense for the twelve months ended June 30, 2019 $ 328,529  


  June 30,
  2019   2018
Selected Balance Sheet Ratios:      
Inventory turnover (1) 1.4     1.4  
Average inventory per store (in thousands) (2) $ 610     $ 601  
Accounts payable to inventory (3) 107.8 %   107.2 %


  For the Three Months Ended
 June 30,
  For the Six Months Ended
 June 30,
  2019   2018   2019   2018
Reconciliation of Free Cash Flow (in thousands):              
Net cash provided by operating activities $ 406,382     $ 442,956     $ 847,004     $ 875,233  
Less: Capital expenditures 142,694     109,274     295,608     224,117  
  Excess tax benefit from share-based compensation payments 2,209     13,290     10,722     19,608  
Free cash flow $ 261,479     $ 320,392     $ 540,674     $ 631,508  


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,
  2019   2018   2019   2018   2019   2018
Beginning store count 5,306     5,097     5,219     5,019     5,147     4,934  
New stores opened 43     54     107     132     181     220  
Bennett stores acquired, net of stores merged (4) (5 )       20         20      
Stores closed     (4 )   (2 )   (4 )   (4 )   (7 )
Ending store count 5,344     5,147     5,344     5,147     5,344     5,147  


  For the Three Months Ended
 June 30,
  For the Twelve Months Ended
June 30,
  2019   2018   2019   2018
Total employment 81,949     79,598          
Square footage (in thousands) 39,441     37,781          
Sales per weighted-average square foot (5) $ 65.55     $ 64.94     $ 251.89     $ 249.98  
Sales per weighted-average store (in thousands) (6) $ 483     $ 476     $ 1,855     $ 1,827  


(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)  O’Reilly acquired 33 Bennett Auto Supply, Inc. (“Bennett”) stores after the close of business on December 31, 2018.  During the first quarter ended March 31, 2019, O’Reilly merged eight of the acquired Bennett stores into existing O’Reilly locations, and during the second quarter ended June 30, 2019, O’Reilly merged an additional five acquired Bennett stores into existing O’Reilly locations.
(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.