ORLY - Earnings call transcript Q3 2017 | O'Reilly Automotive, Inc.

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Operator

Welcome to the O'Reilly Automotive Inc.

Third Quarter Earnings Conference Call. My name is Allie and I will be your operator for today's call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. that is note recorded. Please Instructions] this being conference [Operator to the Mr. I turn over Tom will now call -- Tom McFall. Mr. McFall you may begin.

Thomas McFall

Thank and you, thanks everyone, for joining Allie. us. Good morning,

third our During XXXX our prepared host quarter discuss call, will today's After our we question-and-answer conference of XXXX. results for outlook a and comments, the fourth we'll quarter period.

under begin our to forward-looking protection contain we intend Safe comments be claim this by the statements the I'd we Litigation Reform to like for contained morning, we Act provisions today Before remind of that and covered forward-looking XXXX. everyone Harbor in Securities and the statements Private

company XXXX, introduce The identify these differ materially actual update this December any this can latest consider, recent SEC as company's expect, results forward-looking year the I'd call. words such from would, several the ended to statements The in estimate, no Report words. may, for should, described Henslee. Annual and anticipate, You to intend important company's made like by during will, plan, factors other believe, XX-K time, forward-looking statements statements Form assumes could obligation could, XXst, Greg project, due At on filings. forward-looking any similar to or

Gregory Henslee

their customers. commitment needs our going today for continued consistently Financial to Jeff their Thanks Executive and beyond third to excellent providing Shaw Chairman present. Tom. O'Reilly O'Reilly Co-Presidents as this David and to the great customers' each This me team everyone our minutes. as to of on showed commitment work our in response Team by during did to customers Participating our Officer. will by member to store on call I was during want dedication thanking O'Reilly from hard result to in O'Reilly, unwavering recovery Johnson Auto our welcome display Hurricane well quarter storms. team's and as also and headwind like our McFall, the Hurricane call Good quarter caused morning and and Jeff closures We Parts thank is our But detail provide the a call. storms. third on for above our Chief the to a our meeting few touch Irma. Harvey quarter team's I'd some to effort during they conference begin the morning these full Greg Tom the service more to see are service of

make However, as able were to to were amazing we back our thanks the we of more for and the end that stores lost prior volume benefit their will estimate come. able customers commitment up getting to team's incredible goodwill we to with us the our as importantly, most possible, years open soon generate quarter of to to

continue the market on for the we sales with as half The challenging depressed coupled winters consecutive from driven factors in a our conference addressable discussed of I new our outlook in structural for We summer with conditions by a to significant population aftermarket. from track in mild vehicles our detail for two population confident to industry uncertainty during mild record these include in continue customers. automotive and our XXXX growth These vehicle result pressure as in industry of to in engineering impact in the call. XXXX. miles total and and the vehicle the line store of parts the the remain continuation in into Our industry as the demand our economic last year quality along reflected quarter driven the robust see several long-term stable very to the results expectations lifecycle. comparable benefit expect will by faced to were laid a trends high increases shift saw supports total been results this business totals None sales a factors we we in and with last operate experienced Clearly, and first have third the in guidance established of dynamics period the we very on our vehicle the below steady manufacturing year. the XXXX of vehicle the in call of quarter's of and U.S. impact many long-term

service customers forward our to lead to fully As in quarter expect and and and robust proven focused profitable to providing industry executing the our growth. to diligently fourth our on we consistently business remain valued XXXX, model we continue look excellent generate

new but reinvestment we I'll report that his Norwich, week are will our a open to businesses some steal updates X,XXXth in proud store Jeff growth. reflected provide of in in to you last normal store in extremely our confidence our his to Connecticut. Our minutes, continued few thunder

we detailed our Our about of outstanding work our organic hard prospects. continue I'll team very be amount of many growth more now Greg call comments. by our is an track amazing result for and over future record Johnson turn members throughout extremely excited successful to the of of some the growth history so to

Gregory Johnson

fourth us respond of morning in tough market like environment. in thanking customers. now generate demonstrated share to would consistently take to provide market Team moving in the commitment forward. that their gain color has third some respectable to quarter for hard our even my well-positioned outstanding our Thanks working profitably care like to their store guidance. result on continued by O'Reilly to comparable harder I a I'd commitment third begin team everyone. customers quarter will to the challenges additional results us the we And to sales to Greg. service work customer has our Good by results quarter which that comments and today allowed

within quarter But quarter the the Our in in on cadence by we results the for of estimate mentioned demand lost results the the increase affected previously expectations a our we by we saw result the posted middle Greg for impacted any recovery-related the we a up regions of third as volume make hurricanes. to caused the were began trend activities. store to quarter quarter. second able as line for the as similar some were was in we month-to-month headwind closures

timing throughout impact the of with our third month for the relatively what September the were quarter. our where similar to second strongest U.S. we category experienced categories hurricanes, continued softness quarter. results saw summer in the and results as finishing quarter weather in steady very HVAC, On Excluding and conditions the quarter. basis, quarter hot the Central particularly, the as a in cooling, in were We the Southern such of persisted the mild refrigerants,

damage hot which these the did saw and winter categories weather, the in and typical tear ride driveline not control pressure we for this as absence In and continued wear other weather-related the which experience addition weather categories, to harsh headwinds categories. such past of drives and

While to of that of to very to time, it impact quantify created periods difficult is short-term market the it particular factor has us weather any short is over on clear business headwind a specific has business. our our

comparable by driven ticket pressures DIY store by for Our in offset was on both count increases increase sales and ticket size customers. average professional

between on channel demand and than similarly to store speaks from shift the first business Our results comparable balanced auto balanced. isolated pressure growth a for overall months both in sales third industry. DIY impact the the professional that soft We quarter customers rather were and comp parity the our of resulting believe of nine for for sides parts was the evenly being

basis. tight customer-by-customer last quarter, periods drivers connection sales prior As us of since we identify our from professional insight discussed our demand deep store to a on we into gives can in our customers comparable the results changes

is receive being continue we a their business. We minutes sluggish as discussing we've to comparable first feedback sales our across demand in of felt industry like the few the the seen I store now report professional sluggishness customers months that in release. XXXX yesterday's would similar press guidance provided the nine spend in

As to noted range our established flat have guidance quarter at fourth we X%.

which shifts versus falls the October. We of this to has quarter calendar us quarter XXXX is with on does calendar X%. year. lower the than business. quarter, it our the provided This the holiday guidance a lightest we finished in XX basis third a us to week. the Monday Sunday sell of we are comp flat calendar on on of Sunday since of Both headwind our it comparable headwind closed the guidance in that for combined our the headwind to range to growth expect day resulted as the continued stepping a down good we and to better from the While led the trend consider of the calendar in these quarter being timing has most best historical fourth a shops to for expectation of volume fourth month store and an on the that experience, an of September fourth quarter. reflect negative toughest shift Sunday One as the create not this of in pace Christmas Based represents pace December up professional sales of shift represent the shifts coupled impact a into XXX well last versus the year points quarter of XXXX comparisons additional in have that third quarter with our and

harsh when end these shopping mentioned business the months we range XXXX. due with the we Taking This whether. the results We only or a fourth given the fourth this the quarter consistent the cautious on actual compared pleased is face have we is last comparisons true the the volatility -- far our timing weather quarter the I on the but into and benefited stack account, difficult nine thus in year and of two we December basis. as first season to at we've of in from saw business year our of quarter, As we the place guidance reasonably in three-year faced winter. of been of remain for holiday the factors the especially strong a with quarter since variability

trends. the on our at the year expect expectations the first continue reiterate see nine year-to-date results of underlying comp guidance X% the our below for months we X.X% to the and quarter. performance headwinds of is guidance of shift a because midpoint business percent to based of and quarter calendar actual continuation to to our We're our for fourth Just our X% of unchanged full leaving XXXX X% fourth

it demanded economy will long-term is as short-term continue underpins pressures, stable historically to of facing Overall growth cyclical driven business for continue core macroeconomic Total industry. industry July our feel normal remain in drivers our historical condition automotive at levels. the Looking very from the and stable the at to but in through the industry. and be return We the corresponding X.X% the to support the up miles has low year-to-date rates solid aftermarket, we the U.S. and experienced. commuter levels gas in have broader stable employment industry is solid and underlying is benefited our prices model industry healthy in trends

results take full we year. very More for will updated gross generate overall continue the would our guidance importantly I and confident share to which results now like market. quarter the for to outperform discuss remain margin third team our the our and

margin bottom detail. cost expectation on our as Our third sales low in gross volumes quarter as in to gross pressure we deleverage continued our of came end as factors of discuss more well fixed the margins Tom guidance will from saw other XX.X% at of

sequential a product the third as expect benefit as the to in fourth margins We from mix. we compared will quarter improve favorable more quarter

gross end cost continued deleverage bottom margin year on However, our from quarter fixed a for we guidance. pressure the full the at to previously fourth issued of result in expect

to end be year within previous a As and of our the now our versus adjusting gross the expect a range range XX.X% margin of year lower result, of range full margin gross XX.X% full XX.X%. to our we're to to XX.X% top

an are continue both in inflation gross based inflation and see comparable sales significant pressure we no absence to we We assume industry see and store of pricing to margin broad guidance. those and significant our of

EPS a option tax the and which third top stock share gains guided of quarter, for third $X.XX in the benefits per previously the accounting from $X.XX, to For at our is generated quarter. benefit change range of we earnings the from related includes a

year corresponding below While change. adjusting EPS years over on the third leverage a still historical rates growth increase prior pressures a XX% as performance It generated our of is the represents the and accounting past the business. result had over environment for the our tough quarter several after we sales

financial to results ability service drives while testament which excellent of and team's dedication. solid still company long-term value the for a Our work hard producing provide customer is their

range range to Moving $XX.XX. a we're a in to fourth of on $X.XX, the guidance year an to quarter, establishing the full of to guidance $XX.XX increase $X.XX

previously the for the as includes the in call. to today's repurchases. of accounting as the any first for accounting a through taxes includes fourth shares or the But benefit positive Our taxes for additional realized months full year discussed change nor share guidance repurchase well nine benefits full guidance in change the additional quarter year the related year neither

Before Jeff, reiterate and team's I just like of I and and fundamental business turn the confidence shareholders. our for our to strengthen and our returns would plan, growth, execute the successfully in our to exceptional over generate Greg's to comments call industry echo drive our profitable drivers ability

over Our replicate. the past for to Jeff of the successes value our This extremely people. future is and which our to Jeff? turn provides direct the experience now professional tremendous by call to our provide of parts a result the and customers difficult opportunities I'll the exceptional for driven are is customers, we Shaw. excellent quality service

Jeff Shaw

good In service I'd dedication was and day begin Hurricanes of Team days. importantly, the our the less more our XXX efforts and storms to of excellent like challenges color a customer over significant morning competition. to stores to on commitment Harvey the by and two of regions our thanking especially period for provide little comments and our want full Thanks and to every outstanding made these team impacted Irma of with total, time the overcome continued in for stores though hard I Greg landfall, our when four-day the customer storms to impacted storm service my concentrated service. than impact closed by on the and everyone. team closures by three relentless and approximately O'Reilly's evident work impacted the provide had today company we were tremendous to those majority their the

period storms. addition also and short the Houston, in time a during In impacted were Lakeland, our distribution Florida for Texas, centers of

see the result storm-related we and costs these from the did sustained third While storms, in losses we of to continue as material material evaluate be the a don't we storms for forward. total not to of some the damage we'll going cost and quarter headwind expect

and closures the captured Greg offset estimate store we'd we the the the discussed, previously in during sales stores by worst both As of reopening was upon the from quarter storms Greg in the incremental affected headwind markets. the volumes

and goes gas writing requires from water generators, work team of and on. damaged working unloading of and in like product there the first and supplies, dedication a in including air being the teams for after new cans, up to to loads lighting recover phenomenon with have and from hurricanes from the these affected prided be disasters and on ability limited running ones for Our our tremendous our quickly we faced other of company communication, our removing of reopen quarter amount and long such hard to post-hurricane as or themselves no Getting in tickets a and everything list isn't customers the the after an businesses our the store events among disaster. auto parts conditioning, manual a electricity stores, trailer and third absence

remain the we direct certainly storms. benefit we up for While provides to as and of store those our create them customers the being despite sales., storms. necessary and contributing our we're during teams of the and by team is the we committed hard recover the begin of storms. result D.C. the of parts take the this resources these facing O'Reilly amazing also challenges a lost in and care impact sacrifice for repair by goodwill is helping from shown them work affected the to the hurricanes grateful goodwill benefit by contributions our from there the This extremely personal help to these our days supplies of overcome many to provide and to real generate customers, We make with

I'd little a about for like spend the quarter. time SG&A third Now, expense to our talking

quarter increase the over Our of sales basis of point XX.X% SG&A represents a XXXX. third XX was which

growth the in As results. saw topline third SG&A pleased same center to average was disciplined we're is with XX that year. control our direct the the basis, expense last the to distribution levels basis as the we on store quarter teams teams spend per each result our SG&A as spend provide in the store dollar a is deleverage by directed to service by This improving points daily stores, sales expense the comparable toward control we dollar of demonstrated office period customers. our DC and the second compared of to by we increased our management and expense active focus On every our result ensure of store quarter, strong management pressure in

is that adjustments the customer model current to not made will XXXX respond during dramatic overreact service with environment drive high that expectation long-term we've the levels. our our robust SG&A of our the we business over execute measured Our been have impact and to customer to of level adjustments will deliberate We sales service course negatively sales spend would make gradual. growth and the the and

As increase a stated continues control best to comps, will expense one us and pressure of our control retail. that Based to results see X.X% range and expect operating our which for generate some be per remainder X%. full to the the XXXX in the of the expected our now our previous we on SG&A the X% of spin third X.X% over in low range deleverage our pressure XX.X%, significantly continue profit strong year average percentage quarter a in year, for store of the be single-digit result, strong as of the to expense third we this will quarter but focus all enabled team to of limited has of

few the first months growth year like stores In we quarter, third Tom, the moving stores, plans over successfully discussing different minutes net forward. new I net year-to-date in to the and call nine our Before spread to new across XX of total bringing I'd our store a in XX our turn states. opened spend to XXX the country the

the store X,XXX includes, as an as Greg remain our During the and in our of growth our first discussed is company as the which achieve new last we'll achievement ever to quarter, for incredible This execute opening -- target XXXX XXX stores, we week. store confident strategy. ability fourth our our earlier, quarter growth of

of our internal store our even and excitement of the Our result a performance exceed stores new more future the expectations historical is both to which for industry. growth averages our challenging strong about our opportunities against the continue backdrop new

forward look continued year our we XXX As and I've service expansion dedication customer new our net growth the new providing got team target in for to thanking we comments of today their another strong stores. XXXX, to conclude my expect again, our of best by, industry. to stablish store store

take Our conditions by teams customers responded we working that of care have to the throughout face much is our that to the key ingredient. XXXX and harder relentless commitment market

share. As to we move and forward continue take market

Now, I'll the Tom. over turn call to

Thomas McFall

Thanks Jeff.

Now, guidance of updated at our a and we'll quarterly remainder for look results XXXX. closer take the

the decrease to prior million $X the and comp decrease million in $XX store non-store in sales, $XX a from non-comp $XXX non-comp closed million increase million stores. $X quarter, million increase store For a in to sales sales, increase a sales,

to expect $X.X to we total billion XXXX, $X For billion. our be revenues

leverage of gross LIFO will from million in the gross percentage last that impact acquisition year. XXXX of was higher part point period result on the versus costs be the cost LIFO XXXX. which strengthen anticipating and the offset incremental reduced in of fourth For of was basis product the versus LIFO reductions $XX of was third of million quarter, the lower loss margin a the the fixed quarter sales resulting margin deleverage quarter The charge. to XX quarter. by in XX.X% was from a third similar continued We're headwind in same headwind $X The mix,

XX.X% For was tolling of of to XX.X% which rate the the One-third periods. was variance the better than better of on anticipated. due than certain quarter, anticipated was results positive income, our we tax tax the pretax

the The to the the the the typically a change due remaining than the two-thirds the tolling year due open remainder As of of quarter tax compensation. was required third tax for periods. reminder, relating rate lower benefit is share accounting based

change of before receive be fourth the our rate any for to will compensation. quarter, income tax XX.X% benefit relating accounting the approximately pretax we share may For based

that $XXX XXXX. guidance results for move drove cash to in for and Now, Free first our driven by year a on our the and offset we'll free of of higher the XXXX net the in the flow months year. quarter nine income. smaller our the full inventory a than $XXX by the prior in the investment prior expectations cash components flow million decrease million in Partially which was decrease year

$XXX of maintaining store increase $XXX was is the seasonal the the in our X% end flow of the For million XXXX quarter expectations a year, normal we're per million. free from line guidance a full cash to for of with XXX,XXX end which Inventory our at fluctuations.

For approximately the full X.X% year inventory expect to we per X%. to to store the grow continue

store goal rate we is project at ensure of the Our are than generate. similar growth sales XXXX. We a effective our per inventory ongoing for deployment will growth these rates confident comparable inventory. now why to in be grow remain And store we we lower

ended similar end of is ratio and Our be a which the at the will we XXXX quarter AP anticipate rate to XXXX third inventory XXX%. where finished XXX% we at

nine Finally was and first million of the were in slightly down same capital expectations. of XXXX line $XXX year months for which from the period expenditures the our with

for forecast year of full the of $XXX million to continue We XXXX. to $XXX CapEx

facility. $XXX three XX on in incremental issued credit and X.XX $X.X leverage August in billion EBITDA bonds third an borrowings million of X.X we Moving at adjusted compared times end of revolving The year to increase finished are the quarter debt, as of reflects ratio our times to to the debt we unsecured our the with XXXX. ratio ratio

moved Our times. X ratio to our into of X.XX increased borrowings targeted

billion. a through average $XXX.XX execute this total to continue $X.XX share We've share repurchase at and an of price We year-to-date million repurchased program for shares percent our investment call. of X.X

price third We to very shares remain is the of we average $XXX.XX. business and repurchase X.X returning available as million our flows our means expected effective were buyback price supported average at the confident quarter for our program that an future we an view by discounted During cash of shareholders. of cash purchased continue

call the success. up open I happy to concludes thank continued before prepared be long-term dedication to questions and line to like to their company's to I'd at Finally, to for ask this I'd our return This team your entire questions. answer the our the O'Reilly like comments Allie, operator we'll the for time

Operator

you. Thank

now our will XX from the begin ahead. first We minute question-and-answer from question Please go session. UBS. [Operator Lasser And comes Instructions] Michael

Michael Lasser

Good you that's in my Greg. think any or pricing morning. -- that becoming a Big industry or becoming industry at more for margin of pressure question signs issue thanks I promotional mark this becoming for point. the gross the performance is taking Are evidence question seeing your is light for quarter? the an any

Gregory Henslee

know Michael. whatever. was great Okay. or year as that a for Well, you What where thanks year period prior I isn't a would anytime it demand is the industry say quite prior has our

regional call do their professional them We independents they to on literally can grow you and know to have undercard business. hang primarily I everything warehouses that

those regionally nothing that that have we things So kinds happening there's but happens. new of

relative has. which market been have method that than has changed change is to add my to pricing among nothing I the see seen to speculate There's on price nothing we've growth. there that be us. way a lower us go really competitors. no But the our by our considering we of about But would industry And except zone deploy. price. on we'll compete read material what higher industry than all of currently of front And of would new for there's times they comment other sales would what across the a new. see that to guess sales who that I times in you going competitors do that's But is nothing pricing evidently which more You to strategy industry during effect them growth I that we've just one it for it's

Michael Lasser

areas your then that to warm do of if October and sounds a follow-up influencing of then it for And your is in warm And continued how abnormally into new That's in growth comments helpful. abnormally another fact winter, X% And see the business? reconcile country sales fact been trends my about question the like it's we September? the you is the norm this that that improved and the X% dry industry like despite the whether rate kind Northeast?

Gregory Henslee

what say, Michael that two weather had Yes. consecutive of is summer. we've Well, I a mild would and winters had mild we've

what they're that of items as has winter preparation-type most think good I is seen the markets, likely, people some approached some of reaction we winter that, in -- know are to a the in didn't we've and the mild cars that need they and do last do anticipating they even maybe and their winter a winter because had some things to before winter it. there

a season hopefully, realize of of this competitors, us of Northeast not as it's up country. feel there. the do but in growing And cold that's there. early winter driving much brutal as a We're our having the exposed prior to some We're in factor to softer a probably been up weather, bit the we so turning that's like -- little and we winter

past. three winter another yet maybe a we tell as it the of seen. there hasn't on up like and still as much stores on something a not may stores. that it But I the to be growth newer mild being the X% question surprising what as be we that's had would been So macro it's fact on as our X% in norm, winters your as the two level the demand high whether see. that, kind mild rate -- Relative have if they're had this if are because typically -- to be to good or year, we've to time new we'll time because will would see be of we very

to are Some caused they earlier things weather going have extreme them just to weather fail of items that fail no are would are that fail than by the to causes otherwise. what. Extreme matter

markets many based things didn't ago some if this to time a two robust. would I years year that say last pretty of to I bound weather. don't, we what So, are this real the rather year year, just expect extreme we If fail than miles would have in that winter be fail on demand is cool or and

expect expect would to the I better season X% a us winter we to and this be there wouldn't norm. So, to new X% to -- be for

Michael Lasser

fourth Thanks good much. quarter. And the with luck

Gregory Henslee

Okay. Thank you, Michael.

Operator

next go Nagel ahead. question our Please Brian from comes And from Oppenheimer.

Brian Nagel

Hi my taking question. morning. good for Thanks

Gregory Henslee

Sure.

Brian Nagel

I on QX, understand prepared solidly recognizing in just what you with up QX What changed question but from, think I'm Tom, about right really margins know then industry don't QX XXXX up I we gross dynamics that we where can gross help comments, gross and was should want addressed somewhat So, into think being from slightly? -- And beyond? a the gross to down give better should but your what's how margins. went given margins guidance key about And if too to you sorry, -- beyond changed factors look we begin you out XXXX, to say, now, this there? the how us

Thomas McFall

second sure I is your quarter have quarter? to right, the third So, question to this is, make year-over-year difference,

Brian Nagel

That's correct.

Thomas McFall

Okay.

the that that tend of of during seasonality that quarter the at we a indicator we So, we charge quarter-to-quarter that LIFO product margin, the best quarter the The we year-over-year. on our before. sell created basis had And there look we quarter. we at within on did difference. lot mix how is based not second look some is and When a when significant gross XXXX, look to a

of at number. from second of to quarter of So, we're much second look If how with sequential do the the in versus and actually really that the third in it based third comparison per quarter the seasonality lot our that the we'd to fourth products. margin has and to the continue a improve quarter, the LIFO over we expect the is improved on guidance based to quarter we on

always continuing improvement. see As able continue to to getting margins see out non-inflationary our at gross working a extent far we on that there. hard that environment pricing our leverage our are cost work to fixed pretty as we'd see we environment deals. year, next And better and stable better we'll are we'll an the a anticipate improving merchants We

pressure So, year we we've this wouldn't seen expect to ex-LIFO. maybe have that the

Brian Nagel

respect in -- your you expect this your over recovery Got we Should it. stores quick and the look then so balance the it as demand your of up quite any type running to business even And through It's get we question. like or sounds my hurricanes, of follow-up helpful. storms. With -- beyond? XXXX

Gregory Henslee

kind some to to to, weren't Well, this before. lasts. and might salvage, see or I in things that the cars know, stores speak of, repaired to you some. other fluid that that relative in decided bad there's, flooded, that shape think long totaled you the We've that there's of hurricanes following were ask worked And really changes items we Jeff, maybe things. I how on people through Cars been that people and that were always

Jeff Shaw

mean, kind be I the flooded would -- ones obviously, the totaled that to things get back and Sure. would filters big and the be service. of the in the immediate fluids weren't cars

we some and be don't that the -- when will affected play regions been That's to through will in damage affected in be to of going some electrical. the for markets. there these there's time. mean, those to I several rotating in mean, demand out. post-hurricane that a I hard should of bump exactly period tell. see over we've I It's that, know years Following

Gregory Henslee

know, Brian, many and was -- got insurance -- time. totaled many buy -- whose that benefit, the checks our additional wouldn't people I of you and of car were customers that new cars bought that this One probably never that totaled Many cars. the that had car totaled new don't would is speculate cars had a were

now fact, the the there are across are There of enough the and cars -- flooded there auctions aren't cars. used market U.S. robust. Houston is areas. car So in Matter filling need used in down used cars buying they're for those

So that's with takes as to car them cycle buy cars, maintenance used generally a for times these it which someone new is many customers good these a us. through

from think family cars go we those to new I So that are car. XXXX, that used some through late become to benefit cycle XXXX XX have maintenance the stand a families that in -- to

Brian Nagel

Thank Got it. you. Helpful.

Gregory Henslee

Thanks, Okay. Brian.

Operator

Kate question next Citi from Research. our from comes Please And ahead. McShane go

Kate McShane

thank question. you my for Hi, taking

some how of be results existing Can how to you and seeing new better rest what driving the is I results prepared stores think to newer these your the of walk can are you're close deleveraged stores at fleet? the in they the comments stores. some that mentioned better some maybe through of into and these you'd exactly of

Gregory Henslee

every number new there in is We markets fantastic where we in stores Okay. our some put market. think that may be Texas operate and largest surprised have of virtually stores, and of you I a to one growth know

additional are So We're even they we stores and they San like markets Dallas, Houston, that. evaluating constantly where put might Antonio, stores. are Austin, in backfill

new stores. by could that the we we we an and we we're of stores our are as if existing to we opening store another get open close business getting that store. had not the do reasonably work some demographically much potentially we as So stores justify But know additional

in hand, overlap, -- where I in have our don't I those very we And we store, we are was and who up it's many X,XXXth new of Northeast the opening. we’re come brand and the our thankful don't Enthused number in looks. with we're just just well. stores Connecticut store Norwich, and On incredible stores about happy are new store. there, was there. of way I Florida stores new have existing do the other the the that store attended customers attended impressed our that our where the just which establish

and had in markets And to the the store opened start. just better and around in the off promotions store outpace got in pleased over a team openings past. new with to great growth good markets. we we're we've years, ago today So both store few they new a what a And years we putting frankly, do and a lot it at get store new than a in stores were we backfilled our the

Kate McShane

Okay. Thank you.

Gregory Henslee

you. Thank

Operator

And our ahead. comes from Morgan Simeon Please Stanley. next go question from Gutman

Simeon Gutman

guys good morning. Hey

some is categories and rebound that you September/October to this hurricane wasn't markets to wanted do of First geographic there. know parts? you guess I in soften you or some trends can that strength how mentioned that I saw on ask the question that just that won't from you talk maybe if sales. or you see don't

Gregory Henslee

know, would have of not on what they affected we and that they the regions primary how Simeon, -- detail the the -- effect simply is company. see the based that obviously, we can those on reason know because were whole can we improvement. the And did it's know what that have that's we, that Yes, effect was that

Although, isn't us effect be cause -- there some cause company that there to rebound we -- the had markets. on way those might But to. to whole enough did the in we alluding have scale have you

Simeon Gutman

Got it.

then least about the to sweet there's And lot a it of wasn't mean, XXXX ask the slice Okay. happened I want talked was ways weather. at it. I would where But any of the do agree or year. year clouded cars by in seem like for clearly, that We've or sweet with you there it is about it spot. increase. in to and mathematically And occur that? reason XXXX next or later to or a it rhyme should number be spot year a Do later earlier lot it

Gregory Henslee

the cars impacting the as curve the seeing I XXXX. the their the tail presence to demand be on of agree population demand those on will end cars with the that XXXX of begin and and we number in industry. in XXXX be won't in you should overall The

Simeon Gutman

it. Got

Greg. Thanks Okay.

Gregory Henslee

Simeon. Thanks,

Operator

Wewer And Please from with our next question comes James. go ahead. Raymond Dan

Dan Wewer

in XXXX little in an the topic. Thanks. nice sales economy, unexpected X.X% Greg, of similar a I XXXX. rebound same-store of want A to follow the a company bit up had in on that along had followed results, of recovery midpoint weakening with about Back snapback a we're X%. the least year, up XXXX sales in comp in do X.X% XXXX. that to think set for a to comps you think next in pullback When by you at maybe same

on next bit demographics year. as bullish little well the more you're like Sounds for

Gregory Henslee

his -- is, this year row But I much having Tom what -- the and experienced. would compares and years say team do with surprised little And say tough to what is forecasting know you how you easier we play don't an plan. would going outstanding we've been have in now. had your I for next when several compares year forth. years so softness and a budgeting job we Dan, that, and We do

aggressive that say haven't end at setting we on based view have quarter, performance sales will while our the would tail of had this we give year. we I more plan would the year, work a of we than next to in of arrive that we have end our that easier air what a forecast So the yes fourth point the comp comp we I'm at year use for this done better bubble hopeful sales year. what store compares, in set and and a would expect on here and plan confidence guidance the store population this next in yet, a the our for And

Dan Wewer

they Also, saying as feedback your the well. business. on indicated commercial they the service you the impacting from customers commented them dealer's is and weakness are they think What about

down the influence their has strengthening. have on street risk their some impact a Is that business having on showing the they're know some public softer be is companies mechanic You been having that results. service that that there could been and

Gregory Henslee

that. is that something think I to there Well,

car think I job shops to hang doing better and beneficial. that's have not years the someone them These that if new know, buy dealer, to buyer warranty they're the -- done have work through cars you that process think drivability a relatively next car trying try they and where to on last a profit several some to that at that hang the thinking dealers is the job versus revenue I warranty get a is buy that technical, better used the work to that chance the necessarily new done are standpoint. because next new people diagnostic a from good a business, -- of do that more because they of a buy. But, service repairers, that's trying have so, going from on a there new getting of go generated if car they a to car, new although do the in car a work that they sale

with significant a to that being of So that on view does comes technical of work, relative mean as to And do don't car the dealers, they and competitors -- -- work. of is, as customers to how as alignments, don’t the I the I and don't dealers tires, chassis alignments think some don't because competitor. issue depending they're primarily think just they ware, I work the nearly much kind I and a when that shops it brake depending an shop suspension it tire our think dealers do some exposed under of our have that do

Dan Wewer

Okay, great. you. Thank

Gregory Henslee

Thanks. Okay.

Operator

Bret from Jordan comes from question ahead. Jefferies. go next our Please And

Bret Jordan

Hey good morning guys.

Gregory Henslee

morning. Good

Bret Jordan

September how comp guess, Some the we talk talked from the on almost progressed. about talking And then, you the maybe could give you worst weakest, comp spread, talk perspective states best? the about of the saw of of much POS quarter good idea I spread about about Could magnitude the data are as central improvement? but improvement -- and some, some the suppliers being and regional maybe between you the if of sort us their

Gregory Henslee

the the month. Yes. of of quarter and of But said best fourth September Well, trend lot detail quarter. we a comps, yes, we don't get the want continued into to was end into by that our specifically about has third month the that better

that's we the second in the been this yes, December, compare and improvement know seen the I sorry, your And what coming headwind think I hearing Sunday from the extra and But reasonably want would aggressive, forgot that October. tough in don't I'm we half to of because sound and holiday you're be so about have from we overly question. forth. suppliers the have accurate Although we September

Bret Jordan

the The underperformed regional your did strong spread, states central how in markets? much

Gregory Henslee

Central East country West best western West. past than Coast this half the performing softer quarter. the and The Yes, been would our of and the has be our

Bret Jordan

seeing in then challenged looking about, you deal Monroe independents, in Bond and soft to Rochester, environment the M&A, the Are undercar done smaller more a now? talk you've ago. the Okay. bought a on or of buying the guys obviously And you question, maybe the sell GPC are that warehouses follow-up year

Gregory Henslee

out few sell. a always There's ready that are there to

us, causes business causes think than to robust times in interested in I the Some in be of the be they are them yes, softness more But of with overlap to valuation a selling problem. business.

Bret Jordan

Thank you. great. Okay,

Gregory Henslee

you. thank Yes,

Operator

BTIG. Alan Rifkin from Our comes from next Please question go ahead.

Alan Rifkin

talked wondering wages. of Thank inflation Greg, chief relates to respect with you in commodity to were well prices both inflation, one question as first about some commodity that your very much. seeing My competitors they as to was pressure to what the are point not half you first stores? that wage inside this at I you're question, that. why pricing. respect any, And second then if seeing, seeing your with really

Gregory Henslee

in sure commodity that -- little shop Okay. as seen we we are just we shopped I'm a commodities pricing, Well, we've competitors electronically have time. inflation on ongoing, and of bit our over

So, inventory we it's that, things the since our across do and although whole of see majority batteries hard scope is some material parts benefit and that. of the from of not like our business

and have Although that bit same of throughout managing known wage they we just to things productivity that I like. how very the municipalities Jeff, productive On minimum work to just productivity a little wages, his to It's do from we that, drive some look see. to we drivers well help doing stores, continue of aware price we're and about and the things standpoint, might our several our of are can an with be you'd a our opportunity in routing see things for our pressures we it's our like so. and U.S. wage think if see competitors above every the be Jeff this. adjust as team the do minimum make country job opportunity to set stores where great competitors a talk and as prices their Shaw you sure well the our that

Jeff Shaw

there's and things. team member that to these low member various we're productivity try you've got member line. going more in team to municipalities But wage and be SG&A keep anytime help team really using mean, and productivity goes up, leverage we payroll when mean, to unemployment, by more the I pressure there's manage to don't I Yes. time all technology do and our with things our to

it work and always So, quarter-to-quarter it's we'll fought. manage and through year-to-year. thing I mean, it just same we've

Gregory Johnson

question. pricing. pricing to fluctuations Johnson. and metals, along out increases. various every The those of the commodity We just the don't pricing, we've pricing this been Alan, to pricing the to I seen this commodity pass on year norm of is like commodity lot -- see that. things price year Hey Greg based add is a fuel-based from able I'd of a anything commodity think we've like of most

Alan Rifkin

during very pretty weakness, time but factors, business, was your you not And of the the Greg your somewhat as to was the like as time of the other business, year vehicles before near-term that Thank for down long Henslee, the of that maybe a the it's That's the of you over of down if strategy of the does period length one XXXX that? of it terms the industry, bit changing the may. fact after. pause a growth responsible Okay. and that in follow-up, list, some end I in that believe although we just thought new XXXX give looks recession both prolonged since right, just taking a much. you you year said addressable further and the possibly period for time, well to it to store only the time a you just period. Does little is till influencing that get on

Gregory Henslee

wouldn't effect. parts, perspective like knowing an pretty it the at the I road significantly it growth What there just is to cars on fact selling those sales which we're is depressed And auto it and years you be say just sweet for for coming is maybe population the relative to simply -- -- reason Alan. that but fewer everyone of parts, going from if stay longer. it and being in by the the changing understands I'm those the curve I the car can look of sure the bell doesn't, anyway. talking cars mentioned feel not when across No, our I'm during look have spot decreases, that new this, to offset demand just that's it's I you ideal about

the go cars much. case that scrapyard. That's nearing as just are invest to not Some be than they that their time wouldn't of were cars to just the older because the used -- to customers in

that investment effect is muted the just they're on is this, that by a the cars. road worthy still still pretty that think are the are while I significant there more that somewhat of fact of So, because it cars good older are factor

Alan Rifkin

Okay. explanation. Thank you, Greg. appreciate the I

Gregory Henslee

Alan. Thanks bet. You

Operator

comes ahead. go J.P. Horvers question next Morgan. from Christopher our Please from And

Christopher Horvers

Good Thanks. morning guys.

you can business but from benefited So, headwinds December? steep with was starting think that cold benefited if emerge that And the Hispanic timeframe? same you talk know what the the that had business customer. as you in was us in early customer how more some Curious seeing around the time, you could the to as Is also election decline in you everyone a at also about were -- stable weather, your drag that now? remind I you're there. do

Gregory Henslee

give December tell don't approximately December -- comp I was months numbers was in comp monthly what of We double two and you, quarter. the the it the

to and items ready other cold was again we the directly time to related sold have we winter a December So, lot might it's to have weather, are cold the a batteries cold lot that to snap then a real batteries significant was of fail and across them step-up. a period that replicate cold real we We'll during If of of And that December. this in would during see. weather. It be business real a out there the cause should country there fail.

we'll November. last and October was from material But a comp to have sales year a see. to step-up for us December compared basis just So, store

the getting comments been of customer, you it's have you. Hispanic better. what some think the Jeff, DMs some saying to made On -- and that we earlier the RMs

you So, we think a Jeff, have relative it's that. might comment improving. And to

Jeff Shaw

some and business heaviest feel back picking I is Yes. of what the mean the markets up. that some from it's up Foot taking up. traffic hearing picking is professional is Hispanic the we're of operators back

all we this heard positive isolated, we've point, hearing more are comments at So, but year. it's some than

Christopher Horvers

the -- I mean, or Would was a in much or the something is venture material? basis whether points XX or first it quarter or that as it been it like how you you about that's headwind headwind, think fourth more in last is is XX -- -- quarter, year perhaps customer, could a

Gregory Henslee

put not general just we It number a guess customer It's demand it's be probably demand an population prevalent I'd and But us get and on you're retail impact. information base across difficult, the a called a been familiar in country a if has number with, discussion the who just a enough factor. it put Hispanic about NPD, be not most where is it rather for would the among the would and factor. on company Hispanic been impossible, the the to retail driving it. outlines indicated absolute from There's that very

Christopher Horvers

Understood. did quarter? next the follow-up. sort And in here then a more shrink you. Tom, new of one-time accrual? quarters? into the a few just Thank as Or continue you a that was quick of just the as look this headwind adjustment Is of third rate

Thomas McFall

of lot shrink. We would -- we've managing spend a time

for quarter teams the Our how different I that of tell the job. is during to amazing and timing an oddity had and quarter. the lot an our probably kind amazing job, does And with occurred us in end do the team, based around do field LP move the much just a that popped would at an of you events team DCs inventory this ways on had we to that

Christopher Horvers

Thanks. Understood.

Gregory Henslee

Thanks.

Operator

comes question from next Please go Bottiglieri our from Wolfe ahead. And Chris Research.

Chris Bottiglieri

the taking for Thanks question.

is that legal the and M&A? GAAP? for guidance, is the does one SG&A you at reserve adjust Like are you How your clerical, that do that? for looking First

Thomas McFall

I'm sorry.

SG&A guidance Our GAAP. would be

Chris Bottiglieri

GAAP.

pretty could the there I Like how your be bridge base? Okay. maybe wanted is How And -- some that your the SG&A gap. kind running out Have running into much So, versus ex-dollar. of reason any is much comp thoughts Basically pushed these think X%. get there.th. you flattish any XXXX? is performance stripped SG&A coming This incentive prior way of of impressive rent depreciation year-to-date. expenses X% so of to to that kind -- just obviously years? out can versus you out then of help

Thomas McFall

you, tight member Obviously, before, at would management every talked is variable under just driver and we And our team for expense I about the this tell changes. pressure up it's compensation through executives. here we have as year. percent that number O'Reilly from

DCs to management it. there based savings good some the we're -- at it's up management, our good stores. going that that go occur. get a there's payroll, the have activity; of when expense and expenses won't which biggest expanse out-manage And So have are higher more that sales of the expense volume we in to But both and very is we

Chris Bottiglieri

procurement slowed LIFO. your better call I tailwinds have them to little about a on anything from think do certain of couple there in brief one you on Or how Those the kind your of How those? headwinds, Is down of just Then last one a guess bit kind lag ability you or extract seeing you your about percentage turnover Okay. change makes discussion vendors? points? those initial the Are think slower? of years tailwinds. that I portfolio do

Thomas McFall

Greg inflation some continue commodities. by on So, we get some where commodity have in mentioned as we inflation to earlier, offset price part seen better part and its deals, car to

extent see commodity pricing pretty we cost our effective the has if we great -- receive. top see at to pushing on the price So, we work provide that increase deals. so getting that continue increases could But been to to industry that line we inflation and tailwind for increase

Chris Bottiglieri

cool. Thank Okay, it. help. you the for Appreciate

Thomas McFall

Thank you.

Operator

We now have Mr. questions. for over to Henslee reached turn call I our remarks. allotted Greg will for time the closing back

Gregory Henslee

results XXXX. fourth to very in attending reporting look and Okay. on to and solid I'd team to in we much. our third note February. finishing everyone for strong in dedication the thank for service to Thank quarter to conclude the on like and entire by you, thanking continued call look call today XXXX the year. start for XXXX getting the a off We our Allie. today a call our O'Reilly We forward our just like Thank customer forward quarter you to

Operator

Thank gentlemen. you, ladies today's and This Thank for conference. concludes you participating.

You may now disconnect.

O'Reilly Automotive (ORLY) 26 Oct 172017 Q3 Earnings call transcript