ORLY - Earnings call transcript Q3 2018 | O'Reilly Automotive, Inc.

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Operator

Hello, and welcome to the O'Reilly Automotive Inc.

Third Quarter 2018 Earnings Conference Call. My name is Zenaira, and I'll be the operator for today's call. At this time, all participants are in a listen-only mode. Later, we'll conduct a 30-minute question-and-answer session. conference recorded. this that note is being Please I turn the to Mr. call over will now McFall. Tom Mr. begin. may you McFall

Thomas G. McFall

Thank you, morning, Zenaira. Good joining you us. for everyone, and thank

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

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

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

Gregory D. Johnson

sales Officer. Officer Thanks, Operating quarter my and Tom. Auto Shaw, also Co-President; this O'Reilly, present. me pleasure Chairman of continued third The our of top-end are momentum everyone, Tom on Executive David to the Executive with our quarter X.X%, Greg Chief Parts Henslee, It's guidance and was welcome and first conference the our O'Reilly Good morning, and third of the call Participating Chairman; Jeff O'Reilly Financial team Vice months Chief we call. morning store our our and McFall, are to third experienced which quarter, increase our a strong of by in begin range. nine our congratulating today drove comparable the XXXX a call solid at through and sales first XXXX. on half

XXXX, we a additional As impact We're third since of approximately to volume in from of reminder, which our to is had growth a their the faced headwind points pleased the also quarter to negative Sunday basis an unwavering X% a compared as sales generate lowest Sunday day excellent ability through comparable year-to-date our customer service. store commitment of team's providing week. with XX

Our sales operating third and a the relentless sales X% on dollars expense in profit growth with and XX.X%. combined XXXX, operating our team's margin of management generated profitable compared increase an as of focus to quarter

tax drove to also sales exceeded share per testament of and team's to an combination beneficiaries along In top addition service. of the to prepared guidance his customer of increase which were a provide share of our with Tom performance operating our range we unsurpassed operating cover earnings program substantially expected, end in share, solid growth third our which buyback This efforts $X.XX of in XX% profit, comments. our will quarter lower and rate the in per $X.XX ongoing the than is a to

of additional quarter business headwind customers side quarter comparable resulting of very of pricing side sides particularly increased Both to sales and a third growth ticket sales the repairs comparable quarter to effective as year. really business of the Similar XXXX contributor and income gas short-term, or We'll and quarter, XX, repairs, to counts on two like DIY'ers. our the inflation accelerate trend to pressure a sales lower business from of although, prices store positive sides we sensitive pricing third and increasing to modest tariff, store in by some working delay comparable sales growth our the to benefited of store have ticket inflation, to which see suppliers the minimize and the again strong level for the ticket continues second year business into to at we we were third on stronger are see begin to on DIY on performing seen similar same our our increases difference as this more our and quarter the defer the in with additional are strong be quarters, for complexity the are professional with a past SKU some the versus likely very the only as management. color Average DIY industry effect impact. The both that quarter. the in continue favorable I'd inflation with the of continued that saw provide we results. as sequential count Sunday. to to commodity-driven the subject from parts professional our contributors business, through Now, second the latest in on driven went cost throughout vehicle same the more of our SKU a the stable September overall full to composition was consistent and increase maintenance passes mix on

season, play summer as categories summer the batteries weather-related a result typical throughout we and strong with impact the on Moving in in September solid saw steady air in selling monthly of rest basis, our consistently out throughout and the as we of adjusting results category of the sales the comparable quarter after on conditioning quarter, quarter for a our the to within demand such hot cadence quarter performance weather. growth On saw continued our were extra began quarter the as expectations. store of the our the the Sunday

normal hard also control such see in typical parts and categories with a expectations brakes continue following demand and winter. ride solid of as in to We performance key line failure-related our maintenance

what business normal for is you would tell underlying our very year, and automotive cycle a October, our perspective, continues with the remains reflects of we as trend long-term employment continue have vehicle As favorable from in also to thus macroeconomic far, in age From consistent from average solid a outlook the aftermarket. including trends can of have far our the demand and we steady stable our for been sales to comments increase. strength expect a the a thus which weather drivers business, core

could DIY out prices and the remain pressure look However, finish the cautious they to to XXXX, short-term uncertainty to of on respond miles economic to as the ticket as tariffs, we pressure gas counts consumers we impact customers. rising short-term by lower-income incremental from from to to higher driven deferral impacts from which lead prices and

holiday in end two quarter we season winter of be at difficult benefited volatility, the also can fourth variable weather the quarter comparisons as have Decembers business and the weather. Our more our face and on favorable based the from last

we factors, fourth to our at As are a maintaining X%. quarter result X% of guidance these

of Eve of do lower-end timing we Based many X%. as one offset Christmas and of a versus fewer X% will to guidance, both Sundays the limited Eve is fall year, benefit sales New quarter holidays store lower Sunday range impact sales from to volume range our of raising Monday. run holidays guidance versus are comparable shops XXXX, we by fourth professional this While hours our in X% to X% instead on full-year in a which on of the those a results year-to-date on the typical result from Year's fourth the quarter and which XXXX Mondays

quarter, our XX built XXXX point the gross at which was margin expectations full-year our third our in our quarter, quarter over from improvement basis gross the of was gross pressures a XX% in the For will to margin Tom more of the margin top-end more of margin guidance favorable mix into mix LIFO in seasonal And impact, we detail. benefited lower discuss second the third quarter. After a guidance.

acquisition but driven work are by incremental also improvements to increases. in with We costs, commodity inflation seeing continue suppliers to make our modest

margin expect the increases. to unchanged our And to to through half come along guidance as However, XX%. we quarter our our expect We're at of to manner those same remain impact price pleased results, longer stages to in XX.X% see that third any of at cost industry bottom react increases. But the but on pass regarding other in ability to pricing confident no inflationary source leaving full-year of inflation. industry's rational the our increases We're tariffs, see range. early within to to gross the in those are beginning we pass continued based

We guided range previously also within continue XX.X% to of expect our be full-year operating sales. XX% our profit XXXX for of to to

$X.XX $X.XX in of with For to share, the at a earnings a of change. in quarter per we increase at $X.XX our liabilities tax are represent quarter to related X% $X.XX, fourth fourth which midpoint the our EPS benefit law over adjusting deferred conjunction would included tax year, last the guidance establishing which

a represent fourth our Excluding the XX% increase that would quarter in benefit, EPS. guidance midpoint

through we full-year includes remind any to $XX.XX guidance and updating are I our call not the our quarter would through today. share does shares but guidance impact $XX.XX, We additional EPS repurchased purchased performance our that repurchases. the include third full-year shares this also call, to of reflecting have the everyone

Shaw. thank turn remain customers confident Before I'll solid by the to XXXX. our I strong. over in We Jeff? XX,XXX in customer well-positioned their over to long-term very we confident very the finish performance we team will over Jeff, team consistently again members capitalize would demand to far our turn drivers industry-leading I team like believe in the providing call on up for our And for year our of Jeff the industry. all the And call dedicated day. to thus demand to are now service every I'm

Jeff M. Shaw

to team their customer a morning for quarter everyone. good and Greg, Thanks, I'd third commitment to to solid congratulations O'Reilly our my providing on and top-notch team thank service. continued add like

the and Greg service day in I'd solid exciting like demonstrated previously customer XXXX our to When our markets. talking availability. reflects of on some each truly trends service about focus of to one our focus excellent means every expansion our today impossible by it's really which distribution parts by discussed, teams customers, center been the consistent, on As in what unrelenting importance have you underestimate sales begin news. for very

top-notch do our distribution in faster than Our our competitors. the work dependent parts customer our stores to those get teams stores in is service our hard-to-find on ability provide to center

projects, Our our for investment in our industry-leading announce a position. advantage strengthen us. regional further DC to pleased key long-term new is will which competitive network two we're robust And DC

XXth the distribution to where located between our Twinsburg announce we're First, Twinsburg, Cleveland Cleveland center. halfway is have pleased Ohio, Northern in approximately we've acquired begun area and Greater property to in Ohio, build in Akron. we

reached new open DC several additional where support West of to freeing point the of Virginia, this our often enter discussed opportunities in capacity the centers up store Ohio, country, DC DCs distribution plan into existing backfill past, we of to build our Pennsylvania, capacity continued toward growth mass us an further our is take now strategy in in has to followed to been allow existing to while over in region. critical new advantage by necessary expansion also the region a stores to stores and expansion XXXX East we've familiar greenfield quarter years, Twinsburg approximately leverage in facility We a to markets existing to in and contiguous The in square the stores DC the plan a that the ground-up a capacity to As as as XXX,XXX service our fourth last markets. game projected XXX Detroit. out we is opened with Western feet. of of stores Indianapolis we've We've supported footprint,

the the to approximately placement in by this DC further addition the investment In leverage allows providing to this overall Ohio us of market. to Northern same-day multiple XXX important stores adding service capacity,

provide existing project relocate have in our out be DC existing Tennessee, of suburb distribution service and XXX announcing service and teams second eastern of store approximately will advantage new accommodate been square which begin our in region, feet even our markets the in Nashville, additional an Nashville have XXXX. of growth leased of broader Nashville new and us capacity capacity take The first an and this will is facility continued today facility breadth The our SKU and stores. the surrounding And of plan in its market. to XXX,XXX very for purchase new better markets DC in strong is to capacity DC Lebanon, allow a we're Nashville parts to in the to the hard-to-find profitable our of to growing half this us. will

their have these just time I projects, operations teams, our Before planning, to on again building, the who new effectiveness multiple centers, discussion want opening from seamlessly DC distribution have confidence at of distribution upcoming move express projects I in time. the in our proven often same executing successfully and DC I and

same the confident delivered. we're out With team, this past projects with the dedication will have roll of efficiency of projects degree and our these support that

and enhance basis, has the normal of fuel SG&A increased the to which delivery of higher XXXX tax sales an further basis, to driven compensation prices a result results for points per grew end new year-over-year as was quarter. high incremental at pressure miles our Now, store law the been headwind a best-in-class dollars expenses, to a I'd SG&A from gas portion driven. of from was service. expense to like plan to well our basis SG&A than SG&A XX.X%, On customer as by we the a in growth operating deleverage resulting our of average store of allocate see savings our from as XXXX. deleverage and wages the percent as On discussing spend our minutes continue expectations, per few the variable XX to and X.X%,

XXXX, in parts fourth industry people we that we're to these SG&A our additional the well growth in As expect we very we're to quarter, ensuring of the per to been are the very will and feel of taking drive up to confident full XXXX We retaining the commitment and customer X% investments in that best remain store hiring, strong same year now on and training, X.X%. performance. continued path finish have continue the into professional by care prudent,

opened Finally, the new XXXX. before stores expansion of on comments goal months, XXX target in I'd call Tom, to I thus about in to for our We've are turn for remainder over the net and far XXXX, of plans successfully nine the to and finish in our first net hit stores like some our XXXX. year and with XXX the store new

release we've growth press a As Greg XXX stores XXXX. range for new of XXX new our store set in yesterday, net also announced to target

spread with our great and across Our been pleased teams continue different to profitably grow and our states, we store to markets to in XXXX country. opportunities have the across store open great openings in be identify locations XX with business

a growth store expansion XXXX backfill the Ohio, balance the between Our past will more Mid-Atlantic a to Northeast, the with in markets. years and mature strategy and similar existing follow our in Florida, few Pennsylvania, markets

the of not our I in we would support equip provide teams, without customer tools they earlier, As I'm be new with to the best expansion outstanding industry. mentioned continue store successful teams will need service, confident, the distribution the to our and our availability amazing store including parts

a to I in year all do in we're our team's by competitors, to thank and team continued and my year of close our for so company's As position I their want out-servicing out-hustling I'm ability a to our O'Reilly comments, and the to dedication solid that. success. confident We've great finish just far, had strong

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

Thomas G. McFall

quarter. our commitment Thanks, O'Reilly Jeff. third customer I'd to like the team all also continued outstanding of their which for to service, drove thank performance the in solid

of XXXX. last guidance will a I and Now, quarterly at take our quarter look the update results closer for our

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

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

in see a Our gross charge to margin the prior benefited LIFO We $X as the quarter stable charge did for basis for remainder comparison not up XX the the a we last year, of year. points and experience but the was our tariff during impact merchandise to from to Tariffs quarter subject margin margins year, the continue and to more versus LIFO increases. minimal a had million expect XXXX, have charge thus of list tariff-driven of expectation far not comps impact result we is as the parts a the and have the LIFO of gross XX% our extensive. to of do a cost

quarter will cost impact However, significant our increases we XXXX Act tariffs basis. our rate a Tax on customers. and continue on dramatic to go-forward a earnings, expect our have along tax a third Jobs positive Cuts to and impact pass on to to of had continue from The

deductions benefit for by from including which share of rate tax the was reduced our income, based X%. pre-tax tax XX.X% tax effective the per Our rate quarter third composition

benefit Excluding as effective expect create estimates share-based expectations impact rate of keep from than a our of tax share-based from We compensation, better we've is we seen as tax Cuts the of of pre-tax Tax the quarterly Act tax income. changes rate mind, will quarter open first rate in the the our to due tax our compensation on tax lower third quarters in year, now our rate continue the the to ongoing XXXX. tax our was be certain to and refine remainder XX.X% the rate. as three Also fluctuations periods. tax benefit Jobs Please reminder, than the tolling XX% of XX% in of the to full-year typically in of

quarters Now, components we'll $XXX increase flow lower the over first higher and inventory our flow $XXX three income, and the our expectations investment. higher for year, the taxes Free of cash pre-tax which and move cash results million, a by in on through to reduction free was XXXX. our full that cash was million a driven prior net year drove the guidance year-to-date

the the For from the Inventory $X.X billion quarter year. at $XXX,XXX, year, free to time flow billion. range was the this was in cash per and from the we're which maintaining the beginning $X.X of up full year, guidance store end our of of X% last

X% store is as inventory lower we a X% to grow sales rate the range per expect ensure goal year our generate. per-store than grow comparable to in at to continue growth of inventory to this We the we ongoing store

of end the the quarter at ratio XXX%. inventory to AP Our was

a finish approximately the year we seasonality, to We moderate at XXX%. to inventory expect but slightly the expect result fourth of AP as during ratio quarter our to

months is XXXX $XXX the nine of from in and our same the with for expenditures first million, were on capital Finally line of par period which expectations. XXXX,

$XXX CapEx for We year. and to continue between $XXX in million the forecast to million come

Moving end an as of our unsecured borrowings XXXX. on quarter adjusted to of to debt; the we and our The third at X.XX credit X.XX ratio our issuance on our with revolving finished times compared increase reflects May debt-to-EBITDA bond ratio the of in leverage times facility.

our number of approach and below leverage we'll target are that stated X.X when appropriate. times, We

a price price business the We discounted at continue that and means billion. expected repurchase per share program, effective our shares our confident flows available we X.X supported by an for remain an purchase shareholders. we've for share average cash execute We repurchased is view continue average returning future investment the to to our very year-to-date of $XXX.XX of to of million $X.X program our and buyback as cash total

ask, open your questions. our company be happy we'll O'Reilly I This their our to to At for concludes dedication Zenaira, the customers. answer to prepared Before like time, operator like this and answer up I'd to to questions, line, the turn team our I'd and call to thank the our comments. your

Operator

you. first Please comes begin We'll question our Thank Goldman Fassler Matt And Sachs. from the ahead. go session. from now question-and-answer

Your line open. is

Matthew J. Fassler

to morning. relates much, good prices. first Thank so My gas and you question

you driven So a cited gas prices quarter. and last miles risk as

several in traffic would had of see the any in past this the playing anything the the mindset, gas suggest over kinds as on ebbing guided and are can the of categories and months You thoughts have business? in stores range. increases to sales is or how nonetheless out in came that impact high-end in you terms flowing same-store towards your the Any consumers' that of prices that

Gregory D. Johnson

evidence it that and this And fuel that happy to customers. And had fourth business. going most the Matt. don't that we is quarter, side the quarter rising, is We in and even an side third the earlier know of of third same the ongoing and cash impact to have the substantiate with professional that. our DIY third the the be specific concern. prices if likely the outperformed into lower-income on I'd – any quarter that, really into going quarter business quarter but has year, is our concern I the there's Sure, in answer

period and postponing or it to continue high impact within that cash-strapped where of prices a the there's a regular of maintenance, they As spending fuel chance DIY can. deferring level at maybe stay repairs longer our better time, a increase habits customers for will specifically

Matthew J. Fassler

your a car a Great. best quick you're you QX, And it whether to selling over know might car based Any quarters the then, supply mix. plays bottoming sign has the of of park presumably if think turning? past that versus up, the as of if this not I that evolution as not out be seen follow we've park, vehicles what insights have years, QX industry to that in on versus as you to period the whether really few but in the past drag – quarter, from preceded vintage bottoming, the couple necessarily but experienced suited whole

Gregory D. Johnson

Sure.

of at impacted back as and park. car was the SAAR felt things there look in you bubble we've said, we several sales were If that which one the of XXXX, XXXX, impact the

that's at shops this business to that improvements seen on likely professional that cycle improving. year the first of go to repaired as we to is cars be where that the we've of have to We side those warranty our side that of coming And are more was the evidence out business, time. are as see back reported the expected our

side that we trending are in professional our bubble. of the So evidence the improvement out business that is of

Matthew J. Fassler

for it. much so you appreciate Thank that,

Operator

you. Thank

comes next go Mike Our question Baker Deutsche Bank. Please ahead. from from

is open. line Your

Mike Baker

looks Hi, that gross your an inflection margin quarter. up excluding that One, when point it thanks. were And give, looks five questions. numbers versus LIFO last or like quarters. Two LIFO for you adjust the the margins four you this like

just mix? that are to is So else that you something there inflection Or explain prices? Or taking all point? is

Thomas G. McFall

been those historically to has on. industry our prices, able inflationary see we when Well, pass

competitive remain third for driven that mix quarter. you on year-over-year our is is What would improvement the we pricing. the we tell primarily So

Mike Baker

how Any – year, year Or as be up second of operating XXXX trough? Okay. ahead to question, about to we XXXX? will will this whether early And margin be declines. margin you will provide the follow and be in think year into insight insight a look how a into should next the gross for this next might the margin then as year we about can any we row think year? I After think

Thomas G. McFall

Well, of a And in effect of tariffs potentially the year. and another that's to that now activity January. of going there's could there's into lot between the occur end round go

giving fourth we'll better give us guidance guidance our So some on call for quarter the – around have transpire able things numbers be there's before to to that – that. to put

Mike Baker

the an outlook? you tariff have So outlook think to that impact will

Thomas G. McFall

impact our I think what have doing it will also expenses. comps on an we see our and average doing, ticket our

Mike Baker

turn to I'll Thanks. someone it else. over Okay.

Operator

you. Thank

Capital next Our Scot comes RBC Please question from ahead. from Ciccarelli Markets. go

is line Your open.

Scot Ciccarelli

guys. morning, Good

Gregory D. Johnson

morning, Good Scot.

Scot Ciccarelli

Hi.

almost So for we year investments. of know the is at But past are XXXX, this Obviously, a because expectations that of that growth about exaggerated think this we bunch point. ago you of if SG&A what highlighted kind labor to year your XXXX, store we per we as growth? back environment? we've similar labor to cetera? what do given a Is something seen something SG&A it, saw it get cadence similar call XXXX, just in, incredibly this tight Or et year, let's a the

Thomas G. McFall

our give our outlook we'll Again, next on call. XXXX

SG&A we pressure of we selling that go-forward inflation the a be expect in price. also and significant goods step As relation saw our in those without store expectation SG&A, raised in and the would retail. we basis, we this increase to year, at sell as in reflected is in our primarily as IT On we typical and proactively about SG&A, our talked to a payroll looked within our function spend

Scot Ciccarelli

guys. Thanks Understood.

Operator

you. Thank

go from ahead. Please comes Matt McClintock next from Our Barclays. question

is open. line Your

Matthew McClintock

at pressure that sense. yes. industry you're you're income the same purchasing lower consumer Good and wage from an and I and Hi, of the putting the actually guidance I should their impact how unemployment at rising think makes and gas low time experiencing that in prices that experiencing of increase your rate's everyone. gas experiencing But retail that power? the morning, prices, rest and the that the about rising understand all-time is everyone's conservatism should

Gregory D. Johnson

Tom, take that do you want one? to

Thomas G. McFall

their to those and up, and Okay. income their we average take delay factors attempted will as auto of pricing that go repair fund of Gas a those discretionary price tariffs impact is ability long stretch impact and increases they a the will when life. look parts, expected to their would And that gas repairs maintenance. there's one of costs they of historically have intervals prices out at that as expect defer they And or inflationary potential can. their price in

we've in the what seen past. So that's

inflationary We computation will to – of these their a they be how also as happens because pressures it'll react what see to wages.

Gregory D. Johnson

And, Matt, to that, guide that add impacted other our inflation to just were prices. too the components gas than there and component other

closed year. discussed, cold December And weather and a dependent driven with from on cold a volatile Eve Year's open and year, customers very being last that higher really very on of about a and this volume altogether holidays. following either Also this those are New us, being month a days in it's or to is past about weather, we on which result talked hopeful As a and talked Christmas patterns. for We as sales, lot on has weekend typically likely holidays. some Monday again Decembers wet Eve opposed December, we year the the winter, the cold two which of we're have a hours weekday, come a our professional strong wet impact early winter will shorter

our So inflation. above over and guidance there are fuel that the several rising and factors fourth impacted quarter prices just

Matthew McClintock

it. color. Appreciate thanks for the Perfect,

Gregory D. Johnson

bet. You

Operator

you. Thank

Basham Our Please next comes ahead. go from from question Seth Securities. Wedbush

is open. Your line

Seth M. Basham

be with inflation along In And to such you on saying also instance, whether and demand disruption? your going the confidence lot, to face thinking it'd called about there's tariff fully or but XXXX. the potential minimum? cost in as rates tariff also cost pass specifically related not this in keep ahead you're for a My along inflation, XX% to for good question potential consider to to otherwise, ability you Thanks would of around inflation your some is large morning. of impact increases those you demand us, out increases potential a a passing related

Thomas G. McFall

in very we've thus along of hit September last passing far. we two thus have more categories And pointed round seen out good success far first the than rounds. as Seth, product what our lot you had a this

don't so rounds you were third of or timing from along a is and the first didn't would a experience to first that full that tariff passing year. the plan tell to we we The I experience the components what September And XX% full try on related XX% was go after that, into through. to passing related us – of What all two and suppliers But effect finished they're more the goods. to in through. push the should our is of a more and amount to round they're both pushed expect to back our we

Seth M. Basham

my And Advance strategic implications with thoughts your guys Auto any the marketplace one ever Walmart. follow with relates forming of of to is question are strategic partnership enough. as it strategic fair that consider a thinking a forming of idea? competitors, Would up you partnership about and Okay, some your online large what

Thomas G. McFall

our probably Yeah, still e-commerce is frankly of much considered. that partnering a with do. anyone and really the auto Advance-Walmart or to we today even sell guys we what is partnering own not All own not less company an deal The we outside concept or you know know about considered of is our have with we've company than new and as that us larger parts. But we've relatively channels retailer read. something

we've omnichannel channels parts. outside decide make inventory over auto to We no sell are to going initiatives they more to to on had Internet. e-commerce parts of company consumers initiatives readily whichever our that But our the discussions buy available focused about on very and

Seth M. Basham

enough. a Thanks Fair guys. lot

Operator

Thank you.

comes Nagel from question Oppenheimer. Our Please Brian ahead. go from next

line Your open. is

Brian Nagel

for Thanks taking Nice quarter. my morning. Good question.

Gregory D. Johnson

Thanks, Brian.

Brian Nagel

you'd year sales better been much steadier. as far commented much prepared this they're in remarks, Bigger so in and picture question, have your

nice they the that, and I factors? was those with environment at as ago. rebound too from you look data, other the you a But given should are external macro or tracking quarters clearly where you've So But several larger occurring is sales with getting what car mentioned factors better look now these factors. think, park more overall at as the be

Gregory D. Johnson

than We're what deliver we always to We're The yes. never higher. the be We want we sales yes. pleased Brian, want tracking to what both quarter with answer short those – did quarter. our and previous It's this pleased. always numbers never, year. also so sales to is, throughout higher we the every we we're we like felt on third will relatively plan year. year-to-date, perform where we're strive and do performing the this But

Brian Nagel

have somewhat my costs. there, regard looked a up question good of is clearly from some second with very at then about ability ago. along price industry with higher potential a a extent that factor question second could to Seth's had costs? along But And But transparency potential your that considered these passing of now think that and these and increased And have we that to out follow is pass as to you tariffs, and your Okay. history you limit there tariffs? the to

Gregory D. Johnson

you one? do take Tom, want that to

Thomas G. McFall

matter those the cost we are to the look products same amount. hit through, at the going are you When those of what sell, base products that no outlet going tariffs

store buy for. professional online amount part a So, tremendous there's to in with test disparity a also comes parts. you the what the a ability between service need, buy And there's that you immediacy people, can parts of our of can or part

And out will a didn't to for pick change same work you. day have. Ability didn't to parts that. tremendous you there's value in return Some that something something up the ability

So primarily Those parts. the DIY branded more meets value. customers. the product also much the But And us differentiation, all fix not entry-level of our there it are every there all of DIY that's price look really a the parts. that remember what's category most for fix, but economical are we have and virtually the specs sold, we price what's that that to pricing these label we comparisons private an raise goods that, out the in economical see much to fact tariffs which more professional is in parts are at

Brian Nagel

Appreciate it. the thank Got you. all color,

Operator

Thank you.

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

Your is open. line

Chris Bottiglieri

quarter, taking to Hi. on metric Thanks I just had little but Very bit. the question. one for I focus wanted good a

slower was and revenue that and up timing new store you square ramp there have little measured metric was by non-store maybe piece between or seemed to the a stores? difference from divided would bit. comps of off call store footage probably impacted that, of anything can perhaps kind I growth, the count DIY else any in out fall new the know, productivity Your a decline as by

Thomas G. McFall

end, we to store continue performance. and of timing new how our reserves. the But the I we surpass at they'll you sales just what achieve and do in on it Q should non-store, look expectations. year would with that return had non-comp script, do tell driver, big our new and from that pleased They my you our be the to was are with where numbers the

new next going to to Jeff issues to XXX about, going forward we're to as we're your calculation. continue range that's it's accounting again of a XXX to and stores noise So, year, go talked in that move creating

Chris Bottiglieri

you've Got I you. that was the think you X,XXX and there's the right said long-term Is when if potential still consolidation. think your about thinking potential of store X,XXX kind the And you're X,XXX business? way about – historically then, store

Thomas G. McFall

yes. It at is point, this

Chris Bottiglieri

you. Got

you Thank appreciate Okay. time, the it. for

Operator

Thank you.

go Our Michael from ahead. comes next from question Please Lasser UBS.

Your line open. is

Michael Lasser

lot taking a for Thanks morning. Good my question.

Gregory D. Johnson

Good morning, Michael.

Michael Lasser

equal all what the now, year think pass based would be? Based next inflation to units like you know business into do tariff, you're you contribution of slight what on through on number a the being getting your if and you increases else

Thomas G. McFall

effect. Again, not that tariffs come another of we or may may round have into

suppliers inventory, most that – pricing see. of onshore of those. seen going also we're We're the to We effects working we tariffs so mitigate our haven't to all actively the have also

premature. pressures would be inflationary comments on making So year's this point at next

give detailed everyone and within most probably will quarterly number. update – – we which detailed guidance in the guidance So, guidance our industry the

provide will all call. we that So, information of fourth our on quarter

Michael Lasser

the the the there from contribution impact yet? you Tom, from any of was could quarter in tariffs third inflation And and us as give

Thomas G. McFall

this year minimal expectation we I've quarter, inflation pretty plays tariff been primarily in prepared more how very the minimal see X% in it consistent is touched quarter. around has that year-to-date, will impact will in on inflation. per out been that third The we been see and but fourth commodity-based, the has my They've comments; quarter. the

Michael Lasser

the narrowed the this if spread retail Bureau, at question we look data now. is, a quarter sales And my the from follow-up bit spread comp, between O'Reilly's Census comp, GPC's

So your be the share but might Sunday timing a why us fell, can decelerating give bit? of sense it's the for gains when a little you

Gregory D. Johnson

one? want to that take you Jeff,

Jeff M. Shaw

I to in X% we at pleased pretty a with our guided we're came mean quarter. mean, X.X%. Well, we Yeah. X%, I and

can always earlier, do better doing always but and So of on the the said better, as results Greg with we're focused we quarter. we're pretty happy

As losing see Street – any and would field, in especially past business side to really is indicate share. anything DIFM market. a no there's with far going the spoke XX,XXX that what's in the we I there, as stores as we underserved don't or on hear mean, out we're The that the the on is business, highly-fragmented really part on

have focus We our that's side and best we all for we professional the competitors. of really day. country of respect the model can each business the in all our tremendous really stores doing on our a and the of amount retail every our And one across business on

Michael Lasser

very with you Thank much, the luck and good fourth quarter.

Gregory D. Johnson

Michael. Thanks,

Operator

you. Thank

next question your ahead, Horvers JPMorgan. open. go Please Our from from Christopher comes line is

Christopher Horvers

Thanks. Good morning.

Gregory D. Johnson

morning. Good

Christopher Horvers

increases, out of benefit price existing do capture you increases, gross inventory then the next benefit ahead near-term how you expect your there mix cost order? any price the continue? play is to in to And along expect fourth current you on quarter? Do merchandise pass up potential some the mix on to that margin on Following benefit margin, perhaps that the as

Gregory D. Johnson

Tom, you want to take?

Thomas G. McFall

Yeah.

always On normal. the for plan gross margin, we

have gross margins. to expect would normal quarter we fourth So

price capturing additional is, we because to margin, would very tell with the cadence are to there's working that On go our out. of it the suppliers increases, prices on many price hard these What so you try price defer and will increases. I increases depend

the actually them have through paying or through have suppliers that inventory onshore. inventory we're we So our that either the

and in best prices that's a that, think huge there's think don't I our So don't approach. opportunity to advance, raise

Christopher Horvers

that just price top increase to passing margin? that and thinking Understood. fixed is on expectation maintain able increases, margin, to that such in costs the is rate? a the gross longer-term allows price the merchandise line that you and get the margin to the potentially maintain drives expand inflation expect and through And or gross you leverage then about Or you better be

Thomas G. McFall

the also When we because goal margin percentage, straight expenses to at inflationary same them. that we look gross on is have have maintain our the our math, always impact

Christopher Horvers

much. very Understood. Thanks

Thomas G. McFall

Thank you.

Operator

you. Thank

question comes go next Bret ahead. Please from Our from Jefferies. Jordan

Your line is open.

Bret Jordan

Hey. morning, Good guys.

Gregory D. Johnson

Bret. Morning,

Bret Jordan

regional you markets? strong about dispersion, Could talk markets weaker versus performance

Gregory D. Johnson

Sure. you to Jeff, that? want do take

Jeff M. Shaw

markets the a Northeast markets. mean, out strong to be that off solid normalized across they the It really most Western is expect would call was winter as and really help would the fairly what from I That consistent only weren't the A very I a the had more maybe you'd other and year, across tougher summer normal and milder it Well, And country. of had of I quarter. as coming quite a a about was due out last couple compares would that markets either. summer North comment rest make than didn't But really the is our West. company. better

Bret Jordan

get just you players smaller in those then months? environment time tariffs think XX you'll and see have this the you as interested competing about more does environment of environment, might omni-channel with big follow-up, think How players the do more a M&A making And great. Okay, the some potentially a harder next the either about push, more active? when I mean, sellers?

Thomas G. McFall

environment. would When are last weathered that interested there and we've have over them is, be the we and there, And at had companies. are in looking that good are storms motivated we And lot at we players good three we're of as success economic than a years that a well-capitalized. still opportunistic look the seller. The or need opportunities, good are more thing everyone out out acquirer that have these that those consolidator management it's realm. seen and operations still in teams companies knows, two timing But what an a for have are

Gregory D. Johnson

really few we'll two-store we've past – operations. Yeah. been no this buy is to the that, few has year's of Bret, than one-, different seen cadence year the a I every add really this year And years. would acquisition

wouldn't I or inflation. tariffs attribute any So to change

Bret Jordan

Okay, great. Thank you.

Operator

Thank you.

from McShane Kate go from Citi. comes question Please next Our ahead.

Your line is open.

Kate McShane

new currently up DC? us a Could nearby Hi, any you lift kind? my DC open thank to happens stores with of Do when taking question wanted ask the used stores? you the the get around they I And remind a a to you happens capacity surrounding new the what question. comp for for what DCs.

Jeff M. Shaw

have mean open somewhere new market, much SKU from a They up they've a XX,XXX of out Well, the in XX,XXX DC XXX,XXX a historically, move store of do to offering. I SKUs. that SKUs that neighborhood in are the stores to serviced their hub got greater XXX,XXX,

a So just the in comp those much more readily have markets. we little historically, they bit market. in seen of availability a have And lift

Gregory D. Johnson

DC. that, an add from same-day, to multiple expansion as DC within DCs Yeah, day you're to the And to reasonable to inventory. access the really – we Jeff Kate, going will city market different hub counter add said stores store are stores much that a That that difference receiving impact have a the stores. to them. from times is distance – outside to into what see within a perspective, you're a move going to perimeter, receiving what The service inventory that doesn't really that real DC. area from They're the of not on benefit a the to outside are is they're

Kate McShane

commentary the if your mentioned, the market XXX done opening past press openings? And opening in I increased the based different on and you're something you're Is versus for that store another confidence, that market share share. stores market XXX question. in another just in there these you've In new to seeing you release lift stores (XX:XX) you're great. with what your comp could Okay, ask

Thomas G. McFall

market. we As his don't underserved into prepared comment, in go said any Jeff

So every competitive. market is

we We as is take continue pretty a tell get you to in the have years, and a in Coast we the when one West look go we longer. you at each of take number Northeast to saw stores consistent market is would competitiveness our that the I The would our development thing on and market. time that, tell of open lot we to for we it's confidence ability into. how But model been that of execute any business share

Kate McShane

you. thank Okay,

Operator

you. Thank

Our next Wells ahead. Zach question Please from comes go from Fadem Fargo.

Your is open. line

Zachary Fadem

Could morning. the out to to Florence And Hurricane Michael business any impacts and the good and your the DIY Hey, speak in and foresee ahead? QX the last on year, you flooding do compared Hurricane play Harvey in quarter notable of weather in particularly in you side? impact to of Texas

Gregory D. Johnson

were stores due during XXX mainly the roughly to had we mandatory Florence, that as far As evacuations. closed event

doubt there's us it business. So some no that cost

ensure is any safety doors to goal quick member's get Even it the possibly team a be our there in stores. the in get and in natural back least might we can, as get be back open Our as they though, at to disaster our skeleton store the crew for customers.

post-hurricane So days keep as the open their of weeks, your potentially where spoiling generator anybody and and created goodwill you've supplies lights got for can there's mean, tremendous food quick a power a power family as without back markets we customers open or we – to supply that's try they can on. some without amount that the provide or from when have to doors are in I desperately the a need.

after some the event, that a normally in pre-hurricane, we but in last the there's push. tailwind year lose always of as somewhat was anything would ones So – seen we've the it

Zachary Fadem

SG&A primarily to Got store it. the on quarter, will that and investments. to line X% come range expect confirm in for fair for the I some just that change is back the spoken that SG&A And you've And about per to wages, to step is it want QX the the year? X.X% IT that

Gregory D. Johnson

will the fair a estimate. And same. components be the be would That

third the quarter. some We put have that in other above us additional lines pressure on some X.X%

Zachary Fadem

so much. Got it. Appreciate the time, guys. Thanks

Gregory D. Johnson

you. Thank

Operator

Thank you.

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

open. is line Your

Simeon Ari Gutman

Me Follow everyone. for on Do business. Simeon, quarter. the Hey, good It up

positive, guess Me? counts missed It ticket Do in for I you trending I about it, transaction or traffic talked is traffic, if mentioned, You how

Jeff M. Shaw

Yes.

the So business were both of side the DIFM on positive.

Simeon Ari Gutman

rate that you the – that bit a the that bubble? And Okay. of year? support has during rate past said to Is sort accelerating changed getting is comments we're as that – it

Jeff M. Shaw

solid. It's remained pretty

Simeon Ari Gutman

healthy, look do kind all more if at And the looking about I'm of look how than vehicles-only X outcomes, at include do asking you for Okay. produce light if X or one align if I those there's so run at waterfall version vehicles, because don't a you And thinking it XX trucks? does demand of you between know then that another? to you you magnitudes but just different next year, XX-year-old sweet do it to nuance, there's spot, but

Thomas G. McFall

that tailwind year offset we would that see up a start pressure, We abated. had go-forward pressure year. we But the a expect side business, bit expect vehicles of because see was those the about was that to go the a more relief XXXX the professional by felt the it end worked we'd tailwind. through not more especially will the through the on years professional of in the headwind, talked we'll us of that Well, being as that this like faced over some a side on side bubble We side. to it would But little time. DIY in And last headwind, bubble was weight on professional bubble. that of have basis we have to it – to

many X As to there's at light and far it. cars as ways the years XX-year-old as you said look look to We trucks. tend at to

Simeon Ari Gutman

Appreciate Thanks. it.

Operator

you. Thank

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

Gregory D. Johnson

Thank solid we look thanking like today, delivering Thank the forward you, you. year in another continued Zenaira. call work thank entire to and hard today We'd everyone for joining like and reporting by O'Reilly call full team quarter. our I'd to to February. our for XXXX conclude results our

Operator

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

You may now disconnect.

O'Reilly Automotive (ORLY) 25 Oct 182018 Q3 Earnings call transcript