ORLY - Earnings call transcript Q4 2018 | O'Reilly Automotive, Inc.

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Operator

Welcome to the O'Reilly Automotive Incorporated Fourth Quarter and Full Year 2018 Earnings Conference Call. My name is Vanessa, and I will be your 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. [Operator Instructions] Please note, that this conference is being recorded. turn over now Tom your will McFall. I the to call host, And Mr. begin. you McFall, may

Thomas McFall

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

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

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

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

Gregory Johnson

our and to Parts Officer our morning, Co-President; welcome the Good our morning team and Greg of Chairman; call, Executive Henslee, this everyone, Officer. the McFall, Chairman Thanks, Tom. call commitment like and our begin Vice me Operating XXXX. conference and throughout of hard to present. Tom recognize David today's are fourth O'Reilly, Chief O'Reilly and Executive I members call. would work Auto all also To quarter with on Shaw, Financial Participating are Chief our Jeff

the a year. which beginning market X% O'Reilly end strategy X% top of to which to X.X% of we at and was commitment drove the of set the Your annual the store range our sales comparable guidance growth values our culture dual at

a at was yielded guidance operating of over expense of exceptional which and annual end X.X% and to top service customer total Your the also sales prior the the control XX% dedication an of range. our year, increase profit

generated a I of comparable and becoming O'Reilly in consecutive For sales public XXXX; the since operating in XXth to growth, like success revenue company for every income to year thank XXXX. support and year we growth record contributions would many our Team and year our

our quarter supporting fourth Now our and cover expectations we'll XXXX key results guidance.

in line business were sales weather November Our and Decembers. to The seasonal that December which with put comp being for October in strong harsh of cold fourth the with December negative. with as weather in our quarter were a XXXX fell a from which coupled November sales past comparable slightly facing weaker expectations. we progression lack grew earlier results was of than forward store compares due the From difficult X.X% the is standpoint into in our and in year prior expectations part experienced we the quarter December two short

Eve New expected on Sunday as Monday We to stronger headwinds XXXX. from face than opposed Year's in and also Christmas falling

put as to our wallets. customers of the higher were DIY a attempt continuing of approximately professional increasing to growth comparable growth repairs economy complexity, customers contributing store DIY. professional with and SKU to parts contributors parts non-critical DIY as both across to same X%, sales due -- value pressure defer pricing and quarter, mix ticket many increases the on For inflation hard on store comparable Average maintenance the our side of and DIY drove outperform sales

remaining levels remain miles automotive modest of demand industry at continued drivers record supported prices for we're aftermarket pace reasonably X%. full in our that positive driven will year as solid by the a range. gas For at XXXX, a comparable store We anticipate sales high to establishing guidance X% the employment the with grows

continuation complexity growth inflation where quarter. increasing based additional on your years parts driven average We ticket unknown to by the take model growth on This the what SKU we tariffs expect is in pressures inflation several expect a and trend or account does we is also topline of for seen of have of fourth from saw of level your cost and into additional similar known same factors. vehicles, not other input

prices more DIY counts react tempting economy and as pressure constrained to pinch repairs our We of continue possible. ticket feel maintenance and economically defer be by under to rising expect across the customers when to the

consolidate to ticket cope to be We the expect prices. count with market customer continued professional end-user the we these tend as increasing growth and continue to consumers able solid on better

patterns As expect weather normal, we and industry average. to rational to the be be pricing in

gain the the with confident comparable line far are establishing market is our to year. to XXXX service provide sales to a range of which the have quarter quarter. we and industry-leading we're our ability pleased seen remain extremely and in solid For X% with store guidance the X% first for share, thus customer in first We expectation start team's in full

the fourth fourth and gross margin is quarter related as respectively. sales a gross than higher XX.X% and seasonality sales mix margin to due of winter full full normal quarter The the and For to the percent year, weather. XX.X% year was

guidance with was margin the our year. in gross your For throughout line

basis guidance XX.X% our of XX.X% to guidance a which for from range increase For range. XXXX XX margin is a setting at point we're sales gross XXXX

and came a expectations. end from from was with year-over-year more percent gross focus comments. along top XX%, agreements, the in Assumed the our Fourth cost XX.X% offset in of and our provide his ability on savings details partially at our operating the gains omnichannel year XX% margin supplier by selves are a additional and and of quarter as end by declined basis volumes. tax to in-store guidance of of Tax on XX sales profit full pass operating and cost continued improvements efforts. profit the the both On our at our XXXX into of points will comparison, pressure acquisition These increases fixed Acts as wages Cuts a will we to Tom business distribution and Jobs continued our freight leverage directed our costs. incremental distribution consumer, continued higher back in be approximately

For the to be range profit of XXXX, will Jeff we anticipate of in in discuss detail. XX.X% our expectations more sales. XX.X% operating SG&A will our

However, to continued and customer expect experience. costs we higher in-store offset fixed on and omnichannel cost our environment a on more on service see leverage inflationary strengthening our by focus sales

earnings year of was $XX.XX For increase XX.X%. an share represented for of and increase of of earnings per the fourth XXXX full share quarter, $X.XX the per X.X% an

options earnings prepared and the the of tax rate tax respectively. tax deferred XX.X% the rate share of in XX.X% and tax our comments. our provide of our information from in stock on Excluding quarter our quarterly benefit Tom excess will increased annual per fourth impact and his on XXXX, revaluation the liability more

we $XX.XX quarter first our establishing per the share guidance $XX.XX. to $X.XX. of XXXX, of for range the For are guidance earnings year, a at to is our And $X.XX

not Our additional through stock but estimate impact excess this for guidance includes any repurchases. an quarterly repurchased from and full-year does call the options shares the tax include of share and benefit

the acknowledge team. call the to Jeff, Before I contributions again over I outstanding our of to like would turn entire

have of comparable of turn in will direct commitment sales XX over call Jeff? your consecutive and growth, work I confidence I'll and streak record extend income every to and is revenue record store Jeff the hard operating that record years XXXX. track we of result Our the Shaw. now

Jeff Shaw

Thanks breaking Greg, and good year. team to morning, also another delivering thank like record everyone. I'd O'Reilly for

basis leverage sales with additional the successfully XX been a Act spend. the and we XX executed and back has the service Your sales, control of always consistent, on to the a At continue future. and portion will year, our from for savings Cuts only increase and from strength our X.X% in strength SG&A solid excellent in points to into of commitment the plan in of Jobs year. XX.X% customer our business solid We target plan to beginning our SG&A better basis points company reinvest the of Tax delevered through expense a coming the at of be that of

the per range. what level comparable sales and of increase every at end would guidance at is we with our members we the attributable to they The increased primarily guidance higher to to sales beginning variable X.X% our X% company, the virtually was compensation of pay run full like end of as of X.X%, the our own with structure store our the For variable is consistent and team which expenses it. of top it for year, expect SG&A of near year plans

to to a of For grow to XXXX, norms our we're continue than X%. rate historical higher SG&A X.X% expecting at

especially low leverage costs, our in-store cost. our to and which to at to record rates, environment we to goals our variable SG&A pressure offset we inflationary on from pursue Looking expect anticipate and continue XXXX better by in omnichannel partially the current continued spend, aggressively fixed expect unemployment payroll

As a at establishing increase result, X.X% our are initial SG&A we to a store. per X% guidance

achieve the new open will time, because quarter take range, and the portion work we net store set third new and stores that goal year, to XXX we goal XXXX opening our our of successfully We net we For XXX stores. new call. XXX our between on Since stores. of the additional Supply opening those in will South it end the up Bennett excluding in purchased to the new of convert Bennett store Auto Florida, lower stores,

O'Reilly to transitioning is stores of the comparable impact these convert Bennett Due the until the store into acquired stores the remaining to into of stores, stores the XX remaining enter merge year. O'Reilly and first process, business will For during in our sales merger stores January base existing XXXX. the not plan XX XX half of the our from

to these expect an Bennett incur DC our are $X the assumptions. built to the related XX $X and into and headwind offices SG&A million down growth closing store per and stores, between the additional We costs million

squarely Our million $XXX the CapEx of beginning $XXX million. for middle capital guidance $XXX in of of were year year which the was expenditures to million, our the

large a company largest investment $XXX represent of For big step-up to XXXX, in and a number to million. to would is from a million This $XXX we increase of history. XXXX expect we projects range have CapEx our CapEx and

provide the additional little a increase. are sizable I'll projects creating around that color So, the

us Cleveland and our to upgrade location and hub will larger current then Lebanon DC just south in just allow both DCs. we an of distribution new announced Nashville. Nashville new ongoing Knoxville two Knoxville in DC First, have consolidate and super Nashville into projects, a the Twinsburg, convert in of an existing a east The Tennessee, Ohio,

in the an the year. also during Our later CapEx year close we projects additional provide you that property plan the and we'll on starting when DC includes details,

stores Second, conversion with between XXX store we'll have for new new this year. and XXX the stores, the CapEx of Bennett

options delivery Next, we experience desire. both our multiple continue is and new our not limited and the as our and network to base omnichannel experience. systems And we're customer's but continue keep to includes, meet store in-store distribution to grow, This our investing finally, functionality, invest heavily these assets committed operating to to distribution tools to, peak in online technology and to in installed spending to required CapEx market take share. performance, at facilitate

business growth to We're generate to spend We and long-term capital position our have put confident our of in model geared in sustainable history SG&A will solidly very XXXX, is great profitable. continue investments our success. always that us a our

an proactive arise, strategy change changes and project-by-project investment opportunities store-by-store, make should we or detail-oriented company, we're However, basis. situations on to extremely a additional our and will

XXXX, -- solid to to our forward country. my the in our conclude customer the for by of I service and each As year I'd and stores business, XXXX, a entire XXXX. in solid thank continuing to that strong O'Reilly customers' like underpin of business we day, results and the team sleeves factors well We're capitalize providing we're up macroeconomic on again rolling every positioned all to our our excellent across in look earning comments,

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

Thomas McFall

Jeff. Thanks,

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

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

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

Our for the year. from LIFO benefited the a charge margins during we merchandise was million We XX basis points and experienced stable charge up quarter, gross year. margin to $X the did as comparison a versus quarter see not last the prior LIFO

a experience charge charge $XX For the LIFO versus not did million we prior the year, full year. in a

acquisition tariffs that on-hand gross of was selling retail anticipate tariff-driven year a price expect -- upward the largest the do inflation and to a corresponding and as basis, we the as on receive continue purchased margins will inventory the we quarters to increases. see benefit aggregate wholesale to recent improvement, prior not increases XXXX, acquisition we a from expect for through price LIFO year-over-year the put For On charge, first pressure costs. two we

was benefit reduced benefit accordance deferred comprised XX.X% the of the for compares XXXX. with of related by effective quarter of compensation. fourth Act XX% or the pre-tax by rate XX.X% million Our reduced Jobs from XX.X%, new compensation, a rate which our tax to a --remeasurement XX%, benefit XX.X% and tax measurement to and of Tax was Cuts liability, rate income, of of XX%, XXXX tax and the This down share-based of fourth in base quarter rate, federal income rate of tax a pre-tax to initial of base X.X% from a share-based of $XX the rate a X.X% was comprised of of

by of income, effective for base compensation. share-based rate reduced tax was year, XX.X%, XX.X% pre-tax comprised of full a of the For X.X% rate our

we year comprised X.X% based the a a by tax of for rate of XX.X%, share of For an full base XXXX XX.X%, of benefit expect rate effective compensation. reduced , of

We relatively tax our base tax open Also expect the share-based exception tax in will of from due quarterly in of benefit the quarter, rate compensation which the lower tolling create fluctuations periods. maybe to the certain consistent to with third variations rate. our be

increase higher Now be The at by the higher push year. the per by increased our at our of was cash cash increase the of store acquisition of increases our by cash offset year drove expectations lower flow we the year-end for of end free and that top cost profit. Bennett, free we driven higher billion results $XXX,XXX, was end increase operating the from which end taxes, which in $X to the was prior interest. expect a offset XXXX. increase Inventory was per quarter X% and lower as Free to guidance, was in flow the with metric $X.X ongoing $XXX expenditures due capital we the cash gross the year, That comparable throughout were to to is and than XXXX year-over-year sales the range. and XXXX. part the billion, taxes, ensure, growth to move we flow XXXX, well-managed profit the range CapEx In a for for on the grow top billion million in store to generate. from operating The components $X.X of cash was and higher decrease cash goal the our store levels end inventory as a said, rate of our inventory at

with expect the per X.X% to X% acquisition inventory For Cleveland and the XXXX, store opening we grow on between putting percentage. pressure quarter growth increases and the DC fourth cost the of

acquisition of was XXXX. pressured AP ended the We ratio. at end and which slightly inventory Our were XXX%, as is XXX%, the of ratio the sales quarter where December we anticipated level to of below slower Bennett the the

at flat to XXXX, a inventory. expect XXX% we remain For of

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

We number, are our when stated times of appropriate. will leverage we below target this approach and X.X

billion. buyback price for of million X.X date total our as And excess our X.X press to of program, average returning the We release, of Subsequent of through remain to shares at of very price our average repurchased and $XXX.XX. an our that investment is share means end of expected effective execute continue share to XXXX, a for we average an year, by cash the continue program repurchase we we repurchased repurchase business. the discounted $XXX.XX, the of view an price capital at flows shareholders. confident supported to shares our We future million $X.XX

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

Operator

you. thank And

the Horvers [Operator We will now from first open Instructions] question Christopher JPMorgan. with Our question-and-answer session.

Christopher Horvers

a little a that regional earlier does compared year? that And quarter. of your you bit talk history about of to the quarter-to-date tough comments? compare that, in to year? expand are you so winter the the the Obviously, How lot upon performance variability far winter last around -- some in to you you and compares, earlier what seeing the Can during overall, quarter-to-date, but can would sort than saw assess related you how

Jeff Shaw

flip and of Yes, it half this Tom over that then Jeff, first take I'll and the is and Greg. to

the As regional country our performance, really softer majority and was the pretty against. in than regional those of we of from markets. little part really a the just country weather a little performance to hurricane of down compare we south winter the that was due line post our far central the lot numbers expectations across of rest, And of headwind as bit had with bit lack the also in solid a

Gregory Johnson

But, continue about quarter. in we a more for quarter the feel good had to feel being winter. as although we weather from we overall along spikes, talked we ups this We've more we've guide sales have we pattern. where spikes the our what on and about would view would tell and a a is, about had spikes. five cadence what and the improved Chris, trends month normal, three moved you We related I are normal to a disclose way good standpoint, guide. the our the those of as numbers our don't December different actual winter seen We've month-by-month have country five softest We've winter as downs. a from to weather typical feel, into to three we or So we areas comp the XXXX, of basis,

Christopher Horvers

can follow-up, what year overall environment can inflation XXXX? remind mentioned And then and XXXX? much. Tom, X% totality you in Thanks us -- over for about that of the the in what in inflationary as how for the my quarter, was fourth I thinking think the you very you was you are

Thomas McFall

numbers through second and in It No significant XXXX. first up quarter. ramped the

X% third So, we the ramped X.X% up in and quarter X%. and to

our X% to was prepared we going which So, quarter, fourth expectation X%. little in XXXX and that we're a we in look above a say comments, similar the is, total. I'd number at saw When Greg's see

Operator

We have next from Credit question with our Seth Sigman Suisse.

Seth Sigman

follow-up inflation wanted to I point. on that

basis XXX expecting points the 'XX. So, SKU of in that you're same inflation

Just to other volume the within offsets clarify, words, on are that, so that's that well? is net the you comps, as impact considering or in

Thomas McFall

parts primarily So, what's last ticket expensive totality expectation They would of that augmented or roll average we've We based that a by be X% on in ticket, think the those our to for going number that's new on. XX that's in technology years that's parts be to inflation been drive have over tailwind seen XXXX. model our our to as into total the XX average going more the goes over in decade. and last years

Seth Sigman

you. happen that be may been to give change? talked the business, And on of to signs normalize? then now, quarters needs deferral, more what trends, think caution the would you've the Thank starting If what deferring be is have for that DIY helpful. around us that, driving maybe a you that suggesting That that some on of level to that for DIY couple maintenance. you and Any consumers about some color

Jeff Shaw

impacting car have to that a push maintenance, a like grocery extended from income may get you last have them spending. prices cautious little Yes, impact repairs what longer the that fine. still to out to discretionary changes, a things can discretionary for filters to of DIY customer. customer we we're into things longer, and inflation routine store periods, have on those year talked oil I discretionary when That get their oil that work, standpoint, would about necessary and you year, keep fuel running, This maybe make -- runs your spending you. lower items again But an big part think change car like to deferring

just You're manufacturer's not doing schedules for the recommended that. following

more are related to said, think I the that wage off. likely challenged, So, discretionary, DIY those as on those they're breakage they're of to to the somewhat push scale maintenance that going and are customers repairs. But lower the make end those have be things going repairs we some to economically are and of

Operator

question next with from Our comes Bank of America. Elizabeth Suzuki

Elizabeth Suzuki

X%, have 'XX now Throughout XXXX, for you at you're to X% guided guys to X% to looking X%. comps

outlook Given that the last as looking is end year's still a this you really unfavorable normal what winter of either versus that amount an or could and we comps? factors being favorable normal which And for that up are winter, fair acceleration think mentioned year fairly well. you and left, have driving are other the

Gregory Johnson

talked Yes, supportive And of that Liz, fuel weeks. several has this past I to we be that lower come know, year increasing will and we things a will is than year driven. be continue lot you over it's expectation the down miles prior prices of about cost the fuel think the

whole we the felt complexity, economies rates fact cost about parts the technology related tailwind you at the these growing that just the because Those a backdrop look employment and are that's stable. three Tom's We backdrop, the industry the things five of and parts add more point inflation it we an combination created more on Just favorable more guide. to average had. of of about to ticket higher, cars good that newer industry

of a were this different, it team managers, O'Reilly the regional every do managers, we to annual conference We us store I district there. about it things, into we two are. in or in not the had the lot feel it mid-January but year and it's of One a sure going past our than managers to that just makes that Leadership in about, really better we year would And had conference, guide, but was Dallas has add Conference that, felt back focused the talked like attitudes a when really week running store managers profitable own and you of business. of from talked running and on and motivated driving of ownership, like team customer coming our left there even have out customer higher they providing got of on, year. done is a we positive lot service. that a we We streets, level about We on commitment sales things service really than lot And about there they're there that members, our business they XXXX related and the feel like sure and that all our excitement, year, driving where because conference may it. last

Elizabeth Suzuki

an is or environment a the in digits, that kind XXXX? in does continue can usually of to So, where X% it industry like you as potentially little Do gain mid-single to growing better. market like share maybe feel X%, you bit

Thomas McFall

one do. we distribution Yes, again our are teams strategic with programs, side network, philosophy, Greg's our we the on model, mean DIY happens our markets. our tools, every I our and a on to execution and both I and mean, customer lot in our what focused point, store each I business one mean, I a time mean, we're the that and fundamental do-it-for-me at of each day of one

Operator

is Stanley. Gutman Simeon Morgan with Our next question from

Simeon Gutman

first Tom, I flow about through. wanted to the ask you

sales likelihood the want if that you greater really any with by the end you allowed to to dictated sales I or XXXX, upside, you what net guidance? it's And when typically you forecast. or your up margins to could so downside there's surprise, guided in past, And drives ask about where

Thomas McFall

business, retailer that like. operating the in of leveraging the a relatively will profit the because high as come don't cost to key fixed our service be multi-unit as extent sales component sales performance As those we'd high of to

We pull. have levers to

Although we sure continue that providing -- on we'll make long-term And upside, we won't the those see term that impact anything relationships. leverage, customer to we'll service but we're the there, long-term if is of relationships. will do to builds level in the that demand want short the

Simeon Gutman

direction, channels, know that's secondly toward more for there I going controlling call that Curious We're pricing problematic I they there. did if to are hearing is, more could changing, brands price. from what's some And bigger and or even just as you've that whatever I across basically seen distributors map ask seeing out or shown discipline where as about of wanted brands this Greg; to be? differences that eMRP sort don't not that being different price we're pricing guess then

Gregory Johnson

their a one in now a them protect half XXXX, there of slow their mean, start years I the brand bunch were and had And one couple get our this of suppliers, a suppliers they has industry we ago Yes, really for of couple pricing suppliers years really come of pioneered couple for -- online. our that other and onboard. of been control suppliers of to for to to

we So, to in late XXXX, three had and we've suppliers several so far onboard had XXXX, two or major come suppliers additional commit.

from an program, different department counsel. program, their it's Matt or pricing pricing eMRP recommendations pricing whether taken or or a So, on unilateral program, suppliers have different legal based approaches

in more the for that online see I think, tighter controls respect traction forward. going across sales We gaining we'll industry some and are

Operator

question from Our next comes Jefferies. with Bret Jordan

Bret Jordan

trying pricing, holding more the anybody seeing guess increased reduce as any are pricing you mortar commercial rather other get you shops, brick to and get through to of it, I than passing volume? guess, some On inflation and I competition,

Gregory Johnson

on strategy. that's been I I've suppliers try always buy really, I there, mean that's solid business. partnering goes out Well, been is. short-term get That's prices a with solid mean that it's them the depending business how business then and and through business And business. grow build tough shop relationships, the business, and their I mean in offer a I forever. there's really ongoing. tough, availability been rebates, comes it's when to normally a little, mean happened their relationship keep service, the they help the you and to times cut business. service But probably pricing

Bret Jordan

is omnichannel trajectory as And online, initiatives, it have far you of I any then the up? pickup store, you increase ramp in your where as sort maybe there, I obviously of buy mean, guess within data

Jeff Shaw

where is in to that store, Overall, to that it everything that right inside you will in staying of around which But up that I pickup our make make fluctuates significantly. has we online breakout tell online, store, Bret. job. it complete end store, a -- pickup sales the level two-thirds sure knew buy our We slightly, we're increased or we sure the from of standpoint, they can we provide service we have want. and want highest customer they ship-to-home,

Operator

Michael next our with UBS. Lasser from have We question

Michael Lasser

and of you're So, are your year repairs the getting like has going over no it of of course inflation, increases guiding year, course the inflation start good, The the sounds have benefit as modeling X the some X, more the tariff progressively because visibility difficult think the second about of the half related of probably been the in of we less part to it and year. of the year. you're into see likely price to longer it

So, it year affected as half second XX% if on a cautious the be and those goes more view we along what model lines, through? of happens tariff take -- our the if year, should we the models how

Thomas McFall

you out, our will Okay, Michael, this comps pointed the the year-over-year will would inflationary quarter that tell consistent Tom. as What first most relatively is a we a On basis. basis, have be quarter-by-quarter benefit. on you

be the from the business we a big quarter. fourth is standpoint, an pickup a help it will ease and to from have Monday, were for headwind. a the calendar a was look here fourth the XX first Sunday we going third quarter, relatively our at year, that the quarter bp in We the and extra weekend in of a really headwind the Sunday also it should rest quarter, When which consistent,

look throughout comps we quarter. consistent the pretty a So,

Michael Lasser

tariff? XX% the on And

Thomas McFall

question, your Michael sorry. -- I'm was And second

Michael Lasser

On the XX% tariffs?

Thomas McFall

state obviously for go that is market tariffs. To expectation in extent Greg of Yes, how to XX% tariffs we on the out, the But to saw lot. those changed see increases. in have On a offsetting see larger average we're our And March, increase reacts. the driven going be prices we'll our as same the additional now have we that ticket, ticket we'll because those pressure in and those rising count. a are, expectations by pointed are things year the cost then

Michael Lasser

part what it's competition growth of been this SG&A catch-up for the store will I complicated, investment within different philosophies if maybe is the maybe second this Is reason, side, or sector becoming on of SG&A expensive year above the follow-up a in doing more some in whatever function And per retail investment more auto a ask cost could in from becoming historically. just past? a year more another business this the the be where -- a is

Thomas McFall

Well, SG&A that a year those I cost, time our back savings line see when this the to average ticket expect top about laws in our run new line. costs reinvested, at proportional at tax cost from this we you to point year call see as what this the increase in go would rise inflation, a business, -- see and we wouldn't and the seeing feel of but we last on up, inflation we and their And in tailwind time, look from year, we'd part that we and that the we're talked inflation we would same said expenses top SKU year. to if continue to next people that's

costs quickly, are very going up tailwinds. growing we're rates are wages up, getting top-line all expenses seeing up, low, and run very interest is inflation are going unemployment our through the that that Given

that business eight we've the has think the we itself inflationary five in more in think don't environment changed, just last we're than to years. an we So, seen

Operator

Chris Bottiglieri question next Wolfe from our have Research. with We

Christopher Bottiglieri

One and quick bigger picture question. got I one follow-up

XX What is product offsets on there want tariff were price percentage of to a were way or maybe I X costs, impacted, SKUs of bridge walk So, COGS just are, increase. there? to the percentage to us the point a

Thomas McFall

them portion It's being rate produced a commodity get price the interest of down ends not we We we for So, breaking going push that but healthcare related, related, overseas. numbers. related, are products. some take some not. full all on We're to even blended tariff get, all are of and in the they're individual into here And on related, raw our some products whether and up increases States lines, are most the the increases back XX% didn't our of number.

Christopher Bottiglieri

was your And from then strategy. a bigger just picture distribution question

be referenced you the that our is You replace doing stores. not your consolidated The larger nomenclature I hubs hub, talked super peers you to are DCs different, super TDCs. confused of though after the hub to with with about think

through master helpful. of just just what it's your equivalent or us doing would there like more walk to kind you you're be DCs So,

Jeff Shaw

store, but a super we I XXX,XXX, mean, then SKU in XXX,XXX the have in hub XX,XXX market we hubs, spoke XX,XXX, be then in our then in have a our basically and be that large metro range range. we we that have would and don't would have DCs and store, SKU range -- would have XX,XXX obviously that SKU that DCs

Gregory Johnson

that to a little change. add why we're making Yes, I bit could Chris, if about that could,

some of are of two same larger into to market and we Tennessee that make both and those years issues Knoxville a that for to Knoxville supplement we that to That pretty into we decided in making have consolidate a SKUs because we breadth We for allow the capacity had Tennessee Knoxville. inventory move will our a DCs number and service or by located facility. market East that's of the same-day parts some customer converting much sure a to in that maintain but larger market a DC markets significant a a had day that in presence for Nashville market. availability Middle facing now, facilities base, hub in wanted DC DC is that super And

Christopher Bottiglieri

market? just you. Or envision the to Lastly, do creating or is country? throughout you hubs one-off a Thank specific these that this super more foresee

Thomas McFall

it that service didn't market. truly Knoxville used was always -- but DC super in have that just the big and to enough case it the capacity We've mid-stage hub Knoxville, needed we it to just, was I strategy, of no mean to wasn't

Gregory Johnson

Jeff, we hubs hub hubs? those got stores XXX-ish many of how and super super

Jeff Shaw

take. or give XX

Gregory Johnson

right now. several the We've markets got on

Operator

with question from Wedbush next Basham Seth is Securities. Our

Seth Basham

some at how morning. provide DIY color looking that as through My XXXX and for you're lot, how Could to around gap pro-comps. a questions between XXXX? Thanks trended each and that and you the quarter good through

Thomas McFall

We've at Average has pressured count. you ticket each give DIY we grown to customer on and up number. we XXXX. can you that when spoken been the year we've expect We we'd would Pro don't that, continue to on each both it actual that in tell XXXX, on the look information. is is trend quarter. What quarter find -- each

Seth Basham

XXXX? But in sales widen expect between you commercial to that and DIY don't gap

Thomas McFall

and similar our vehicles nature grow less our market, on the factors business being ability late business based based consolidate professional to more faster population in prices a on repairs by on to macro anticipating consumer model expensive on aging that more expensive. slightly continuing and other impacted difference technical We're with being general based rising are that

Seth Basham

And some the give DCs, driving at XXXX? on the for you XXXX more are maintenance, things are XXXX, then are Could little budget some a to which provide factors IT color stores, increase. bit of secondly, granularity, you your new changing looking from the CapEx the projects, most

Thomas McFall

and are, changes DC DCs in-store is two number one Biggest Number is technology. projects.

Operator

McClintock Our with is next from Barclays. Matt question

Matthew McClintock

I'd out years, way. it's a Yes, follow amazing. good different Michael's like in Congrats. morning up little question everyone. XX parse bit just on a In to maybe it

Just the XXXX omnichannel I that continuing the investments, payback sales be you're investments can but long-term increased that through us those payback in-store or Thanks. and know or whether for investments When do you invest to is? should when in we accelerating on on payback give those is sales, are? the expect the of sense in margin whatever growth, sustainable XXXX. you some

Thomas McFall

of is that our of rates. these out of business. changes our customer great What tell the many business. from drive up make comps It's Consumers retailers there, most service additional and higher job our what outside that to factors their is over you just that hard It's to that expectations. what would are parts are part be shop consumer into a sustaining changes that And levels go our time. growth the standpoint service than services maintain industry sure customer auto expectation to we of that, continue to is to parse versus

Gregory Johnson

improving to buy competitive from decisions I'm the primarily any ship details they buy store a online. search, are online on online pickup on online an going reasons. -- add that, whether those we're about to Yes, are for buy and transactions improving in improving initiatives in on customers buying content, But of or research perspective, lot based what store, not online, into decisions, made omnichannel go Matt, to to focused home, buying research

searchability so the So, we're making sure dividends of that's very speak, perspective. are long-term our for it's for we to think on level highest difficult to a sales and that, just going we How our to providing that quantify do. pay from products, focused we customers

Matthew McClintock

from color. thanks forward any seasonal I implications the right, that. were on just understand pull quarter for And in my November, And the that? the All just margin there follow-up, for

Thomas McFall

be. there wouldn't No,

Operator

from our Markets. with next Scot We have Ciccarelli Capital question RBC

Scot Ciccarelli

thinking as for park? investor park business but are that in curious, thinking topic, how car about you you plan know, me company an on XXXX, it? any about your expecting in operating It's car tell change industry based how you I'm trend are the industry, I'm and you the guys So, curious, obviously

Thomas McFall

was of bubble headwind was go that as that from XXXX. kick our those kind entering more more part the biggest year professional the of vehicles sweet through years will business reason That's start reason the years Great not to the As continue is that professional through older the DIY it one expect two year and higher ago be to DIY Recession, and spot will part are to, in the headwind that on that's the of the it a of gap professional. of for between a that, the headwind We'd that that vehicle DIY to, side. because the continue and there more side, moves be on positive much to a

Scot Ciccarelli

in there your And so, other trends that to expecting coming those expectations are and X repairs exaggerated become have that aren't comp count? kind vehicles to just In more you factored you of X words, stage, your into into XXXX?

Thomas McFall

and of are business vehicles of primarily if accelerate pressure offset on the XX, from that's to to vehicles staying also the helping XX, business a the the pressure year the that's XX, XX Those vehicle years. tail longer the bubble is growing of those and business, it side road side because the DIY expect it's side from DIY longer. wouldn't We

Operator

Daniel from is question with next Our Stephens. [ph]

Unidentified Analyst

you weighted. On you the pressures to cost mentioned passing about think the in those pressures, inflation? there of expansion that to I inhibit any And, potential guys as you be through is a price, And about, cadence, front-half different step XXXX? guidance, form you form far would really you headwind margin gross the anything as you margins? in them saw would as Can talk freight of pressure like from other when identified freight gross up

Thomas McFall

on obviously, we of run that that a continue the like population increases. nightly deliver for at the seems look and jobs driving stores. When we is distribution market it type and us we've Well, at very, that's go costs very three up, been year tight freight our is a market costs to all

we be there that market pressure So, there built and bit of But a competitive. quite we've is costs. to into got our

So, pass to this. more We're extent company we're that to able that's to not little that we're on. intensive have a going pressure the exposed distribution to higher

Unidentified Analyst

expectation, it. are you then a that expecting And XXXX we increase that just Got in within similar price and saw XXXX?

Thomas McFall

than The was incremental still experienced increase pretty, is rate less, XXXX. higher for rate. but year-over-year pretty we a high in number XXXX the

Unidentified Analyst

of some think tougher December? then think impact, Can I we a headwinds, the from guys a follow-up, few negative deceleration a And about compare. calendar about when you the December, you as shift, from weather maybe mentioned holiday quantify and November those

Thomas McFall

in We of weather people they holiday if December can't them. have But number very driven, order their vehicles, in to into going it's shopping. magnitude, otherwise fix that are one to, -- not quantify item we

So, that's And of two be the would number calendar then number eves. one. shifts the

Operator

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

Gregory Johnson

thanking you. we our quarter to XXXX for reporting XXXX forward XXXX. conclude to Thank in today Thank like year forward today would our solid entire year you, April. I fourth O'Reilly team first strong for our and joining results. quarter and in like look call the everyone call thank We'd full results our Vanessa. a to look by to We

Operator

this ladies you thank conference. We our for participating. and concludes you thank And gentlemen,

disconnect. now may You

O'Reilly Automotive (ORLY) 7 Feb 192018 Q4 Earnings call transcript