ORLY - Earnings call transcript Q1 2020 | O'Reilly Automotive, Inc.

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Operator

Welcome to the O'Reilly Automotive, Incorporated First Quarter 2020 Earnings Conference Call. My name is Latif, and I will be your operator for today's call. At this time, all participants are in a listen-only mode. Later, we will conduct a 30 minutes question-and-answer session. [Operator Instructions]

the to turn McFall. now will call Tom over I Mr. McFall, begin. you may

Tom McFall

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

During first quarter prepared comments, business we'll the novel discuss and impact host After to call, company's a our COVID-XX. response the update today's provide on a for in the we'll coronavirus, XXXX conference results actions our question-and-answer period.

XX, forward-looking we be morning, from I'd statements company the made important to provisions report that [Audio the XXXX factors recent forward-looking any today SEC latest Private contain everyone covered assumes several under like update for our to Securities intend and annual any due remind on company's forward-looking to described Form this statements, to no begin safe in December we the obligation and we during for claim contained Before filings. protection statements other forward-looking Litigation by and The call. in the comments harbor XX-K Dip] statements this ended the year

this Greg I'd At to Johnson. like introduce time,

Greg Johnson

Officer McFall, Good Officer. on to O'Reilly, are Parts call. call. Co-President; our the conference Chairman; present the quarter call O'Reilly on Greg Tom. Chief morning, Tom Financial our welcome the first our Operating me Shaw, Chairman, Henslee, also and Participating are this and everyone, Jeff our with morning Vice Chief Auto Thanks, and and Executive David Executive

the XXXX full experienced COVID-XX understatement of we on XXXX to Since our has with the and X, year that world change a the guidance quarter it reported our be say fourth February pandemic. set dramatic would onset an results

on in it's facing have for life today, our both this customers country members. begin discussion uniquely my As appropriate we to time team comments felt and start our of and the challenging impact I the our

hard-working professionalism more. dedication, I culture the want Simply work profound and Never services first parts dedicated and for have their our we importantly, meet basic gratitude customers meant needs. provide family's who team industries, hard First are care our whether values vehicles our people providers, the express absolutely of I in responders, professional to customers to of essential crucial, health people. on most and have their everyday parts working rely to that means or put,

members team we centers commitment, the to responding flexibility demonstrated dedicated business in adjusting safest of our Our offices operate by to take have our customers how distribution our resilience and COVID-XX stores, care in and crisis way keep our extraordinary of open the to stores all in possible.

open challenging stores to Team our our promote want to excellent keeping customers. service customers health O'Reilly I customer providing of the of commitment service and of safety and while measures continued the unwavering for the during undertaken thank each all many pandemic to your COVID-XX members, our member during these times. course team of We've to

by the and XX. Health and beginning COVID-XX, entities, closely Control the March local for the and response have essential evolving World issued governmental was to Centers that the recommendations governmental the monitored an issued of various that From been service in to our executive Since Organization information, by the the have industry issued memorandum requirements be deemed federal Disease and we to including agencies. orders Prevention, and adapted time, state

and of company-wide are and guidelines distancing these practices taken The extensive hard been sanitation recommendations the regulatory protective new practices sourcing equipment social actions replenish to continue efforts, and and our providing members in we with increased those the of necessary issued. supplies, have working have to We're adjustments implementation despite include significantly products. personal as team cleaning challenges ongoing

sick policies or as are to time away members. need support programs as team well place in help sick to put time members family also have to attendance advanced We relax who

we interact in customers his how we steps, to Jeff in cover these more stores, all which our to addition with also comments. will detail In our prepared change measures have in implemented

remain have limited our result cleaning of efforts, more open with all was instances only where we determined As disruptions these in extensive for of warranted. a stores a temporary few closures

to cadence the of the a like of provide began sales and more little color impact see quarter I'd as first to Now on in COVID-XX. a the result we our

in As and noted mild weather as February. expectations below sales antifreeze earnings headwind in to release, and such were headwinds our in that the categories batteries due with [ph] our in weather January winter persisted

orders until in recommendations As trends of the a and were with these our onset in COVID-XX We solid we to finish we saw effect strengthened entered March, anticipating time, Within be stay-at-home our a these in and conjunction our across virtually of quarter. sales spring store headwind resulting solid period areas, the of short a issued all results sales similar took weather, March. to began the base. market of somewhat throughout middle orders

March of XX% in weeks of two decrease As for COVID-XX through noted the comparable significant in of and we of lack drove beneficial in that March of negative caused first and harsh the weather our the our sales by the April store in decline quarter. the store The the four-week release X.X% middle impact COVID-XX time last of in in of impact period. first a comparable extending beginning sales yesterday, resulted two weeks

Relief, Act. benefit impact past Coronavirus under from our of customers the over Security Economic payments Sales economic a week receipt or have the and Aid, the reflected of CARES

are forward. this these will However, a onetime on as duration of business how uncertain and we the benefit are receive being for and we magnitude result from cautious plan to we payments moving stimulus as our

business, comp were expectations part January ticket continue in have counts a sales performance the in store ticket several quarter to undercar line of quarters similar with professional the mild winter first The weather. February our as in we DIY was composition continued of hard key by our seen our results, categories. average of the business increases to as pressured drive and Likewise, outperforming driven result with trend our the comparable for roughly months growth for strong X.X our

headwinds at driven miles March, to middle of of was COVID-XX as from sides pressured. the in the saw and As we face on home pressure we consumers both our business began sheltered

was as we impact customers working our accommodate by to However, our the believe more the from likely typical demographics served than home is DIY severe professional customer. more professional for a business

and of the our our fell – earnings COVID-XX on of severity the in slowdown first the significant escalation crisis quarter our was guided end the our below of sorry, first time operating The obviously our and profit of of unanticipated which at impact results, both per the demand at was in obviously share quarter and unanticipated, a business I'm ranges.

profitable. of remain in solidly excess sales, we XX% However, with an profit operating of

to duration detail we continued costs, to and prepared taken flexibility challenging stability unknown, is in As including this liquidity, prudent of environment company, financial adequate the ensure steps which cash in appropriate comments. and their actions and have our preserve more Tom Jeff discuss ensure reduce of will the

our in ability to protect also operating confident a health of in current high our navigate are and SG&A business environment. we see we We with short-term. But and to recognize results financial a operate we company the pressure as the that fixed the continue we'll to structure, challenging through cost

expected of was For be fixed environment the product from sales expectations below mix differences, our of deleverage margin gross cold the quarter, saw the remains impact we and XX.X% items. margins mix of continue a as sluggish Outside rational. higher-margin distribution to weather pricing negative our cost and of as

the taken our road we've we put, we simply plan crisis isn't and last process. just as current we don't we This As last our each will or capital ahead navigates to look adjust night, like how of lightly. environment. communities in reported operating long expenditures XXXX serve the the the ongoing current the as know press step crisis evaluate we begins a cash to withdrawn release the reopening and have what guidance flow continue to and But will

the have guidance we decision that strongly they industry growth that consumer to uncertainty crisis. rebound we the the is successfully we changed and environment, business more While current The by and robust of are believe as withdrawing unique return exit presented feel COVID-XX even temporarily our of will significant this that prudent behavior. and challenges our our because

this these not or are we out for permanent, However, health future changes of public come will position success. structural and crisis

of to significant is demand could for their to restricted the measures rebound of operation positioned aftermarket nondiscretionary lifted, majority of is well pressure. vehicles. in customers stay-at-home our nature and the are we well impact supply lasting A damage under solid in to necessary we growth, still more persist return automotive if broader even the While after quickly the the parts are economy the are economic as the

of our – in And us vehicles our in consumers economy and environments open macroeconomic we well operating at believe and different and automobiles of the the reopen. performed Historically, begins mileages. purchase economy keep maintaining defer new ability as to all the have for we invest their existing repairing well higher positions stores as to

much. go of comments, the my take unlike now any want I team to crisis up O'Reilly proud thank so care customers. mile careers, I of of extra am when resilience As extremely is our wrap matters willingness their I again of to the their have commitment current us for but and in resolving it anything This to our our especially seen prepared our to Team customers,

now Jeff Jeff? I'll turn over to call the Shaw.

Jeff Shaw

weeks of already good to our comments Greg great over today the by Greg, last begin said the several echoing like my crisis. in responding morning, COVID-XX to has Thanks, everyone. I'd contributions what the team and about

and of Our times tornadoes, record disasters, wildfires responding situations. parts team people a headquarters professional including quickly long have track of of DCs other natural our selflessly stores, and challenging in hurricanes, many many, in

unprecedented this taking proud and extremely customers' the and health efforts in have to critical our has sacrifices steadfast this taken to of the our care stores keep public customers. operating an team keep of is resolve members respond crisis, made needs our crisis. open see COVID-XX I'm commitment grateful during the to meet to While and all our and our certainly team I same

one counter core our as our In interacting easy actions highly has operations see sleeves, public our DIY parts the ever stores, – our our and in to of the customer the adjust extensive sure you of safe light spent service agencies, you've up with Excellent our taken our are been shops. And CDC, much at how time recommendations possible. in WHO it's at with customers customers or we've other our make rolling their customers and how with interactions culture. as we always to to with professional by of the information if

received check distancing. and engine such battery markers functionality We've stores, Inside floor added Buy In-Store and signage, We're our distance. enhancing omnichannel leveraging Online, we've maintaining Up by other investments markers, our Pick to light facilitate measures also modified been to to counter recommended as pickup, by our appropriate the services, our customers. well has testing which social curbside very include ensure store

the we're have sure, we've with our safety how has For business of way pleased our well we interact teams health provided and service. protect customer extremely adapted excellent our customers to the customers, changes the team made with and members and to guidance still changed the to but our

begun Just of also adjustments to difficult interact costs with as made and to we business respond to our seen we've lower take result our operations of reduce the we level to a to COVID-XX. customers, how adjust we've the as steps

As the we levels. aggressively across March, more impact we to store started markets payroll our our and manage see in staffing to began

hours p.m. normal of p.m. We of operating stores also time began implemented at and X:XX XX:XX a closing most closing or store X the versus reduction

combined in from SG&A quarter an time, expenses impact the compensation lower the expenses also positive distribution we we saw broadly March The extra across to with of earlier deploy changes closing move week to place and While sales expense. to more day keeping operating an we them in appropriate steps we per like headquarter more costs, reduced took to and store after and manage in don't of was excluding given our a inconvenience related day the line our year-over-year prudently benefit felt flat, volumes. effectively deferred taking our in bring We've this customers payroll resulted to the the retail. an

saw the which and of However, first the sales expenses late benefit despite in an a offsetting expense. basis points quarter deleverage the the of significant occurring other deferred pressure in headwind quarter comp of quarter shortfall cost combination XX We of first versus drove in our fixed has degree SG&A cost XX structure basis XXXX. of of points, this the the

bad. run service customers, in times customer everything we providing in manage do many past, discussed and strong to business our off we've we repeat to the and the As building long which can our in times we're pays the business relationships ensure for good with exceptional

the and and and of of company. consistency We core customers continue service change growth to will the our been of our robust be profitability for not has driver fundamentals these business, our our to will

well in current the into has the extended aggressive we've we're continued to crisis to as steps response structure our However, to pressure April, experiencing. cost manage take sales

While the adjustments long from return deleverage strength continued us record steps our profitable prevent expenses, confident us growth. we're remain both our financial not track of if and these preserve industry-leading position highly conditions to company's persist, current seeing of may SG&A to we making

of We're capital reviewing our plans ensure we the and net stability target on we're strong XXX net areas XX quarter, Through new business also in of our all opened expenditure way and investments. XXXX. stores, well well stores returns financial continued first in to as both on flexibility our our our as to new

various been see we've including the XXXX. opening schedules development of and spread COVID-XX other slated As in on restrictions store delays for the services, properties in combat the measures of to travel have begun to implemented, new

being new will new period stores. we're proceeding Both economic we're forward our development previous XXX Additionally, of open of it in judicious store uncertainty. such target make of about how significant very unlikely these we net on factors a

time, we're also new XXXX store guidance. So at our this withdrawing

team new number provide one. is a to customer identify in be day store to to from team service able store opening one equip Our a excellent that great priority and

in ensure planned markets that forward adjustments will our as priority. achieving to that monitor we conditions and we're We make development move

X. stores foot of us, and Tennessee, square Nashville XX opened eastern surrounding in breadth to Nashville to to hard XXX,XXX region new DC additional our take parts continued distribution find strong us markets accommodate broader for of markets March SKU the market. facility successfully very the the an growing allow capacity newest the in its will expansion On on and Lebanon, been facility this we and front, even advantage capacity to growth suburb profitable a of our provide in in in better have an

in job great The running Nashville missing excellent without have of did team providing enhanced proud a outstanding, place, we're the and a and beat, getting service. we up extremely customer team

have to new of now store into but project, likely major for other south Horn fourth As development, be we to evaluate , development slated in our continuing new which distribution Memphis, open schedule facility our we're our pushed will XXXX. the quarter Lake, in with the was XXXX, just of

make new see completion or early as for impact this stage, planned this but forward, Outside At change in XXXX. as appropriate adjustments too and cautious also projects have what taking ensure it's the to scrutinizing tell we other approach of move potential delay conditions will DC growth, of we capital we store we're we'll a to successful a project.

enhance to including projects drive hasn't we by our forward, returns. these stores. customers appropriate, and last outlined we presented our As move initiative that will for where plan several runs we our our to opportunities when which initiatives, earnings ultimate we been we call, investments discussed to the on exciting projects capital continue convert the will have and strong our service The diminished, provide and hardware

In make This our managers cuts and capital, to like to to a generate the strength. make having ensure we puts our we're type a resource we continued monitor right to prudent other without our to and period business to storm the of in drastic But in good of we're we'll ensure flexibility and we solid operating us being committed The weather capital strength of shareholders' one business successful remain financial defer position. of instances, plans. now. and cash financial rollout. severe and of decisions needs, certain to projects our a electing a will the ability and us allows time consistency the flows for

deep again commitment these comments, meeting Team to during and close like our O'Reilly to your work, for my I'd To my to express hard challenging appreciation dedication needs times. customers'

the turn over I'll Now Tom. call to

Tom McFall

our taking customers Jeff. thank care for also difficult of dedication their to of work midst to environment. Team would Thanks, like of I this all the and O'Reilly in extremely hard

a we'll quarterly our closer look take Now results. at

increase $XX store store $XX sales our noncomp line quarter, million from increase noncomp nonstore XXXX a For $XX Day, comp in $XX in sales, from Leap in $X $XX decrease million million increased sales, comprised sales and the a increase in permanently with million a million, of stores closed a plan. decrease million

with store broken planned closures consistent past reporting clarification, For these were out our are practices. and

As all Greg previously discussed, we withdrawn have XXXX guidance.

XX.X% of Our expectations. a was X.X% by benefit was were a of for first XX.X% base for comprised rate of which This reduced rate compensation. a tax both XXXX reduced income, XX.X%, to share-based tax tax compares of quarter pretax than of quarter of share-based XX.X%, compensation, the comprised income, of rate rate our by base effective pretax first better of X% a which of benefit

quarterly create of and income benefit in quarter XXXX to first the quarter lower our in credits, in of effective from tax be rate The line fourth of remainder to tax and were drove of totaling below with rate, in XXXX was benefited pretax share-based tax tax certain which lower the compared we that our expect tax to our from compensation can the for solar our a XXXX in expectations base as the fluctuations expectations. periods. continue result on rate rate as Changes dollars, total a

the will of in income of which these but benefit XXXX balances the part to cash quarterly XXXX, cash the components Now of XXXX, card same in $XXX The first million and in tax create can versus first by generate remainder million with pretax timing unevenness lower on our in that drove solar in and results in cash flow driven flows. $XXX the investments XXXX. move to quarter. the reduction credit flow receivable free paid the cash lower was of for by investment offset the for we'll credits, the projects, solar time quarter investments Free our in investment compared projects taxes quarter

end quarter up year. inventory planned was which the additional as reflects increase of for Inventory per up X.X% from $XXX,XXX, X.X% The this have from soft resulting from quarter was at year we as and sales. the last store the first time investments the of the well increases beginning XXXX

the AP and which the our we was was XXX.X% Our finished XXXX. the first of quarter at ratio above expectations inventory end to XXX.X%,

driven same capital versus first projects first distribution down level the from months the three was million, new $XX investment were Finally, XXXX, the of of the $XXX of for the million expenditures in of quarter prior year period which year by XXXX.

discussed, and previously COVID-XX to Jeff monitor appropriate environment. CapEx As impact we plans as of the continue the adjust will given our

a liquidity rate As March, compared the the million of above of that note our to the to debt-to-EBITDAR also $XXX capital and of of COVID-XX the stated XX-year We on and COVID-XX to crisis. in to a of line leverage challenge crisis credit a the adjusted see worsened of target We XXXX, at on finished March pleased and quarter we issuance began steps X.Xx. ratio holding at and cash. strengthen in $XXX midst the balance operations X.XXx by senior including our of an our we to took drawing appropriate with successful as of position our middle million X.X% in of first the XX, through down pressure further very X.XXx market end preserve liquidity, ratio our were

our March hold to leverage X.XXx. cash elected XXst, at was we borrowings, incremental the Excluding ratio in

share temporarily further conserve our the suspended program. middle a March, buyback liquidity, we step As of to in

of Our prior total shares price investment $XXX.XX million share a for this average at to repurchases totaled of decision an million. $XXX year-to-date X.X

under we of had and and total ample our under we borrowings yesterday, $X.X liquidity revolving of billion $X.X we in available existing this As feel have facility. liquidity billion facility, credit cash

we'll public maintaining capital share our evaluate of including use we rating prioritize forward, moving debt. liquidity, and our repurchase strong As our continue program position, the investment-grade financial to leverage, on

stability a our continue health ensure long and history steps of managing have of long-term to we'll conservatively prudent company. balance We the take and our sheet, to

dedication for up to our open and questions, their resilience your company the our the several continued Before over team call the to for last our they've to thank I'd and O'Reilly customers. I like shown weeks

comments. this prepared the line, At happy like to ask Latif, operator, be your the return to I'd This to so time, concludes our to questions. we'll answer

Operator

Thank you.

Evercore on Greg begin We question-and-answer [Operator will line Instructions] the is from session. with Melich ISI a question. now

Greg Melich

around position this. guys, variable should My actions to help costs associates. downturns. XX%, morning as the you going follow-up. the that's we I'm good then still prior think into back and a about all How to the thinking job I think to business fair if core you both and customers Thanks, see on margin question And a of benchmark. are probably business we great through look is the just had that position? reduce getting want that I and to if it's

Greg Johnson

take to want you do Tom, that one?

Tom McFall

is sales down, experienced Greg, before staying people that seen than much situation down in unusual something home, this significantly at miles the a more the and very haven't are we with past. we've driven

prepared in a have X:XX from X:XX, about in talked comments, very Greg night. you the look we at X:XX, As high opened locations when XX:XX multi X:XX, at model morning fixed till

of all We those staff hours. to have

So seeing of fixed have reduction pretty – and would to pressure of on given a We through a negative that, in those a expect we're model, more positive more significant less have we and flow sales. sales. a high

to restrictive it expect be number. more we'd So a

Greg Melich

Got it.

be just this reasonable being downturn so than of more would – XX% the nature given is So unique?

Tom McFall

Yes.

Greg Melich

change would you down less helpful. terms Have seeing movements across more might Got stores, potentially terms are probably in that What in differently? or I'm given there of Anything on would about be stores XX%. then behaving of activity thinking the miles the of mentioned XX% be that follow-up or of urban geographically where rural be just that still you on it. And this. seen you are uniqueness any pretty guys – similar. the it's driven

Greg Johnson

Jeff, that? take to want do you

Jeff Shaw

January we February. in we didn't the winter and as have in prepared a of Greg, really comments, mentioned Yes. much

and first with thing the really a markets been rest understand be one the have of country The then better would I chain, our off assume that markets up the hit. metro impact our say the in would was than all population orders. pretty to by driven widespread all general So home in then to we areas, really across the in weather chain. COVID fairly March of the the is started talked And and pandemic our about, XX% the across And picked market degree slow. adherence cold the of business half large appear greater that that of stay-at-home impacted we that to

Greg Melich

guys. That’s helpful. luck, it. Got Good

Greg Johnson

Thanks.

Operator

Thank you.

We have Scot a on line Capital. question from RBC of Ciccarelli

Scot Ciccarelli

Good morining, profitability period that us guys. Are you guess, kind the where guys Thank I you a general for least during to XX%, question? a of you at posted provide with able negative week question. your comp derivative Greg's range of was about a of what on four

Tom McFall

on XX% because all, the comp the negative rate. regarding we of a give we quite but made of headwind, first question that we What run say negative to we short the stores a don't SG&A to given have be flow Greg's periods bridges through and bit staff metrics comments periods, higher we'll it will would for Well, the is profitability echo time. of hours open, see accounting

Scot Ciccarelli

Okay. All got it. right, I

Just I’m sorry. –

Tom McFall

Sorry, obviously…

Scot Ciccarelli

Go ahead.

Tom McFall

that also be the rest significant on depends that Obviously a rate, and of miles how are the quarter sales But for it will like the look what headwind. driven. given many

Scot Ciccarelli

it. Got

current is at, being the I your industry not kind where this to a impact just the point, that then you your with think lead then aggressive down, this given the is, of could O'Reilly? at downturn posture M&A more in a just follow-up guess are magnitude Or business? question heads miles driven from And Okay. of given on

Greg Johnson

and wouldn't less we Frankly, all going it's now, Scot, them strategic we looking we're acquisitions. for coping business at always busy any as certainly really any been on, we're we've we I but strategic company, what's the if – on strategic business to looking acquisitions. really – And a say more would different. really presented at themselves. no open look right with or be running any acquisitions, focusing of

Scot Ciccarelli

Understood.

guys. luck good Okay,

Greg Johnson

Thanks.

Operator

you. Thank

on next Morgan question Simeon is line Gutman Our of Stanley. from

Simeon Gutman

Thank good morning. everyone; you,

Greg Johnson

Good morning, Simeon.

Simeon Gutman

My – good of first morning. question a hey, more

weeks provided, and half that through a a mid-April you forward? how been then sense First, of does And weaker, to share include that we stimulus improvement. on have we've broadly, have you the – was like glean the more The it March about housekeeping. XX% the data period? April going the back can minus in seen point different sounds think how Can to world the so of

Greg Johnson

little in We're of that, going kind did through walk color prepared than a quarter you to more not comments, I Simeon. Yes. quantify with what the I'll but

said, the quarter similarly Comps we for January, that As commented January in very February. February to we we led into started positive. mild back where and February. winter were both

Although expectations, weeks couple and typical in Sales Then to in our they patterns of March with business. both we moved expect we normal positive. into they March, our what didn't first were meet were more of see weather the improved. of things Weather improved. would

So in we saw improvement the first weeks. two

present itself and shelter-in-place issued. the orders then And really and to middle of March, were started stay-at-home when COVID

those all negative consistent seen once week, and past the coming consistent payments, of saw we've prior have then we checks comp period, trends week weeks. across the electronic four started four fairly And those next weeks. that over over four out, checks For stimulus improvement

Tom McFall

the two weeks weeks of that, of April at what March and two companies is To people this the want the picked was home were add were last give consistent. first baseline the and converting performances orders Stay-at-home we was. Simeon, pretty you to reason working to the Tom. consistent. to We pretty

stimulus duration of since are about, have the were uncertain done benefit. issued, talked Greg we but that the better checks As we

Simeon Gutman

it because reaction miles it. driven, down a rate if guess pre be to maybe your really understood to significant, business Got seems much properly, much, than able to I rating figure put stimulus implies I it was not just that, run and out I'll by question that’s it's helpful. healthier market, It my but like XX%, who then knows XX%. at a that. that maybe Yes,

XX% think stimulus, is – implying before quite you're I it's which minus decent.

cautious, would XX% relative know, driven all is prudent know stimulus So thought? have the it's more degree the to hard you pent-up than demand is don't think of do. insulation Greg, you I how to miles there versus And here at it that to – it. about minus But out. which does think about be maybe to it you you is laid how I what is that here Or going inform

Greg Johnson

specifically we're of stimulus. improvement the is is related of improvement stimulus Yes like related. uncertain the weeks the prior a what we to over how well. the saw now four was much significant We amount feel

our and the And just stimulus future on we'll will unknown few next have these and timing how over it's that. goes and what the time does to stimulus of out, weeks. the hit checks runs money As see performance

being forward. very we're conservative So cautious and we as look

Tom McFall

comment, that of XX hit, opportunity Greg's for but also that out sure us. of checks standpoint, O'Reilly. more seen that lot What days tell you assumptions data go sold parts usage we auto gain lot a we're driven not of I essence, and a know comments hasn't the week there's been customers share. to on ago. calculating gas on we yet. somebody include long-term And miles there relationships and that's From To make not in We out in that is driven, our term a are there our always great is are the indicator with duration. of by haven't add market to that didn't stimulus national miles because a the a want to the or

growth rate beyond goal to industry never earn that. always the growth what additional for but to has and go share Our settle been market out is,

Jeff Shaw

the open we've of And in the to with keep is And was all of that's but to best stores be open to kept we why our maybe our our done word there markets. our least add for crew, at skeleton that doors customers. local I on want all that

Simeon Gutman

color the yes. Right, all and I luck. appreciate good

Greg Johnson

Thanks.

Operator

you. Thank

on UBS. from question line Our comes Michael Lasser of next

Michael Lasser

Good for my taking lot morning, thanks question. a

a lot of drives players aftermarket industry. key driven emphasis have on as a large the put factor the miles that So

be months, sales aftermarket, you new nine going fact the next and to weighed likely out what's over As look the car determining the which going important demand are to economic under many matters consumers be to down, driven are to more be for pressure or that miles more?

Greg Johnson

Yes. Michael, question. great

what vehicles. The the breakage, to and driver of industry all our it's maintenance cycles think on I tear, That's miles be continues driven. biggest above. more causes in wear

But that that that the period significant. this you weight to add So would normal. we're driven I Obviously, mentioned other that so factors would approaching more be that. impact I than There more would miles would most that. say are

our As vehicle, to said nondiscretionary. parts, of their frequently, kids the have our their work, of our or to really come purchases they into are getting comments choice. themselves comment Whether don’t a and getting on people to have in or school stores repair we vehicle. it's prepared Most have to maintain most just their buy industry to I in they

a in prioritizing of good has definitely this, consumers industry plays weak and being of done well. economics because So their on nature, job performed economy, historically but have nondiscretionary spending a into our

So most factor I miles think the single important be continue to driven. would

Michael Lasser

the And Thank year? back comment inflation is the could the XXXX, add to did what unfold? recession how through for be If those aftermarket also, few for you of the a deflation what categories or you. in look to indicators leading the half XXXX, you on see the auto expect you going you next would be acceleration? could back the biggest And quarters

Tom McFall

when maintaining their back were maintain want want those a people It their going it key at parts. not longer, hard hard It keep key on wasn't the vehicle, surprising we to vehicles parts. wasn't their roadworthiness, they dress So well. to determine up, in to were keep Vehicles people road drivers as XXXX, performance. – was look were

can was sorry, question? the repeat question – you second I'm second The Michael.

Michael Lasser

quarters, the for move or Tom? you What’s next outlook deflation as through inflation the few

Tom McFall

Sorry Yes. about that.

inflation, had our that last no be from and anniversarying unchanged. would increases new So we is the no We anticipated – tariffs from expectation inflation year.

same So expectation.

Michael Lasser

much, very and good luck. you Thank

Operator

you. Thank

question Oppenheimer. next on Nagel of line from Our Brian comes

Brian Nagel

my Thank taking morning. good questions. you Hi, for

So business mentioned your that not between on surprising the Could how comments than guess, here large commercial of the the is had that's give us details but better is sides relatively in tracking? you the business. have, a prepared two DIY I performing question your as one, first more simple – you currently some I business spread how of DIFM

Greg Johnson

DIFM to going said the we first Yes. what as or on the not is between all, But we're out have break so, past we week two. spread side seen those is pressure less we What called over perhaps the out that, to more home of able from DIY is that that think customer the that in is because customer we typical comments. be. lot the our might than and probably models work is DIFM fewer driving of a consumer of And

want that? to add Tom, do to you

Tom McFall

has seen would the crisis since better. significant stimulus We week the XX and days you of the seen since this we've – that worse the we've last or tell sides In markedly over – improve. both the those performed checks, has has outbreak business the of DIY gotten period time

Brian Nagel

have, you XX%. was, someone question, to I in made the which retail, Then going back the it. their question echo across look comments got else second if Okay, down

the with at actually relative a normal while lot O'Reilly mid-March You to mid-April talked practices is not out of bad there. not retailers about consistent to all

now O'Reilly at happening, do customers, of And begins new extent your to the once about look what new it to coming is pandemic business, makeup right broader customers you crisis the store, to potentially from reflecting As think landscape? abate? of you the the retail dislocations to retention these or the benefiting within is traffic, that how the extent the

Tom McFall

thing is time doesn't first a good, happened despite the up it it comparisons. guess put negative I I'd So quarter, feel comp say any very rarely, so the we

see look On determine. we look at can data And and the We customers the because time our – losing can at of it's not. list a very numbers O'Rewards you're we call less of many period than sign at to whether look line that we up you're hard to moving it's our to is and when know have suffering, other how their or traffic, new more the shops up. over business on hard they the or because if some

we we've go hasn't good going customer stores keep that's for new be sure time, to customer professional they feel Same the to the experience. we normally door that to and store and past provide on thing able sticky. great our parts know been we're well. side, that open service, the like those we to interactions open we that where perform been customer because comparatively Over get a in feel Ultimately, from which going

Greg Johnson

one Yes, to thing that. Brian, I would add

Our store Buy – Pick coming e-commerce in Up result of that business our customer our Online, as most In-Store. does to

online a past which either ship chain buy functionality, hub often provide service functionality weeks, to to up to the there have a same-day opens out store we Over roll store from supply our to increased stores, distribution or our center nearby. several

and added our that up, the e-commerce Up we've on functionality Pick sales picked So especially have In-Store side.

Brian Nagel

Okay, thank you very much.

Operator

Thank you.

Chris JP next online of question Our from Morgan. Horvers comes

Chris Horvers

Thanks. Good guys. morning,

my gross on So margin the question line. is

played the LIFO? headwind a you've the So to to far, headwind Did think can you your puts of takes did end a and end forward? while Mayasa a comment that up on and guidance, increases about price how being any you gross that margin as margin going rate? bit And tariff gross lapping up And being all related seeing talk pulled about little out? so you're what

Tom McFall

as the expect. out as we a On our that, we the benefit last much played when year. we're last laid LIFO we'd tracking of This gross again, expected. out has headwind. more a Lapping as tariffs But was saw time, we margin guidance seeing year, is our as call, not of at

business. time, about Mayasa talked runs independent last As on call big we the a jobber

selling other to they're So stores. part

cost, So margins. gross lower have lower operating but they also a

So a drag that's also.

high really distribution and for the fixed routes gross quarter our our When we of when run less then it's items have center, occupancy – expectations, have margin winter cost and a look that at high we we bit relatively versus management, first you transportation. high-margin we in our a look quite at

a is that's volume down, to our when So be drag. going

Jeff Shaw

in Tom a a as add low To said. drag fixed volume. on to what to The more be little going they said, cost, color distribution Yes. are Tom

One it's of period the impact time volume. where the up of virus the for of of uniquenesses we're the of ramping a is in to spring us timing

the got at center, volume the as in center inbound – side you look well look you a as look So if and to inbound volume. you distribution the at at distribution outbound the labor

So spring over weeks, have the for higher several outbound past volumes a been have as been volumes the our ramping result of while up inbound our softer. season,

DCs you product. inflow they would to able the think impacted hours reduce of the the spring do think have in be and as So haven't you been because might inbound as cut some able would labor. up that volume much and keeping that They been to of

Chris Horvers

Got it.

basically line impact. played XQ out So margin gross your as thought sans sort the of top the

so was big good a car takes follow-ups. One the picture, in dropped And quarter? two And was much factor inflation is, peak was forward. just off the it's to sustained new of, compare occurred puts going then follow-ups the And the impact – XXXX first the guide better, what dropped the comp then? off, you and quick two back what would The sales weather How like bigger. repair seems sort analogy.

got you've But then hand, higher the other now. on share

there closing. Your don't capital out from, but probably XX,XXX XX,XXX, suffering you dealers small there's shops share players to have are smaller pressures, take and the

about So lot that you of to takes, XXXX a puts are that comparison time and in how thinking frame?

Greg Johnson

Yes.

drivers. things. Hispanic the We first things we XXXX, that We talked hibernation driven. talked take other I'll a different. speak are a called then through things were there miles lot and let lot are we are Chris, similar and I'll went that things to the We Tom out XXXX, about of about and there So definitely about part was the then inflation some When of talked question. SAAR.

fact driven miles all With vehicles in the to of at thing the a all dramatic about one far. not orders, the just unique of consumers the that is their situation that's The markets. stay-at-home have impact now in lot we're been potentially so driving

going So miles feel driven like significantly drawn be is we to down.

a of was on factor going key out. released this to stay-at-home does a when it impact able And back work are think lot be business to And that We driver to quarter first plays really really is of orders go a thing negative just how our get back driven just to the results. to the are it of Miles depends and going their our the depends forward. on and normal people what timing lives. in

Tom McFall

little to year's year's driven by increases over be, exactly the all be really was is tariffs. pretty expected to from tariffs. it which decline number a price as X.X%, the last last it We'd to sale the of On anniversarying year much inflation, last the where anniversary – expect to we highest that year we and

Chris Horvers

luck, guys. of Thanks Best much. so

Tom McFall

Thanks.

Greg Johnson

you. Thank

Operator

you. Thank

of Jordan Bret from comes Jefferies. line on question next Our

Bret Jordan

morning, guys. good Hi,

Greg Johnson

morning. Good

Bret Jordan

Quick rates comes the I and get think guess EBIT miles guess, coming you up available contraction. to off I question. guess, more, that Do in programs understood is the driven pretty the or and want Or programs payables couple the on higher out? if down you next the likely payables ratio well I in go any about less or leverage when of banks worked as quarters? credit is

Tom McFall

and is. conservative given So our program to not will be change, is financing And very environment. to significant able standpoint, pressure generate cash, be of we that our current and operating is in very expectation vendor a our we'll manage ratios. our effectively leverage akin We although expect balance the see that, to amount we what rating our primarily will from sheet, a

Bret Jordan

of given all. Great. the a total And industry. then the buying you and members of question to doors, independent the I away? guess doors, lot group in or far this about broader magnitude you number distributors we're decline, going Do a Obviously, and think independents that the see as go when just abruptness think that meaningful of as may contraction

Greg Johnson

at Bret, got out a are look shops are shops I those feel strong for when are layer there, We've that, of those strong WDs, that a you got that at – When lot yet. the we've you financially. really above financially. a don't good look guys think

think scope an to got closed don't be that this. just scope idea of the a – think point, there that. all at we've I be would it doors of magnitude naïve throughout or this But wouldn't some think I the

Bret Jordan

Great, thank you.

Operator

you. Thank

question from on Imbro Inc. line comes next of Daniel Our Stephens,

Daniel Imbro

morning, Good late. to apologies. I our ask I guys. taking on hi. wanted Yes, Thanks questions. hopped – and for

environment? drive it sales that sales where Sorry in last online we've this on if if uplift to incremental or side? the the an And your need have you seen learnings But area so, few work-from-home as has guys in channels infrastructure? exposed this new could given any seen online relative in quarters you discussed your Has you remarks. your investment weaknesses it future around investments any through

Greg Johnson

Yes, Daniel.

are So that clearly a still improvement our stay-at-home customers online. and driven customers the over hasn't several one orders urgency us. speaks the years, in seen – small percentage sales, e-commerce we Throughout to just we from did very to shop changed Online, total sales. have forgo say the although of discounts need that the side have the The erred is to it's Up – In-Store, that during our Buy last Consistently, process how in I that very, to earlier of thing industry. even of to Pick have weeks, consumers buying more those

an purchases we change do we've or coming that buying habits. uptick And to in seen team the those our stores. And in those most customers sales in but of seen haven't a resolve – the

curbside pandemic. not And that's We people with comfortable of just delivery. consumers that are in socializing very I have our advertised going lot think been and a popular during this with

done have our through we be e-commerce Up volume Pick to Online, a But continues So continues lot In-Store. to of business our – Buy volume that be channel. of most

Daniel Imbro

question that's working signs on did any that inventory Thanks. Tom, That’s us look just Can the follow-up the helpful. as inventory pretty a on parse much year? of capital rest you meaningfully. impact million then the help early the was that gain you Can helping proactive P&L? how out it. $XXX And grow Got at having sheet, had investment you for balance the earlier. this parse out And of incremental share? the that is planned we

Tom McFall

we keeps – as the as the was of end just of about and winter that spring, was Greg it and half talked coming. move we additional growth about, So half goods planned inbound year of this for many it didn't

planning business and it last was we're very So two rough weeks. the for going

making out the to now is right time difference, perspective. so a As else that, from a clouds disruption testing there much take determine. additional And everything market – the in is are there will that SKUs far as that

Daniel Imbro

Got it. of Best guys. Thanks luck.

Greg Johnson

you. Thank

Operator

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

Greg Johnson

and joining entire thank I'd results second We'd in team we reporting look for our Thank forward selfless quarter their dedication for you, July. Thank call our continued like to conclude our today, to O'Reilly like the customers. to everyone our call today to thanking Latif. by you.

Operator

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

now disconnect. may You

O'Reilly Automotive (ORLY) 23 Apr 202020 Q1 Earnings call transcript