- Second quarter comparable store sales increase of 4.6%
- 38% increase in second quarter diluted earnings per share to $4.28
- Net cash provided by operating activities increased 23%
SPRINGFIELD, Mo., July 25, 2018 — O’Reilly Automotive, Inc. (the “Company” or “O’Reilly”) (Nasdaq:ORLY), a leading retailer in the automotive aftermarket industry, today announced record revenues and earnings for its second quarter ended June 30, 2018.
2nd Quarter Financial Results
Greg Johnson, O’Reilly’s CEO and Co-President, commented, “We are very pleased to report another profitable quarter, highlighted by a solid 4.6% increase in comparable store sales, which exceeded the top of our guidance range for the second quarter. Our top-line performance, driven by Team O’Reilly’s commitment to providing consistent, excellent customer service, and our relentless focus on profitable growth resulted in a 38% increase in diluted earnings per share to $4.28 for the second quarter. I would like to thank each of our nearly 80,000 Team Members for their dedication and hard work, which continues to be the catalyst for our long-term success.”
Sales for the second quarter ended June 30, 2018, increased $165 million, or 7%, to $2.46 billion from $2.29 billion for the same period one year ago. Gross profit for the second quarter increased 7% to $1.29 billion (or 52.5% of sales) from $1.20 billion (or 52.4% of sales) for the same period one year ago. Selling, general and administrative expenses (“SG&A”) for the second quarter increased 9% to $809 million (or 33.0% of sales) from $743 million (or 32.4% of sales) for the same period one year ago. Operating income for the second quarter increased 5% to $479 million (or 19.5% of sales) from $457 million (or 20.0% of sales) for the same period one year ago. The Company’s second quarter 2017 operating income included the benefit of a $9 million reduction in its legal accruals following the expiration of the statute of limitations related to a legacy claim, which decreased second quarter 2017 SG&A and increased second quarter 2017 operating margin by 40 basis points.
Net income for the second quarter ended June 30, 2018, increased $70 million, or 25%, to $353 million (or 14.4% of sales) from $283 million (or 12.3% of sales) for the same period one year ago. Diluted earnings per common share for the second quarter increased 38% to $4.28 on 83 million shares versus $3.10 on 91 million shares for the same period one year ago.
Year-to-Date Financial Results
Sales for the first six months of 2018 increased $292 million, or 7%, to $4.74 billion from $4.45 billion for the same period one year ago. Gross profit for the first six months of 2018 increased 7% to $2.49 billion (or 52.5% of sales) from $2.33 billion (or 52.4% of sales) for the same period one year ago. SG&A for the first six months of 2018 increased 8% to $1.59 billion (or 33.5% of sales) from $1.47 billion (or 33.1% of sales) for the same period one year ago. Operating income for the first six months of 2018 increased 5% to $902 million (or 19.0% of sales) from $861 million (or 19.4% of sales) for the same period one year ago.
Net income for the first six months of 2018 increased $110 million, or 20%, to $658 million (or 13.9% of sales) from $548 million (or 12.3% of sales) for the same period one year ago. Diluted earnings per common share for the first six months of 2018 increased 33% to $7.89 on 83 million shares versus $5.93 on 92 million shares for the same period one year ago.
Mr. Johnson continued, “We are establishing our third quarter comparable store sales guidance at a range of 2% to 4%. We expect solid business trends to continue; however, during the quarter we face the headwind from an additional Sunday, our lowest volume day, and short-term pressure to miles driven, as consumers adjust to increasing gas prices. Based on our strong year-to-date performance, we are increasing our full-year earnings per share guidance from a range of $15.30 to $15.40 to a range of $15.70 to $15.80.”
Mr. Johnson concluded, “We opened 128 net, new stores during the first half of 2018, and we are very well positioned to achieve our target of 200 net, new stores. Our new stores continue to perform well, and we remain confident in our ability to grow our market share in both new and existing areas. Overall, the long-term demand drivers in our industry remain solid, including a growing and aging vehicle fleet driven over three trillion miles each year, and we are extremely confident in our Team’s ability to continue to provide industry-leading customer service, supported by unsurpassed parts availability. We would like to again thank Team O’Reilly for our solid results in the first half of 2018, and we look forward to building on that success during the second half of the year.”
Share Repurchase Program
During the second quarter ended June 30, 2018, the Company repurchased 1.6 million shares of its common stock, at an average price per share of $264.38, for a total investment of $416 million. During the first six months ended June 30, 2018, the Company repurchased 3.8 million shares of its common stock, at an average price per share of $256.64, for a total investment of $966 million. Subsequent to the end of the second quarter and through the date of this release, the Company repurchased an additional 0.5 million shares of its common stock, at an average price per share of $281.68, for a total investment of $132 million. The Company has repurchased a total of 70.5 million shares of its common stock under its share repurchase program since the inception of the program in January of 2011 and through the date of this release, at an average price of $143.76, for a total aggregate investment of $10.13 billion. As of the date of this release, the Company had approximately $618 million remaining under its current share repurchase authorization.
2nd Quarter Comparable Store Sales Results
Comparable store sales are calculated based on the change in sales for stores open at least one year and exclude sales of specialty machinery, sales to independent parts stores and sales to Team Members. Online sales, resulting from ship-to-home orders and pick-up-in-store orders, for stores open at least one year, are included in the comparable store sales calculation. Comparable store sales increased 4.6% for the second quarter ended June 30, 2018, on top of 1.7% for the same period one year ago. Comparable store sales increased 4.0% for the six months ended June 30, 2018, on top of 1.3% for the same period one year ago.
3rd Quarter and Updated Full-Year 2018 Guidance
The table below outlines the Company’s guidance for selected third quarter and updated full-year 2018 financial data:
| For the Three Months Ending September 30, 2018 |
For the Year Ending December 31, 2018 |
||
| Comparable store sales | 2% to 4% | 2% to 4% | |
| Total revenue | $9.4 billion to $9.6 billion | ||
| Gross profit as a percentage of sales | 52.5% to 53.0% | ||
| Operating income as a percentage of sales | 18.5% to 19.0% | ||
| Effective income tax rate | 22% to 23% | ||
| Diluted earnings per share (1) | $4.20 to $4.30 | $15.70 to $15.80 | |
| Net cash provided by operating activities | $1.62 billion to $1.75 billion | ||
| Capital expenditures | $490 million to $520 million | ||
| Free cash flow (2) | $1.1 billion to $1.2 billion | ||
| (1) | Weighted-average shares outstanding, assuming dilution, used in the denominator of this calculation, includes share repurchases made by the Company through the date of this release. | ||||||||||||||
| (2) | Free cash flow is a non-GAAP financial measure. The table below reconciles Free cash flow guidance to Net cash provided by operating activities guidance, the most directly comparable GAAP financial measure: | ||||||||||||||
| (in millions) | For the Year Ending December 31, 2018 |
|||||||
| Net cash provided by operating activities | $ | 1,620 | to | $ | 1,750 | |||
| Less: | Capital expenditures | 490 | to | 520 | ||||
| Excess tax benefit from share-based compensation payments | 30 | to | 30 | |||||
| Free cash flow | $ | 1,100 | to | $ | 1,200 | |||
Non-GAAP Information
This release contains certain financial information not derived in accordance with United States generally accepted accounting principles (“GAAP”). These items include adjusted debt to earnings before interest, taxes, depreciation, amortization, share-based compensation and rent (“EBITDAR”) and free cash flow. The Company does not, nor does it suggest investors should, consider such non-GAAP financial measures in isolation from, or as a substitute for, GAAP financial information. The Company believes that the presentation of adjusted debt to EBITDAR and free cash flow provide meaningful supplemental information to both management and investors that is indicative of the Company’s core operations. The Company has included a reconciliation of this additional information to the most comparable GAAP measure in the table above and the selected financial information below.
Earnings Conference Call Information
The Company will host a conference call on Thursday, July 26, 2018, at 10:00 a.m. Central Time to discuss its results as well as future expectations. Investors may listen to the conference call live on the Company’s website at www.OReillyAuto.com by clicking on “Investor Relations” and then “News Room.” Interested analysts are invited to join the call. The dial-in number for the call is (847) 619-6397; the conference call identification number is 47086777. A replay of the conference call will be available on the Company’s website through Thursday, July 25, 2019.
About O’Reilly Automotive, Inc.
O’Reilly Automotive, Inc. was founded in 1957 by the O’Reilly family and is one of the largest specialty retailers of automotive aftermarket parts, tools, supplies, equipment and accessories in the United States, serving both the do-it-yourself and professional service provider markets. Visit the Company’s website at www.OReillyAuto.com for additional information about O’Reilly, including access to online shopping and current promotions, store locations, hours and services, employment opportunities and other programs. As of June 30, 2018, the Company operated 5,147 stores in 47 states.
Forward-Looking Statements
The Company claims the protection of the safe-harbor for forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. You can identify these statements by forward-looking words such as “estimate,” “may,” “could,” “will,” “believe,” “expect,” “would,” “consider,” “should,” “anticipate,” “project,” “plan,” “intend” or similar words. In addition, statements contained within this press release that are not historical facts are forward-looking statements, such as statements discussing, among other things, expected growth, store development, integration and expansion strategy, business strategies, the impact of the U.S. Tax Cuts and Jobs Act, future revenues and future performance. These forward-looking statements are based on estimates, projections, beliefs and assumptions and are not guarantees of future events and results. Such statements are subject to risks, uncertainties and assumptions, including, but not limited to, the economy in general, inflation, product demand, the market for auto parts, competition, weather, risks associated with the performance of acquired businesses, our ability to hire and retain qualified employees, consumer debt levels, our increased debt levels, credit ratings on public debt, governmental regulations, terrorist activities, war and the threat of war. Actual results may materially differ from anticipated results described or implied in these forward-looking statements. Please refer to the “Risk Factors” section of the annual report on Form 10-K for the year ended December 31, 2017, for additional factors that could materially affect the Company’s financial performance. Forward-looking statements speak only as of the date they were made and the Company undertakes no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by applicable law.
| For further information contact: | Investor & Media Contact |
| Mark Merz (417) 829-5878 | |
O’REILLY AUTOMOTIVE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
| June 30, 2018 | June 30, 2017 | December 31, 2017 | |||||||||
| (Unaudited) | (Unaudited) | (Note) | |||||||||
| Assets | |||||||||||
| Current assets: | |||||||||||
| Cash and cash equivalents | $ | 36,868 | $ | 26,528 | $ | 46,348 | |||||
| Accounts receivable, net | 241,142 | 203,673 | 216,251 | ||||||||
| Amounts receivable from suppliers | 78,950 | 61,876 | 76,236 | ||||||||
| Inventory | 3,091,719 | 2,959,315 | 3,009,800 | ||||||||
| Other current assets | 52,038 | 38,197 | 49,037 | ||||||||
| Total current assets | 3,500,717 | 3,289,589 | 3,397,672 | ||||||||
| Property and equipment, at cost | 5,384,634 | 5,035,242 | 5,191,135 | ||||||||
| Less: accumulated depreciation and amortization | 1,949,750 | 1,805,844 | 1,847,329 | ||||||||
| Net property and equipment | 3,434,884 | 3,229,398 | 3,343,806 | ||||||||
| Goodwill | 789,104 | 786,938 | 789,058 | ||||||||
| Other assets, net | 42,035 | 39,773 | 41,349 | ||||||||
| Total assets | $ | 7,766,740 | $ | 7,345,698 | $ | 7,571,885 | |||||
| Liabilities and shareholders’ equity | |||||||||||
| Current liabilities: | |||||||||||
| Accounts payable | $ | 3,314,671 | $ | 3,091,888 | $ | 3,190,029 | |||||
| Self-insurance reserves | 74,018 | 70,198 | 71,695 | ||||||||
| Accrued payroll | 81,245 | 70,538 | 77,147 | ||||||||
| Accrued benefits and withholdings | 73,006 | 59,099 | 69,308 | ||||||||
| Income taxes payable | 13,676 | 31,803 | – | ||||||||
| Other current liabilities | 262,302 | 242,607 | 239,187 | ||||||||
| Total current liabilities | 3,818,918 | 3,566,133 | 3,647,366 | ||||||||
| Long-term debt | 3,253,538 | 2,604,062 | 2,978,390 | ||||||||
| Deferred income taxes | 94,430 | 98,048 | 85,406 | ||||||||
| Other liabilities | 214,864 | 208,143 | 207,677 | ||||||||
| Shareholders’ equity: | |||||||||||
| Common stock, $0.01 par value: | |||||||||||
| Authorized shares – 245,000,000 | |||||||||||
| Issued and outstanding shares – | |||||||||||
| 80,987,794 as of June 30, 2018, | |||||||||||
| 87,998,971 as of June 30, 2017, and | |||||||||||
| 84,302,187 as of December 31, 2017 | 810 | 880 | 843 | ||||||||
| Additional paid-in capital | 1,247,837 | 1,296,674 | 1,265,043 | ||||||||
| Retained deficit | (863,657 | ) | (428,242 | ) | (612,840 | ) | |||||
| Total shareholders’ equity | 384,990 | 869,312 | 653,046 | ||||||||
| Total liabilities and shareholders’ equity | $ | 7,766,740 | $ | 7,345,698 | $ | 7,571,885 | |||||
Note: The balance sheet at December 31, 2017, has been derived from the audited consolidated financial statements at that date but does not include all of the information and footnotes required by United States generally accepted accounting principles for complete financial statements.
O’REILLY AUTOMOTIVE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(In thousands, except per share data)
| For the Three Months Ended June 30, |
For the Six Months Ended June 30, |
||||||||||||||
| 2018 | 2017 | 2018 | 2017 | ||||||||||||
| Sales | $ | 2,456,073 | $ | 2,290,829 | $ | 4,738,754 | $ | 4,447,088 | |||||||
| Cost of goods sold, including warehouse and distribution expenses | 1,167,435 | 1,090,767 | 2,248,858 | 2,115,879 | |||||||||||
| Gross profit | 1,288,638 | 1,200,062 | 2,489,896 | 2,331,209 | |||||||||||
| Selling, general and administrative expenses | 809,488 | 742,617 | 1,587,900 | 1,470,607 | |||||||||||
| Operating income | 479,150 | 457,445 | 901,996 | 860,602 | |||||||||||
| Other income (expense): | |||||||||||||||
| Interest expense | (30,862 | ) | (20,827 | ) | (59,079 | ) | (40,231 | ) | |||||||
| Interest income | 597 | 470 | 1,169 | 1,176 | |||||||||||
| Other, net | 988 | (762 | ) | 1,193 | 3 | ||||||||||
| Total other expense | (29,277 | ) | (21,119 | ) | (56,717 | ) | (39,052 | ) | |||||||
| Income before income taxes | 449,873 | 436,326 | 845,279 | 821,550 | |||||||||||
| Provision for income taxes | 96,800 | 153,505 | 187,300 | 273,795 | |||||||||||
| Net income | $ | 353,073 | $ | 282,821 | $ | 657,979 | $ | 547,755 | |||||||
| Earnings per share-basic: | |||||||||||||||
| Earnings per share | $ | 4.32 | $ | 3.14 | $ | 7.96 | $ | 6.02 | |||||||
| Weighted-average common shares outstanding – basic | 81,733 | 90,030 | 82,624 | 91,012 | |||||||||||
| Earnings per share-assuming dilution: | |||||||||||||||
| Earnings per share | $ | 4.28 | $ | 3.10 | $ | 7.89 | $ | 5.93 | |||||||
| Weighted-average common shares outstanding – assuming dilution | 82,536 | 91,299 | 83,430 | 92,347 | |||||||||||
O’REILLY AUTOMOTIVE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
| For the Six Months Ended June 30, |
|||||||
| 2018 | 2017 | ||||||
| Operating activities: | |||||||
| Net income | $ | 657,979 | $ | 547,755 | |||
| Adjustments to reconcile net income to net cash provided by operating activities: | |||||||
| Depreciation and amortization of property, equipment and intangibles | 130,792 | 114,959 | |||||
| Amortization of debt discount and issuance costs | 1,649 | 1,344 | |||||
| Deferred income taxes | 9,024 | 8,049 | |||||
| Share-based compensation programs | 10,152 | 10,353 | |||||
| Other | 4,653 | 6,037 | |||||
| Changes in operating assets and liabilities: | |||||||
| Accounts receivable | (29,550 | ) | (10,797 | ) | |||
| Inventory | (81,614 | ) | (179,866 | ) | |||
| Accounts payable | 124,642 | 155,124 | |||||
| Income taxes payable | 26,439 | 58,173 | |||||
| Other | 21,067 | (624 | ) | ||||
| Net cash provided by operating activities | 875,233 | 710,507 | |||||
| Investing activities: | |||||||
| Purchases of property and equipment | (224,117 | ) | (227,506 | ) | |||
| Proceeds from sale of property and equipment | 2,936 | 752 | |||||
| Other | (424 | ) | (1,967 | ) | |||
| Net cash used in investing activities | (221,605 | ) | (228,721 | ) | |||
| Financing activities: | |||||||
| Proceeds from borrowings on revolving credit facility | 1,429,000 | 1,782,000 | |||||
| Payments on revolving credit facility | (1,650,000 | ) | (1,066,000 | ) | |||
| Proceeds from the issuance of long-term debt | 498,660 | – | |||||
| Payment of debt issuance costs | (3,923 | ) | (1,827 | ) | |||
| Repurchases of common stock | (965,867 | ) | (1,342,591 | ) | |||
| Net proceeds from issuance of common stock | 31,178 | 26,718 | |||||
| Other | (2,156 | ) | (156 | ) | |||
| Net cash used in financing activities | (663,108 | ) | (601,856 | ) | |||
| Net decrease in cash and cash equivalents | (9,480 | ) | (120,070 | ) | |||
| Cash and cash equivalents at beginning of the period | 46,348 | 146,598 | |||||
| Cash and cash equivalents at end of the period | $ | 36,868 | $ | 26,528 | |||
| Supplemental disclosures of cash flow information: | |||||||
| Income taxes paid | $ | 150,990 | $ | 203,780 | |||
| Interest paid, net of capitalized interest | 55,556 | 37,151 | |||||
O’REILLY AUTOMOTIVE, INC. AND SUBSIDIARIES
SELECTED FINANCIAL INFORMATION
(Unaudited)
| For the Twelve Months Ended June 30, |
||||||||
| Adjusted Debt to EBITDAR: | 2018 | 2017 | ||||||
| (In thousands, except adjusted debt to EBITDAR ratio) | ||||||||
| GAAP debt | $ | 3,253,538 | $ | 2,604,062 | ||||
| Add: | Letters of credit | 36,943 | 41,196 | |||||
| Discount on senior notes | 4,700 | 2,854 | ||||||
| Debt issuance costs | 16,762 | 9,083 | ||||||
| Six-times rent expense | 1,851,396 | 1,743,720 | ||||||
| Adjusted debt | $ | 5,163,339 | $ | 4,400,915 | ||||
| GAAP net income | $ | 1,244,028 | $ | 1,072,278 | ||||
| Add: | Interest expense | 110,197 | 77,640 | |||||
| Provision for income taxes | 417,505 | 572,095 | ||||||
| Depreciation and amortization | 249,678 | 226,395 | ||||||
| Share-based compensation expense | 19,200 | 19,359 | ||||||
| Rent expense | 308,566 | 290,620 | ||||||
| EBITDAR | $ | 2,349,174 | $ | 2,258,387 | ||||
| Adjusted debt to EBITDAR | 2.20 |
1.95 | ||||||
| June 30, | |||||||
| 2018 | 2017 | ||||||
| Selected Balance Sheet Ratios: | |||||||
| Inventory turnover (1) | 1.4 | 1.5 | |||||
| Average inventory per store (in thousands) (2) | $ | 601 | $ | 600 | |||
| Accounts payable to inventory (3) | 107.2 | % | 104.5 | % | |||
| Return on assets (4) | 16.3 | % | 14.7 | % | |||
| For the Three Months Ended June 30, |
For the Six Months Ended June 30, |
|||||||||||||||
| 2018 | 2017 | 2018 | 2017 | |||||||||||||
| Reconciliation of Free Cash Flow (in thousands): | ||||||||||||||||
| Net cash provided by operating activities | $ | 442,956 | $ | 333,807 | $ | 875,233 | $ | 710,507 | ||||||||
| Less: | Capital expenditures | 109,274 | 116,874 | 224,117 | 227,506 | |||||||||||
| Excess tax benefit from share-based compensation payments | 13,290 | 9,165 | 19,608 | 32,479 | ||||||||||||
| Free cash flow | $ | 320,392 | $ | 207,768 | $ | 631,508 | $ | 450,522 | ||||||||
| Store and Team Member Information: | |||||||||||||||||
| For the Three Months Ended June 30, |
For the Six Months Ended June 30, |
For the Twelve Months Ended June 30, |
|||||||||||||||
| 2018 | 2017 | 2018 | 2017 | 2018 | 2017 | ||||||||||||
| Beginning store count | 5,097 | 4,888 | 5,019 | 4,829 | 4,934 | 4,660 | |||||||||||
| New stores opened | 54 | 50 | 132 | 110 | 220 | 232 | |||||||||||
| Stores acquired | – | – | – | – | – | 48 | |||||||||||
| Stores closed | (4 | ) | (4 | ) | (4 | ) | (5 | ) | (7 | ) | (6 | ) | |||||
| Ending store count | 5,147 | 4,934 | 5,147 | 4,934 | 5,147 | 4,934 | |||||||||||
| For the Three Months Ended June 30, |
For the Twelve Months Ended June 30, |
||||||||||
| 2018 | 2017 | 2018 | 2017 | ||||||||
| Total employment | 79,598 | 75,692 | |||||||||
| Square footage (in thousands) | 37,781 | 35,940 | |||||||||
| Sales per weighted-average square foot (5) | $ | 64.94 | $ | 63.64 | $ | 249.98 | $ | 249.18 | |||
| Sales per weighted-average store (in thousands) (6) | $ | 476 | $ | 463 | $ | 1,827 | $ | 1,811 | |||
| (1) | Calculated as cost of goods sold for the last 12 months divided by average inventory. Average inventory is calculated as the average of inventory for the trailing four quarters used in determining the denominator. |
| (2) | Calculated as inventory divided by store count at the end of the reported period. |
| (3) | Calculated as accounts payable divided by inventory. |
| (4) | Calculated as net income for the last 12 months divided by average total assets. Average total assets is calculated as the average of total assets for the trailing four quarters used in determining the denominator. |
| (5) | Calculated as sales less jobber sales, divided by weighted-average square footage. Weighted-average square footage is determined by weighting store square footage based on the approximate dates of store openings, acquisitions, expansions or closures. |
| (6) | Calculated as sales less jobber sales, divided by weighted-average stores. Weighted-average stores is determined by weighting stores based on their approximate dates of openings, acquisitions or closures. |