U.S. chain O’Reilly Automotive reports record results

by | Feb 8, 2019 | 0 comments

U.S. automotive aftermarket chain O’Reilly Automotive, Inc. announced record revenues and earnings for its fourth quarter and full year ended December 31, 2018. 

The results represent 26 consecutive years of comparable store sales growth and record revenue and operating income for O’Reilly since becoming a public company in April of 1993.

O'Reilly Automotive

4th Quarter Financial Results
Greg Johnson, O’Reilly’s CEO and Co-President, commented, “We are pleased to once again report another profitable quarter and a solid finish to 2018.  Team O’Reilly’s commitment to excellent customer service drove a 3.3% increase in fourth quarter comparable store sales, which was above the mid-point of our guidance range.  Our solid top-line performance, combined with our relentless focus on profitable growth, resulted in a 6% increase in operating profit dollars for the fourth quarter.  As a reminder, our fourth quarter 2017 results included a one-time $0.62 benefit to diluted earnings per share from the revaluation of the Company’s deferred income tax liabilities due to the enactment of the U.S. Tax Cuts and Jobs Act in December of 2017, and we were still able to drive a 6% increase in diluted earnings per share in the fourth quarter of 2018, despite this difficult comparison.  Our continued growth is the direct result of Team O’Reilly’s dedication to providing unsurpassed levels of service to our customers, and I would like to thank our over 78,000 Team Members for their hard work and commitment to our long-term success.”

Sales for the fourth quarter ended December 31, 2018, increased $124 million, or 6%, to $2.31 billion from $2.19 billion for the same period one year ago.  Gross profit for the fourth quarter increased to $1.23 billion (or 53.3% of sales) from $1.16 billion (or 52.9% of sales) for the same period one year ago, representing an increase of 6%.  Selling, general and administrative expenses (“SG&A”) for the fourth quarter increased to $806 million (or 34.8% of sales) from $756 million (or 34.5% of sales) for the same period one year ago, representing an increase of 7%.  Operating income for the fourth quarter increased to $428 million (or 18.5% of sales) from $403 million (or 18.4% of sales) for the same period one year ago, representing an increase of 6%.

All figures in USD.

Net income for the fourth quarter ended December 31, 2018, decreased $2 million, or 1%, to $300 million (or 13.0% of sales) from $302 million (or 13.8% of sales) for the same period one year ago.  Diluted earnings per common share for the fourth quarter increased 6% to $3.72 on 81 million shares versus $3.52 on 86 million shares for the same period one year ago.  The U.S. Tax Cuts and Jobs Act, enacted in December 2017, significantly reduced the federal corporate income tax rate and required the Company to revalue its deferred income tax liabilities based on the lower enacted federal corporate income tax rate.  The Company’s Net Income for the fourth quarter ended December 31, 2017, included a one-time $53 million benefit related to the initial revaluation of its deferred income tax liabilities, and the company’s fourth quarter ended December 31, 2017, diluted earnings per common share of $3.52 included a $0.62 benefit from the revaluation.

Full-Year Financial Results
Commenting on O’Reilly’s full-year 2018 performance, Mr. Johnson continued, “Our 3.8% increase in full-year 2018 comparable store sales was at the top end of our guidance range and, coupled with a reduced tax rate under the new tax law, drove our 27% increase in full-year 2018 diluted earnings per share to $16.10.  I would like to congratulate Team O’Reilly on their 26th consecutive year of annual comparable store sales growth and our 10th consecutive year of 15% or greater annual diluted earnings per share growth.  Our 2018 success is a testament to the dedication of our Team Members, and we look forward to continuing our long track record of profitable growth in 2019.”

Johnson concluded, “We achieved our goal of opening 200 net, new stores across 36 states in 2018 and are very well positioned to continue our profitable store growth in 2019.  On November 13, 2018, we announced the signing of an asset purchase agreement with Bennett Auto Supply, and we are very happy to report that we closed this acquisition after the close of business on December 31, 2018.  We set our 2019 target of between 200 and 210 net, new stores in our third quarter earnings release in October of 2018, prior to the signing of the Bennett acquisition agreement.  We are still targeting that range of net, new store openings for 2019, but will likely finish at the lower end of the range due to the work related to the conversion of the Bennett stores during the first half of 2019.”

Sales for the year ended December 31, 2018, increased $559 million, or 6%, to $9.54 billion from $8.98 billion for the same period one year ago.  Gross profit for the year ended December 31, 2018, increased to $5.04 billion (or 52.8% of sales) from $4.72 billion (or 52.6% of sales) for the same period one year ago, representing an increase of 7%.  SG&A for the year ended December 31, 2018, increased to $3.22 billion (or 33.8% of sales) from $3.00 billion (or 33.4% of sales) for the same period one year ago, representing an increase of 8%.  Operating income for the year ended December 31, 2018, increased to $1.82 billion (or 19.0% of sales) from $1.73 billion (or 19.2% of sales) for the same period one year ago, representing an increase of 5%.

Net income for the year ended December 31, 2018, increased $191 million, or 17%, to $1.32 billion (or 13.9% of sales) from $1.13 billion (or 12.6% of sales) for the same period one year ago.  Diluted earnings per common share for the year ended December 31, 2018, increased 27% to $16.10 on 82 million shares versus $12.67 on 90 million shares for the same period one year ago.  For the year ended December 31, 2017, the Company’s diluted earnings per common share of $12.67 included a one-time benefit of $0.59 from the revaluation of its deferred income tax liabilities.

Share Repurchase Program
During the fourth quarter ended December 31, 2018, the company repurchased 1.4 million shares of its common stock at an average price per share of $338.92, for a total investment of $463 million.  During the year ended December 31, 2018, the Company repurchased 6.1 million shares of its common stock at an average price per share of $282.80, for a total investment of $1.71 billion.  Subsequent to the end of the fourth quarter and through the date of this release, the Company repurchased an additional 0.7 million shares of its common stock, at an average price per share of $341.20, for a total investment of $248 million.  The Company has repurchased a total of 73.0 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 $150.56, for a total aggregate investment of $11.00 billion.  As of the date of this release, the Company had approximately $754 million remaining under its current share repurchase authorization.

4th Quarter and Full-Year 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 3.3% for the fourth quarter ended December 31, 2018, on top of 1.3% for the same period one year ago.  Comparable store sales increased 3.8% for the year ended December 31, 2018, on top of 1.4% for the same period one year ago.

1st Quarter and Full-Year 2019 Guidance
The table below outlines the Company’s guidance for selected first quarter and full-year 2019 financial data:

For the Three Months Ending
March 31, 2019
For the Year Ending
December 31, 2019
Net, new store openings (1)200 to 210
Comparable store sales3% to 5%3% to 5%
Total revenue$10.0 billion to $10.3 billion
Gross profit as a percentage of sales52.7% to 53.2%
Operating income as a percentage of sales18.7% to 19.2%
Effective income tax rate23.5%
Diluted earnings per share (2)$3.92 to $4.02$17.37 to $17.47
Net cash provided by operating activities$1.63 billion to $1.79 billion
Capital expenditures$625 million to $675 million
Free cash flow (3)$1.0 billion to $1.1 billion
(1)Net, new store openings does not include the acquired Bennett Auto Supply, Inc. stores.
(2)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.
(3)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, 2019
Net cash provided by operating activities$1,630to$1,790
Less:Capital expenditures625to675
Excess tax benefit from share-based compensation payments5to15
Free cash flow$1,000to$1,100

Earnings Conference Call Information
The Company will host a conference call on Thursday, February 7, 2019, 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) 619-6396; the conference call identification number is 47939964. 

A replay of the conference call will be available on the Company’s website www.OReillyAuto.com HERE through February 6, 2020.

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