O’Reilly Automotive, Inc. Reports Third Quarter 2018 Results

Springfield, Missouri, UNITED STATES


  • Third quarter comparable store sales increase of 3.9%
  • 40% increase in third quarter diluted earnings per share to $4.50
  • Year-to-date net cash provided by operating activities increased 23%

SPRINGFIELD, Mo., Oct. 24, 2018 (GLOBE NEWSWIRE) --  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 third quarter ended September 30, 2018.

3rd Quarter Financial Results
Greg Johnson, O’Reilly’s CEO and Co-President, commented, “We are pleased to report another profitable quarter, driven by Team O’Reilly’s commitment to providing excellent service to every customer.  Our third quarter comparable store sales increase of 3.9% was at the top end of our guidance range and is a testament to the hard work and dedication of our Team.  As a reminder, our third quarter comparable store sales results include approximately 50 basis points of headwind from one additional Sunday this year, which is our lowest volume day.  Our Team’s continued focus on profitable growth generated a solid 5% increase in third quarter operating profit dollars and a 40% increase in third quarter diluted earnings per share to $4.50, and I would like to thank our Team Members for their continued hard work, dedication and relentless focus on providing consistently excellent service to our customers.”

Sales for the third quarter ended September 30, 2018, increased $143 million, or 6%, to $2.48 billion from $2.34 billion for the same period one year ago.  Gross profit for the third quarter increased 7% to $1.32 billion (or 53.0% of sales) from $1.23 billion (or 52.6% of sales) for the same period one year ago.  Selling, general and administrative expenses (“SG&A”) for the third quarter increased 8% to $831 million (or 33.5% of sales) from $768 million (or 32.8% of sales) for the same period one year ago.  Operating income for the third quarter increased 5% to $485 million (or 19.5% of sales) from $462 million (or 19.7% of sales) for the same period one year ago.

Net income for the third quarter ended September 30, 2018, increased $82 million, or 29%, to $366 million (or 14.7% of sales) from $284 million (or 12.1% of sales) for the same period one year ago.  Diluted earnings per common share for the third quarter increased 40% to $4.50 on 81 million shares versus $3.22 on 88 million shares for the same period one year ago.

Year-to-Date Financial Results
Mr. Johnson continued, “During the third quarter, we opened 43 net, new stores, which brings our year-to-date store openings to 171 net, new stores across 33 states, and we are well positioned to achieve our target of 200 net, new stores for 2018.  We continue to be pleased with the performance of our new stores and remain very confident in our opportunities to profitably grow in both existing and new market areas.  Based on solid industry demand drivers and our confidence in the ability of our store Teams to continue to take market share, we are establishing a target range of 200 to 210 net, new store openings for 2019, supported by our industry-leading distribution network and best-in-class parts availability.”

Sales for the first nine months of 2018 increased $435 million, or 6%, to $7.22 billion from $6.79 billion for the same period one year ago.  Gross profit for the first nine months of 2018 increased 7% to $3.81 billion (or 52.7% of sales) from $3.56 billion (or 52.5% of sales) for the same period one year ago.  SG&A for the first nine months of 2018 increased 8% to $2.42 billion (or 33.5% of sales) from $2.24 billion (or 33.0% of sales) for the same period one year ago.  Operating income for the first nine months of 2018 increased 5% to $1.39 billion (or 19.2% of sales) from $1.32 billion (or 19.5% of sales) for the same period one year ago.

Net income for the first nine months of 2018 increased $193 million, or 23%, to $1.02 billion (or 14.2% of sales) from $831 million (or 12.3% of sales) for the same period one year ago.  Diluted earnings per common share for the first nine months of 2018 increased 35% to $12.36 on 83 million shares versus $9.15 on 91 million shares for the same period one year ago.

Share Repurchase Program
During the third quarter ended September 30, 2018, the Company repurchased 0.9 million shares of its common stock, at an average price per share of $306.22, for a total investment of $285 million.  During the first nine months ended September 30, 2018, the Company repurchased 4.7 million shares of its common stock, at an average price per share of $266.48, for a total investment of $1.25 billion.  Subsequent to the end of the third quarter and through the date of this release, the Company repurchased an additional 0.2 million shares of its common stock, at an average price per share of $340.76, for a total investment of $68 million.  The Company has repurchased a total of 71.1 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 $145.53, for a total aggregate investment of $10.35 billion.  As of the date of this release, the Company had approximately $396 million remaining under its current share repurchase authorization.

3rd 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 3.9% for the third quarter ended September 30, 2018, on top of 1.8% for the same period one year ago.  Comparable store sales increased 4.0% for the nine months ended September 30, 2018, on top of 1.5% for the same period one year ago.

4th Quarter and Updated Full-Year 2018 Guidance
The table below outlines the Company’s guidance for selected fourth quarter and updated full-year 2018 financial data:

 For the Three Months Ending
December 31, 2018
 For the Year Ending
December 31, 2018
Comparable store sales2% to 4% 3% 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  21% to 22%
Diluted earnings per share (1)$3.60 to $3.70 $15.95 to $16.05
Net cash provided by operating activities  $1.62 billion to $1.76 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$1,760 
Less:Capital expenditures490 to520 
 Excess tax benefit from share-based compensation payments30 to40 
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, October 25, 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) 619-6396; the conference call identification number is 47646960.  A replay of the conference call will be available on the Company’s website through Thursday, October 24, 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 September 30, 2018, the Company operated 5,190 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)

 September 30, 2018 September 30, 2017 December 31, 2017
 (Unaudited) (Unaudited) (Note)
Assets     
Current assets:     
Cash and cash equivalents$40,019  $37,287  $46,348 
Accounts receivable, net242,692  219,631  216,251 
Amounts receivable from suppliers83,237  79,491  76,236 
Inventory3,139,621  2,987,592  3,009,800 
Other current assets54,462  34,480  49,037 
Total current assets3,560,031  3,358,481  3,397,672 
      
Property and equipment, at cost5,512,325  5,114,804  5,191,135 
Less: accumulated depreciation and amortization2,010,392  1,822,123  1,847,329 
Net property and equipment3,501,933  3,292,681  3,343,806 
      
Goodwill789,178  787,210  789,058 
Other assets, net43,572  40,956  41,349 
Total assets$7,894,714  $7,479,328  $7,571,885 
      
Liabilities and shareholders’ equity     
Current liabilities:     
Accounts payable$3,384,098  $3,154,250  $3,190,029 
Self-insurance reserves75,440  72,223  71,695 
Accrued payroll89,721  80,953  77,147 
Accrued benefits and withholdings83,113  65,574  69,308 
Income taxes payable  6,175   
Other current liabilities272,709  249,325  239,187 
Total current liabilities3,905,081  3,628,500  3,647,366 
      
Long-term debt3,174,327  2,900,816  2,978,390 
Deferred income taxes102,640  131,847  85,406 
Other liabilities214,287  203,986  207,677 
      
Shareholders’ equity:     
Common stock, $0.01 par value:     
Authorized shares – 245,000,000     
Issued and outstanding shares –     
80,345,665 as of September 30, 2018,     
85,338,294 as of September 30, 2017, and     
84,302,187 as of December 31, 2017803  853  843 
Additional paid-in capital1,265,827  1,267,810  1,265,043 
Retained deficit(768,251) (654,484) (612,840)
Total shareholders’ equity498,379  614,179  653,046 
      
Total liabilities and shareholders’ equity$7,894,714  $7,479,328  $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
 September 30,
 For the Nine Months Ended
 September 30,
 2018 2017 2018 2017
Sales$2,482,717  $2,339,830  $7,221,471  $6,786,918 
Cost of goods sold, including warehouse and distribution expenses1,166,962  1,109,536  3,415,820  3,225,415 
Gross profit1,315,755  1,230,294  3,805,651  3,561,503 
        
Selling, general and administrative expenses830,607  768,331  2,418,507  2,238,938 
Operating income485,148  461,963  1,387,144  1,322,565 
        
Other income (expense):       
Interest expense(31,582) (24,324) (90,661) (64,555)
Interest income669  592  1,838  1,768 
Other, net1,416  1,299  2,609  1,302 
Total other expense(29,497) (22,433) (86,214) (61,485)
        
Income before income taxes455,651  439,530  1,300,930  1,261,080 
Provision for income taxes89,500  155,796  276,800  429,591 
Net income$366,151  $283,734  $1,024,130  $831,489 
        
Earnings per share-basic:       
Earnings per share$4.54  $3.26  $12.50  $9.28 
Weighted-average common shares outstanding – basic80,593  86,947  81,939  89,641 
        
Earnings per share-assuming dilution:       
Earnings per share$4.50  $3.22  $12.36  $9.15 
Weighted-average common shares outstanding – assuming dilution81,410  88,025  82,841  90,869 

O’REILLY AUTOMOTIVE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 (In thousands)

 For the Nine Months Ended
 September 30,
 2018 2017
    
Operating activities:   
Net income$1,024,130  $831,489 
Adjustments to reconcile net income to net cash provided by operating activities:   
Depreciation and amortization of property, equipment and intangibles193,318  173,500 
Amortization of debt discount and issuance costs2,557  2,078 
Deferred income taxes17,234  41,848 
Share-based compensation programs15,144  14,835 
Other6,304  8,174 
Changes in operating assets and liabilities:   
Accounts receivable(32,799) (28,761)
Inventory(129,214) (208,338)
Accounts payable194,069  217,486 
Income taxes payable4,460  32,124 
Other46,816  2,984 
Net cash provided by operating activities1,342,019  1,087,419 
    
Investing activities:   
Purchases of property and equipment(350,461) (347,756)
Proceeds from sale of property and equipment3,353  1,906 
Other(716) (2,072)
Net cash used in investing activities(347,824) (347,922)
    
Financing activities:   
Proceeds from borrowings on revolving credit facility1,745,000  2,487,000 
Payments on revolving credit facility(2,046,000) (2,218,000)
Proceeds from the issuance of long-term debt498,660  748,800 
Payment of debt issuance costs(3,923) (7,490)
Repurchases of common stock(1,251,060) (1,893,148)
Net proceeds from issuance of common stock58,955  34,186 
Other(2,156) (156)
Net cash used in financing activities(1,000,524) (848,808)
    
Net decrease in cash and cash equivalents(6,329) (109,311)
Cash and cash equivalents at beginning of the period46,348  146,598 
Cash and cash equivalents at end of the period$40,019  $37,287 
    
Supplemental disclosures of cash flow information:   
Income taxes paid$256,949  $359,838 
Interest paid, net of capitalized interest102,025  72,252 

O’REILLY AUTOMOTIVE, INC. AND SUBSIDIARIES
SELECTED FINANCIAL INFORMATION
 (Unaudited)

 For the Twelve Months Ended
September 30,
Adjusted Debt to EBITDAR:2018 2017
(In thousands, except adjusted debt to EBITDAR ratio)   
GAAP debt$3,174,327  $2,900,816 
Add:Letters of credit36,984  41,258 
 Discount on senior notes4,498  3,894 
 Debt issuance costs16,175  14,290 
 Six-times rent expense1,876,758  1,770,498 
Adjusted debt$5,108,742  $4,730,756 
     
GAAP net income$1,326,445  $1,077,519 
Add:Interest expense117,455  83,258 
 Provision for income taxes351,209  574,491 
 Depreciation and amortization253,663  229,919 
 Share-based compensation expense19,710  19,323 
 Rent expense312,793  295,083 
EBITDAR$2,381,275  $2,279,593 
     
Adjusted debt to EBITDAR2.15 2.08


 September 30,
 2018 2017
Selected Balance Sheet Ratios:   
Inventory turnover (1)1.4  1.5 
Average inventory per store (in thousands) (2)$605  $599 
Accounts payable to inventory (3)107.8% 105.6%
Return on assets (4)17.2% 14.7%


 For the Three Months Ended
 September 30,
 For the Nine Months Ended
 September 30,
 2018 2017 2018 2017
Reconciliation of Free Cash Flow (in thousands):       
Net cash provided by operating activities$466,786  $376,912  $1,342,019  $1,087,419 
Less:Capital expenditures126,344  120,250  350,461  347,756 
 Excess tax benefit from share-based compensation payments13,366  2,803  32,974  35,282 
Free cash flow$327,076  $253,859  $958,584  $704,381 


Store and Team Member Information:        
          
 For the Three Months Ended
 September 30,
 For the Nine Months Ended
 September 30,
 For the Twelve Months Ended
September 30,
 2018 2017 2018 2017 2018 2017
Beginning store count5,147  4,934  5,019  4,829  4,984  4,712 
New stores opened45  52  177  162  213  232 
Stores acquired          48 
Stores closed(2) (2) (6) (7) (7) (8)
Ending store count5,190  4,984  5,190  4,984  5,190  4,984 


 For the Three Months Ended
 September 30,
 For the Twelve Months Ended
September 30,
 2018 2017 2018 2017
Total employment80,158  75,809     
Square footage (in thousands)38,166  36,340     
Sales per weighted-average square foot (5)$65.02  $64.37  $250.71  $248.82 
Sales per weighted-average store (in thousands) (6)$477  $469  $1,836  $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.