O’Reilly Automotive, Inc. Reports Third Quarter 2019 Results

Springfield, Missouri, UNITED STATES


  • Third quarter comparable store sales increase of 5.0%
  • 11% increase in third quarter operating profit dollars
  • 13% increase in third quarter diluted earnings per share to $5.08

SPRINGFIELD, Mo., Oct. 23, 2019 (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, 2019.

3rd Quarter Financial Results
Greg Johnson, O’Reilly’s CEO and Co-President, commented, “We are pleased to report strong results for the third quarter, highlighted by comparable store sales growth of 5.0%, which was at the high end of our guidance and on top of our solid 3.9% comparable store sales growth in the prior year. Our Team is committed to driving profitable growth, and we are pleased with our ability to deliver strong sales growth in the quarter, while also expanding our gross margin by 35 basis points. We capitalized on the top-line results, as our team diligently controlled expenses to leverage SG&A by 22 basis points over last year, resulting in a total increase in operating profit dollars of 11%. Our third quarter performance and ongoing success is the direct result of our Team Members’ continued hard work and dedication, and I would like to thank each of them for their relentless commitment to providing the highest levels of service in the industry.”

Sales for the third quarter ended September 30, 2019, increased $184 million, or 7%, to $2.67 billion from $2.48 billion for the same period one year ago. Gross profit for the third quarter increased 8% to $1.42 billion (or 53.3% of sales) from $1.32 billion (or 53.0% of sales) for the same period one year ago. Selling, general and administrative expenses (“SG&A”) for the third quarter increased 7% to $886 million (or 33.2% of sales) from $831 million (or 33.5% of sales) for the same period one year ago. Operating income for the third quarter increased 11% to $536 million (or 20.1% of sales) from $485 million (or 19.5% of sales) for the same period one year ago.

Net income for the third quarter ended September 30, 2019, increased $25 million to $391 million (or 14.7% of sales) from $366 million (or 14.7% of sales) for the same period one year ago. Diluted earnings per common share for the third quarter increased 13% to $5.08 on 77 million shares versus $4.50 on 81 million shares for the same period one year ago.

Year-to-Date Financial Results
Mr. Johnson continued, “Through the first nine months of 2019, our free cash flow results were stronger than planned, primarily driven by the amount and timing of our quarterly estimated tax payments. We continue to invest in renewable energy projects that generate investment tax credits and the timing of these investments can create unevenness in our cash flows, however, we expect this timing to normalize during the fourth quarter, and for the full-year, we continue to expect free cash flow to finish in the range of $1.0 billion to $1.1 billion.”

Sales for the first nine months of 2019 increased $446 million, or 6%, to $7.67 billion from $7.22 billion for the same period one year ago. Gross profit for the first nine months of 2019 increased 7% to $4.07 billion (or 53.1% of sales) from $3.81 billion (or 52.7% of sales) for the same period one year ago. SG&A for the first nine months of 2019 increased 7% to $2.59 billion (or 33.8% of sales) from $2.42 billion (or 33.5% of sales) for the same period one year ago. Operating income for the first nine months of 2019 increased 7% to $1.48 billion (or 19.3% of sales) from $1.39 billion (or 19.2% of sales) for the same period one year ago.

Net income for the first nine months of 2019 increased $42 million, or 4%, to $1.07 billion (or 13.9% of sales) from $1.02 billion (or 14.2% of sales) for the same period one year ago. Diluted earnings per common share for the first nine months of 2019 increased 10% to $13.63 on 78 million shares versus $12.36 on 83 million shares for the same period one year ago.

Mr. Johnson concluded, “As we discussed in our second quarter earnings release, year-to-date store openings through June 30 fell short of our plan, due to weather related construction delays. We made significant progress with store openings during the third quarter to close that timing gap, and remain on track to open 200 net, new stores by the end of 2019. We continue to view organic store growth to be a strong opportunity to invest capital at robust rates of return and plan to continue to execute our expansion strategy during 2020 with the addition of approximately 180 net, new stores. This target is slightly below our 2019 store opening pace as our Teams will be heavily involved with completing the acquisition of Mayasa Auto Parts, which we announced in August. We are very excited to close on this acquisition in the fourth quarter and begin the process of partnering with the experienced Mayasa leadership team to capitalize on the long-term profitable growth opportunities that exist in the Mexican market.”

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 5.0% for the third quarter ended September 30, 2019, on top of 3.9% for the same period one year ago. Comparable store sales increased 3.9% for the nine months ended September 30, 2019, on top of 4.0% for the same period one year ago.

Share Repurchase Program
During the third quarter ended September 30, 2019, the Company repurchased 1.0 million shares of its common stock, at an average price per share of $377.85, for a total investment of $387 million. During the first nine months ended September 30, 2019, the Company repurchased 3.6 million shares of its common stock, at an average price per share of $364.84, for a total investment of $1.31 billion. Subsequent to the end of the third quarter and through the date of this release, the Company repurchased an additional 0.1 million shares of its common stock, at an average price per share of $393.33, for a total investment of $32 million. The Company has repurchased a total of 76.0 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 $159.11, for a total aggregate investment of $12.09 billion. As of the date of this release, the Company had approximately $662 million remaining under its current share repurchase authorization.

 
4th Quarter and Updated Full-Year 2019 Guidance
The table below outlines the Company’s guidance for selected fourth quarter and updated full-year 2019 financial data:
 
 For the Three Months Ending
December 31, 2019

 For the Year Ending
December 31, 2019

Comparable store sales3% to 5%  3% to 5% 
Total revenue   $10.0 billion to $10.3 billion 
Gross profit as a percentage of sales   52.7% to 53.2% 
Operating income as a percentage of sales   18.7% to 19.2% 
Effective income tax rate   23.0% 
Diluted earnings per share (1)$4.12 to $4.22  $17.75 to $17.85 
Net cash provided by operating activities   $1.6 billion to $1.8 billion 
Capital expenditures   $625 million to $675 million 
Free cash flow (2)   $1.0 billion to $1.1 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, 2019
 Net cash provided by operating activities$1,635 to$1,790 
 Less:Capital expenditures625 to675 
  Excess tax benefit from share-based compensation payments10 to15 
 Free cash flow$1,000 to$1,100 
        

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 24, 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 and the conference call identification number is 49053015. A replay of the conference call will be available on the Company’s website through Friday, October 23, 2020.

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, 2019, the Company operated 5,420 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, 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, tariffs, 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, information security and cyber-attacks, terrorist activities, war, the threat of war, and the ability to successfully complete the acquisition of Mayasa Auto Parts on a timely basis. 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, 2018, and subsequent Securities and Exchange Commission filings 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, 2019 (1) September 30, 2018 December 31, 2018
 (Unaudited) (Unaudited) (Note)
Assets     
Current assets:     
Cash and cash equivalents$42,804  $40,019  $31,315 
Accounts receivable, net224,033  242,692  192,026 
Amounts receivable from suppliers76,107  83,237  78,155 
Inventory3,348,631  3,139,621  3,193,344 
Other current assets32,914  54,462  48,262 
Total current assets3,724,489  3,560,031  3,543,102 
      
Property and equipment, at cost6,053,306  5,512,325  5,645,552 
Less: accumulated depreciation and amortization2,182,599  2,010,392  2,058,550 
Net property and equipment3,870,707  3,501,933  3,587,002 
      
Operating lease, right-of-use assets1,908,931     
Goodwill808,259  789,178  807,260 
Other assets, net60,338  43,572  43,425 
Total assets$10,372,724  $7,894,714  $7,980,789 
      
Liabilities and shareholders’ equity     
Current liabilities:     
Accounts payable$3,606,571  $3,384,098  $3,376,403 
Self-insurance reserves75,158  75,440  77,012 
Accrued payroll104,161  89,721  86,520 
Accrued benefits and withholdings87,386  83,113  89,082 
Income taxes payable100,472    11,013 
Current portion of operating lease liabilities308,726     
Other current liabilities298,380  272,709  253,990 
Total current liabilities4,580,854  3,905,081  3,894,020 
      
Long-term debt3,703,628  3,174,327  3,417,122 
Operating lease liabilities, less current portion1,642,178     
Deferred income taxes117,551  102,640  105,566 
Other liabilities162,294  214,287  210,414 
      
Shareholders’ equity:     
Common stock, $0.01 par value:     
Authorized shares – 245,000,000     
Issued and outstanding shares –     
75,727,781 as of September 30, 2019,     
80,345,665 as of September 30, 2018, and     
79,043,919 as of December 31, 2018757  803  790 
Additional paid-in capital1,259,544  1,265,827  1,262,063 
Retained deficit(1,094,082) (768,251) (909,186)
Total shareholders’ equity166,219  498,379  353,667 
      
Total liabilities and shareholders’ equity$10,372,724  $7,894,714  $7,980,789 
 
Note: The balance sheet at December 31, 2018, 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.
 
(1) The Company adopted Accounting Standard Codification 842 - Leases (“ASC 842”) during the first quarter ended March 31, 2019, using the additional, optional transition method, which does not require prior periods to be restated.


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,
 2019 2018 2019 2018
Sales$2,666,528  $2,482,717  $7,667,010  $7,221,471 
Cost of goods sold, including warehouse and distribution expenses1,243,998  1,166,962  3,596,903  3,415,820 
Gross profit1,422,530  1,315,755  4,070,107  3,805,651 
        
Selling, general and administrative expenses886,167  830,607  2,590,884  2,418,507 
Operating income536,363  485,148  1,479,223  1,387,144 
        
Other income (expense):       
Interest expense(35,858) (31,582) (104,687) (90,661)
Interest income656  669  1,813  1,838 
Other, net732  1,416  4,667  2,609 
Total other expense(34,470) (29,497) (98,207) (86,214)
        
Income before income taxes501,893  455,651  1,381,016  1,300,930 
Provision for income taxes110,600  89,500  314,890  276,800 
Net income$391,293  $366,151  $1,066,126  $1,024,130 
        
Earnings per share-basic:       
Earnings per share$5.14  $4.54  $13.77  $12.50 
Weighted-average common shares outstanding – basic76,172  80,593  77,415  81,939 
        
Earnings per share-assuming dilution:       
Earnings per share$5.08  $4.50  $13.63  $12.36 
Weighted-average common shares outstanding – assuming dilution76,969  81,410  78,220  82,841 


O’REILLY AUTOMOTIVE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
 
 For the Nine Months Ended
September 30,
 2019 2018
    
Operating activities:   
Net income$1,066,126  $1,024,130 
Adjustments to reconcile net income to net cash provided by operating activities:   
Depreciation and amortization of property, equipment and intangibles200,382  193,318 
Amortization of debt discount and issuance costs2,898  2,557 
Deferred income taxes12,383  17,234 
Share-based compensation programs16,578  15,144 
Other5,830  6,304 
Changes in operating assets and liabilities:   
Accounts receivable(38,892) (32,799)
Inventory(154,986) (129,214)
Accounts payable228,943  194,069 
Income taxes payable90,383  4,460 
Other60,031  46,816 
Net cash provided by operating activities1,489,676  1,342,019 
    
Investing activities:   
Purchases of property and equipment(481,207) (350,461)
Proceeds from sale of property and equipment5,479  3,353 
Investment in tax credit equity investments(17,988)  
Other661  (716)
Net cash used in investing activities(493,055) (347,824)
    
Financing activities:   
Proceeds from borrowings on revolving credit facility2,192,000  1,745,000 
Payments on revolving credit facility(2,404,000) (2,046,000)
Proceeds from the issuance of long-term debt499,955  498,660 
Payment of debt issuance costs(3,991) (3,923)
Repurchases of common stock(1,307,983) (1,251,060)
Net proceeds from issuance of common stock39,077  58,955 
Other(190) (2,156)
Net cash used in financing activities(985,132) (1,000,524)
    
Net increase (decrease) in cash and cash equivalents11,489  (6,329)
Cash and cash equivalents at beginning of the period31,315  46,348 
Cash and cash equivalents at end of the period$42,804  $40,019 
    
Supplemental disclosures of cash flow information:   
Income taxes paid$218,386  $256,949 
Interest paid, net of capitalized interest110,014  102,025 


O’REILLY AUTOMOTIVE, INC. AND SUBSIDIARIES
SELECTED FINANCIAL INFORMATION
(Unaudited)
 
 For the Twelve Months Ended
September 30,
Adjusted Debt to EBITDAR:2019 2018
(In thousands, except adjusted debt to EBITDAR ratio)   
GAAP debt$3,703,628  $3,174,327 
Add:Letters of credit39,104  36,984 
 Discount on senior notes3,723  4,498 
 Debt issuance costs17,649  16,175 
 Six-times rent expense2,005,494  1,876,758 
Adjusted debt$5,769,598  $5,108,742 
     
GAAP net income$1,366,483  $1,326,445 
Add:Interest expense136,155  117,455 
 Provision for income taxes407,690  351,209 
 Depreciation and amortization266,001  253,663 
 Share-based compensation expense21,610  19,710 
 Rent expense (i)334,249  312,793 
EBITDAR$2,532,188  $2,381,275 
     
Adjusted debt to EBITDAR2.28
  2.15 
 
(i) The table below outlines the calculation of Rent expense and reconciles Rent expense to Total lease cost, per ASC 842, the most directly comparable GAAP financial measure, for the nine and twelve months ended September 30, 2019 (in thousands):


 Total lease cost, per ASC 842, for the nine months ended September 30, 2019$298,185 
 Less:Variable non-contract operating lease components, related to property taxes and insurance, for the nine months ended September 30, 201944,531 
 Rent expense for the nine months ended September 30, 2019253,654 
 Add:Rent expense for the three months ended December 31, 2018, as previously reported prior to the adoption of ASC 84280,595 
 Rent expense for the twelve months ended September 30, 2019$334,249 


 September 30,
 2019 2018
Selected Balance Sheet Ratios:   
Inventory turnover (1)1.4  1.4 
Average inventory per store (in thousands) (2)$618  $605 
Accounts payable to inventory (3)107.7% 107.8%


 For the Three Months Ended
September 30,
 For the Nine Months Ended
September 30,
 2019 2018 2019 2018
Reconciliation of Free Cash Flow (in thousands):       
Net cash provided by operating activities$642,672  $466,786  $1,489,676  $1,342,019 
Less:Capital expenditures185,599  126,344  481,207  350,461 
 Excess tax benefit from share-based
compensation payments
2,337  13,366  13,059  32,974 
Free cash flow$454,736  $327,076  $995,410  $958,584 


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,
 2019 2018 2019 2018 2019 2018
Beginning store count5,344  5,147  5,219  5,019  5,190  4,984 
New stores opened76  45  183  177  212  213 
Bennett stores acquired, net of stores merged (4)    20    20   
Stores closed  (2) (2) (6) (2) (7)
Ending store count5,420  5,190  5,420  5,190  5,420  5,190 


 For the Three Months Ended
September 30,
 For the Twelve Months Ended
September 30,
 2019 2018 2019 2018
Total employment82,163  80,158     
Square footage (in thousands)40,070  38,166     
Sales per weighted-average square foot (5)$66.73  $65.02  $253.82  $250.71 
Sales per weighted-average store (in thousands) (6)$493  $477  $1,871  $1,836 
 
(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) O’Reilly acquired 33 Bennett Auto Supply, Inc. (“Bennett”) stores after the close of business on December 31, 2018. During the first quarter ended March 31, 2019, O’Reilly merged eight of the acquired Bennett stores into existing O’Reilly locations, and during the second quarter ended June 30, 2019, O’Reilly merged an additional five acquired Bennett stores into existing O’Reilly locations.
(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.