O’Reilly Automotive, Inc. Reports Fourth Quarter and Full-Year 2017 Results and Announces Additional $1.0 Billion Share Repurchase Authorization

• 4th quarter comparable store sales increase of 1.3%, full-year increase of 1.4%
• 36% increase in 4th quarter diluted EPS to $3.52, includes a $0.62 benefit from revaluation of deferred income tax liabilities
• Announces Executive Leadership Succession Plan

SPRINGFIELD, Mo., Feb. 07, 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 fourth quarter and full year ended December 31, 2017.  The results represent 25 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.

4^th Quarter Financial Results
Greg Henslee, O’Reilly’s CEO commented, “We generated comparable store sales of 1.3% for the fourth quarter, as we faced tough comparisons from a very favorable demand environment in the prior year, as well as calendar headwinds.  As we discussed on our third quarter earnings call, December of 2016 was a very strong month, driven by extreme winter weather across the country.  We also faced unfavorable calendar shifts in the fourth quarter of 2017, due to the timing of the Christmas holiday, which fell on a Monday in 2017 versus a Sunday in 2016, and one additional Sunday during the fourth quarter of 2017.  Sunday represents our lowest volume day, and these combined calendar shifts resulted in a 70 basis point headwind to our fourth quarter 2017 comparable store sales results.  Despite these challenges, Team O’Reilly’s hard work and dedication to providing unsurpassed levels of customer service drove our comparable store sales results above the mid-point of our guidance range, and I would like to thank all of our Team Members for their unwavering commitment to our long-term success.”

Sales for the fourth quarter ended December 31, 2017, increased $92 million, or 4%, to $2.19 billion from $2.10 billion for the same period one year ago.  Gross profit for the fourth quarter increased to $1.16 billion (or 52.9% of sales) from $1.11 billion (or 53.1% of sales) for the same period one year ago, representing an increase of 4%.  Selling, general and administrative expenses (“SG&A”) for the fourth quarter increased to $756 million (or 34.5% of sales) from $707 million (or 33.7% of sales) for the same period one year ago, representing an increase of 7%.  Operating income for the fourth quarter decreased to $403 million (or 18.4% of sales) from $408 million (or 19.4% of sales) for the same period one year ago, representing a decrease of 1%.

Net income for the fourth quarter ended December 31, 2017, increased $56 million, or 23%, to $302 million (or 13.8% of sales) from $246 million (or 11.7% of sales) for the same period one year ago.  Diluted earnings per common share for the fourth quarter increased 36% to $3.52 on 86 million shares versus $2.59 on 95 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, includes a one-time $53 million benefit related to the revaluation of its deferred income tax liabilities, and the Company’s diluted earnings per common share of $3.52 for the fourth quarter ended December 31, 2017, also includes a one-time $0.62 benefit from the revaluation.  The Company adopted a required new share-based compensation accounting standard during the first quarter of 2017, which requires excess tax benefits from share-based compensation payments to be recorded in the income statement.  The Company’s diluted earnings per common share of $3.52 for the fourth quarter ended December 31, 2017, includes a $0.15 benefit from the adoption of the new accounting standard.

Full-Year Financial Results
Commenting on O’Reilly’s full-year 2017 performance, Mr. Henslee stated, “Despite industry challenges, O’Reilly generated our twenty-fifth consecutive year of comparable store sales growth and record revenue and operating income as a result of the commitment and dedication of our Team to providing unsurpassed levels of customer service.  During 2017, we also achieved another significant milestone with the opening of our 5,000th store.  The performance of our new stores continues to exceed our expectations, driven by well-trained and knowledgeable Teams of Professional Parts People who provide outstanding customer service the moment a store opens.  As we look ahead, we are excited to continue to drive our growth through the 200 net, new stores we plan to open in 2018.”

Sales for the year ended December 31, 2017, increased $385 million, or 4%, to $8.98 billion from $8.59 billion for the same period one year ago.  Gross profit for the year ended December 31, 2017, increased to $4.72 billion (or 52.6% of sales) from $4.51 billion (or 52.5% of sales) for the same period one year ago, representing an increase of 5%.  SG&A for the year ended December 31, 2017, increased to $3.00 billion (or 33.4% of sales) from $2.81 billion (or 32.7% of sales) for the same period one year ago, representing an increase of 7%.  Operating income for the year ended December 31, 2017, increased to $1.73 billion (or 19.2% of sales) from $1.70 billion (or 19.8% of sales) for the same period one year ago, representing an increase of 2%.

Net income for the year ended December 31, 2017, increased $96 million, or 9%, to $1.13 billion (or 12.6% of sales) from $1.04 billion (or 12.1% of sales) for the same period one year ago.  Diluted earnings per common share for the year ended December 31, 2017, increased 18% to $12.67 on 90 million shares versus $10.73 on 97 million shares for the same period one year ago.  The Company’s diluted earnings per common share of $12.67 for the year ended December 31, 2017, includes a $0.59 benefit from the revaluation of its deferred income tax liabilities and a $0.50 benefit from the adoption of the new share-based compensation accounting standard.

Mr. Henslee continued, “As we head into 2018, we believe the long-term demand drivers for our industry remain intact, including steady improvements in miles driven and a growing and aging vehicle fleet, and we are very well positioned to continue to provide outstanding service to our customers.  We are pleased with the level of demand we have seen thus far in 2018, driven by favorable winter weather conditions; however, we face the toughest comparisons in the back half of the quarter and, based on this, we are establishing our first quarter comparable store sales guidance at a range of two to four percent.”

Mr. Henslee concluded, “The Tax Cuts and Jobs Act will dramatically reduce our federal income taxes, and in 2018, we expect these savings will be approximately $215 million.  We plan to allocate a portion of these income tax savings back into our business to further enhance our best-in-class customer service.  These investments will be centered around customer service, including attracting and retaining technically proficient Professional Parts People through enhanced benefits and wages, investing in our omni-channel efforts and improving in-store technology.  We are confident these investments will help drive our continued success, and we are excited to roll out these projects in the coming year.  For 2018, we expect these initiatives will result in approximately $30 million of incremental capital expenditures and will result in approximately 70 basis points of headwind to operating profit and our 2018 guidance incorporates these incremental costs.”

Share Repurchase Program
During the fourth quarter ended December 31, 2017, the Company repurchased 1.3 million shares of its common stock at an average price per share of $222.73, for a total investment of $279 million.  During the year ended December 31, 2017, the Company repurchased 9.3 million shares of its common stock at an average price per share of $233.57, for a total investment of $2.17 billion.  Subsequent to the end of the fourth 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 $261.72, for a total investment of $130 million.  The Company has repurchased a total of 66.7 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 $137.31, for a total aggregate investment of $9.16 billion. 

Today, the Company also announced that its Board of Directors (the “Board”) approved a resolution to increase the authorization amount under its share repurchase program by an additional $1.0 billion, raising the aggregate authorization under the program to $10.75 billion.  The additional $1.0 billion authorization is effective for a three-year period, beginning on February 7, 2018.  Stock repurchases under the program may be made from time to time, as the Company deems appropriate, solely through open market repurchases effected through a broker dealer at prevailing market prices, based on a variety of factors such as price, corporate requirements and overall market conditions.  There can be no assurance as to the number of shares the Company will purchase, if any.  The share repurchase program may be increased or otherwise modified, renewed, suspended or terminated by the Company at any time, without prior notice.  As of the date of this release, the Company had approximately $1.59 billion remaining under its current share repurchase authorizations.

4^th 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, as well as the sales from Leap Day in the year ended December 31, 2016.  Comparable store sales increased 1.3% for the fourth quarter ended December 31, 2017, on top of 4.8% for the same period one year ago.  Comparable store sales increased 1.4% for the year ended December 31, 2017, on top of 4.8% for the same period one year ago.

1^st Quarter and Full-Year 2018 Guidance
The table below outlines the Company’s guidance for selected first quarter and full-year 2018 financial data:

⁽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⁾  Calculated as net cash provided by operating activities, less capital expenditures and excess tax benefit from share-based compensation payments for the period.

Executive Leadership Succession Plan
Today, in a separate press release, O’Reilly also announced the Company’s leadership succession plan.  Effective May 8, 2018, Greg Johnson will be promoted to Chief Executive Officer (“CEO”) and Co-President, and Jeff Shaw will be promoted to Chief Operating Officer (“COO”) and Co-President.  Greg Henslee, who currently serves as the Company’s CEO and member of the Board, has been nominated as Executive Vice Chairman of the Board and will serve in that role, subject to his election as a director at O’Reilly’s upcoming Annual Shareholders’ Meeting in May.  David O’Reilly will remain in his role as Executive Chairman of the Board.

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 selected financial information below.

Earnings Conference Call Information
The Company will host a conference call on Thursday, February 8, 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 46158141.  A replay of the conference call will be available on the Company’s website through February 7, 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 December 31, 2017, the Company operated 5,019 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, 2016, 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.

Note:  The balance sheet at December 31, 2016, 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.

Note:  The income statement for the year ended December 31, 2016, 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 a required new share-based compensation accounting standard during the first quarter ended March 31, 2017.  This new standard requires excess tax benefits related to share-based compensation payments to be recorded through the income statement.  The adoption of this new accounting standard resulted in a $0.15 and $0.50 benefit to diluted earnings per common share for the three months and full year ended December 31, 2017, respectively, comprised of a $0.16 and $0.55, respectively, earnings per share increase from a lower effective tax rate, partially offset by a $0.01 and $0.05, respectively, earnings per share decrease from an increase in the number of weighted-average common shares outstanding - assuming dilution.  The Company’s Condensed Consolidated Statements of Income for the prior periods ending December 31, 2016, were not restated to conform to the current periods’ presentation.

⁽²⁾  The Company revalued its deferred income tax liabilities following the enactment of the U.S. Tax Cuts and Jobs Act in December 2017, which resulted in a one-time $53 million benefit to the Company’s Net income for the three months and full year ended December 31, 2017.  The Company’s diluted earnings per common share for the three months and full year ended December 31, 2017, includes a $0.62 and $0.59 benefit, respectively, from the deferred income tax liability revaluation.

Note:  The cash flow statement for the year ended December 31, 2016, 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 a required, new share-based compensation accounting standard during the first quarter ended March 31, 2017.  This new standard requires excess tax benefits related to share-based compensation payments to be presented as operating activities in the statement of cash flows, rather than presented as an inflow from financing activities and an outflow from operating activities under the previous standard.  The retrospective application of this new accounting standard resulted in the reclassification of $56.0 million of Excess tax benefit from share-based compensation from Net cash used in financing activities to Net cash provided by operating activities for the year ended December 31, 2016.