O'Reilly Automotive (ORLY) 9 Feb 232022 Q4 Earnings call transcript

Welcome to the O’Reilly Automotive, Inc. Fourth Quarter and Full Year 2022 Earnings Call. My name is Paul and I will be your operator for today’s call. [Operator Instructions] I will now turn the call over to Jeremy Fletcher. Mr. begin. may you Fletcher,

Good and Paul. joining you us. morning, you, thank everyone for Thank

call, our XXXX. will full today’s a we During conference discuss comments, will results our question-and-answer period. prepared year and fourth outlook our for After we host XXXX and quarter

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to will I Now over turn Brent. the call

Thanks, to I on customer another remarks morning, outstanding and would like in year. your today congratulating begin good again, strong Team service drove to commitment Brad, results excellent O’Reilly by everyone. consistent, my Once XXXX. yet

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expenditure to $XXX XXXX, $XXX are For setting million our million. we capital at guidance

to We heavier a of new mix XXX leased planned have with also a net owned store XXX openings target of established versus locations.

Our CapEx includes significant complete and as also projects. initial we our will distribute expect outlook our expenditures in Mexico network newest distribution Guadalajara, open future for investments in center and

to identified in several provide service exciting have availability. efficiency initiatives We projects and XXXX product enhance our and an levels improved and customers

projects. guidance image, store investments CapEx in the planned includes upgrades, information convenience Our projects enhance store DC and appearance of to technology and and significant fleet our stores, strategic investments in

Team Jeremy, their deliver to mile O’Reilly outstanding going turn to dedication in extra unwavering again our to the the results I to customers thank I commitment for XXXX. want over Before to business and call

Now over Jeremy. to I’d turn like to call the

outstanding to also congratulate would Thanks, Brent. another like I year. on Team O’Reilly

guidance quarter some XXXX. details Now we will and fourth on fill additional our for in results

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For billion. revenues billion total to and be $XX.X between XXXX, we our $XX.X expect

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rate was This quarter of for income, X.X% income pretax pretax XXXX XX.X% tax a share-based comprised certain fourth of to comprised rate base by of rate reduced which rate XXXX compared tax Our for benefit effective was fourth of was a of compares XXXX X% of as compensation. rate credits. by The share-based the base reduced in XX.X% lower quarter of of tax base a fourth of increase XX.X%, a compensation. state of a XX.X% quarter to an as benefit result

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full a expect rate XX.X%, year of base compensation. of XXXX, comprised of we tax XX.X%, a of share-based reduced rate benefit X.X% the by an effective For of for

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in of in XXXX our XXXX. in the expenditures move our $XXX cash will to decrease differences components was drove XXXX, was that Free higher cash versus and expectations flow driven we for on billion versus capital for by compensation. free $X.X billion Now million XXXX. $X.X The flow and accrued results XXXX and

billion range we of cash to free expect XXXX, be billion. $X.X $X.X in flow to For the

and a timing to be to benefit offset we year-over-year in for tax net expected are $XXX of payments energy earlier, is a in disbursements headwinds credits. These benefit partially discussed of million the from due well the renewable XXXX, planned Brent as CapEx. XXXX resulting XXXX favorable in realized by in increase expected tax increase planned as in inventory versus As decrease the

adjusted debt, X.XXx notes. of ratio of Moving finished quarter an XX-year to increase of retirement compared of to fourth our XXXX EBITDA driven on June, we $XXX issuance $XXX end with of debt by the million senior million successful maturing September ratio of as the offset with our in notes to X.XXx, by the of

below to We X.Xx, over plan of to target that number time. continue prudently be our approach and leverage

to average average price excess confident able business, total supported billion. expected strength million the our buyback as remain shares average the We our and purchase capital $XXX.XX shares program. to price a shareholders. we program the repurchase continue XX for to that were Since of discounted our effective future share of repurchased inception of cash share an We program investment at XXXX, repurchase $XX.X $XXX.X billion. total the our of is price our at million $X.X returning to view have continue an means execute investment of our by very X an share we based repurchase of for share for XXXX, And of of in on we flows

As a through includes not reminder, of EPS repurchases. repurchased guidance call, impact the include shares share this our does but additional

your answer be to our Paul, your open would like customers. This our I for At team I to dedication your line, to time, concludes operator, our will our I our happy and and to company to to prepared ask Before we this return up thank work the questions, to questions. would call hard and like the comments.

Lasser today UBS. Thank first Michael your question you. Instructions] is [Operator coming line And from the is live. Michael, from

for Thanks morning. a my Good taking lot question.

would to the [indiscernible], based year to so, create that calls its similar buildup in X% Are X% you consistently does the that if this leverage comp that out? cost? such to played And you you’re some that SG&A of sales year, risk need of downside investments in in to making level order drive how guide kind for last outlook into the to prior cover comp that pandemic backing increase. X% on range. to the X% O’Reilly So This

that not. Yes, those of lot bullish cars we road softer the there’ll Brad about And that for still laid are mean today all tremendous lasting they just sales doesn’t sales built there vanish. that car XXXX, opportunity mean, Michael, a prices we And elevated, miles fact point expected thesis from but Greg. company Cars millions that the and the has Brad driven stabilized, a past answer to be question improve, XXXX. is have will are few over some not on absolutely the just our may have – what been out. reasons I better, the car the see sales years, of longer. new that because in fuel levels, think talked used recovery on pre-pandemic are simply both improved, I our prices industry car and have the and is been sale your in new this to overall and

very, future. we’re cautious. We’re about as the very But optimistic always,

happen know on going quarters remain are overall, an First to we fourth and basis, future. I for And don’t our volumes. more onset of annual what’s spring volatile. economy. very The with the impacts bullish But our

industry I business to opportunities some over how of we are add have years the I our share ticket we’ve respond, think momentum the an for seen those next and factors, we our a seen behind only is happened really greater in as as we’ve resilient we business. seen the things the within year. that But and from traction even the we’ve we that our that on average through that’s think move step we to both be we last the as And positive trends expect than maybe we couple have or feel continue – beyond of those of as there about quarters our some and very Michael, benefit about changes customer last normal we macro confidence thing roll because sides and base perspective pricing of year. would of

form the is lower That quite pressures this And chain My is identified? savings that profitability the are gotten other savings O’Reilly passing along you of in the in whether of form you supply you’ve costs? experiencing of that costs bit, quantify prices helping follow-up costs sense. from that lower input petroleum in a the down offsetting some is that Can makes these and the you a lot prices. or recently, had lower have come containers, the question, it’s

and let the potential any question we’re able maybe line. whenever been benefits, backwards we’ve Michael, your bottom Yes, the take see me absolutely that – to – answer we’re to Yes, second first. we part

any there prepared seen if benefits we’ve the talked and We of increases roll that to about within Brent We year. do his have positive And on a as some that back expect pressures. comments. not this there to some movements market seen date is been relief any

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in out we’ve about this forward the how and outlook. we that you think as moving We’re And would then I very couple we’ve and think that – but in. see laid about talked reflected last the bake we I that of quarters, cautious benefits think how also for our really

you to and team. luck Brad and much Brent and Thank good so their the roles, entire in new

Michael. you, Thank

you, Thank Michael.

Thank you. from question Simeon from Gutman The next is Stanley. Morgan coming

Your line is live.

Hey, a ask guys. follow-up to going the one I’m and now.

of create want – up follow spilling new first sure a then then event gross on you charge, if I next that’s to just product Is start reserve. down, some think this that, into because the growth. a the does create Or you a since charge SG&A that and is do or up, we I Just do the make that – second coming balance? start creating And didn’t product right. The question on another the that didn’t people? you stores margin foresee to debit won’t does if help record build year? XXXX just costs this clarify, to acquisition are a spending you –

want Yes. in. will Jeremy the will take then chime – I Simeon, and maybe I SG&A here, start or Brent will to response

changed haven’t focus. We our

be margin growing to dollars. continues focus operating Our

we example to going into back make want initiative, promote talent, which so is rates, have or Brent to We as core turnover, focus This of about still go and None into try for PTO. top control go effort the to lot of retain value is effort our successful day-in been to members to we future to a SG&A. deliberate have was grow expense day-out. them prudent continues year Our we important culture anything faster change to us across listening of the more grow position I – team it, also to Jeremy, position normalized for our stop ability sure part members talk to this changed looked future actually. pressures, conversations And be We add? There of a and that’s called in to to perhaps and a to for than line want team recruit, to best ourselves initiative us one that’s a on what for all changed. years not Brad with there the mirror growth. is That’s is and would detail. we year you about We if industries retail us an market we what’s in secret X growth. over whole I there. out what the the the as the and know, And faced to the had industries, really ourselves that no had and important. past We and turnover. am this of faced don’t get all our wage with

only I perspective, establish want dollar would at from we a guidance year our pure SG&A the like look beyond X we say don’t and I a Yes. Maybe to thing guide is time, that. what

is out we I points making results right think the highly of of that part though, are what our remain control every to, an to in committed that what from invest Greg expense sure business we driving standpoint. we

we what long-term our move of we business. to as you hasn’t would what these to forward see other perspective pay in I we to matches that there debit from It we lever It second LIFO to and that. require of excess our a intent Maybe balance. cost into is your would find substantially. LIFO increases. the up we Does in so as perspective, continue the what that on to mean address just won’t a to going expect investments far will result offset that. are coming and can briefly And guidance in, They SG&A would back don’t magnitude standpoint. expect of from do what year, build I things think evaluate them. to to beyond off, a that a changed intend in extent continue And this we long-term we see our move for as that of push strength that’s to see accounting think invest about we we do And our balance question with again, what expect that cost change we the decreases year, the you around talked we

will increases for LIFO we that within that and results. foreseeable impact be see cost reflected we So, the credit is the on reported rapidly as get will a future of pretty our

you. Thank

Thanks.

Thank line next from Melich your live. is ISI. The Greg Greg, coming is from question you. Evercore

was guess what in inflation wages. my was average question you And saw What year you on that in are hourly last wage year? guidance? this first the I Thanks. the Great. expecting

type Yes. It to It and position digit was range on significant us. in mid high-single in depends inflation. of market the was for for It XXXX.

expect those of to that moderate We levels. off

what because in from we expectation we We the business. perspective But increases of we factors. ability along we as to the see those in have the a ongoing situation is management digit evolves. extent would we as than regular point the pass ability will have of building our some cost time, And in planned. that, carryover different impact somewhere foresee XXXX, we that that there we to the a this you pass from still is we have range if an up well. What will And saw comparative in of tell are at wage that it that mid-single ends will along to that expect have number being I

then is question second on Got it. mix And my shift.

pro. to of behaviors the any on customers trade-down house? your of as detail being more there within little would are color on DIY that gross a mentioned occurring? headwind Is What from to both slight sort I a and love seeing have sides and margin, that you You

higher in. as up trade overall, some are seen a actually haven’t today. we replacement that lot Yes. of requirements – cars categories, Greg, and really this is on of AGM, some and a trade-down. price more points on required example, with as the can of an can have start We sophisticated chime batteries OE seen net lot then we Brent. I on that others become and batteries In

the move in to we of better better best, seen So, cases rather. a the the lot have from best that lot consumer – or to of a actually

a inflation with have still to category, a oil. and customers we category We we the of some cases, of chain. in struggled their bit little where had have quite oil we and a of still any some have a In are majors trade-down we long-term with other, seen on net-net, trade-up lot brands, – happy which proprietary our And haven’t they had have or seen good is seeing getting proprietary supply that violent we of with are they move, some the our frankly, trade-down. with customers seen one stickiness are what some those thing there for brands some us. terms in But way or

there, in headwinds the comments, that’s anticipate on our you And grows Greg, pressure talked specifically that faster the professional when some professional your and top line creates because really in on… just that modest DIY about mix, we question, prepared to maybe mathematical versus Brett’s

sides. That’s a not the category within two mix effect,

business not each of is That effect, side a mix side category. from within

The that DIY. is outperform DIFM the is going expectation to

thanks. and luck good Well, Perfect. it. Got

Greg. Thanks

from next line Wedbush. from live. question is is Basham The Seth, Seth Thank you. coming your

lot the And the DIY and my Thanks around a good side of morning. business. question is

growth, some but ticket You are you cautious. mentioned for that see more opportunities you

– you expect would Now, first of even first with in the year, I of growth, the the account half XXXX? in easier ticket say, comparisons should half growth there the ticket

Yes.

Brad’s comments, to down. said DIY in we we expect clarify, to be tickets Seth, slightly Just

price, to that well because industry we And complexity repair are term the about vehicle really on side have trend mentioned. gaining last easier that some you will all comps some the talked costs of ticket to others lead partial we cycles we and supports year benefit perform offsets business. parts our because against service out. That’s share first part intervals pressures against the DIY marketplace, the average we the have comparisons of extend increasing and possibly ticket that that longer pressures that of of the saw continue see of but year we Now, in the count and the we as

impact how move through that, would tickets. bigger about and But that is that for consistent we anticipate as us is year. of we So, DIY kind a with we think – the normally

Got it.

Okay.

So, more thereafter? then half pressure the first the normal little bit less in a and year of

Correct.

Thank much. very you

Thanks Seth.

question from Thank is from Brian you. The your Nagel line Brian, Oppenheimer. next coming is live.

Thanks Good Congratulations taking for the questions. promotions. Hi. on morning. my

Brian. Thanks

Thank you, Brian.

even QX. that comp So, just did from the continued you guess accelerate stacked suggests has but first business nicely then simple, perspective, the strength pretty in up made to QX. here commentary it’s I here And question, the the

– benefits strong why acceleration? that weather mentioned Is driver. we help business further within You levels? the is factors weather can there already maybe that the to guess, could a I of And explain there quantify of off are strengthened has other

for The a would all thanks is I the not part acceleration. you, tell of acceleration, Brian, Yes. the weather of it’s question. the

start other we will and So, see here in. continue to traction. guys maybe And the I can jump

stack are the positive. of and Obviously, and on our We there very trends the further But there positive. as out we types those of DIY we a have that comparison as pressure continue have some things resilient a that a about in part of stabilized because improvements bit. the questions. to customer And see by. them strong traction look incremental think are we move encouraged saw seen, we perspective we be that, quite within were things, to basis those has proven seen middle when we at professional year we the business From

that last a lot quarter. got And in clearly. been we that we to of was markets the country a period first of lot have and strength the and weeks regions customers. we of across of a As across in But we and snap even time, see pretty of the the stretched broad-based had how see cold to that with what year, couple we we continue can saw pleased our

in the winter called where strength that out think it one I in expected you categories. Brian, the cold I And are saw actually referencing think things – the see we we was the the component we recovery South, out of than is well. North, strength as did after for helps South snow better weather, snowy in probably weather. the the is us gets in us snow but Obviously, it cleared is up

early. Got And look, it’s Then it. know then my helpful. I second question,

once maybe about to We not you are you am be here? those words, investment going favorably but are you what are community much may as of an you as inflationary it I abate consumers But been prices they starting talking were, react and are have other up business for demand to inflation say, asking, seeing prices, to lowering an see while. may elasticity your and starting pressures that? indications begin within of In the recognizing see a as to of be as sort not early

of see that, Yes. to It’s kind Brian. tough

buy it we saw pretty of other lays with of the consumer. in to from for to our a work, need to But life. non-discretionary kids got real when see consumer are The those things that activities, their pressure have types have the on to get road things what lot American They to They the on a quickly, they same deal. XXXX. think I shocks a many keep factors of don’t into part through. customers to to adjusted us. be our shocks We pass We take so big to are able car that. do their

move So, think have, some benefits. we as past I we that,

opportunity strength more we consumer. positivity a I Before to But positive. around the or think to a our on the bit feel to just items add of constrained, little more an we sell how them perspective, job up we have is and maybe of were overall we value view that

earlier Brent’s a there trading the that comments really seen up, significant and cost pressure to haven’t trading think us drive of to Brian, consumer. we evidence just was about on trade-down to tremendous a down,

subsided availability. in as of was said our I lot they wanted. supply have Some the the chain. in the improvement But trade-up, with brand previous of trade-down, particular we quarters, inventory about Perhaps trade-across, didn’t have that a

So, seen of or trade-down. any really haven’t evidence elasticity

it. congrats Guys, Got again. Alright. you. Thank

Thanks Brian.

from coming Mike, next the question Baker Davidson. And you. from D.A. your line Mike is live. is Thank

aggressive around gross was ask concern pricing danced concern. But think about of a year but It in a ago, or investment bit, think just price a We as your never competitors? getting can really is about We I I about now how down, talked guys. close-end you your about talk margin, little talking you a any there or it the big you Thanks. pricing, about to midpoint address wanted auto amongst Thanks sort war this, Okay. materialized. pricing? more is about

it we it And this was Mike. as adjusting was when of tested, Yes, we it evaluated. – across We scientific board. about. introduced it It we did our prices, It directed market individual taken process we thought year was individual And said clearly then, time. a SKUs was went concept last that very competitors at wasn’t was out, any to from the some we not our share. have across movement categories. see Since

our don’t competitors going what know. we So, do forward,

have control What your day-out. today. evidence are We have live day-in no thoughts? we over Brad, of no you this But that it. and seen

Yes. Hi, Yes. morning good Mike.

As a industry you in us this here time. know, all been long long for of as time, a we talked have

strategic more industry, feel in side, no pay-off. there the decision of moved Mike, to years And some other no They we especially pro-price that out. installers. to helping having that decision best on have sales long is having don’t as go and but a And And the But smaller time given it’s as delivery service you rolled it’s XX% ago, We pricing, made. the in relationships we supply contribute harder, plans on in the have just framework year ones, been last and it initiative to their operational year portion with felt base. We the things a made, we you, And them the and XXXX. again. I as very saw as we They we we work that some couple that the really fragmented. with focused town, of our it the feel we probably do independents like, weaker you list the is are know, opportunity. for much down two, how to we $XXX And the career professional share. know, do was and did there first with we with huge team’s we necessarily build We relationships made. better about success And in was the with we three, hit that’s continue to things decision us just the up billion the some it, backing of the to have teams not only market. we a we going make plans to in pricing the so our really makers, when pricing are turn that it’s remind or good sixth – And do the good four our players down a chain way the make on focused large disruption the top we to in did. feel fifth a That’s did company my time. again. last And have XX-year

Yes.

on. go Sorry,

it – monitor and we ongoing we only the framework to pricing the stayed service pricing was on Brent. made would comments basis. how ongoing But already is on professional parts This have intact monitor Yes. being but add all just we on basis. is I very remains and our win. have an Greg and an I Brad We around competitive, on the winning availability. rigorous That’s thing

sense. perfect the Makes color. Appreciate Yes.

you. Thank

is is question from Chris Chris, Horvers next The your live. JPMorgan. you. Thank coming from line

gas degree Thanks December. as But on DIY of a I weather guess guess I some me came past in. – to prices been O’Reilly down, versus you that driving? what of you sequentially? DIY, acceleration non-specific share for to questions. factors gains Dovetail favorable share do was have think at in couple your look that gains would got acceleration, like you the accelerated had on squeezing Like, some earlier you more you

professional hard pace I DIY on business, side. from on the modest Chris. perspective, think, especially Really side Yes. a of to the than say, And of the what more we the see ticket

it’s and market. likely ‘XX and, that of we are XXXX the very XXXX, in throughout I that outperforming we think taking clear the share market course of about have we we think all know talked frankly, the We where outperforming and been gain.

So, seen there. we that know acceleration incremental net I have a don’t

would quarters. see. do of a is positive to lot industry prove And mileages think continued lot have to maybe us. the of our hard investing continues there out – that I a customers. it’s to be vehicle in be that’s for that good few would is there that payback seen we on value higher it think have at more And is And your for well I a a that what just strong you watch as customers been it I for think to and healthy. in a

And two-part so a sort have of follow-up. I

competitive been PTO where a an first lap is this companies second, far. winter I warm what hasn’t the expectation to So, Walmart are been to reacting – as PTO is of higher shock of you the always extent competitors, guess It relatively Is that weather half, that muting that as think in one had so environment? you on what’s like a sort impact. winter? great about you essentially need program, has option just a gas a are the direct that is, the then And obviously,

this Chris, we a for will the I as then business. PTO people But kick the it work over touch other. in is and Hi on Chris, you Brad. know,

the we people. are retain a happened frankly, we years. last turnover store and parts teams talk to and of very tenure and getting that’s couple are us You And teams, long But frankly, have amongst we heard Brent I on ahead. or are very everything proud DC of for professional the cut proud. down When our Chris, of ability about the in knowledge and having talk, time quite it’s importance whether

our in to people. We going are invest

are looking at human capital. We

like flexible very at their is to maybe parts feel people looking need We feel are other We way things competitors off. value our that the is what at time strategic. them this be or more We we that looking we are less we we do like time of feel give retail like off. in

us following for so getting is ahead, really, this not anybody. And

proactive are our going to being we in are people. and invest We

Chris. part fourth there we then the on obviously, had positives at I weather of we would say, maybe the view balance, would neutral. on our more end question as some And of weather just your maybe have quarter

count a because ticket against as think upon the is opportunities we or We I out change through we more a demand favorable move comparisons effect that we the in the say from balance, of weather, plus opportunities of cadence in having next his quarters as do on an market, professional up there this of first to like some we during some comments. it’s strength half think perspective it would year, depending couple year But we to call point, at least at the the mentioned the more and minus, significant Brad on expect would of think nothing for perspective there. about DIY average as run ticket the as type we see XXXX. constructive see we overhang know is and things, in of I from would I in

a Thanks so much. Have great spring.

Thanks Chris.

coming And question Ciccarelli is Scot, you. your from next from Truist. Scot is Thank the live. line

Hi well. for me Ciccarelli. Thanks guys. as Scot squeezing in

more already regarding the we the that’s guys inflation costs, comments actually made. magnitude same are product reducing about you two Are Just have or increases, of of different obviously, because kind guess some talking just – reducing vendors things. SKU one I question

Chris, – this a some more a is There Scot, would out this others, you I raw suppliers bit costs Yes. than wage rather, of is and rates tell been bag it’s impacted by material have little Brent. obviously. that Brent mixed there. are

going are We to always hard. negotiate

We for best going that are cost. negotiate first to None stopped. always of

are We with that. relentless

prepared I be. abate peak. seen they hit to have continue from the We the comments, from going costs what transportation were on in to are we

that. some from benefit seen have We

cycle we So, have on also even continued in petroleum products. seen still inflation some the later

mixed it’s are that So, see guide acquisition not anticipates tailwinds going our but to out costs. we from any a there, bag

can do to everything our we hard, increases, we will And going those to any to negotiate cost. to going and have where are customers. control be we then do are We to pass able we absorb to along

completely include be reductions. clear to on from say benefit cost guide, one, we it that when just Scot, does And our some

lot are seen haven’t there what we Brent versus saying already. is we what things is not think anticipating of incremental that I a

Got it.

And a in ‘XX? Was helpful. some accrual clarity charge then for sort on a was on Okay. we are SG&A. the That’s as PTO run very catch-up basically of then and million $XX that basis just like treated rate that an charge because

Yes. catch-up. we did accrual Scott, have an

had we balances On a And we and a converted will the what for items and that basis, a fourth enhanced, As a difference, of we some team opposed as sick to ‘XX. rate plan, comparisons of then will catch-up ‘XX types one-time some had to be higher time we personal other existing with it the have will run members. in comparative there quarter a be our that as normal seen. it result as rate charge obviously, have throughout run we

Very helpful. Thanks guys.

Thanks Scot.

you. Thank

reached for have I call to We closing Greg Mr. questions. over remarks. back allotted time for will now our turn Johnson the

the to O’Reilly to everyone customers to quarter in call entire to again our for you. results thanking conclude joining we thank call April. and We by team reporting our and year forward XXXX. XXXX our look forward in Thank posted commitment would Thank our have in you, look today results like would today, once another Paul. We we strong first for their unwavering like I strong to for XXXX.

call. does conclude This you. Thank conference today’s

phone and lines your wonderful have a participation. you for disconnect this Thank may day. your You at time