10-QPeriod: Q2 FY2015

O REILLY AUTOMOTIVE INC Quarterly Report for Q2 Ended Jun 30, 2015

Filed August 7, 2015For Securities:ORLY

Summary

O'Reilly Automotive, Inc. (ORLY) reported a strong performance for the second quarter and first half of 2015, demonstrating robust sales growth and improved profitability. Sales increased by 10% year-over-year for both the three and six-month periods, driven by a healthy increase in comparable store sales and new store openings. The company's dual market strategy, serving both do-it-yourself (DIY) and professional service providers, continues to be a key driver of success. Profitability saw significant improvement, with gross profit margins expanding due to product acquisition cost improvements and operating income rising 15% and 18% for the respective periods. Diluted earnings per share also saw substantial growth, increasing by 20% and 24% for the three and six months ended June 30, 2015. The company's strong free cash flow generation and active share repurchase program further underscore its financial health and commitment to returning value to shareholders.

Financial Highlights

44 data points
Beta

Revenue

$2.04B

52.0% Gross Margin

Net Income

$233.51M

11.5% Net Margin

EPS (Diluted)

$0.15

Total Assets

$6.67B

Cash & Equivalents

$260.04M

Free Cash Flow

$197.04M

Financial Statements
Beta
Revenue$2.04B
Cost of Revenue$976.73M
Gross Profit$1.06B
SG&A Expenses$673.02M
Operating Income$385.77M
Interest Expense$14.32M
Net Income$233.51M
EPS (Basic)$0.15
EPS (Diluted)$0.15
Shares Outstanding (Basic)1.51B
Shares Outstanding (Diluted)1.53B

Key Highlights

  • 1Sales increased by 10% to $2.04 billion for the three months ended June 30, 2015, and by 10% to $3.94 billion for the six months ended June 30, 2015.
  • 2Comparable store sales increased by 7.2% for both the three and six-month periods, indicating strong performance in existing stores.
  • 3Gross profit margin improved to 52.0% for the three months and 52.0% for the six months ended June 30, 2015, up from 51.5% and 51.1% respectively in the prior year, driven by product acquisition cost improvements.
  • 4Operating income grew by 15% to $386 million for the three months and 18% to $736 million for the six months ended June 30, 2015.
  • 5Diluted earnings per share increased by 20% to $2.29 for the three months and 24% to $4.35 for the six months ended June 30, 2015.
  • 6The company repurchased $440 million of its common stock during the second quarter of 2015 and $575 million during the first half, demonstrating a commitment to shareholder returns.
  • 7Free cash flow increased to $511.9 million for the six months ended June 30, 2015, up from $460.6 million in the prior year.

Frequently Asked Questions

O'Reilly's sales growth was driven by a combination of strong comparable store sales increases (7.2% for both the three and six-month periods), new store openings (32 net new stores in Q2), and an increase in average ticket values and customer transaction counts for both DIY and professional service providers. The positive macroeconomic environment, including lower gas prices and declining unemployment, also contributed to increased miles driven and vehicle maintenance.

Profitability improved significantly. Gross profit margin expanded to 52.0% due to product acquisition cost improvements. Operating income increased by 15% for the quarter and 18% for the six months, driven by strong sales and effective management of selling, general, and administrative (SG&A) expenses, which decreased as a percentage of sales. This translated into a 14% increase in net income for the quarter and an 18% increase for the six months.

O'Reilly actively continued its share repurchase program, repurchasing $440 million worth of stock in the second quarter and $575 million in the first half of 2015. As of June 30, 2015, the company had $704 million remaining under its authorized share repurchase program. This demonstrates a strong commitment to returning capital to shareholders.

The company is involved in routine litigation. A notable item is an unfavorable verdict in a contract dispute in Missouri, where a jury awarded $12.5 million. The company has accrued $19.0 million to cover this verdict, plus estimated legal fees and interest, and intends to vigorously challenge the verdict on appeal. Management does not believe that other pending legal matters, in aggregate, will have a material adverse effect on the company's financial position.