10-QPeriod: Q2 FY2016

O REILLY AUTOMOTIVE INC Quarterly Report for Q2 Ended Jun 30, 2016

Filed August 8, 2016For Securities:ORLY

Summary

O'Reilly Automotive Inc. (ORLY) reported strong financial results for the second quarter and first half of 2016, demonstrating robust sales growth and increased profitability. Net sales rose by 7% for the quarter and 9% for the six-month period, driven by a combination of comparable store sales growth and contributions from new store openings. The company's effective management of expenses, particularly SG&A, coupled with favorable macroeconomic trends like decreasing unemployment and increased miles driven, led to a significant increase in operating income, up 10% for the quarter and 15% for the six months. This operational efficiency translated into higher net income and diluted earnings per share, showing a 10% and 15% increase respectively for the respective periods, indicating strong performance and value creation for shareholders.

Financial Highlights

44 data points
Beta

Revenue

$2.18B

51.8% Gross Margin

Net Income

$257.79M

11.8% Net Margin

EPS (Diluted)

$0.18

Total Assets

$7.21B

Cash & Equivalents

$398.26M

Free Cash Flow

$209.17M

Financial Statements
Beta
Revenue$2.18B
Cost of Revenue$1.05B
Gross Profit$1.13B
SG&A Expenses$702.12M
Operating Income$425.06M
Interest Expense$18.70M
Net Income$257.79M
EPS (Basic)$0.18
EPS (Diluted)$0.18
Shares Outstanding (Basic)1.44B
Shares Outstanding (Diluted)1.46B

Key Highlights

  • 1O'Reilly Automotive reported a 7% increase in sales for the three months ended June 30, 2016, reaching $2.18 billion, and a 9% increase for the six months ended June 30, 2016, to $4.27 billion.
  • 2Comparable store sales increased by 4.3% for the quarter and 5.1% for the six-month period, indicating healthy performance in existing stores.
  • 3Operating income grew by 10% for the quarter and 15% for the six-month period, reflecting effective cost management and sales leverage.
  • 4Net income increased by 10% for the quarter to $258 million and by 15% for the six-month period to $513 million.
  • 5Diluted earnings per share saw a significant increase of 16% for the quarter ($2.65 vs $2.29) and 20% for the six-month period ($5.24 vs $4.35).
  • 6The company generated strong operating cash flow of $798 million for the first six months of 2016, an increase from $698 million in the prior year.
  • 7O'Reilly continued its expansion, opening 90 net new stores in the first six months of 2016, bringing the total store count to 4,660.

Frequently Asked Questions

O'Reilly's sales growth in the second quarter of 2016 was driven by a combination of comparable store sales increases (4.3%) and contributions from newly opened stores. The company also benefited from favorable macroeconomic conditions, including increased miles driven and decreasing unemployment, which positively impacted both do-it-yourself (DIY) and professional service provider customer segments.

O'Reilly demonstrated effective expense management. While SG&A expenses increased in dollar terms to support store growth, they decreased as a percentage of sales for both the three-month and six-month periods. This was partly due to leverage from comparable store sales growth and a prior-year litigation loss charge that did not recur.

O'Reilly actively manages its capital through a significant share repurchase program, having repurchased $857 million worth of stock in the first six months of 2016. The company also utilizes debt financing, issuing $500 million in senior notes in March 2016. Despite increased debt, the company maintains strong financial flexibility, with no outstanding borrowings under its revolving credit facility as of June 30, 2016, and compliance with all debt covenants.

The company is involved in ongoing litigation, including a contract dispute with an unfavorable jury verdict of $12.5 million in Missouri, for which it had reserved $18.7 million as of June 30, 2016. O'Reilly is challenging this verdict on appeal. The company also notes that it is evaluating several upcoming accounting standard changes, including those related to revenue recognition and leases, with adoption dates in future periods.