10-QPeriod: Q1 FY2017

O REILLY AUTOMOTIVE INC Quarterly Report for Q1 Ended Mar 31, 2017

Filed May 8, 2017For Securities:ORLY

Summary

O'Reilly Automotive, Inc. (ORLY) reported first-quarter 2017 results with sales increasing by 3% to $2.16 billion. While overall sales grew, comparable store sales saw a modest increase of 0.8%, a significant deceleration from the 6.1% growth in the prior year's quarter. This slowdown was attributed to factors such as delayed income tax refunds, unseasonably mild winter weather impacting vehicle component stress, and a lack of favorable spring weather affecting post-winter maintenance. Diluted earnings per share (EPS) increased by 9% to $2.83, benefiting from a new accounting standard adoption that lowered the effective tax rate by approximately 600 basis points. The company continued its expansion strategy, opening 60 new stores and ending the quarter with 4,888 locations. Significant capital was returned to shareholders through share repurchases, with $490 million invested in the first quarter, and a new, larger $1.2 billion revolving credit facility was secured in April 2017, enhancing financial flexibility. Despite the deceleration in comparable store sales, the company's diversified strategy and focus on customer service, coupled with favorable long-term industry trends like an aging vehicle fleet, position it for continued growth.

Financial Highlights

44 data points
Beta

Revenue

$2.16B

52.5% Gross Margin

Net Income

$264.93M

12.3% Net Margin

EPS (Diluted)

$0.19

Total Assets

$7.20B

Cash & Equivalents

$27.54M

Free Cash Flow

$266.07M

Financial Statements
Beta
Revenue$2.16B
Cost of Revenue$1.03B
Gross Profit$1.13B
SG&A Expenses$727.99M
Operating Income$403.16M
Interest Expense$19.40M
Net Income$264.93M
EPS (Basic)$0.19
EPS (Diluted)$0.19
Shares Outstanding (Basic)1.38B
Shares Outstanding (Diluted)1.40B

Key Highlights

  • 1Sales increased by 3% year-over-year to $2.16 billion in Q1 2017.
  • 2Comparable store sales growth slowed to 0.8% in Q1 2017 from 6.1% in Q1 2016.
  • 3Diluted Earnings Per Share (EPS) grew by 9% to $2.83, aided by a lower effective tax rate due to a new accounting standard adoption.
  • 4The company opened 60 net new stores, expanding its footprint to 4,888 locations.
  • 5Significant share repurchases continued, with $490 million spent in the quarter.
  • 6A new $1.2 billion unsecured revolving credit facility was established in April 2017, replacing the previous $600 million facility.
  • 7Factors impacting comparable store sales included delayed tax refunds and unfavorable weather conditions.

Frequently Asked Questions

The deceleration in comparable store sales growth to 0.8% in Q1 2017 was attributed to a combination of factors including delayed income tax refunds due to IRS processing changes, unseasonably mild winter weather that reduced vehicle component stress, and a lack of warm spring weather impacting post-winter vehicle maintenance.

The adoption of ASU 2016-09 for accounting for share-based payments in Q1 2017 resulted in a significant reduction in the effective tax rate by approximately 600 basis points. This favorably impacted the provision for income taxes by $23 million and increased diluted EPS by $0.23.

O'Reilly continues to pursue growth through opening new stores and maintaining a strong dual market strategy serving both DIY and professional customers. The company plans to open 190 net new stores in 2017. Growth is primarily funded by cash flows generated from operations and available borrowings under its unsecured revolving credit facilities.

Total assets remained largely flat, ending at $7.204 billion compared to $7.204 billion at year-end 2016. Inventory saw an increase, reflecting growth and strategy, while cash and cash equivalents decreased significantly from $146.6 million to $27.5 million, likely due to robust share repurchases and operational investments. Long-term debt increased from $1.887 billion to $1.978 billion, partly due to new borrowings on the revolving credit facility.