10-QPeriod: Q2 FY2018

O REILLY AUTOMOTIVE INC Quarterly Report for Q2 Ended Jun 30, 2018

Filed August 8, 2018For Securities:ORLY

Summary

O'Reilly Automotive Inc. (ORLY) reported strong financial results for the second quarter and first half of 2018, demonstrating robust sales growth and improved profitability. Total sales increased by 7% for both the three and six-month periods ended June 30, 2018, driven by comparable store sales growth of 4.6% and 4.0% respectively, and expansion through new store openings. The company's dual market strategy, serving both do-it-yourself (DIY) and professional service provider customers, continues to be a key driver of this performance. The effective tax rate significantly decreased due to the Tax Cuts and Jobs Act, contributing to a substantial 25% increase in net income for the quarter and a 20% increase for the first half of the year. The company also maintained a strong financial position, with healthy operating cash flow and a solid liquidity position supported by its revolving credit facility. While long-term debt increased, primarily due to new senior note issuances, O'Reilly remains in compliance with its debt covenants. The company continued its share repurchase program, indicating confidence in its financial outlook and commitment to returning value to shareholders. Overall, O'Reilly's performance in this period reflects effective operational execution and a favorable market position within the automotive aftermarket industry.

Financial Highlights

45 data points
Beta

Revenue

$2.46B

52.5% Gross Margin

Net Income

$353.07M

14.4% Net Margin

EPS (Diluted)

$0.29

Total Assets

$7.77B

Cash & Equivalents

$36.87M

Free Cash Flow

$333.68M

Financial Statements
Beta
Revenue$2.46B
Cost of Revenue$1.17B
Gross Profit$1.29B
SG&A Expenses$809.49M
Operating Income$479.15M
Interest Expense$30.86M
Net Income$353.07M
EPS (Basic)$0.29
EPS (Diluted)$0.29
Shares Outstanding (Basic)1.23B
Shares Outstanding (Diluted)1.24B

Key Highlights

  • 1Sales increased by 7% for both the three and six months ended June 30, 2018, reaching $2.46 billion and $4.74 billion, respectively.
  • 2Comparable store sales grew by 4.6% for the three months and 4.0% for the six months, indicating strong performance from existing locations.
  • 3Net income saw a significant increase of 25% for the quarter and 20% for the six months, driven by higher sales and a lower effective tax rate due to the Tax Cuts and Jobs Act.
  • 4The company opened 50 net new stores in the quarter and 128 in the first half, contributing to its overall growth strategy and expanding its market presence.
  • 5Operating income increased by 5% for both periods, demonstrating O'Reilly's ability to translate sales growth into profitability.
  • 6Diluted earnings per share (EPS) rose significantly, up 38% to $4.28 for the quarter and 33% to $7.89 for the six months, reflecting improved profitability on a per-share basis.
  • 7Free cash flow generation was robust, totaling $631.5 million for the first six months of 2018, up from $450.5 million in the prior year period.

Frequently Asked Questions

The substantial increase in net income was primarily driven by two factors: strong sales growth across comparable stores and new store openings, and a significant reduction in the effective tax rate. The Tax Cuts and Jobs Act enacted in December 2017 lowered the federal corporate tax rate, which directly benefited the company's tax provision and thus its net income.

O'Reilly maintains a strong liquidity position, supported by cash generated from operations and its unsecured revolving credit facility. Long-term debt increased due to the issuance of new senior notes, but the company remains in compliance with all debt covenants, including its fixed charge coverage and leverage ratios. The company believes its operating cash flow and available credit are sufficient to meet its future capital and liquidity needs.

O'Reilly is actively pursuing its store expansion strategy, planning to open 200 net new stores in 2018. This growth is primarily funded by cash generated from existing operations and available borrowings under its unsecured revolving credit facility. The company opened 50 net new stores in the second quarter and 128 in the first half of 2018, indicating steady execution of this growth plan.

Comparable store sales showed positive growth, increasing by 4.6% for the quarter and 4.0% for the six months. This growth was driven by an increase in average ticket values for both DIY and professional customers, reflecting the rising cost of replacement parts for more complex vehicles. While professional customer transaction counts were positive, DIY customer transaction counts were negatively impacted by delayed spring weather in some regions, which affected customer willingness to perform maintenance.