01—Abstract
Summary
Summary of the 8-K filed February 7, 2024. Cited figures are marked; the original filing is the authoritative source.
O'Reilly Automotive (ORLY) reported record fourth-quarter and full-year 2023 results, with comparable store sales up 3.4%a in Q4 (on top of a 9.0% comp a year earlier) and 7.9% for the full year.
Q4 sales rose 5% to $3.83 billionb, operating income rose 5% to $719 million, and diluted EPS rose 11% to $9.26. For the full year, sales grew 10% to $15.81 billion, operating income grew 8% to $3.19 billion, and diluted EPS grew 15% to $38.47, marking the company's 31st consecutive year of comparable store sales growth. Operating margin compressed modestly to 20.2% from 20.5% for the year, reflecting SG&A growth outpacing gross profit growth.
The company issued 2024 guidance calling for comparable store sales growth of 3.0% to 5.0%, total revenue of $16.8 billion to $17.1 billionc, and diluted EPS of $41.05 to $41.55. Guidance includes the Canadian acquisition of Groupe Del Vasto, which closed in January 2024 and is expected to dilute gross margin by roughly 25 basis points and operating margin by roughly 15 basis points. Free cash flow guidance is $1.8 billion to $2.1 billion, down from $1.99 billion in 2023 as capital expenditures rise to $900 million to $1.0 billion.
Management also continued aggressive capital returns, repurchasing $3.15 billiond of stock in 2023 with about $2.47 billion of authorization remaining. Leadership continuity was a key item in the filing. The previously announced succession plan was completed on January 31, 2024, when Greg Johnson retired as CEO and Brad Beckham was promoted to CEO, with Brent Kirby named President.
Board member Jay Burchfield is retiring under the board's mandatory retirement policy, and the board has nominated Greg Johnson to fill his seat at the May 2024 annual meeting. Leverage remains elevated, with adjusted debt to EBITDAR rising to 2.03x from 1.84x, and total shareholders' deficit widened to $(1.74) billion, a structural feature of the company's aggressive buyback program.
02—Key points
Key Highlights
- Q4 2023 comparable store sales grew 3.4%, and full-year comparable store sales grew 7.9%, extending a 31-year streak of positive comps.
- Full-year 2023 diluted EPS rose 15% to $38.47 on sales of $15.81 billion (up 10%) and net income of $2.35 billion (up 8%).
- Q4 2023 diluted EPS rose 11% to $9.26, with operating income up 5% to $719 million on sales of $3.83 billion.
- 2024 guidance projects comparable store sales growth of 3.0%–5.0%, revenue of $16.8–$17.1 billion, and diluted EPS of $41.05–$41.55.
- Free cash flow guidance for 2024 of $1.8–$2.1 billion is below 2023's $1.99 billion as capex rises to $900 million–$1.0 billion, and the Canadian acquisition adds margin dilution.
- Leverage increased: adjusted debt to EBITDAR rose to 2.03x from 1.84x, and long-term debt reached $5.57 billion, while the company repurchased $3.15 billion of stock in 2023.
- Leadership transition completed January 31, 2024, with Brad Beckham promoted to CEO and Brent Kirby to President; Greg Johnson nominated to the board to replace retiring director Jay Burchfield.
03—Questions
Frequently Asked Questions
How did O'Reilly perform in 2023 relative to the prior year?
O'Reilly delivered record full-year 2023 results: sales rose 10% to $15.81 billion, operating income rose 8% to $3.19 billion, and diluted EPS rose 15% to $38.47. Comparable store sales increased 7.9%. Operating margin declined slightly to 20.2% from 20.5%, as SG&A grew 11% versus 10% gross profit growth.
What is the company guiding for in 2024?
Guidance calls for comparable store sales growth of 3.0%–5.0%, total revenue of $16.8–$17.1 billion, gross margin of 51.0%–51.5%, operating margin of 19.7%–20.2%, and diluted EPS of $41.05–$41.55. The guidance includes preliminary estimates for the Canadian acquisition, which is expected to dilute gross margin by about 25 bps and operating margin by about 15 bps.
Why is free cash flow expected to be lower in 2024?
Free cash flow is guided to $1.8–$2.1 billion, compared with $1.99 billion in 2023. Capital expenditures are expected to rise to $900 million–$1.0 billion, and operating cash flow guidance of $2.7–$3.1 billion is also lower than the $3.03 billion generated in 2023, consistent with the investment cycle in new stores, distribution, and the Canadian expansion.
Are there any leadership changes investors should know about?
Yes. Greg Johnson retired as CEO on January 31, 2024, and Brad Beckham was promoted to CEO, with Brent Kirby becoming President. Director Jay Burchfield is retiring under the board's mandatory age policy, and the board has nominated Greg Johnson to fill his seat, subject to shareholder approval at the May 2024 annual meeting.
How is the company managing its balance sheet and capital returns?
O'Reilly repurchased $3.15 billion of stock in 2023 and has about $2.47 billion remaining under its authorizations. Leverage rose, with adjusted debt to EBITDAR increasing to 2.03x from 1.84x and GAAP long-term debt reaching $5.57 billion. The shareholders' deficit widened to $(1.74) billion, reflecting cumulative buybacks exceeding retained earnings.
04—Continue