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CST: 22/11/2019 11:17:22   

O’Reilly Automotive, Inc. Reports Third Quarter 2019 Results

29 Days ago

  • Third quarter comparable store sales increase of 5.0%
  • 11% increase in third quarter operating profit dollars
  • 13% increase in third quarter diluted earnings per share to $5.08

SPRINGFIELD, Mo., Oct. 23, 2019 (GLOBE NEWSWIRE) -- O’Reilly Automotive, Inc. (the “Company” or “O’Reilly”) (Nasdaq: ORLY), a leading retailer in the automotive aftermarket industry, today announced record revenues and earnings for its third quarter ended September 30, 2019.

3rd Quarter Financial Results
Greg Johnson, O’Reilly’s CEO and Co-President, commented, “We are pleased to report strong results for the third quarter, highlighted by comparable store sales growth of 5.0%, which was at the high end of our guidance and on top of our solid 3.9% comparable store sales growth in the prior year. Our Team is committed to driving profitable growth, and we are pleased with our ability to deliver strong sales growth in the quarter, while also expanding our gross margin by 35 basis points. We capitalized on the top-line results, as our team diligently controlled expenses to leverage SG&A by 22 basis points over last year, resulting in a total increase in operating profit dollars of 11%. Our third quarter performance and ongoing success is the direct result of our Team Members’ continued hard work and dedication, and I would like to thank each of them for their relentless commitment to providing the highest levels of service in the industry.”

Sales for the third quarter ended September 30, 2019, increased $184 million, or 7%, to $2.67 billion from $2.48 billion for the same period one year ago. Gross profit for the third quarter increased 8% to $1.42 billion (or 53.3% of sales) from $1.32 billion (or 53.0% of sales) for the same period one year ago. Selling, general and administrative expenses (“SG&A”) for the third quarter increased 7% to $886 million (or 33.2% of sales) from $831 million (or 33.5% of sales) for the same period one year ago. Operating income for the third quarter increased 11% to $536 million (or 20.1% of sales) from $485 million (or 19.5% of sales) for the same period one year ago.

Net income for the third quarter ended September 30, 2019, increased $25 million to $391 million (or 14.7% of sales) from $366 million (or 14.7% of sales) for the same period one year ago. Diluted earnings per common share for the third quarter increased 13% to $5.08 on 77 million shares versus $4.50 on 81 million shares for the same period one year ago.

Year-to-Date Financial Results
Mr. Johnson continued, “Through the first nine months of 2019, our free cash flow results were stronger than planned, primarily driven by the amount and timing of our quarterly estimated tax payments. We continue to invest in renewable energy projects that generate investment tax credits and the timing of these investments can create unevenness in our cash flows, however, we expect this timing to normalize during the fourth quarter, and for the full-year, we continue to expect free cash flow to finish in the range of $1.0 billion to $1.1 billion.”

Sales for the first nine months of 2019 increased $446 million, or 6%, to $7.67 billion from $7.22 billion for the same period one year ago. Gross profit for the first nine months of 2019 increased 7% to $4.07 billion (or 53.1% of sales) from $3.81 billion (or 52.7% of sales) for the same period one year ago. SG&A for the first nine months of 2019 increased 7% to $2.59 billion (or 33.8% of sales) from $2.42 billion (or 33.5% of sales) for the same period one year ago. Operating income for the first nine months of 2019 increased 7% to $1.48 billion (or 19.3% of sales) from $1.39 billion (or 19.2% of sales) for the same period one year ago.

Net income for the first nine months of 2019 increased $42 million, or 4%, to $1.07 billion (or 13.9% of sales) from $1.02 billion (or 14.2% of sales) for the same period one year ago. Diluted earnings per common share for the first nine months of 2019 increased 10% to $13.63 on 78 million shares versus $12.36 on 83 million shares for the same period one year ago.

Mr. Johnson concluded, “As we discussed in our second quarter earnings release, year-to-date store openings through June 30 fell short of our plan, due to weather related construction delays. We made significant progress with store openings during the third quarter to close that timing gap, and remain on track to open 200 net, new stores by the end of 2019. We continue to view organic store growth to be a strong opportunity to invest capital at robust rates of return and plan to continue to execute our expansion strategy during 2020 with the addition of approximately 180 net, new stores. This target is slightly below our 2019 store opening pace as our Teams will be heavily involved with completing the acquisition of Mayasa Auto Parts, which we announced in August. We are very excited to close on this acquisition in the fourth quarter and begin the process of partnering with the experienced Mayasa leadership team to capitalize on the long-term profitable growth opportunities that exist in the Mexican market.”

3rd Quarter Comparable Store Sales Results
Comparable store sales are calculated based on the change in sales for stores open at least one year and exclude sales of specialty machinery, sales to independent parts stores and sales to Team Members. Online sales, resulting from ship-to-home orders and pick-up-in-store orders, for stores open at least one year, are included in the comparable store sales calculation. Comparable store sales increased 5.0% for the third quarter ended September 30, 2019, on top of 3.9% for the same period one year ago. Comparable store sales increased 3.9% for the nine months ended September 30, 2019, on top of 4.0% for the same period one year ago.

Share Repurchase Program
During the third quarter ended September 30, 2019, the Company repurchased 1.0 million shares of its common stock, at an average price per share of $377.85, for a total investment of $387 million. During the first nine months ended September 30, 2019, the Company repurchased 3.6 million shares of its common stock, at an average price per share of $364.84, for a total investment of $1.31 billion. Subsequent to the end of the third quarter and through the date of this release, the Company repurchased an additional 0.1 million shares of its common stock, at an average price per share of $393.33, for a total investment of $32 million. The Company has repurchased a total of 76.0 million shares of its common stock under its share repurchase program since the inception of the program in January of 2011 and through the date of this release, at an average price of $159.11, for a total aggregate investment of $12.09 billion. As of the date of this release, the Company had approximately $662 million remaining under its current share repurchase authorization.

 
4th Quarter and Updated Full-Year 2019 Guidance
The table below outlines the Company’s guidance for selected fourth quarter and updated full-year 2019 financial data:
 
  For the Three Months Ending
December 31, 2019

  For the Year Ending
December 31, 2019

Comparable store sales 3% to 5%     3% to 5%  
Total revenue       $10.0 billion to $10.3 billion  
Gross profit as a percentage of sales       52.7% to 53.2%  
Operating income as a percentage of sales       18.7% to 19.2%  
Effective income tax rate       23.0%  
Diluted earnings per share (1) $4.12 to $4.22     $17.75 to $17.85  
Net cash provided by operating activities       $1.6 billion to $1.8 billion  
Capital expenditures       $625 million to $675 million  
Free cash flow (2)       $1.0 billion to $1.1 billion  
 
(1) Weighted-average shares outstanding, assuming dilution, used in the denominator of this calculation, includes share repurchases made by the Company through the date of this release.
 
(2) Free cash flow is a non-GAAP financial measure. The table below reconciles Free cash flow guidance to Net cash provided by operating activities guidance, the most directly comparable GAAP financial measure:


  (in millions) For the Year Ending
December 31, 2019
  Net cash provided by operating activities $ 1,635   to $ 1,790  
  Less: Capital expenditures 625   to 675  
    Excess tax benefit from share-based compensation payments 10   to 15  
  Free cash flow $ 1,000   to $ 1,100  
               

Non-GAAP Information
This release contains certain financial information not derived in accordance with United States generally accepted accounting principles (“GAAP”). These items include adjusted debt to earnings before interest, taxes, depreciation, amortization, share-based compensation and rent (“EBITDAR”) and free cash flow. The Company does not, nor does it suggest investors should, consider such non-GAAP financial measures in isolation from, or as a substitute for, GAAP financial information. The Company believes that the presentation of adjusted debt to EBITDAR and free cash flow provide meaningful supplemental information to both management and investors that is indicative of the Company’s core operations. The Company has included a reconciliation of this additional information to the most comparable GAAP measure in the table above and the selected financial information below.

Earnings Conference Call Information
The Company will host a conference call on Thursday, October 24, 2019, at 10:00 a.m. Central Time to discuss its results as well as future expectations. Investors may listen to the conference call live on the Company’s website at www.OReillyAuto.com by clicking on “Investor Relations” and then “News Room.” Interested analysts are invited to join the call. The dial-in number for the call is (847) 619-6396 and the conference call identification number is 49053015. A replay of the conference call will be available on the Company’s website through Friday, October 23, 2020.

About O’Reilly Automotive, Inc.
O’Reilly Automotive, Inc. was founded in 1957 by the O’Reilly family and is one of the largest specialty retailers of automotive aftermarket parts, tools, supplies, equipment and accessories in the United States, serving both the do-it-yourself and professional service provider markets. Visit the Company’s website at www.OReillyAuto.com for additional information about O’Reilly, including access to online shopping and current promotions, store locations, hours and services, employment opportunities and other programs. As of September 30, 2019, the Company operated 5,420 stores in 47 states.

Forward-Looking Statements
The Company claims the protection of the safe-harbor for forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. You can identify these statements by forward-looking words such as “estimate,” “may,” “could,” “will,” “believe,” “expect,” “would,” “consider,” “should,” “anticipate,” “project,” “plan,” “intend” or similar words. In addition, statements contained within this press release that are not historical facts are forward-looking statements, such as statements discussing, among other things, expected growth, store development, integration and expansion strategy, business strategies, future revenues and future performance. These forward-looking statements are based on estimates, projections, beliefs and assumptions and are not guarantees of future events and results. Such statements are subject to risks, uncertainties and assumptions, including, but not limited to, the economy in general, inflation, tariffs, product demand, the market for auto parts, competition, weather, risks associated with the performance of acquired businesses, our ability to hire and retain qualified employees, consumer debt levels, our increased debt levels, credit ratings on public debt, governmental regulations, information security and cyber-attacks, terrorist activities, war, the threat of war, and the ability to successfully complete the acquisition of Mayasa Auto Parts on a timely basis. Actual results may materially differ from anticipated results described or implied in these forward-looking statements. Please refer to the “Risk Factors” section of the annual report on Form 10-K for the year ended December 31, 2018, and subsequent Securities and Exchange Commission filings for additional factors that could materially affect the Company’s financial performance. Forward-looking statements speak only as of the date they were made and the Company undertakes no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by applicable law.

   
For further information contact: Investor & Media Contact
  Mark Merz (417) 829-5878


O’REILLY AUTOMOTIVE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
 
  September 30, 2019 (1)   September 30, 2018   December 31, 2018
  (Unaudited)   (Unaudited)   (Note)
Assets          
Current assets:          
Cash and cash equivalents $ 42,804     $ 40,019     $ 31,315  
Accounts receivable, net 224,033     242,692     192,026  
Amounts receivable from suppliers 76,107     83,237     78,155  
Inventory 3,348,631     3,139,621     3,193,344  
Other current assets 32,914     54,462     48,262  
Total current assets 3,724,489     3,560,031     3,543,102  
           
Property and equipment, at cost 6,053,306     5,512,325     5,645,552  
Less: accumulated depreciation and amortization 2,182,599     2,010,392     2,058,550  
Net property and equipment 3,870,707     3,501,933     3,587,002  
           
Operating lease, right-of-use assets 1,908,931          
Goodwill 808,259     789,178     807,260  
Other assets, net 60,338     43,572     43,425  
Total assets $ 10,372,724     $ 7,894,714     $ 7,980,789  
           
Liabilities and shareholders’ equity          
Current liabilities:          
Accounts payable $ 3,606,571     $ 3,384,098     $ 3,376,403  
Self-insurance reserves 75,158     75,440     77,012  
Accrued payroll 104,161     89,721     86,520  
Accrued benefits and withholdings 87,386     83,113     89,082  
Income taxes payable 100,472         11,013  
Current portion of operating lease liabilities 308,726          
Other current liabilities 298,380     272,709     253,990  
Total current liabilities 4,580,854     3,905,081     3,894,020  
           
Long-term debt 3,703,628     3,174,327     3,417,122  
Operating lease liabilities, less current portion 1,642,178          
Deferred income taxes 117,551     102,640     105,566  
Other liabilities 162,294     214,287     210,414  
           
Shareholders’ equity:          
Common stock, $0.01 par value:          
Authorized shares – 245,000,000          
Issued and outstanding shares –          
75,727,781 as of September 30, 2019,          
80,345,665 as of September 30, 2018, and          
79,043,919 as of December 31, 2018 757     803     790  
Additional paid-in capital 1,259,544     1,265,827     1,262,063  
Retained deficit (1,094,082 )   (768,251 )   (909,186 )
Total shareholders’ equity 166,219     498,379     353,667  
           
Total liabilities and shareholders’ equity $ 10,372,724     $ 7,894,714     $ 7,980,789  
 
Note: The balance sheet at December 31, 2018, has been derived from the audited consolidated financial statements at that date but does not include all of the information and footnotes required by United States generally accepted accounting principles for complete financial statements.
 
(1) The Company adopted Accounting Standard Codification 842 - Leases (“ASC 842”) during the first quarter ended March 31, 2019, using the additional, optional transition method, which does not require prior periods to be restated.


O’REILLY AUTOMOTIVE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(In thousands, except per share data)
 
  For the Three Months Ended
September 30,
  For the Nine Months Ended
September 30,
  2019   2018   2019   2018
Sales $ 2,666,528     $ 2,482,717     $ 7,667,010     $ 7,221,471  
Cost of goods sold, including warehouse and distribution expenses 1,243,998     1,166,962     3,596,903     3,415,820  
Gross profit 1,422,530     1,315,755     4,070,107     3,805,651  
               
Selling, general and administrative expenses 886,167     830,607     2,590,884     2,418,507  
Operating income 536,363     485,148     1,479,223     1,387,144  
               
Other income (expense):              
Interest expense (35,858 )   (31,582 )   (104,687 )   (90,661 )
Interest income 656     669     1,813     1,838  
Other, net 732     1,416     4,667     2,609  
Total other expense (34,470 )   (29,497 )   (98,207 )   (86,214 )
               
Income before income taxes 501,893     455,651     1,381,016     1,300,930  
Provision for income taxes 110,600     89,500     314,890     276,800  
Net income $ 391,293     $ 366,151     $ 1,066,126     $ 1,024,130  
               
Earnings per share-basic:              
Earnings per share $ 5.14     $ 4.54     $ 13.77     $ 12.50  
Weighted-average common shares outstanding – basic 76,172     80,593     77,415     81,939  
               
Earnings per share-assuming dilution:              
Earnings per share $ 5.08     $ 4.50     $ 13.63     $ 12.36  
Weighted-average common shares outstanding – assuming dilution 76,969     81,410     78,220     82,841  


O’REILLY AUTOMOTIVE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
 
  For the Nine Months Ended
September 30,
  2019   2018
       
Operating activities:      
Net income $ 1,066,126     $ 1,024,130  
Adjustments to reconcile net income to net cash provided by operating activities:      
Depreciation and amortization of property, equipment and intangibles 200,382     193,318  
Amortization of debt discount and issuance costs 2,898     2,557  
Deferred income taxes 12,383     17,234  
Share-based compensation programs 16,578     15,144  
Other 5,830     6,304  
Changes in operating assets and liabilities:      
Accounts receivable (38,892 )   (32,799 )
Inventory (154,986 )   (129,214 )
Accounts payable 228,943     194,069  
Income taxes payable 90,383     4,460  
Other 60,031     46,816  
Net cash provided by operating activities 1,489,676     1,342,019  
       
Investing activities:      
Purchases of property and equipment (481,207 )   (350,461 )
Proceeds from sale of property and equipment 5,479     3,353  
Investment in tax credit equity investments (17,988 )    
Other 661     (716 )
Net cash used in investing activities (493,055 )   (347,824 )
       
Financing activities:      
Proceeds from borrowings on revolving credit facility 2,192,000     1,745,000  
Payments on revolving credit facility (2,404,000 )   (2,046,000 )
Proceeds from the issuance of long-term debt 499,955     498,660  
Payment of debt issuance costs (3,991 )   (3,923 )
Repurchases of common stock (1,307,983 )   (1,251,060 )
Net proceeds from issuance of common stock 39,077     58,955  
Other (190 )   (2,156 )
Net cash used in financing activities (985,132 )   (1,000,524 )
       
Net increase (decrease) in cash and cash equivalents 11,489     (6,329 )
Cash and cash equivalents at beginning of the period 31,315     46,348  
Cash and cash equivalents at end of the period $ 42,804     $ 40,019  
       
Supplemental disclosures of cash flow information:      
Income taxes paid $ 218,386     $ 256,949  
Interest paid, net of capitalized interest 110,014     102,025  


O’REILLY AUTOMOTIVE, INC. AND SUBSIDIARIES
SELECTED FINANCIAL INFORMATION
(Unaudited)
 
  For the Twelve Months Ended
September 30,
Adjusted Debt to EBITDAR: 2019   2018
(In thousands, except adjusted debt to EBITDAR ratio)      
GAAP debt $ 3,703,628     $ 3,174,327  
Add: Letters of credit 39,104     36,984  
  Discount on senior notes 3,723     4,498  
  Debt issuance costs 17,649     16,175  
  Six-times rent expense 2,005,494     1,876,758  
Adjusted debt $ 5,769,598     $ 5,108,742  
         
GAAP net income $ 1,366,483     $ 1,326,445  
Add: Interest expense 136,155     117,455  
  Provision for income taxes 407,690     351,209  
  Depreciation and amortization 266,001     253,663  
  Share-based compensation expense 21,610     19,710  
  Rent expense (i) 334,249     312,793  
EBITDAR $ 2,532,188     $ 2,381,275  
         
Adjusted debt to EBITDAR 2.28
    2.15  
 
(i) The table below outlines the calculation of Rent expense and reconciles Rent expense to Total lease cost, per ASC 842, the most directly comparable GAAP financial measure, for the nine and twelve months ended September 30, 2019 (in thousands):


  Total lease cost, per ASC 842, for the nine months ended September 30, 2019 $ 298,185  
  Less: Variable non-contract operating lease components, related to property taxes and insurance, for the nine months ended September 30, 2019 44,531  
  Rent expense for the nine months ended September 30, 2019 253,654  
  Add: Rent expense for the three months ended December 31, 2018, as previously reported prior to the adoption of ASC 842 80,595  
  Rent expense for the twelve months ended September 30, 2019 $ 334,249  


  September 30,
  2019   2018
Selected Balance Sheet Ratios:      
Inventory turnover (1) 1.4     1.4  
Average inventory per store (in thousands) (2) $ 618     $ 605  
Accounts payable to inventory (3) 107.7 %   107.8 %


  For the Three Months Ended
September 30,
  For the Nine Months Ended
September 30,
  2019   2018   2019   2018
Reconciliation of Free Cash Flow (in thousands):              
Net cash provided by operating activities $ 642,672     $ 466,786     $ 1,489,676     $ 1,342,019  
Less: Capital expenditures 185,599     126,344     481,207     350,461  
  Excess tax benefit from share-based
compensation payments
2,337     13,366     13,059     32,974  
Free cash flow $ 454,736     $ 327,076     $ 995,410     $ 958,584  


Store and Team Member Information:
                   
  For the Three Months Ended
September 30,
  For the Nine Months Ended
September 30,
  For the Twelve Months Ended
September 30,
  2019   2018   2019   2018   2019   2018
Beginning store count 5,344     5,147     5,219     5,019     5,190     4,984  
New stores opened 76     45     183     177     212     213  
Bennett stores acquired, net of stores merged (4)         20         20      
Stores closed     (2 )   (2 )   (6 )   (2 )   (7 )
Ending store count 5,420     5,190     5,420     5,190     5,420     5,190  


  For the Three Months Ended
September 30,
  For the Twelve Months Ended
September 30,
  2019   2018   2019   2018
Total employment 82,163     80,158          
Square footage (in thousands) 40,070     38,166          
Sales per weighted-average square foot (5) $ 66.73     $ 65.02     $ 253.82     $ 250.71  
Sales per weighted-average store (in thousands) (6) $ 493     $ 477     $ 1,871     $ 1,836  
 
(1) Calculated as cost of goods sold for the last 12 months divided by average inventory. Average inventory is calculated as the average of inventory for the trailing four quarters used in determining the denominator.
(2) Calculated as inventory divided by store count at the end of the reported period.
(3) Calculated as accounts payable divided by inventory.
(4) O’Reilly acquired 33 Bennett Auto Supply, Inc. (“Bennett”) stores after the close of business on December 31, 2018. During the first quarter ended March 31, 2019, O’Reilly merged eight of the acquired Bennett stores into existing O’Reilly locations, and during the second quarter ended June 30, 2019, O’Reilly merged an additional five acquired Bennett stores into existing O’Reilly locations.
(5) Calculated as sales less jobber sales, divided by weighted-average square footage. Weighted-average square footage is determined by weighting store square footage based on the approximate dates of store openings, acquisitions, expansions or closures.
(6) Calculated as sales less jobber sales, divided by weighted-average stores. Weighted-average stores is determined by weighting stores based on their approximate dates of openings, acquisitions or closures.
 

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