O’Reilly Automotive(ORLY) - 2019 Q2 - Earnings Call Transcript

Financial Data and Key Metrics Changes - In Q2 2019, the company generated a comparable store sales growth of 3.4%, which was at the lower end of the guidance range due to adverse weather conditions impacting demand [9][11] - Earnings per share for the quarter were $4.51, falling below the guided range of $4.55 to $4.65 [11] - Gross margin improved by 36 basis points year-over-year to 52.8%, aligning with full-year guidance [21][48] - The company maintained its full-year EPS guidance of $17.37 to $17.47, expecting to come in near the bottom of the range due to anticipated headwinds [23][104] Business Line Data and Key Metrics Changes - Both DIY and professional segments contributed positively to comparable store sales growth, with the professional side being the stronger contributor [12] - Average ticket size increased due to rising parts complexity and inflation, while ticket counts for DIY were pressured by rising prices [13][14] - The company opened 43 net new stores in Q2, bringing total openings for 2019 to 105, but faced delays due to weather [33][34] Market Data and Key Metrics Changes - The company experienced product acquisition inflation driven by tariffs and other input cost increases, which were passed on to customers [14][90] - The effective tax rate for Q2 was 23.9%, slightly above expectations, compared to 21.5% in the same quarter of 2018 [52] Company Strategy and Development Direction - The company remains focused on enhancing customer service and investing in technology initiatives despite facing structural cost pressures [28] - The company is committed to opening at least 200 net new stores in 2019, despite delays caused by weather [37] - The company is also expanding its distribution capabilities with new distribution centers planned in Ohio, Tennessee, and Mississippi [39][41] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the long-term demand drivers in the automotive aftermarket, despite short-term weather-related volatility [18][24] - The company anticipates a solid start to Q3 with comparable store sales guidance set at 3% to 5% [20] - Management acknowledged that the inflationary environment and tariffs would continue to impact pricing and customer behavior, particularly in the DIY segment [66][90] Other Important Information - Free cash flow for the first half of 2019 was $541 million, down from $632 million in the same period of 2018, primarily due to increased capital expenditures [55] - The company repurchased 2.6 million shares year-to-date at an average price of $359.63, totaling $921 million [60] Q&A Session Summary Question: Follow-up on inflation commentary and expectations for the second half - Management expects inflation to increase due to tariffs impacting acquisition costs, with a higher number anticipated in the second half [66] Question: Confidence in reaching high-end of comp range despite weather impacts - Management noted strong underlying non-seasonal business performance, with confidence in the second half based on core demand for hard parts [72] Question: Impact of delayed store openings on SG&A - Management indicated that delays in new store openings contributed to SG&A deleverage, with expectations for continued pressure from wage growth [81] Question: Pressure from competitors on pricing due to tariffs - Management stated that competitors are adjusting prices in response to inflationary pressures, but overall pricing behavior remains rational [68][69] Question: Gross margin performance and expectations - Management maintained guidance for gross margin, expecting to be slightly above the midpoint due to pricing power and product mix [106]