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O’Reilly Automotive, Inc. Reports Second Quarter 2016 Results

  • Second quarter comparable store sales increase of 4.3%
  • 16% increase in second quarter diluted earnings per share to $2.65
  • Second quarter operating margin of 19.5%

SPRINGFIELD, Mo., July 27, 2016 (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 second quarter ended June 30, 2016. 

2nd Quarter Financial Results
Sales for the second quarter ended June 30, 2016, increased $141 million, or 7%, to $2.18 billion from $2.04 billion for the same period one year ago.  Gross profit for the second quarter increased to $1.13 billion (or 51.8% of sales) from $1.06 billion (or 52.0% of sales) for the same period one year ago, representing an increase of 6%.  Selling, general and administrative expenses (“SG&A”) for the second quarter increased to $702 million (or 32.3% of sales) from $673 million (or 33.1% of sales) for the same period one year ago, representing an increase of 4%.  Operating income for the second quarter increased to $425 million (or 19.5% of sales) from $386 million (or 19.0% of sales) for the same period one year ago, representing an increase of 10%.

Net income for the second quarter ended June 30, 2016, increased $24 million, or 10%, to $258 million (or 11.8% of sales) from $234 million (or 11.5% of sales) for the same period one year ago.  Diluted earnings per common share for the second quarter increased 16% to $2.65 on 97 million shares versus $2.29 on 102 million shares for the same period one year ago.

“We are proud to report another solid quarter, highlighted by an operating margin of 19.5% and a 16% increase in second quarter diluted earnings per share to $2.65, which exceeded the top of our guidance range and represents our 30th consecutive quarter of diluted earnings per share growth of greater than 15%,” commented Greg Henslee, O’Reilly’s President and CEO.  “For the second quarter, our focus on customer service generated a 4.3% increase in comparable store sales, which was on top of a 7.2% increase from the second quarter of 2015 and was above the mid-point of our second quarter guidance range.  This performance is the direct result of Team O’Reilly’s commitment to providing consistently excellent service to our customers, and I would like to thank our over 74,000 dedicated Team Members for their continued hard work and countless contributions to our ongoing success.”

Year-to-Date Financial Results
Sales for the first six months of 2016 increased $335 million, or 9%, to $4.27 billion from $3.94 billion for the same period one year ago.  Gross profit for the first six months of 2016 increased to $2.22 billion (or 52.1% of sales) from $2.05 billion (or 52.0% of sales) for the same period one year ago, representing an increase of 9%.  SG&A for the first six months of 2016 increased to $1.38 billion (or 32.3% of sales) from $1.31 billion (or 33.3% of sales) for the same period one year ago, representing an increase of 5%.  Operating income for the first six months of 2016 increased to $844 million (or 19.7% of sales) from $736 million (or 18.7% of sales) for the same period one year ago, representing an increase of 15%.

Net income for the first six months of 2016 increased $67 million, or 15%, to $513 million (or 12.0% of sales) from $446 million (or 11.3% of sales) for the same period one year ago.  Diluted earnings per common share for the first six months of 2016 increased 20% to $5.24 on 98 million shares versus $4.35 on 103 million shares for the same period one year ago.

Mr. Henslee continued, “In the first half of 2016, we opened 89 net, new stores across 28 states and are on track to hit our target of 210 net, new stores by the end of the year.  In May, we seamlessly opened our 27th distribution center in Selma, Texas, just outside of San Antonio.  This new, 389,000 square foot, state-of-the-art facility allows our distribution Team to better support our stores in our robustly growing San Antonio and Austin metro markets and frees up capacity in our three existing Texas distribution centers, better positioning those facilities to support future store growth.  Our ongoing investment in our distribution infrastructure creates capacity for future growth and reflects O’Reilly’s continued commitment to providing our customers unparalleled service with industry-leading parts availability.”

Share Repurchase Program
During the second quarter ended June 30, 2016, the Company repurchased 2.1 million shares of its common stock, at an average price per share of $262.17, for a total investment of $544 million.  During the first six months of 2016, the Company repurchased 3.3 million shares of its common stock, at an average price per share of $259.14, for a total investment of $857 million.  Subsequent to the end of the second quarter and through the date of this release, the Company repurchased less than 0.1 million shares of its common stock, at an average price per share of $269.33, for a total investment of $4 million.  The Company has repurchased a total of 54.6 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 $113.94, for a total aggregate investment of $6.22 billion.  As of the date of this release, the Company had approximately $782 million remaining under its current share repurchase authorizations. 

2nd 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, as well as the sales from Leap Day in the six months ended June 30, 2016.  Comparable store sales increased 4.3% for the second quarter ended June 30, 2016, on top of 7.2% for the same period one year ago.  Comparable store sales increased 5.1% for the six months ended June 30, 2016, on top of 7.2% for the same period one year ago.

3rd Quarter and Updated Full-Year 2016 Guidance
The table below outlines the Company’s guidance for selected third quarter and updated full-year 2016 financial data:

  For the Three Months Ending
September 30, 2016
  For the Year Ending
December 31, 2016
Comparable store sales 3% to 5%   3% to 5%
Total revenue     $8.4 billion to $8.6 billion
Gross profit as a percentage of sales     52.3% to 52.7%
Operating income as a percentage of sales     19.5% to 19.9%
Diluted earnings per share (1) $2.77 to $2.87   $10.30 to $10.70
Capital expenditures     $460 million to $490 million
Free cash flow (2)     $800 million to $850 million
       

(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) Calculated as net cash provided by operating activities less capital expenditures for the period.

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 selected financial information below.

Earnings Conference Call Information
The Company will host a conference call on Thursday, July 28, 2016, 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) 585-4405; the conference call identification number is 42806224.  A replay of the conference call will be available on the Company’s website through Thursday, July 27, 2017.

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 June 30, 2016, the Company operated 4,660 stores in 44 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, 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, terrorist activities, war and the threat of war.  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, 2015, 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.

           
O’REILLY AUTOMOTIVE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
           
  June 30, 2016   June 30, 2015   December 31, 2015
  (Unaudited)   (As Adjusted, Unaudited)(1)   (Note)
Assets          
Current assets:          
Cash and cash equivalents $ 398,259     $ 260,042     $ 116,301  
Accounts receivable, net 186,192     175,289     161,078  
Amounts receivable from suppliers 78,824     75,017     72,609  
Inventory 2,741,030     2,560,975     2,631,015  
Other current assets (1) 33,828     36,103     29,023  
Total current assets (1) 3,438,133     3,107,426     3,010,026  
           
Property and equipment, at cost 4,587,944     4,166,557     4,372,250  
Less: accumulated depreciation and amortization 1,608,704     1,422,741     1,510,694  
Net property and equipment 2,979,240     2,743,816     2,861,556  
           
Notes receivable, less current portion     15,311     13,219  
Goodwill 757,130     756,852     757,142  
Other assets, net (1) 36,137     37,079     34,741  
Total assets (1) $ 7,210,640     $ 6,660,484     $ 6,676,684  
           
Liabilities and shareholders’ equity          
Current liabilities:          
Accounts payable $ 2,914,641     $ 2,535,971     $ 2,608,231  
Self-insurance reserves 71,177     65,892     72,741  
Accrued payroll 62,596     83,547     59,101  
Accrued benefits and withholdings 59,966     52,984     72,203  
Income taxes payable     29,130     1,444  
Other current liabilities 258,295     229,528     232,678  
Total current liabilities (1) 3,366,675     2,997,052     3,046,398  
           
Long-term debt (1) 1,886,324     1,389,205     1,390,018  
Deferred income taxes (1) 72,961     87,096     79,772  
Other liabilities 194,670     217,146     199,182  
           
Shareholders’ equity:          
Common stock, $0.01 par value:          
Authorized shares – 245,000,000          
Issued and outstanding shares –          
94,881,546 as of June 30, 2016,          
99,592,091 as of June 30, 2015, and          
97,737,171 as of December 31, 2015 949     996     977  
Additional paid-in capital 1,309,441     1,242,810     1,281,497  
Retained earnings 379,620     726,179     678,840  
Total shareholders’ equity 1,690,010     1,969,985     1,961,314  
           
Total liabilities and shareholders’ equity (1) $ 7,210,640     $ 6,660,484     $ 6,676,684  
                       

Note: The balance sheet at December 31, 2015, 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) Certain amounts as of June 30, 2015, have been reclassified to conform to current period presentation, due to the Company’s adoption of new accounting standards during the fourth quarter ended December 31, 2015.  See Note 1 “Summary of Significant Accounting Policies” to the Consolidated Financial Statements of the annual report on Form 10-K for the year ended December 31, 2015.

       
O’REILLY AUTOMOTIVE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(In thousands, except per share data)
       
  For the Three Months Ended
 June 30,
  For the Six Months Ended
 June 30,
  2016   2015   2016   2015
Sales $ 2,176,689     $ 2,035,518     $ 4,272,839     $ 3,937,421  
Cost of goods sold, including warehouse and distribution expenses 1,049,510     976,727     2,048,081     1,891,671  
Gross profit 1,127,179     1,058,791     2,224,758     2,045,750  
               
Selling, general and administrative expenses 702,118     673,023     1,381,071     1,309,609  
Operating income 425,061     385,768     843,687     736,141  
               
Other income (expense):              
Interest expense (18,701 )   (14,319 )   (33,522 )   (28,721 )
Interest income 1,193     577     1,945     1,157  
Other, net 1,241     182     2,258     1,295  
Total other expense (16,267 )   (13,560 )   (29,319 )   (26,269 )
               
Income before income taxes 408,794     372,208     814,368     709,872  
Provision for income taxes 151,000     138,700     301,200     263,500  
Net income $ 257,794     $ 233,508     $ 513,168     $ 446,372  
               
Earnings per share-basic:              
Earnings per share $ 2.69     $ 2.32     $ 5.31     $ 4.42  
Weighted-average common shares outstanding – basic 95,967     100,547     96,554     101,078  
               
Earnings per share-assuming dilution:              
Earnings per share $ 2.65     $ 2.29     $ 5.24     $ 4.35  
Weighted-average common shares outstanding – assuming dilution 97,282     102,109     97,911     102,684  
                       


   
O’REILLY AUTOMOTIVE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
   
  For the Six Months Ended
 June 30,
  2016   2015
Operating activities:      
Net income $ 513,168     $ 446,372  
Adjustments to reconcile net income to net cash provided by operating activities:      
Depreciation and amortization of property, equipment and intangibles 106,430     106,007  
Amortization of debt discount and issuance costs 1,173     1,051  
Excess tax benefit from share-based compensation (30,136 )   (32,947 )
Deferred income taxes (6,811 )   (15,326 )
Share-based compensation programs 9,853     11,304  
Other 2,655     2,594  
Changes in operating assets and liabilities:      
Accounts receivable (28,837 )   (34,199 )
Inventory (110,015 )   (6,186 )
Accounts payable 306,410     118,804  
Income taxes payable 25,170     79,172  
Other 9,333     21,807  
Net cash provided by operating activities 798,393     698,453  
       
Investing activities:      
Purchases of property and equipment (220,416 )   (186,531 )
Proceeds from sale of property and equipment 1,971     1,608  
Payments received on notes receivable 1,047     1,981  
Net cash used in investing activities (217,398 )   (182,942 )
       
Financing activities:      
Proceeds from the issuance of long-term debt 499,160      
Payment of debt issuance costs (3,784 )    
Principal payments on capital leases     (25 )
Repurchases of common stock (856,845 )   (574,972 )
Excess tax benefit from share-based compensation 30,136     32,947  
Net proceeds from issuance of common stock 32,296     36,021  
Net cash used in financing activities (299,037 )   (506,029 )
       
Net increase in cash and cash equivalents 281,958     9,482  
Cash and cash equivalents at beginning of the period 116,301     250,560  
Cash and cash equivalents at end of the period $ 398,259     $ 260,042  
       
Supplemental disclosures of cash flow information:      
Income taxes paid $ 279,099     $ 194,715  
Interest paid, net of capitalized interest 27,174     27,711  
           


   
O’REILLY AUTOMOTIVE, INC. AND SUBSIDIARIES
SELECTED FINANCIAL INFORMATION
(Unaudited)
   
  For the Twelve Months Ended
June 30,
Adjusted Debt to EBITDAR: 2016       2015  
(In thousands, except adjusted debt to EBITDAR ratio)        
GAAP debt (1) $ 1,886,324       $   1,389,205  
Add: Letters of credit 39,010       50,506  
  Discount on senior notes 3,441       3,132  
  Debt issuance costs 10,235       7,663  
  Six-times rent expense 1,662,528       1,613,664  
Adjusted debt $ 3,601,538       $   3,064,170  
           
GAAP net income $ 998,012       $   845,047  
Add: Interest expense 61,930       55,783  
  Provision for income taxes 566,850       487,249  
  Depreciation and amortization 210,679       205,208  
  Share-based compensation expense 20,448       22,262  
  Rent expense 277,088       268,944  
EBITDAR $ 2,135,007       $   1,884,493  
           
Adjusted debt to EBITDAR 1.69       1.63  
         
         
  June 30,
  2016     2015
Selected Balance Sheet Ratios:        
Inventory turnover (2) 1.5       1.4  
Average inventory per store (in thousands) (3) $ 588     $ 574  
Accounts payable to inventory (4) 106.3 %     99.0 %
Return on equity (5) 52.6 %     41.7 %
Return on assets (1)(6) 14.2 %     12.8 %
             


  For the Three Months Ended
 June 30,
  For the Six Months Ended
 June 30,
  2016   2015   2016   2015
Selected Financial Information (in thousands):              
Capital expenditures $ 116,442     $ 95,391     $ 220,416     $ 186,531  
Free cash flow (7) 193,796     197,037     577,977     511,922  
Depreciation and amortization 53,652     51,057     106,430     106,007  
Interest expense 18,701     14,319     33,522     28,721  
Rent expense $ 69,838     $ 68,074     $ 139,841     $ 136,012  
                               


Store and Team Member Information:                
                   
  For the Three Months Ended
 June 30,
  For the Six Months Ended
 June 30,
  For the Twelve Months Ended
June 30,
  2016   2015   2016   2015   2016   2015
Beginning store count 4,623     4,433     4,571     4,366     4,465     4,257  
New stores opened 38     34     90     101     198     215  
Stores closed (1 )   (2 )   (1 )   (2 )   (3 )   (7 )
Ending store count 4,660     4,465     4,660     4,465     4,660     4,465  


  For the Three Months Ended
 June 30,
  For the Twelve Months Ended
June 30,
  2016   2015   2016   2015
Total employment 74,067     71,763          
Square footage (in thousands) 33,824     32,336          
Sales per weighted-average square foot (8) $ 64.15     $ 62.74     $ 248.77     $ 238.00  
Sales per weighted-average store (in thousands) (9) $ 466     $ 454     $ 1,804     $ 1,722  


(1)  Prior period amount has been reclassified to conform to current period presentation, due to the Company’s adoption of new accounting standards during the fourth quarter ended December 31, 2015.  See Note 1 “Summary of Significant Accounting Policies” to the Consolidated Financial Statements of the annual report on Form 10-K for the year ended December 31, 2015.
(2)  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.
(3)  Calculated as inventory divided by store count at the end of the reported period.
(4)  Calculated as accounts payable divided by inventory.
(5)  Calculated as net income for the last 12 months divided by average total shareholders’ equity.  Average total shareholders’ equity is calculated as the average of total shareholders’ equity for the trailing four quarters used in determining the denominator.
(6)  Calculated as net income for the last 12 months divided by average total assets.  Average total assets is calculated as the average of total assets for the trailing four quarters used in determining the denominator.
(7)  Calculated as net cash provided by operating activities less capital expenditures for the period.
(8)  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.
(9)  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.

 

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

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