O’Reilly Automotive (NASDAQ:ORLY) released first-quarter financial results and hosted an earnings call on Thursday. Read the complete transcript below.
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View the webcast at https://www.webcaster5.com/Webcast/Page/2939/53764
Summary
O’Reilly Automotive reported strong financial performance in the first quarter, with sales increasing by $424 million and an 8.1% increase in comparable store sales.
The company maintained its full-year comparable store sales guidance of 3-5% and increased its full-year diluted EPS guidance to a range of $3.15 to $3.25.
O’Reilly Automotive opened 59 net new stores across the U.S., Mexico, and Canada in the first quarter, and plans to open 225 to 235 net new stores in 2026.
The company’s gross margin increased by 19 basis points to 51.5% for the first quarter, driven by cost reductions and strong sales volumes.
O’Reilly Automotive’s private label penetration has climbed to over 50% of total revenue, contributing to improved sourcing capabilities and margins.
Full Transcript
Brad
Expected providing a strong start to the quarter. Moving into February, weekly volumes began increasing as tax refunds started to flow to consumers. Our business often receives some level of benefit from tax refund season, but is not always a direct correlation to average refund size or total refund dollars. As weather and general economic conditions can play a role in the extent to which consumers spend these refund dollars and where they are spent this year, we do believe the combination of an increase in average refund size as well as higher total refund dollars coincided with favorable weather to produce a benefit for our business. Warm and generally dry conditions in most of our markets provided a supportive backdrop for consumers looking to perform vehicle maintenance and in conjunction with the benefit from tax refunds. While we surpassed expectations each month, our business strengthened as we moved through the quarter relative to both our plan and on a 1, 2, and 3-year stack comp basis. April has had the expected degree of seasonal moderation in volumes relative to March, but our business continues to be strong in both DIY and professional. From a category perspective, our results were driven by broad based strength across the business with solid results in many of our undercar hard part categories coupled with continued healthy performance in our maintenance categories including oil filters and fluids. Even in light of widespread strong comp contributions across a broad range of categories, we still see some evidence of consumer caution. Discretionary categories were not as pressured from a relative comp perspective as we’ve seen in the past few quarters, but this was mainly due to the soft comparisons as we are lapping periods of pressure in this small subset of our business. I will discuss in more detail in a moment, but our outlook assumes a continuation of this uncertain stance by consumers. Growth in average ticket was a mid single digit contributor to comps on both sides of our business, while average ticket growth represented the larger driver of our comp for the first quarter. These results were essentially in line with our expectations. As I referenced earlier, it was really the growth in transactions that exceeded our expectations coming into the quarter. We assumed average ticket would benefit from same-SKU inflation of approximately 6% and actual results came in right in line with those expectations. As a reminder, the front half of 2026 is expected to receive a larger benefit from same-SKU inflation as we do not compare against the more significant cost and associated price increases in 2025 until the third quarter. Turning to guidance, we maintained our full year comparable store sales guidance range of 3 to 5%. We are very pleased with the strong start to 2026 that our team has been able to deliver. The first quarter results exceeded our plan and right now have pushed us to the top half of our full year range. However, we remain cautious in our outlook for the consumer. Rapid increases in fuel costs have the potential to impact consumer spending even in predominantly non discretionary sectors like our industry. While the more fundamental long term demand drivers of miles driven and the average age and size of the vehicle fleet are expected to remain supportive and change very gradually over time, spikes in prices at the pump and the impact it can have on other day to day spending in the life of a consumer can cause short term reactions. So far, our first quarter results and trends thus far in April have not indicated a pullback in consumer demand. However, we remain cognizant that sustained inflation pressure on the consumer or potential for future shocks could create volatility in demand. Likewise, we are always cautious to not overreact to first quarter results which can be susceptible to demand variability driven by weather and tax refund dynamics. Given these considerations, we have kept our sales and operating margin outlook for the remaining three quarters of the year unchanged from our previous guidance. It goes without saying that our team is highly motivated to sustain our first quarter momentum as we move through 2026. Ultimately, we will lean on our business model of service and availability to grow our business with both our existing and new customers the same. We have confidence in the health of our industry and even more in our ability to take market share in any market backdrop. Our store and sales teams operate with a high degree of discipline within their markets. We expect to win business by delivering value through deep win win relationships, excellent customer service, superior product availability as our teams focus on partnering with our professional customers who recognize this value and place us in a position of preferred supplier. As a result of the consistent execution of our team. This same high standard of customer service also drives our DIY business since these customers are just as dependent on the trusted advice of our professional parts people to help them solve problems, go the extra mile and in turn keep their vehicles on the road and well maintained. Before I wrap up, I would like to note that we are increasing our full year diluted earnings per share guidance to a range of $3.15 to $3.25. Our increase in EPS guidance is driven by our first quarter sales and operating performance and the impact of shares repurchased through the date of our earnings release yesterday. We are pleased to be delivering an increase to our full year guide after kicking off the year and look forward to the opportunity to execute on our fundamentals and generate strong results throughout the remainder of the year. As I wrap up my prepared comments, I’d like to take the opportunity once again to thank Team O’Reilly for your hard work and commitment to growing our business. Now I’ll turn the call over to Brent.
Brent
Thanks, Brad. I would also like to begin my comments this morning by congratulating Team O’Reilly on a strong start to 2026. As your hard work continues to earn business and take share today, I will further discuss our first quarter gross margin and SG&A results and provide an update on the progress toward our expansion and capital investment plans for 2026. Starting with gross margin our first quarter gross margin of 51.5% was a 19 basis point increase from the first quarter of 2025, which was in line with our expectations. Within the first quarter, our gross margin did encounter some pressure from seasonal product mix, but we are pleased to be able to offset this pressure with acquisition cost reductions and improved leverage of our distribution cost driven by solid DC productivity and strong sales volumes. The acquisition cost environment remains stable and the pricing environment continues to be rational across our industry. Our first quarter gross margins were not materially impacted by the changes within the tariff environment as our net tariff exposure has remained relatively stable. Additionally, at this point, neither our first quarter results nor our outlook include any benefit from tariff refunds. We actively monitor these topics as they develop and are being proactive to ensure our sourcing is competitive and reflects the scale of our company. The conflict in Ukraine and resulting constraints on global oil supply have the potential to be disruptive to certain categories, particularly motor oil, and could impact supply chain costs such as freight. However, we did not see a material impact in the first quarter and have not adjusted our full year outlook assumptions for these factors. We have strong relationships with our supplier community and have been working through challenging situations surrounding international trade and geopolitics for an extended period of time. Now, while every situation can be unique, our expectation is that our merchandise teams will continue to successfully navigate these environments and that we will be able to leverage our long term relationships with supplier partners as well as our scale to ensure that we lead the industry in availability. We are maintaining our full year gross margin guidance range of 51.5 to 52%. At this stage, we believe we have the ability to manage the current dynamics surrounding product acquisition, cost and freight within our full year guidance range. Our supply chain teams work to not only act actively mitigate cost increases, but also to diversify our supplier base and seek alternative sourcing options when necessary. A significant benefit to us on this front has been the continued development of our private label brand portfolio. Our private label penetration has climbed to over 50% of total revenue and we will continue to work to prudently leverage the strength of our proprietary brands. The benefits of our private label strategy range from improving margins and customer brand loyalty to improved sourcing capabilities as we have control over the product within the box and can seamlessly source a single SKU from multiple suppliers when supply chain constraints emerge. Having the ability to adjust orders and demand across a broader base of suppliers is an important tool for our teams to leverage and in order to maintain a strong in stock position. Moving to SG&A Our teams generated an impressive 34 basis points of SG&A leverage as they diligently managed our cost structure and delivered robust sales results. Our total SG and A dollar spend was at the higher end of our expectations for the first quarter due to incremental spend to support elevated sales volumes. This produced SG&A average SG&A per store growth of 5.5% for the first quarter and we are still expecting our full year SG&A per store growth to run approximately 3 to 4%. Our first quarter SG and A was expected to drive the highest average per store growth rate of the year and we expect our per store growth to moderate as we move through the year and compare against the SG&A ramp that occurred throughout 2025. Within our SG&A, gas price increases had a muted impact on balance for the quarter. We do operate a large delivery fleet across our stores and quick, timely delivery of product to our professional customers is an incredibly important part of our value proposition. As a result, there is certainly the potential for some level of impact to our SG&A, but this is heavily dependent on the extent and the duration of fuel price increases. When managing our cost structure and in particular when gauging a response to cost pressures over a short time frame. We always view our business through a long term lens with a focus on serving our customers and supporting high levels of service and availability. In keeping our SG and A and margin guidance unchanged for the remainder of the year, we have considered the potential for modest pressure from rising fuel prices and the opportunities we have to manage those pressures within the broader context of our overall cost structure, we are raising our full year operating profit guidance range by 10 basis points to an updated range of 19.3 to 19.8%. This reflects the flow through of operating cost leverage from our strong first quarter results and our unchanged outlook for the remainder of the year. At the midpoint, this updated guidance range projects full year operating margin expansion of nine basis points over 2025, which is a testament to Team O’Reilly’s dedication to profitable growth. Inventory per store finished the first quarter at $874,000 which was up 8.5% from this time last year and up 0.5% from the end of the year. We are still targeting growth of 5% per store by the end of 2026. Our inventory position at the end of the first quarter was slightly below our plan resulting from the strong sales performance and the timing cadence of inventory additions. Our turns remain strong at 1.6 times and we are pleased with the productivity we have seen from our inventory investments and our efforts to continually enhance inventory deployment within our tiered distribution network. We absolutely believe that our industry leading inventory availability is a factor contributing to the share gains that we are compounding and we will continue to aggressively capitalize on opportunities to bring our inventory closer to the customer. Lastly, to touch on our store growth and capital investments in the first quarter, we opened a total of 59 net new stores across the U.S. mexico and Canada. Domestic new store performance continues to meet our high expectations and we are pleased with the opportunities we have across the US Both to backfill existing markets and expand into new greenfield markets. Our international markets continue to make progress in building the O’Reilly store growth engine and we remain on track for our 2026 store opening goal of 225 to 235 net new stores. Capital expenditures for the first quarter were $244 million and we still expect a total capital expenditure investment in 2026 of 1.3 billion to $1.4 billion. The major projects driving this expected level of spend are on schedule and we are excited for the growth opportunities and in store for us in all of the markets that we operate in. Before I turn the call over to Jeremy, I want to once again thank our entire team of Team O’Reilly for their continued hard work and unwavering commitment to our customers. Now I’ll turn the call over to Jeremy.
Jeremy
Thanks Brent. I would also like to thank all of Team O’Reilly for their continued hard work and dedication to our customers. Now we will fill in some additional details on our first quarter results and updated guidance for 2026. For the first quarter, sales increased $424 million, driven by an 8.1% increase in comparable store sales and a $91 million non-comp contribution from stores opened in 2025 and 2026 that have not yet entered the comp base for 2026. We continue to expect our total revenues to be between 18.7 and $19 billion. Our first quarter effective tax rate was in line with expectations at 22.5% of pre tax income comprised of a base rate of 23% reduced by a 0.5% benefit for share based compensation. This compares to the first quarter of 2025 rate of 21.3% of pre tax income which was comprised of a base tax rate of 23.2% reduced by a 1.9% benefit for share based compensation. For the full year of 2026 we continue to expect an effective tax rate of 22.6% comprised of a base rate of 23.0% reduced by a benefit of 0.4% for share based compensation. We expect that the quarterly rate will fluctuate due to variations in the tax benefit for share based compensation and the tolling of certain tax periods in the fourth quarter. Now we will move on to free cash flow and the components that drove our results. Free cash flow for the first quarter of 2026 was $785 million versus $455 million in 2025. The increase in free cash flow was primarily driven by …
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