EX-99.1 2 orly-20190206x4q2018exhibi.htm 4TH QUARTER EARNINGS PRESS RELEASE Exhibit

Exhibit 99.1
letterhead2019a01.jpg
FOR IMMEDIATE RELEASE


O’REILLY AUTOMOTIVE, INC. REPORTS FOURTH QUARTER AND
FULL-YEAR 2018 RESULTS


4th quarter comparable store sales increase of 3.3%, full-year increase of 3.8%
27% increase in full-year diluted EPS to $16.10
Full-Year net cash provided by operating activities increased 23%

Springfield, MO, February 6, 2019O’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 fourth quarter and full year ended December 31, 2018. The results represent 26 consecutive years of comparable store sales growth and record revenue and operating income for O’Reilly since becoming a public company in April of 1993.

4th Quarter Financial Results
Greg Johnson, O’Reilly’s CEO and Co-President, commented, “We are pleased to once again report another profitable quarter and a solid finish to 2018. Team O’Reilly’s commitment to excellent customer service drove a 3.3% increase in fourth quarter comparable store sales, which was above the mid-point of our guidance range. Our solid top-line performance, combined with our relentless focus on profitable growth, resulted in a 6% increase in operating profit dollars for the fourth quarter. As a reminder, our fourth quarter 2017 results included a one-time $0.62 benefit to diluted earnings per share from the revaluation of the Company’s deferred income tax liabilities due to the enactment of the U.S. Tax Cuts and Jobs Act in December of 2017, and we were still able to drive a 6% increase in diluted earnings per share in the fourth quarter of 2018, despite this difficult comparison. Our continued growth is the direct result of Team O’Reilly’s dedication to providing unsurpassed levels of service to our customers, and I would like to thank our over 78,000 Team Members for their hard work and commitment to our long-term success.”

Sales for the fourth quarter ended December 31, 2018, increased $124 million, or 6%, to $2.31 billion from $2.19 billion for the same period one year ago. Gross profit for the fourth quarter increased to $1.23 billion (or 53.3% of sales) from $1.16 billion (or 52.9% of sales) for the same period one year ago, representing an increase of 6%. Selling, general and administrative expenses (“SG&A”) for the fourth quarter increased to $806 million (or 34.8% of sales) from $756 million (or 34.5% of sales) for the same period one year ago, representing an increase of 7%. Operating income for the fourth quarter increased to $428 million (or 18.5% of sales) from $403 million (or 18.4% of sales) for the same period one year ago, representing an increase of 6%.

Net income for the fourth quarter ended December 31, 2018, decreased $2 million, or 1%, to $300 million (or 13.0% of sales) from $302 million (or 13.8% of sales) for the same period one year ago. Diluted earnings per common share for the fourth quarter increased 6% to $3.72 on 81 million shares versus $3.52 on 86 million shares for the same period one year ago. The U.S. Tax Cuts and Jobs Act, enacted in December 2017, significantly reduced the federal corporate income tax rate and required the Company to revalue its deferred income tax liabilities based on the lower enacted federal corporate income tax rate. The Company’s Net Income for the fourth quarter ended December 31, 2017, included a one-time $53 million benefit related to the initial revaluation of its deferred income tax liabilities, and the Company’s fourth quarter ended December 31, 2017, diluted earnings per common share of $3.52 included a $0.62 benefit from the revaluation.




Full-Year Financial Results
Commenting on O’Reilly’s full-year 2018 performance, Mr. Johnson continued, “Our 3.8% increase in full-year 2018 comparable store sales was at the top end of our guidance range and, coupled with a reduced tax rate under the new tax law, drove our 27% increase in full-year 2018 diluted earnings per share to $16.10. I would like to congratulate Team O’Reilly on their 26th consecutive year of annual comparable store sales growth and our 10th consecutive year of 15% or greater annual diluted earnings per share growth. Our 2018 success is a testament to the dedication of our Team Members, and we look forward to continuing our long track record of profitable growth in 2019.”
Mr. Johnson concluded, “We achieved our goal of opening 200 net, new stores across 36 states in 2018 and are very well positioned to continue our profitable store growth in 2019. On November 13, 2018, we announced the signing of an asset purchase agreement with Bennett Auto Supply, and we are very happy to report that we closed this acquisition after the close of business on December 31, 2018. We set our 2019 target of between 200 and 210 net, new stores in our third quarter earnings release in October of 2018, prior to the signing of the Bennett acquisition agreement. We are still targeting that range of net, new store openings for 2019, but will likely finish at the lower end of the range due to the work related to the conversion of the Bennett stores during the first half of 2019.”

Sales for the year ended December 31, 2018, increased $559 million, or 6%, to $9.54 billion from $8.98 billion for the same period one year ago. Gross profit for the year ended December 31, 2018, increased to $5.04 billion (or 52.8% of sales) from $4.72 billion (or 52.6% of sales) for the same period one year ago, representing an increase of 7%. SG&A for the year ended December 31, 2018, increased to $3.22 billion (or 33.8% of sales) from $3.00 billion (or 33.4% of sales) for the same period one year ago, representing an increase of 8%. Operating income for the year ended December 31, 2018, increased to $1.82 billion (or 19.0% of sales) from $1.73 billion (or 19.2% of sales) for the same period one year ago, representing an increase of 5%.

Net income for the year ended December 31, 2018, increased $191 million, or 17%, to $1.32 billion (or 13.9% of sales) from $1.13 billion (or 12.6% of sales) for the same period one year ago. Diluted earnings per common share for the year ended December 31, 2018, increased 27% to $16.10 on 82 million shares versus $12.67 on 90 million shares for the same period one year ago. For the year ended December 31, 2017, the Company’s diluted earnings per common share of $12.67 included a one-time benefit of $0.59 from the revaluation of its deferred income tax liabilities.

Share Repurchase Program
During the fourth quarter ended December 31, 2018, the Company repurchased 1.4 million shares of its common stock at an average price per share of $338.92, for a total investment of $463 million. During the year ended December 31, 2018, the Company repurchased 6.1 million shares of its common stock at an average price per share of $282.80, for a total investment of $1.71 billion. Subsequent to the end of the fourth quarter and through the date of this release, the Company repurchased an additional 0.7 million shares of its common stock, at an average price per share of $341.20, for a total investment of $248 million. The Company has repurchased a total of 73.0 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 $150.56, for a total aggregate investment of $11.00 billion. As of the date of this release, the Company had approximately $754 million remaining under its current share repurchase authorization.


4th Quarter and Full-Year 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 3.3% for the fourth quarter ended December 31, 2018, on top of 1.3% for the same period one year ago. Comparable store sales increased 3.8% for the year ended December 31, 2018, on top of 1.4% for the same period one year ago.




1st Quarter and Full-Year 2019 Guidance
The table below outlines the Company’s guidance for selected first quarter and full-year 2019 financial data:
 
For the Three Months Ending
March 31, 2019
 
For the Year Ending
December 31, 2019
Net, new store openings (1)
 
 
200 to 210
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
 
 
23.5%
Diluted earnings per share (2)
$3.92 to $4.02
 
$17.37 to $17.47
Net cash provided by operating activities
 
 
$1.63 billion to $1.79 billion
Capital expenditures
 
 
$625 million to $675 million
Free cash flow (3)
 
 
$1.0 billion to $1.1 billion
(1) 
Net, new store openings does not include the acquired Bennett Auto Supply, Inc. stores.
(2) 
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.
(3) 
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
$
1,630

to
$
1,790

Less:
Capital expenditures
625

to
675

 
Excess tax benefit from share-based compensation payments
5

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 selected financial information below.

Earnings Conference Call Information
The Company will host a conference call on Thursday, February 7, 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; the conference call identification number is 47939964. A replay of the conference call will be available on the Company’s website through February 6, 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 December 31, 2018, the Company operated 5,219 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, the impact of the U.S. Tax Cuts and Jobs Act, 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, 2017, 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)
 
December 31, 2018
 
December 31, 2017
 
(Unaudited)
 
(Note)
Assets
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
31,315

 
$
46,348

Accounts receivable, net
192,026

 
216,251

Amounts receivable from suppliers
78,155

 
76,236

Inventory
3,193,344

 
3,009,800

Other current assets
48,262

 
49,037

Total current assets
3,543,102

 
3,397,672

 
 
 
 
Property and equipment, at cost
5,645,552

 
5,191,135

Less: accumulated depreciation and amortization
2,058,550

 
1,847,329

Net property and equipment
3,587,002

 
3,343,806

 
 
 
 
Goodwill
807,260

 
789,058

Other assets, net
43,425

 
41,349

Total assets
$
7,980,789

 
$
7,571,885

 
 
 
 
Liabilities and shareholders’ equity
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
3,376,403

 
$
3,190,029

Self-insurance reserves
77,012

 
71,695

Accrued payroll
86,520

 
77,147

Accrued benefits and withholdings
89,082

 
69,308

Income taxes payable
11,013

 

Other current liabilities
253,990

 
239,187

Total current liabilities
3,894,020

 
3,647,366

 
 
 
 
Long-term debt
3,417,122

 
2,978,390

Deferred income taxes
105,566

 
85,406

Other liabilities
210,414

 
207,677

 
 
 
 
Shareholders’ equity:
 
 
 
Common stock, $0.01 par value:
 
 
 
Authorized shares – 245,000,000
 
 
 
Issued and outstanding shares –
 
 
 
79,043,919 as of December 31, 2018, and
 
 
 
84,302,187 as of December 31, 2017
790

 
843

Additional paid-in capital
1,262,063

 
1,265,043

Retained deficit
(909,186
)
 
(612,840
)
Total shareholders’ equity
353,667

 
653,046

 
 
 
 
Total liabilities and shareholders’ equity
$
7,980,789

 
$
7,571,885

Note: The balance sheet at December 31, 2017, 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.



O’REILLY AUTOMOTIVE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)



 
For the Three Months Ended 
 December 31,
 
For the Year Ended 
 December 31,
 
2018
 
2017
 
2018
 
2017
 
(Unaudited)
 
(Unaudited)
 
(Unaudited)
 
(Note)
Sales
$
2,314,957

 
$
2,190,808

 
$
9,536,428

 
$
8,977,726

Cost of goods sold, including warehouse and distribution expenses
1,080,642

 
1,031,628

 
4,496,462

 
4,257,043

Gross profit
1,234,315

 
1,159,180

 
5,039,966

 
4,720,683

 
 
 
 
 
 
 
 
Selling, general and administrative expenses
806,275

 
756,345

 
3,224,782

 
2,995,283

Operating income
428,040

 
402,835

 
1,815,184

 
1,725,400

 
 
 
 
 
 
 
 
Other income (expense):
 
 
 
 
 
 
 
Interest expense
(31,468
)
 
(26,794
)
 
(122,129
)
 
(91,349
)
Interest income
683

 
579

 
2,521

 
2,347

Other, net
(4,098
)
 
104

 
(1,489
)
 
1,406

Total other expense
(34,883
)
 
(26,111
)
 
(121,097
)
 
(87,596
)
 
 
 
 
 
 
 
 
Income before income taxes
393,157

 
376,724

 
1,694,087

 
1,637,804

Provision for income taxes
92,800

 
74,409

 
369,600

 
504,000

Net income
$
300,357

 
$
302,315

 
$
1,324,487

 
$
1,133,804

 
 
 
 
 
 
 
 
Earnings per share-basic:
 
 
 
 
 
 
 
Earnings per share
$
3.76

 
$
3.56

 
$
16.27

 
$
12.82

Weighted-average common shares outstanding – basic
79,826

 
84,830

 
81,406

 
88,426

 
 
 
 
 
 
 
 
Earnings per share-assuming dilution:
 
 
 
 
 
 
 
Earnings per share
$
3.72

 
$
3.52

 
$
16.10

 
$
12.67

Weighted-average common shares outstanding – assuming dilution
80,636

 
85,848

 
82,280

 
89,502


Note: The income statement for the year ended December 31, 2017, 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.




O’REILLY AUTOMOTIVE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
 
For the Year Ended 
 December 31,
 
2018
 
2017
 
(Unaudited)
 
(Note)
Operating activities:
 
 
 
Net income
$
1,324,487

 
$
1,133,804

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization of property, equipment and intangibles
258,937

 
233,845

Amortization of debt discount and issuance costs
3,470

 
2,871

Deferred income taxes
20,160

 
(4,593
)
Share-based compensation programs
20,176

 
19,401

Other
9,895

 
11,790

Changes in operating assets and liabilities:
 
 
 
Accounts receivable
18,138

 
(27,742
)
Inventory
(163,367
)
 
(231,802
)
Accounts payable
177,676

 
253,265

Income taxes payable
22,903

 
14,220

Other
35,080

 
(1,372
)
Net cash provided by operating activities
1,727,555

 
1,403,687

 
 
 
 
Investing activities:
 
 
 
Purchases of property and equipment
(504,268
)
 
(465,940
)
Proceeds from sale of property and equipment
4,784

 
4,464

Other
(34,818
)
 
(2,747
)
Net cash used in investing activities
(534,302
)
 
(464,223
)
 
 
 
 
Financing activities:
 
 
 
Proceeds from borrowings on revolving credit facility
2,414,000

 
3,101,000

Payments on revolving credit facility
(2,473,000
)
 
(2,755,000
)
Proceeds from the issuance of long-term debt
498,660

 
748,800

Payment of debt issuance costs
(3,923
)
 
(7,590
)
Repurchases of common stock
(1,714,013
)
 
(2,172,530
)
Net proceeds from issuance of common stock
72,146

 
45,762

Other
(2,156
)
 
(156
)
Net cash used in financing activities
(1,208,286
)
 
(1,039,714
)
 
 
 
 
Net decrease in cash and cash equivalents
(15,033
)
 
(100,250
)
Cash and cash equivalents at beginning of the year
46,348

 
146,598

Cash and cash equivalents at end of the year
$
31,315

 
$
46,348

 
 
 
 
Supplemental disclosures of cash flow information:
 
 
 
Income taxes paid
$
311,376

 
$
496,728

Interest paid, net of capitalized interest
117,938

 
77,766

Note: The cash flow statement for the year ended December 31, 2017, 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.



O’REILLY AUTOMOTIVE, INC. AND SUBSIDIARIES
SELECTED FINANCIAL INFORMATION
(Unaudited)

 
For the Year Ended 
 December 31,
Adjusted Debt to EBITDAR:
2018
 
2017
(In thousands, except adjusted debt to EBITDAR ratio)
 
 
 
GAAP debt
$
3,417,122

 
$
2,978,390

Add:
Letters of credit
35,148

 
36,843

 
Discount on senior notes
4,294

 
3,721

 
Debt issuance costs
15,584

 
13,889

 
Six-times rent expense
1,903,698

 
1,791,684

Adjusted debt
$
5,375,846

 
$
4,824,527

 
 
 
 
 
GAAP net income
$
1,324,487

 
$
1,133,804

Add:
Interest expense
122,129

 
91,349

 
Provision for income taxes
369,600

 
504,000

 
Depreciation and amortization
258,937

 
233,845

 
Share-based compensation expense
20,176

 
19,401

 
Rent expense
317,283

 
298,614

EBITDAR
$
2,412,612

 
$
2,281,013

 
 
 
 
 
Adjusted debt to EBITDAR
2.23

 
2.12



 
December 31,
 
2018
 
2017
Selected Balance Sheet Ratios:
 
 
 
Inventory turnover (1)
1.4

 
1.4

Average inventory per store (in thousands) (2) 
$
612

 
$
600

Accounts payable to inventory (3)
105.7
%
 
106.0
%
Return on assets (4)
16.9
%
 
15.3
%


 
 
For the Three Months Ended 
 December 31,
 
For the Year Ended 
 December 31,
 
 
2018
 
2017
 
2018
 
2017
Reconciliation of Free Cash Flow (in thousands):
 
 
 
 
 
 
 
Cash provided by operating activities
$
385,536

 
$
316,268

 
$
1,727,555

 
$
1,403,687

Less:
Capital expenditures
153,807

 
118,184

 
504,268

 
465,940

 
Excess tax benefit from share-based compensation payments
1,729

 
13,406

 
34,703

 
48,688

Free cash flow
$
230,000

 
$
184,678

 
$
1,188,584

 
$
889,059






Store and Team Member Information:
 
 
 
 
 
 
 
 
 
For the Three Months Ended December 31,
 
For the Year Ended 
 December 31,
 
2018
 
2017
 
2018
 
2017
Beginning store count
5,190

 
 
4,984

 
5,019

 
4,829

New stores opened
29

 
 
36

 
206

 
198

Stores closed

 
 
(1
)
 
(6
)
 
(8
)
Ending store count
5,219

*
 
5,019

 
5,219

 
5,019


* Ending store count does not include the Bennett Auto Supply, Inc. stores acquired after the close of business on December 31, 2018, as they were not operated by the Company for any portion of 2018.

 
For the Three Months Ended December 31,
 
For the Year Ended 
 December 31,
 
2018
 
2017
 
2018
 
2017
Total employment
78,882

 
75,552

 
 
 
 
Square footage (in thousands)
38,455

 
36,685

 
 
 
 
Sales per weighted-average square foot (5)
$
59.99

 
$
59.48

 
$
251.06

 
$
247.97

Sales per weighted-average store (in thousands) (6)
$
442

 
$
434

 
$
1,842

 
$
1,807



(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)    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.
(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 closings.
(6)    Calculated as sales less jobber sales, divided by weighted-average stores. Weighted-average stores is determined by weighting stores based on their approximate opening, acquisition or closing dates.