Release Date: October 24, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- O'Reilly Automotive Inc (ORLY, Financial) reported a 1.5% increase in comparable store sales for the third quarter of 2024, building on strong growth from previous years.
- The company continues to see strength in its professional business, with mid-single-digit comparable store sales growth driven by increased ticket counts.
- Gross margin improved by 18 basis points to 51.6% in the third quarter, supported by strong merchandise margin performance.
- O'Reilly Automotive Inc (ORLY) opened 47 new stores in the third quarter, with plans to open 190 to 200 new stores in 2024 and 200 to 210 in 2025.
- The company successfully issued $500 million of 10-year senior notes, maintaining a strong financial position with an adjusted debt to EBITDA ratio of 1.96 times.
Negative Points
- Third-quarter sales results were below expectations, with a 1.5% comparable store sales increase falling short of the company's high performance standards.
- The DIY segment experienced a decline in comparable store sales by approximately 1% due to negative ticket counts.
- O'Reilly Automotive Inc (ORLY) faced sales softness attributed to a challenging industry demand backdrop and macroeconomic pressures.
- SG&A expenses grew by 4.2% in the third quarter, leading to higher levels of deleverage due to sales headwinds.
- The company revised its full-year comparable store sales guidance to a range of 2% to 3%, reflecting a cautious outlook for the remainder of 2024.
Q & A Highlights
Q: With the Virginia distribution center (DC) opening, does this allow you to expand into the Mid-Atlantic and Northeast markets, or is further supply chain expansion needed?
A: Brent Kirby, President: The new Mid-Atlantic DC opens up opportunities in that corridor, and while another DC might be needed in the future, we're excited to start expanding from the Virginia DC. Brad Beckham, CEO: We see significant opportunities in the Northeast and plan to expand from the Virginia DC, focusing on nearby metro areas before stretching further.
Q: How do hurricanes impact sales, considering both store closures and potential demand creation?
A: Brent Kirby, President: While hurricanes like Helene caused disruptions, the overall impact on sales was minimal, possibly around 10 to 15 basis points. We view weather impacts as net neutral for the third and fourth quarters.
Q: Why do you believe current industry headwinds will be short-lived, and what gives you confidence in a rebound?
A: Brad Beckham, CEO: Historically, our industry rebounds after election years and inflationary pressures. While we haven't seen specific signs of improvement yet, we believe in the resilience of our industry and our ability to capitalize on improvements when they occur. Jeremy Fletcher, CFO: We focus on positioning ourselves to be the first to benefit when conditions improve.
Q: How are you preparing for potential tariffs on goods from China, and how disruptive could they be?
A: Brent Kirby, President: We've reduced our dependency on China by diversifying supply sources. Historically, we've been able to pass on tariff costs, and we believe we can continue to do so. Brad Beckham, CEO: Our teams have a solid strategy to handle potential tariffs, and we expect to compete effectively.
Q: How do you view the potential recovery in demand, particularly between DIFM (Do It For Me) and DIY (Do It Yourself) segments?
A: Brad Beckham, CEO: We expect DIFM to remain more resilient due to complexity and consumer reliance on professional services. While DIY has been more impacted, we anticipate a potential rebound as consumer confidence returns.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
