O REILLY AUTOMOTIVE INC Q1 FY2025 earnings call

• Thanked over 93,000 team members for their hard work in achieving profitable growth. - Held annual leadership conference in January with theme 'next level' focusing on taking leadership and customer service to the next level. - Discussed comparable store sales results, noting first quarter can be volatile due to weather and tax refund timing, but March was the strongest month and April has seen solid results. - Gross margin in first quarter was 51.3%, a 12 basis point increase from Q1 2024, with acquisition cost environment stable and rational pricing. - SG&A per store growth in Q1 was 4.1%, above expectations, driven by team member payroll, benefit costs, medical plan costs, and maintenance/occupancy expenses. - Inventory per store finished the quarter at $806,000, up 4.3% from last year and expected to increase by 5% in 2025. - Opened 38 net new stores in U.S. and Mexico in Q1, with capital expenditures at $287 million. - Increased diluted earnings per share guidance to $42.90 to $43.40, driven by sales performance, reduced tax rate, and share repurchases. - Announced Board of Directors approved 15:1 common stock split subject to shareholder approval.

The comparable store sales grew by 3.6% in the first quarter, which was at the high end of expectations. The professional business was the larger driver of total comp results with a mid-single-digit comp, while DIY had a low single-digit comp. The professional business contributed significantly to the comp growth, and DIY also provided a positive contribution.

• Maintained full-year comparable store sales guidance of 2% to 4%. - Increased diluted earnings per share guidance to $42.90 to $43.40. - Maintained full-year gross margin guidance of 51.2% to 51.7%. - Expected free cash flow guidance remains unchanged at $1.6 billion. - Expect to finish 2025 with AP to inventory ratio of approximately 125%.

• Tariffs and international trade deliberations pose potential challenges to consumers, with uncertainty surrounding duration, magnitude, and timing of tariffs impacting same SKU inflation assumptions. - Macroeconomic uncertainties in the broader environment could affect the pricing and consumer behavior, though no adverse impacts on pricing environment have been seen yet.

Q: If tariffs ramped through the rest of the year, what would be the potential impact on sales and earnings, and how much price could be passed along?

A: Brad and Brent discussed that the situation is fluid with moving pieces like 90-day pause on reciprocal tariffs, automotive parts exemption, and the need for industry collaboration with government to understand details. It's difficult to explicitly state the impact as it changes day to day.

Q: Historically, O'Reilly is premium service, is this a disadvantage in hyperinflation era and any consideration to evolving strategy?

A: Brent stated O'Reilly is positioned as a share gainer with high service, touch, and availability, putting it in a better negotiating position. Brad added that pricing profiles are competitive on both DIY and professional sides, and they feel positioned from a strength.

Q: On inventory, any changes given industry conditions?

A: Brent said there's no anticipation of changing focus on inventory to maintain best parts availability, with teams committed to high fill rates and in-stock performance similar to pre-COVID levels.

Q: Thoughts on M&A opportunity and industry competition?

A: Brad mentioned M&A continues to be an opportunity, with potential in upper mid-Atlantic and smaller chains, and they are staying opportunistic. He also discussed the competitive landscape with some struggling competitors but tempered expectations on store closures' material impact.

Q: Elaboration on sourcing from China and moving to other countries?

A: Brent said they've reduced dependency on China sourcing, moved to places like India, Vietnam, Thailand, and will strategically look at sourcing once tariffs settle, with proprietary brand portfolio aiding in this.