O'Reilly Automotive, Inc. Q4 FY2025 earnings call

• Comparable store sales: Fourth quarter grew 5.6%, full-year 2025 comp was 4.7% (high end of revised guidance). Total sales increased 6.4% to $17.8 billion.
• Operating profit: Full-year operating profit was $3.5 billion, a 6.4% increase over 2024. Operating profit margin was 19.5% in 2025, flat to prior year.
• Gross margin: Fourth quarter gross margin was 51.8%, a 49 basis point increase from Q4 2024. Full-year gross margin was 51.6%, a 39 basis point increase over 2024.
• New store expansion: 2025 capital expenditures were just under $1.2 billion, and 2026 CapEx guidance is $1.3 billion to $1.4 billion, driven by new store growth.
• Supply chain: Opened new distribution facility in Stafford, Virginia; progress on Fort Worth, Texas DC; inventory per store was $870,000 at end of 2025, up 9% from end of 2024, expected to increase ~5% in 2026.

In the fourth quarter, comparable store sales grew 5.6%, and the full-year comp for 2025 was 4.7% (high end of the revised guidance range of 4%-5%). Total sales increased 6.4% to $17.8 billion. For the full year, operating profit was $3.5 billion, a 6.4% increase over 2024. Operating profit as a percentage of sales was 19.5% in 2025, flat to the prior year. Fourth quarter diluted earnings per share were $0.71, an increase of 13% over the prior year. Full-year EPS was $2.97, a 10% increase over 2024.

• 2026 comparable store sales guidance range: 3%-5%.
• 2026 CapEx guidance: $1.3 billion to $1.4 billion.
• 2026 gross margin guidance: 51.5%-52%.
• 2026 EPS guidance: $3.10 to $3.20, reflecting a 6.1% increase year-over-year.
• 2026 free cash flow expected: $1.8 billion to $2.1 billion.

• Substantial cost pressures in 2025, including headwinds from team member health care and self-insurance programs.
• Consumer caution impacting DIY transaction counts.
• Uncertainty around future changes in tariffs and the pricing environment.

Q: Based on your history, how long could we see some of these expenses, like the health care that you mentioned, continue to run above historical levels? And then related to that, if SG&A per store growth is expected to moderate in 2H, does that also imply that's kind of the exit rate and we should expect more normalized SG&A growth as we roll into '27?

A: Jeremy Fletcher responded that it's hard to predict exit rates and the future of 2027, but there's cautiousness about cost pressures persisting and expectation that costs will moderate over time but uncertainty remains.

Q: Your initial guidance for this year at 3% to 5% is 100 basis points higher than you guided originally for the outset of 2025. Is the only difference this year versus last year the visibility you have into inflation and like-for-like pricing? And is that -- if that's the case, what's the prospect that, if tariffs are rolled back, there could be broad-based deflation moving through the year in the industry?

A: Jeremy Fletcher said pricing assumptions are different, the industry is typically rational with pricing, and tariffs' impact on deflation is uncertain.

Q: I wanted to follow up on some of the softness and cautiousness that you've talked about from the consumer. I think you mentioned in the last call that you saw some potential DIY deferral. How do you see that trend? It sounded like maybe a little better as we got into the winter. And then historically, linked to that, how do tax refunds, when they're elevated, historically impact both the DIY and do-it-for-me sides of the business?

A: Brad Beckham and Jeremy Fletcher responded that DIY trends stabilized, winter weather helped, and tax refund impact is yet to be seen, with share gains still seen in both business sides.

Q: Just want to clarify on the comp guide, maybe asking in a slightly different way, is we do have a couple of feet of snow on the ground, we've got mid-single-digit inflation and largely expect a bigger than typical tax refund season. So I just want to understand, like to what extent you are or are not incorporating these factors in your 3% to 5% guide?

A: Brad Beckham said they focus on what they control, guidance is balanced with cautiousness on consumer, and weather impact is short-term.

Q: This is Brian Nagel. I want to go back, I know we discussed it a lot, but just the SG&A and SG&A per store guidance for '26. The question I want to ask is, we've been talking about these elevated expenses for a while, as you look beyond '26, given how persistent these expenses have been, I mean, are you starting to identify more aggressively levers that could be pulled, so to the extent these pressures continue, that internally O'Reilly can start to manage these costs better?

A: Jeremy Fletcher responded that SG&A costs are a focus, with technology and other initiatives to manage costs, but some costs are hard to quickly reduce.

Q: I want to follow up on the same-SKU inflation. So can you just help us understand the cadence of the year in a little bit more detail? Will the first quarter be similar to the level of same-SKU inflation that you had in the fourth quarter? And then someone asked earlier about this hypothetical if tariffs are reduced. How would that impact you from a timing of inventory perspective, right? If costs come down, would that more likely be like a second half of '26 phenomenon at this point?

A: Jeremy Fletcher and Brent Kirby responded that same-SKU inflation cadence is influenced by comparisons to 2025, and tariff impacts on costs show up quickly in gross margin results.

Q: I want to follow up on growing in the Northeast. Can you just help us understand where you are from a market share perspective maybe DIFM in like the Mid-Atlantic and Northeast, versus where you are from a market share perspective in some of your mature markets? How do you see the pace of that sales lift happening over the next couple of years now that the DC is opening and then probably more to come?

A: Brad Beckham responded that market share in mature markets is still low, with significant opportunity in the Northeast and Mid-Atlantic, dependent on execution and team performance.