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    ORLY
    Earnings call· Dec 2024(Q4 FY24)

    O REILLY AUTOMOTIVE INC ORLY

    Feb 6, 2025 Source

    Executive summary

    O'Reilly Automotive Q4 FY24 — Solid Sales Growth Despite Self-Insurance Charge and Cautious Outlook

    O'Reilly Automotive delivered solid Q4 FY24 results, with comparable store sales at the high end of expectations, driven by balanced performance across professional and DIY segments. Despite a significant self-insurance charge impacting Q4 EPS and a miss on initial full-year sales guidance, the company maintained its 32-year streak of growth in key metrics. The outlook for FY25 remains cautious, reflecting ongoing consumer pressures and economic uncertainties, while the company plans accelerated investments in store and distribution network expansion.

    Highlights

    5

    • Comparable store sales grew 4.4% in Q4 FY24, reaching the high end of expectations.

    • Professional business delivered mid-single-digit comp growth, and DIY grew just over 3% in Q4 FY24, its best quarterly result in 2024.

    • Diluted EPS increased 5.7% for FY24, marking the 32nd consecutive year of growth in comparable store sales and EPS.

    • The company delivered record earnings despite a $0.46 per share headwind from a $35 million self-insurance charge in Q4 FY24.

    • FY24 free cash flow remained strong at $2 billion, unchanged from 2023.

    Concerns

    5

    • A $35 million charge was recorded in Q4 FY24 to adjust self-insurance liabilities for auto claims, representing an $0.46 per share headwind to EPS.

    • FY24 comparable store sales of 2.9% finished below the initial guidance range of 3% to 5%.

    • The company faces continued softness in discretionary categories like tools, accessories, and performance parts due to broad-based pressure on consumers.

    • FY25 free cash flow is projected to decrease to $1.6 billion to $1.9 billion due to increased capital expenditures and inventory investments.

    • The FY25 comparable store sales guidance of 2% to 4% reflects a cautious outlook on potential worsening economic conditions and consumer pressure.

    Guidance & targets

    13
    CategoryTargetConfidence
    Full-year 2025 comparable store sales
    2% to 4%
    high materiality
    Medium
    Full-year 2025 total revenues
    $17.4 billion to $17.7 billion
    high materiality
    Medium
    Full-year 2025 gross margin
    51.2% to 51.7%
    high materiality
    Medium
    Full-year 2025 average SG&A per store growth
    2% to 2.5%
    medium materiality
    Medium
    Full-year 2025 operating profit margin
    19.2% to 19.7%
    high materiality
    Medium
    Full-year 2025 effective tax rate
    22.6%
    medium materiality
    Medium
    Full-year 2025 diluted earnings per share
    $42.60 to $43.10
    high materiality
    Medium
    Full-year 2025 free cash flow
    $1.6 billion to $1.9 billion
    high materiality
    Medium
    Full-year 2025 capital expenditures
    $1.2 billion to $1.3 billion
    high materiality
    Medium
    Full-year 2025 net new store openings
    200 to 210 stores
    medium materiality
    Medium
    Full-year 2025 new store openings owned vs. leased mix
    60% owned / 40% leased
    low materiality
    Medium
    Full-year 2025 inventory per store growth
    5%
    medium materiality
    Medium
    Full-year 2025 AP-to-inventory ratio
    approximately 125%
    low materiality
    Medium

    Operational metrics

    29
    Comparable store sales
    4.4%
    Q4 FY24

    At the high end of expectations.

    Comparable store sales
    mid-single-digit
    Q4 FY24

    Led by ticket count growth.

    Comparable store sales
    just over 3%
    Q4 FY24

    Best quarterly result in 2024, benefited from solid performance in maintenance categories and favorable winter weather comparisons.

    Same SKU inflation
    just under 1%
    Q4 FY24

    Contributed positively to average ticket values and comp growth.

    SG&A expense as % of sales
    33.3%up 68 bps from Q4 FY23
    Q4 FY24

    Significant increase driven by a $35 million charge for self-insurance liabilities.

    Self-insurance charge
    $35 million
    Q4 FY24

    To adjust reserves relating to self-insurance liabilities for historic auto liability claims, impacting Q4 and full-year EPS growth.

    Effective tax rate
    19.6%vs 17.7% in Q4 FY23
    Q4 FY24

    Q4 FY24 base rate was higher than Q4 FY23 due to timing of recognition of certain tax credits.

    Total sales increase
    $264 million
    Q4 FY24
    Diluted EPS growth (adjusted)
    over 1%
    FY24

    The $0.46 headwind to EPS represented over 1% to the full year EPS growth.

    Gross margin headwind
    30 bps
    FY24

    From the inclusion of the acquired Canadian business.

    Gross margin headwind
    11 bps
    FY24

    From outsized strong performance in the professional business.

    Average per store SG&A growth (adjusted)
    3.5% to 4%
    FY24

    Below the initial guidance range of 4.5% to 5% growth.

    Effective tax rate
    21.6%
    FY24
    Capital expenditures
    just over $1 billionin line with 2023
    FY24

    Marginally above full year guidance range due to timing of spend on distribution infrastructure projects.

    New store openings
    25 stores
    FY24

    Company is in early innings of expansion in Mexico, gaining momentum.

    Inventory per store
    $799,000up 5.5% from end of last year
    end of FY24

    Driven by continued opportunistic investment to support sales momentum.

    AP-to-inventory ratio
    128%down from 131% at end of 2023
    end of Q4 FY24

    Marginally better than expectations for end of 2024.

    Adjusted debt-to-EBITDA ratio
    1.99xvs 2.03x at end of 2023
    end of Q4 FY24

    Modest increase in adjusted debt more than offset by EBITDA growth. Below leverage target of 2.5x.

    Shares repurchased
    1.9 million shares
    FY24

    Part of the ongoing share repurchase program.

    Cumulative shares repurchased
    96 million shares
    since 2011

    Company remains confident that average repurchase price is supported by expected discounted future cash flows.

    Total store count
    over 6,300 stores
    end of FY24
    Sourcing percentage of COGS
    25% to 26%
    current

    Company is not always the importer of record and works with suppliers on tariff impacts. Diversifying global supply chain.

    Sourcing percentage of COGS
    high teens
    current

    Diversifying global supply chain.

    Sourcing percentage of COGS
    low single digit
    current

    Not a real impact.

    Proprietary brands as % of revenue
    over 50%
    current

    Managing this portfolio gives ability to source from multiple suppliers and countries of origin.

    New distribution center
    —
    H2 2025

    Will service stores in the Mid-Atlantic region, opening up a new section of the map for growth.

    Distribution center expansion completion
    —
    end of 2025

    Aims to improve efficiency and unlock additional capacity.

    Cost of owned store
    $3 million to $4 million
    current

    Inclusive of construction, site development, equipment, computer systems, and vehicles.

    Cost of leased store
    $400,000 to $600,000
    current

    Depending on the building and its condition when delivered.

    Industry KPIs

    10
    MetricValueDetails
    Sg a OPEX ratio33.3%%
    Comparable sales4.4%%
    Store count growthover 6,300 storesunits
    Gross margin drivers51.3%%
    Pro vs diy performance—
    Net debt to adjusted EBITDA1.99xx
    Share buyback capital return$2.1 billionUSD
    Inventory position markdown risk$799,000USD
    Same sku like for like inflationjust under 1%%
    Distribution supply chain cost economics—

    Risks & headwinds

    5
    Self-insurance liabilities adjustmentQ4 FY24 (for charge), ongoing for future claims

    $35 million charge in Q4 FY24, representing $0.46 per share headwind to EPS and 85 bps impact to SG&A as % of sales.

    Mitigation: Taking all steps possible to improve safety, reduce accident rates, and limit future loss exposure. The adjustment was driven by increased cost per claim, not increased frequency of accidents.

    Pressured demand environment and cautious consumerOngoing, reflected in FY25 guidance

    Continued softness in discretionary categories (tools, accessories, performance parts) in Q4 FY24. FY24 comparable store sales of 2.9% below initial 3-5% guidance.

    Mitigation: Focus on controlling own destiny, executing business model, and providing exceptional customer service. Expect to be a DIY share gainer despite slight anticipated DIY traffic decline.

    Potential for increased tariffsUncertain, potential in 2025

    China sourcing ~25-26% of COGS, Mexico high teens. FY25 guidance excludes tariff impact.

    Mitigation: Diversified global supply chain, proprietary brands offer flexibility. Expect industry to behave rationally and pass through increased tariff costs, based on experience from 2018-2019 tariffs and 2021-2023 inflation.

    Increased effective tax rateFY25

    FY25 effective tax rate expected at 22.6%, up from 21.6% in FY24.

    Mitigation: Impact roughly offsets the benefit of calendaring the Q4 FY24 self-insurance charge in FY25 EPS guidance.

    Wage rate pressureFY25

    Modest pressure to wage rates anticipated in FY25 SG&A outlook.

    Mitigation: Prudent actions to manage expenses and investments in key capabilities (hub stores, technology) to drive long-term growth and returns.

    What to watch in Q1 FY25

    5

    FY25 Comparable Store Sales

    Next quarter (Q1 FY25 results)
    CurrentQ1 FY25 January comps below December comps
    TargetTracking within 2% to 4% guidance range

    Why it matters

    Sales performance is a key indicator of consumer health and market share gains, especially given the cautious FY25 outlook and challenging Q1 comparisons.

    Thus far, in the first quarter, our sales volumes are tracking in line with our expectations against the tough comparison to favorable winter weather in January of last year.

    Q&A highlights

    7

    What is the percentage of COGS sourced from China, Mexico, and Canada? What are vendors saying about price increases, and how would proposed tariffs change this?

    Brent Kirby stated that approximately 25-26% of COGS is sourced from China, high teens from Mexico, and low single digits from Canada. He emphasized that O'Reilly is not always the importer of record and works with suppliers to negotiate impacts. The company has diversified its supply chain and proprietary brands (over 50% of revenue) offer flexibility. Jeremy Fletcher added confidence in the industry's ability to pass through costs due to past cycles.

    “China, we're in the 25-ish range sourced from China, 25%, 26%, mid-20s percent. Mexico, we're in the high teens at this point.”

    asked by Joshua Young · answered by Brent Kirby

    2 min read6 chapters

    Detailed Narrative

    01

    Q4 FY24 Sales Performance and Consumer Trends

    O'Reilly Automotive reported a 4.4% comparable store sales growth in Q4 FY24, meeting the high end of expectations. This was driven by solid performance in both professional and DIY segments, with professional achieving mid-single-digit growth and DIY growing just over 3%, its best quarterly result of 2024. Despite this, the company noted continued softness in discretionary categories due to persistent consumer pressure🌐, while maintenance categories showed strong demand. The quarter also benefited from favorable winter weather comparisons.

    02

    Full Year 2024 Review and Industry Headwinds

    For the full year 2024, comparable store sales increased 2.9%, falling short of the initial 3% to 5% guidance but at the high end of the revised range. The automotive aftermarket faced a challenging year, characterized by broad-based pressure on consumers. Despite these headwinds, the company achieved its 32nd consecutive year of growth in comparable store sales and diluted EPS, demonstrating resilience and market share gains in a tough environment.

    03

    Strategic Capital Investments for 2025

    The company plans a significant increase in capital expenditures for 2025, targeting $1.2 billion to $1.3 billion, up from just over $1 billion in 2024. This investment is primarily focused on accelerating store and distribution expansion, including 200 to 210 net new store openings across the U.S. and Mexico. A notable shift includes a projected 60% owned versus 40% leased mix for new stores, reflecting strong returns on capital. Investments also target enhancing the hub store network and distribution capabilities.

    04

    Gross Margin and Supply Chain Initiatives

    Q4 FY24 gross margin was 51.3%, consistent with the prior year, while full-year gross margin was 51.2%, a 6 basis point decrease primarily due to the acquired Canadian business and mix shift towards professional sales. For 2025, gross margin is guided to 51.2% to 51.7%, anticipating further acquisition cost reductions and distribution efficiencies. The company successfully relocated distribution centers in Springfield and Atlanta, with a new greenfield DC in Stafford, VA, expected to open in H2 2025, and an expansion in Lakeland, FL, completing by end of 2025.

    05

    Self-Insurance Charge and SG&A Management

    A $35 million charge was recorded in Q4 FY24 to adjust self-insurance liabilities for historic auto claims, impacting SG&A as a percentage of sales by 85 basis points and EPS by $0.46. This adjustment was driven by inflation in claim resolution costs and slower development timelines, rather than increased accident frequency. For 2025, average SG&A per store growth is planned at 2% to 2.5%, with management committed to prudent expense management while investing in key capabilities.

    06

    Inventory Strategy and Financial Position

    Inventory per store increased 5.5% to $799,000 at the end of 2024, reflecting opportunistic investments. For 2025, an additional 5% increase in inventory per store is projected, primarily for expanded distribution centers and hub store layers, and targeted local assortments. The AP-to-inventory ratio ended Q4 at 128% and is expected to moderate📎 to approximately 125% by the end of 2025. The adjusted debt-to-EBITDA ratio improved to 1.99x, remaining below the 2.5x target.

    AI-generated summary of the company’s earnings call. Not investment advice.