O'Reilly Automotive Inc.

07/28/2021 | Press release | Distributed by Public on 07/28/2021 15:09

O’REILLY AUTOMOTIVE, INC. REPORTS SECOND QUARTER 2021 RESULTS (Form 8-K)

O'REILLY AUTOMOTIVE, INC. REPORTS SECOND QUARTER 2021 RESULTS

Second quarter comparable store sales increase of 9.9%
16% two-year compound growth in second quarter revenue
17% increase in second quarter diluted earnings per share, year-to-date increase of 39%

Springfield, MO, July 28, 2021 - O'Reilly Automotive, Inc. (the 'Company' or 'O'Reilly') (Nasdaq: ORLY), a leading retailer in the automotive aftermarket industry, today announced record revenue and earnings for its second quarter ended June 30, 2021, and announced the future retirement and leadership succession plan for Jeff Shaw, COO and Co-President.

2nd Quarter Financial Results

Greg Johnson, O'Reilly's CEO and Co-President, commented, 'We are pleased to report another outstanding quarter, especially as our Team faced very difficult comparisons to our extremely strong results in the second quarter last year. Team O'Reilly continues to deliver consistently outstanding service to our customers and produce record-breaking financial results, highlighted by our 9.9% increase in comparable store sales for the quarter, on top of a 16.2% increase in the prior year. We are also proud of our Team's ability to deliver profitable growth, leveraging our strong top-line results to drive second quarter diluted earnings per share of $8.33, which was a 17% increase over the prior year and on top of the 57% increase in earnings per share we delivered in the second quarter of 2020. I would like to take this opportunity to thank our over 79,000 Team Members for their incredible hard work and unwavering dedication to safety, while providing excellent customer service, which has been so crucial to our customers during the pandemic.'

Sales for the second quarter ended June 30, 2021, increased $374 million, or 12%, to $3.47 billion from $3.09 billion for the same period one year ago. Gross profit for the second quarter increased 12% to $1.83 billion (or 52.7% of sales) from $1.64 billion (or 53.0% of sales) for the same period one year ago. Selling, general and administrative expenses ('SG&A') for the second quarter increased 14% to $1.03 billion (or 29.7% of sales) from $901 million (or 29.1% of sales) for the same period one year ago. Operating income for the second quarter increased 8% to $796 million (or 23.0% of sales) from $736 million (or 23.8% of sales) for the same period one year ago.

Net income for the second quarter ended June 30, 2021, increased $54 million, or 10%, to $585 million (or 16.9% of sales) from $532 million (or 17.2% of sales) for the same period one year ago. Diluted earnings per common share for the second quarter increased 17% to $8.33 on 70 million shares versus $7.10 on 75 million shares for the same period one year ago.

Year-to-Date Financial Results

Mr. Johnson added, 'Our Team's unwavering commitment to our customers in the first half of 2021 drove a 16.5% increase in comparable store sales, a 28% increase in operating profit dollars and a 39% increase in diluted earnings per share. Our continued strong sales results in 2021 are the product of strong execution of our dual market strategy, combined with a beneficial industry backdrop, augmented by favorable weather trends, and the significant positive impact from the last round of government stimulus starting at the end of our first quarter. Even as the tailwind from the stimulus benefits moderated in May and June, we have remained very pleased with our Team's ability to sustain year-over-year increases in sales volumes despite the very difficult comparisons to the prior year. Our better-than-expected sales volumes in May and June have continued thus far in July. As a result of our second quarter performance and strong start to our third quarter, coupled

with our confidence in Team O'Reilly's ability to provide industry-leading customer service, we are raising our full-year 2021 guidance for comparable store sales from a range of 1% to 3% to a range of 5% to 7%. We are also increasing our full-year diluted earnings per share guidance to a range of $26.80 to $27.00, which represents an increase of $2.05 at the midpoint from our previously provided guidance.'

Sales for the first six months of 2021 increased $988 million, or 18%, to $6.56 billion from $5.57 billion for the same period one year ago. Gross profit for the first six months of 2021 increased 18% to $3.47 billion (or 52.9% of sales) from $2.93 billion (or 52.7% of sales) for the same period one year ago. SG&A for the first six months of 2021 increased 12% to $1.98 billion (or 30.2% of sales) from $1.77 billion (or 31.8% of sales) for the same period one year ago. Operating income for the first six months of 2021 increased 28% to $1.49 billion (or 22.7% of sales) from $1.16 billion (or 20.8% of sales) for the same period one year ago.

Net income for the first six months of 2021 increased $255 million, or 31%, to $1.09 billion (or 16.6% of sales) from $832 million (or 14.9% of sales) for the same period one year ago. Diluted earnings per common share for the first six months of 2021 increased 39% to $15.39 on 71 million shares versus $11.06 on 75 million shares for the same period one year ago.

2nd Quarter Comparable Store Sales Results

Comparable store sales are calculated based on the change in sales for U.S. stores open at least one year and exclude sales of specialty machinery, sales to independent parts stores and sales to Team Members, as well as sales from Leap Day for the six months ended June 30, 2020. Online sales, resulting from ship-to-home orders and pick-up-in-store orders for U.S. stores open at least one year, are included in the comparable store sales calculation. Comparable store sales increased 9.9% for the second quarter ended June 30, 2021, on top of 16.2% for the same period one year ago. Comparable stores sales increased 16.5% for the six months ended June 30, 2021, on top of 7.5% for the same period one year ago.

Share Repurchase Program

During the second quarter ended June 30, 2021, the Company repurchased 0.7 million shares of its common stock, at an average price per share of $537.25, for a total investment of $400 million. During the first six months of 2021, the Company repurchased 2.2 million shares of its common stock, at an average price per share of $479.69, for a total investment of $1.06 billion. Subsequent to the end of the second quarter and through the date of this release, the Company repurchased an additional 0.2 million shares of its common stock, at an average price per share of $591.06, for a total investment of $114 million. The Company has repurchased a total of 83.4 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 $185.14, for a total aggregate investment of $15.45 billion. As of the date of this release, the Company had approximately $1.80 billion remaining under its current share repurchase authorizations.

Updated Full-Year 2021 Guidance

The Company still anticipates potentially significant volatility in its results, driven by the ongoing uncertainty related to the pandemic, and will update full-year guidance during 2021, as appropriate, and if needed. The table below outlines the Company's updated guidance for selected full-year 2021 financial data:

For the Year Ending

December 31, 2021

Comparable store sales

5% to 7%

Total revenue

$12.3 billion to $12.6 billion

Gross profit as a percentage of sales

52.2% to 52.7%

Operating income as a percentage of sales

20.5% to 20.9%

Effective income tax rate

23.0%

Diluted earnings per share (1)

$26.80 to $27.00

Net cash provided by operating activities

$2.2 billion to $2.7 billion

Capital expenditures

$550 million to $650 million

Free cash flow (2)

$1.5 billion to $1.8 billion

(1) 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.
(2) 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:

For the Year Ending

(in millions)

December 31, 2021

Net cash provided by operating activities

$

2,245

to

$

2,670

Less:

Capital expenditures

550

to

650

Excess tax benefit from share-based compensation payments

15

to

20

Investment in tax credit equity investments

180

to

200

Free cash flow

$

1,500

to

$

1,800

Jeff Shaw, COO and Co-President, Retirement and Leadership Succession

'After more than 33 years of dedicated service to O'Reilly, Jeff Shaw has decided to retire, effective in early 2022,' stated Mr. Johnson. 'Jeff is an outstanding leader and mentor, and he has been a critical part of our Company's incredible success and profitable growth during his tenure. He is extremely passionate about providing consistent, top-notch customer service and has relentlessly perpetuated this focus in every member of his Team. Jeff has been a champion of executing the Company's 'promote from within' philosophy, and he has personally trained and mentored many of O'Reilly's current senior leadership team, including identifying and preparing for his own retirement and succession. I would like to express my sincere appreciation to Jeff for his incredible contributions to O'Reilly's success, and we all wish Jeff and his family a very happy and well deserved retirement.'

Mr. Shaw has been an O'Reilly Team Member for over 33 years, beginning his career as a Parts Specialist and progressing through the roles of Store Manager, District Manager, Regional Manager, Divisional Vice President, Vice President of the Southern Division, Vice President of Sales and Operations, Senior Vice President of Sales and Operations, Executive Vice President of Store Operations and Sales, and Co-President, and was promoted to his current role of COO and Co-President on May 8, 2018. In his current role, Mr. Shaw's primary areas of responsibility are Store Operations, Sales, Distribution Operations and International Operations.

Mr. Johnson continued, 'Thanks to Jeff's focus on succession planning, we are very pleased to announce that Brad Beckham, O'Reilly's Executive Vice President of Store Operations and Sales, will be promoted to the position of Executive Vice President and Chief Operating Officer at the time of Jeff's retirement. Brad has been an O'Reilly Team Member for over 24 years, beginning his career as a Parts Specialist and, through his dedication and hard work, has been promoted up through the organization. Brad is a very experienced operator and exceptional leader and shares Jeff's passion for providing excellent customer service, and I am confident he is well prepared to help lead our Company to success long into the future.'

At the time of Mr. Shaw's retirement, his leadership and operational responsibilities will be transitioned to Mr. Beckham and to Brent Kirby, O'Reilly's Executive Vice President of Supply Chain.

Jeff Shaw commented, 'It has been an honor to have worked with so many great people at O'Reilly for these past 30 plus years, and I am extremely grateful for all of the opportunities provided to me by our Company during my career. While I will miss working with the Team every day, I could not be more pleased to have been a part of the Company's past success, and I am extremely confident that Brad is ready to step into his new role. Brad is an extremely talented and well respected leader and will ensure O'Reilly's focus on providing top-notch service to our customers will continue long into the future.'

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 table above and the selected financial information below.

Earnings Conference Call Information

The Company will host a conference call on Thursday, July 29, 2021, 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 (703) 375-5524 and the conference call identification number is 8385407. A replay of the conference call will be available on the Company's website through Thursday, July 28, 2022.

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 June 30, 2021, the Company operated 5,710 stores in 47 U.S. states and 22 stores in Mexico.

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, 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 COVID-19 pandemic or other public health crises; the economy in general; inflation; consumer debt levels; product demand; the market for auto parts; competition; weather; tariffs; availability of key products; business interruptions, including terrorist activities, war and the threat of war; failure to protect our brand and reputation; challenges in international markets; volatility of the market price of our common stock; our increased debt levels; credit ratings on public debt; historical growth rate sustainability; our ability to hire and retain qualified employees; risks associated with the performance of acquired businesses; information security and cyber-attacks; and governmental regulations. 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, 2020, and subsequent Securities and Exchange Commission filings 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 Contacts

Mark Merz (417) 829-5878

Eric Bird (417) 868-4259

O'REILLY AUTOMOTIVE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)

June 30, 2021

June 30, 2020

December 31, 2020

(Unaudited)

(Unaudited)

(Note)

Assets

Current assets:

Cash and cash equivalents

$

631,618

$

872,423

$

465,640

Accounts receivable, net

273,148

243,660

229,679

Amounts receivable from suppliers

113,174

86,513

100,615

Inventory

3,647,413

3,528,683

3,653,195

Other current assets

72,994

53,206

50,658

Total current assets

4,738,347

4,784,485

4,499,787

Property and equipment, at cost

6,767,596

6,403,936

6,559,911

Less: accumulated depreciation and amortization

2,603,442

2,365,453

2,464,993

Net property and equipment

4,164,154

4,038,483

4,094,918

Operating lease, right-of-use assets

2,028,329

1,926,270

1,995,127

Goodwill

881,207

872,997

881,030

Other assets, net

137,296

106,300

125,780

Total assets

$

11,949,333

$

11,728,535

$

11,596,642

Liabilities and shareholders' equity

Current liabilities:

Accounts payable

$

4,583,570

$

3,936,400

$

4,184,662

Self-insurance reserves

118,259

90,890

109,199

Accrued payroll

129,025

107,116

88,875

Accrued benefits and withholdings

221,382

140,446

242,724

Income taxes payable

29,776

91,797

16,786

Current portion of operating lease liabilities

333,624

318,601

322,778

Other current liabilities

355,976

336,886

297,393

Total current liabilities

5,771,612

5,022,136

5,262,417

Long-term debt

3,825,177

4,127,397

4,123,217

Operating lease liabilities, less current portion

1,747,267

1,652,284

1,718,691

Deferred income taxes

177,118

155,530

155,899

Other liabilities

210,465

182,088

196,160

Shareholders' equity:

Common stock, $0.01 par value:

Authorized shares - 245,000,000

Issued and outstanding shares -

69,132,589 as of June 30, 2021, and

74,097,706 as of June 30, 2020, and

71,123,109 as of December 31, 2020

691

741

711

Additional paid-in capital

1,295,363

1,289,976

1,280,841

Retained deficit

(1,075,769)

(679,506)

(1,139,139)

Accumulated other comprehensive loss

(2,591)

(22,111)

(2,155)

Total shareholders' equity

217,694

589,100

140,258

Total liabilities and shareholders' equity

$

11,949,333

$

11,728,535

$

11,596,642

Note: The balance sheet at December 31, 2020, 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

For the Six Months Ended

June 30,

June 30,

2021

2020

2021

2020

Sales

$

3,465,601

$

3,091,595

$

6,556,500

$

5,568,082

Cost of goods sold, including warehouse and distribution expenses

1,639,223

1,454,415

3,089,327

2,634,996

Gross profit

1,826,378

1,637,180

3,467,173

2,933,086

Selling, general and administrative expenses

1,030,795

900,690

1,980,485

1,773,035

Operating income

795,583

736,490

1,486,688

1,160,051

Other income (expense):

Interest expense

(37,657)

(41,723)

(75,163)

(81,109)

Interest income

456

635

993

1,310

Other, net

2,952

5,008

4,643

(182)

Total other expense

(34,249)

(36,080)

(69,527)

(79,981)

Income before income taxes

761,334

700,410

1,417,161

1,080,070

Provision for income taxes

175,883

168,743

330,101

247,965

Net income

$

585,451

$

531,667

$

1,087,060

$

832,105

Earnings per share-basic:

Earnings per share

$

8.41

$

7.16

$

15.53

$

11.15

Weighted-average common shares outstanding - basic

69,618

74,205

69,997

74,611

Earnings per share-assuming dilution:

Earnings per share

$

8.33

$

7.10

$

15.39

$

11.06

Weighted-average common shares outstanding - assuming dilution

70,264

74,833

70,640

75,246

O'REILLY AUTOMOTIVE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

For the Six Months Ended

June 30,

2021

2020

Operating activities:

Net income

$

1,087,060

$

832,105

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization of property, equipment and intangibles

158,917

151,873

Amortization of debt discount and issuance costs

2,207

2,152

Deferred income taxes

21,922

14,987

Share-based compensation programs

12,575

11,480

Other

1,382

1,906

Changes in operating assets and liabilities:

Accounts receivable

(45,359)

(34,966)

Inventory

6,357

(78,086)

Accounts payable

398,785

334,503

Income taxes payable

12,408

210,855

Other

56,578

112,269

Net cash provided by operating activities

1,712,832

1,559,078

Investing activities:

Purchases of property and equipment

(222,607)

(244,471)

Proceeds from sale of property and equipment

4,566

4,846

Investment in tax credit equity investments

(1,768)

(95,292)

Other

(1,083)

(311)

Net cash used in investing activities

(220,892)

(335,228)

Financing activities:

Proceeds from borrowings on revolving credit facility

-

1,162,000

Payments on revolving credit facility

-

(1,423,000)

Proceeds from the issuance of long-term debt

-

499,795

Principal payments on long-term debt

(300,000)

-

Payment of debt issuance costs

(3,299)

(3,840)

Repurchases of common stock

(1,064,189)

(651,027)

Net proceeds from issuance of common stock

41,921

25,593

Other

(313)

(253)

Net cash used in financing activities

(1,325,880)

(390,732)

Effect of exchange rate changes on cash

(82)

(1,101)

Net increase in cash and cash equivalents

165,978

832,017

Cash and cash equivalents at beginning of the period

465,640

40,406

Cash and cash equivalents at end of the period

$

631,618

$

872,423

Supplemental disclosures of cash flow information:

Income taxes paid

$

292,673

$

20,187

Interest paid, net of capitalized interest

76,788

73,091

O'REILLY AUTOMOTIVE, INC. AND SUBSIDIARIES

SELECTED FINANCIAL INFORMATION

(Unaudited)

For the Twelve Months Ended

June 30,

Adjusted Debt to EBITDAR:

2021

2020

(In thousands, except adjusted debt to EBITDAR ratio)

GAAP debt

$

3,825,177

$

4,127,397

Add:

Letters of credit

84,045

51,551

Discount on senior notes

4,700

3,295

Debt issuance costs

20,123

19,308

Six-times rent expense

2,182,596

2,073,180

Adjusted debt

$

6,116,641

$

6,274,731

GAAP net income

$

2,007,257

$

1,548,314

Add:

Interest expense

155,180

152,255

Provision for income taxes

596,239

442,962

Depreciation and amortization

321,679

290,473

Share-based compensation expense

23,842

22,386

Rent expense (i)

363,766

345,530

EBITDAR

$

3,467,963

$

2,801,920

Adjusted debt to EBITDAR

1.76

2.24

(i) The table below outlines the calculation of Rent expense and reconciles Rent expense to Total lease cost, per ASC 842, the most directly comparable GAAP financial measure, for the twelve months ended June 30, 2021 and 2020 (in thousands):

Total lease cost, per ASC 842, for the twelve months ended June 30, 2021

$

432,619

Less:

Variable non-contract operating lease components, related to property taxes and insurance, for the twelve months ended June 30, 2021

68,853

Rent expense for the twelve months ended June 30, 2021

$

363,766

Total lease cost, per ASC 842, for the twelve months ended June 30, 2020

$

408,583

Less:

Variable non-contract operating lease components, related to property taxes and insurance, for the twelve months ended June 30, 2020

63,053

Rent expense for the twelve months ended June 30, 2020

$

345,530

June 30,

2021

2020

Selected Balance Sheet Ratios:

Inventory turnover (1)

1.7

1.5

Average inventory per store (in thousands) (2)

$

636

$

632

Accounts payable to inventory (3)

125.7

%

111.6

%

For the Three Months Ended

For the Six Months Ended

June 30,

June 30,

2021

2020

2021

2020

Reconciliation of Free Cash Flow (in thousands):

Net cash provided by operating activities

$

822,160

$

1,099,985

$

1,712,832

$

1,559,078

Less:

Capital expenditures

127,728

111,187

222,607

244,471

Excess tax benefit from share-based compensation payments

10,808

3,080

16,815

6,460

Investment in tax credit equity investments

1,762

33

1,768

95,292

Free cash flow

$

681,862

$

985,685

$

1,471,642

$

1,212,855

For the Three Months Ended

For the Six Months Ended

For the Twelve Months Ended

June 30,

June 30,

June 30,

2021

2020

2021

2020

2021

2020

Store Count:

Beginning domestic store count

5,660

5,512

5,594

5,439

5,562

5,344

New stores opened

50

50

118

126

159

221

Stores closed

-

-

(2)

(3)

(11)

(3)

Ending domestic store count

5,710

5,562

5,710

5,562

5,710

5,562

Mexico stores

22

21

22

21

22

21

Ending total store count

5,732

5,583

5,732

5,583

5,732

5,583

For the Three Months Ended

For the Twelve Months Ended

June 30,

June 30,

2021

2020

2021

2020

Store and Team Member Information:(4)

Total employment

79,170

72,877

Square footage (in thousands)

42,714

41,318

Sales per weighted-average square foot (5)

$

80.35

$

74.18

$

295.60

$

262.03

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

$

600

$

551

$

2,202

$

1,940

(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) Represents O'Reilly's U.S. operations only.
(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 closures.
(6) Calculated as sales less jobber sales, divided by weighted-average stores. Weighted-average stores is determined by weighting stores based on their approximate dates of openings, acquisitions or closures.