O'Reilly Automotive, Inc. (ORLY)

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O'Reilly Automotive (ORLY)

Q3 2012 Earnings Call

October 25, 2012 11:00 am ET


Thomas G. McFall - Chief Financial Officer, Principal Accounting Officer and Executive Vice President of Finance

Gregory L. Henslee - Chief Executive Officer and Co-President

Ted F. Wise - Co-President and Chief Operating Officer


Alan M. Rifkin - Barclays Capital, Research Division

Gary Balter - Crédit Suisse AG, Research Division

Scot Ciccarelli - RBC Capital Markets, LLC, Research Division

Matthew J. Fassler - Goldman Sachs Group Inc., Research Division

Gregory S. Melich - ISI Group Inc., Research Division

David Gober - Morgan Stanley, Research Division

Bret David Jordan - BB&T Capital Markets, Research Division

Michael Lasser - UBS Investment Bank, Research Division



Good morning. My name is Paula and I will be your conference operator today. At this time, I would like to welcome everyone to the O'Reilly Automotive Third Quarter 2012 Earnings Release Conference Call. [Operator Instructions] Mr. McFall, you may begin your conference.

Thomas G. McFall

Thank you, Paula. Good morning, everyone and welcome to our conference call. Before I introduce Greg Henslee, our CEO, we have a brief statement.

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 expect, believe, anticipate, should, plan, intend, estimate, project, will 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, competition, product demand, the market for auto parts, the economy in general, inflation, consumer debt levels, governmental regulations, the company's increased debt levels, credit ratings on the company's public debt, the company's ability to hire and retain qualified employees, risks associated with the performance of acquired businesses, such as CSK, weather,terrorist activities, war and the threat of war. 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, 2011, for additional factors that could materially affect the company's financial performance. The company undertakes no obligation to publicly update any forward-looking statements whether as a result of new information, future events or otherwise.

At this time, I'd like to introduce Greg Henslee.

Gregory L. Henslee

Thanks, Tom. Good morning, everyone, and welcome to the O'Reilly Auto Parts third quarter conference call. Participating on the call with me this morning is, of course, Tom McFall, our Chief Financial Officer; and Ted Wise, our Chief Operating Officer. David O'Reilly, our Executive Chairman, is also present. I would like to begin today by thanking all the members of Team O'Reilly for their commitment to our ongoing success by providing industry-leading customer service. In the midst of a quarter where we saw continued impact from a challenging economy and the lingering effects of a mild winter, we were still able to increase comparable store sales by 1.3%, which was on top of a 4.8% increase in comparable store sales in the prior year and on top of a challenging 2-year stacked comparable store sales of 15.9%.

Our relentless focus on profitable growth, combined with a solid expense control allowed us to increase operating margin to an all-time quarterly high of 16.4%. During the quarter, our focus on generating profitable sales, especially in the midst of the current challenging macro environment, combined with disciplined capital allocation, allowed us to increase our diluted earnings per share by 20%, marking our 15th consecutive quarter of adjusted diluted earnings per share growth of 15% or greater.

We are all contributors to the success of our company and our continued dedication to providing both our professional and DIY customers with the highest level of service each day will allow us to continue our profitable growth. Again, thanks to all of Team O'Reilly for your commitment to our continued success.

Now I'd like to add some color around our sales results for the third quarter. As we discussed on our second quarter earnings results conference call in July, the third quarter included an extra Sunday, which created an approximate 50 basis point headwind to comparable store sales, and we continue to see our sales performance impacted on a regional basis by the warm winter weather we experienced at the beginning of the year. The most pronounced impact from this historically warm winter has been on our Central and Upper Midwest and Great Lakes regions and has primarily pressured the maintenance and repair categories where we didn't see the normal winter weather wear and tear that typically leads to failure of a variety of parts. These areas significantly underperformed, the areas of our company that are in more temperate regions.

Despite the softer than anticipated results for these regions, our company generated positive comp store sales results all 3 months of the quarter and we saw moderate improvements in comparable store sales throughout the quarter, adjusting for the extra Sunday we experienced in the month of September. The extra Sunday during the month impacted our professional business as our customers' shops were closed an extra day and, as a result, the sequential slow down from the second to the third quarter in comparable store sales was impacted more by the do-it-for-me sales than do-it-yourself sales. Adjusted for the extra Sunday, the slowdown in comparable store sales was relatively similar between both DIY and do-it-for-me. However, both sides of the business generated positive comparable store sales results during each month of the quarter.

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