OREANDA-NEWS. July 28, 2016. O’Reilly Automotive, Inc. (the “Company” or “O’Reilly”) (Nasdaq:ORLY), a leading retailer in the automotive aftermarket industry, today announced record revenues and earnings for its second quarter ended June 30, 2016. 

2nd Quarter Financial Results
Sales for the second quarter ended June 30, 2016, increased \\$141 million, or 7%, to \\$2.18 billion from \\$2.04 billion for the same period one year ago.  Gross profit for the second quarter increased to \\$1.13 billion (or 51.8% of sales) from \\$1.06 billion (or 52.0% of sales) for the same period one year ago, representing an increase of 6%.  Selling, general and administrative expenses (“SG&A”) for the second quarter increased to \\$702 million (or 32.3% of sales) from \\$673 million (or 33.1% of sales) for the same period one year ago, representing an increase of 4%.  Operating income for the second quarter increased to \\$425 million (or 19.5% of sales) from \\$386 million (or 19.0% of sales) for the same period one year ago, representing an increase of 10%.

Net income for the second quarter ended June 30, 2016, increased \\$24 million, or 10%, to \\$258 million (or 11.8% of sales) from \\$234 million (or 11.5% of sales) for the same period one year ago.  Diluted earnings per common share for the second quarter increased 16% to \\$2.65 on 97 million shares versus \\$2.29 on 102 million shares for the same period one year ago.

“We are proud to report another solid quarter, highlighted by an operating margin of 19.5% and a 16% increase in second quarter diluted earnings per share to \\$2.65, which exceeded the top of our guidance range and represents our 30th consecutive quarter of diluted earnings per share growth of greater than 15%,” commented Greg Henslee, O’Reilly’s President and CEO.  “For the second quarter, our focus on customer service generated a 4.3% increase in comparable store sales, which was on top of a 7.2% increase from the second quarter of 2015 and was above the mid-point of our second quarter guidance range.  This performance is the direct result of Team O’Reilly’s commitment to providing consistently excellent service to our customers, and I would like to thank our over 74,000 dedicated Team Members for their continued hard work and countless contributions to our ongoing success.”

Year-to-Date Financial Results
Sales for the first six months of 2016 increased \\$335 million, or 9%, to \\$4.27 billion from \\$3.94 billion for the same period one year ago.  Gross profit for the first six months of 2016 increased to \\$2.22 billion (or 52.1% of sales) from \\$2.05 billion (or 52.0% of sales) for the same period one year ago, representing an increase of 9%.  SG&A for the first six months of 2016 increased to \\$1.38 billion (or 32.3% of sales) from \\$1.31 billion (or 33.3% of sales) for the same period one year ago, representing an increase of 5%.  Operating income for the first six months of 2016 increased to \\$844 million (or 19.7% of sales) from \\$736 million (or 18.7% of sales) for the same period one year ago, representing an increase of 15%.

Net income for the first six months of 2016 increased \\$67 million, or 15%, to \\$513 million (or 12.0% of sales) from \\$446 million (or 11.3% of sales) for the same period one year ago.  Diluted earnings per common share for the first six months of 2016 increased 20% to \\$5.24 on 98 million shares versus \\$4.35 on 103 million shares for the same period one year ago.

Mr. Henslee continued, “In the first half of 2016, we opened 89 net, new stores across 28 states and are on track to hit our target of 210 net, new stores by the end of the year.  In May, we seamlessly opened our 27th distribution center in Selma, Texas, just outside of San Antonio.  This new, 389,000 square foot, state-of-the-art facility allows our distribution Team to better support our stores in our robustly growing San Antonio and Austin metro markets and frees up capacity in our three existing Texas distribution centers, better positioning those facilities to support future store growth.  Our ongoing investment in our distribution infrastructure creates capacity for future growth and reflects O’Reilly’s continued commitment to providing our customers unparalleled service with industry-leading parts availability.”

Share Repurchase Program
During the second quarter ended June 30, 2016, the Company repurchased 2.1 million shares of its common stock, at an average price per share of \\$262.17, for a total investment of \\$544 million.  During the first six months of 2016, the Company repurchased 3.3 million shares of its common stock, at an average price per share of \\$259.14, for a total investment of \\$857 million.  Subsequent to the end of the second quarter and through the date of this release, the Company repurchased less than 0.1 million shares of its common stock, at an average price per share of \\$269.33, for a total investment of \\$4 million.  The Company has repurchased a total of 54.6 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 \\$113.94, for a total aggregate investment of \\$6.22 billion.  As of the date of this release, the Company had approximately \\$782 million remaining under its current share repurchase authorizations. 

2nd Quarter Comparable Store Sales Results
Comparable store sales are calculated based on the change in sales for 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 the sales from Leap Day in the six months ended June 30, 2016.  Comparable store sales increased 4.3% for the second quarter ended June 30, 2016, on top of 7.2% for the same period one year ago.  Comparable store sales increased 5.1% for the six months ended June 30, 2016, on top of 7.2% for the same period one year ago.

3rd Quarter and Updated Full-Year 2016 Guidance
The table below outlines the Company’s guidance for selected third quarter and updated full-year 2016 financial data:

 For the Three Months Ending
September 30, 2016		 For the Year Ending
December 31, 2016
Comparable store sales3% to 5% 3% to 5%
Total revenue  \\$8.4 billion to \\$8.6 billion
Gross profit as a percentage of sales  52.3% to 52.7%
Operating income as a percentage of sales  19.5% to 19.9%
Diluted earnings per share (1)\\$2.77 to \\$2.87 \\$10.30 to \\$10.70
Capital expenditures  \\$460 million to \\$490 million
Free cash flow (2)  \\$800 million to \\$850 million
    

(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) Calculated as net cash provided by operating activities less capital expenditures for the period.

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 selected financial information below.

Earnings Conference Call Information
The Company will host a conference call on Thursday, July 28, 2016, 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 (847) 585-4405; the conference call identification number is 42806224.  A replay of the conference call will be available on the Company’s website through Thursday, July 27, 2017.

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, 2016, the Company operated 4,660 stores in 44 states.

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 economy in general, inflation, product demand, the market for auto parts, competition, weather, risks associated with the performance of acquired businesses, our ability to hire and retain qualified employees, consumer debt levels, our increased debt levels, credit ratings on public debt, governmental regulations, 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, 2015, 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.

      
O’REILLY AUTOMOTIVE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
      
 June 30, 2016 June 30, 2015 December 31, 2015
 (Unaudited) (As Adjusted, Unaudited)(1) (Note)
Assets     
Current assets:     
Cash and cash equivalents\\$398,259  \\$260,042  \\$116,301 
Accounts receivable, net186,192  175,289  161,078 
Amounts receivable from suppliers78,824  75,017  72,609 
Inventory2,741,030  2,560,975  2,631,015 
Other current assets (1)33,828  36,103  29,023 
Total current assets (1)3,438,133  3,107,426  3,010,026 
      
Property and equipment, at cost4,587,944  4,166,557  4,372,250 
Less: accumulated depreciation and amortization1,608,704  1,422,741  1,510,694 
Net property and equipment2,979,240  2,743,816  2,861,556 
      
Notes receivable, less current portion—  15,311  13,219 
Goodwill757,130  756,852  757,142 
Other assets, net (1)36,137  37,079  34,741 
Total assets (1)\\$7,210,640  \\$6,660,484  \\$6,676,684 
      
Liabilities and shareholders’ equity     
Current liabilities:     
Accounts payable\\$2,914,641  \\$2,535,971  \\$2,608,231 
Self-insurance reserves71,177  65,892  72,741 
Accrued payroll62,596  83,547  59,101 
Accrued benefits and withholdings59,966  52,984  72,203 
Income taxes payable—  29,130  1,444 
Other current liabilities258,295  229,528  232,678 
Total current liabilities (1)3,366,675  2,997,052  3,046,398 
      
Long-term debt (1)1,886,324  1,389,205  1,390,018 
Deferred income taxes (1)72,961  87,096  79,772 
Other liabilities194,670  217,146  199,182 
      
Shareholders’ equity:     
Common stock, \\$0.01 par value:     
Authorized shares – 245,000,000     
Issued and outstanding shares –     
94,881,546 as of June 30, 2016,     
99,592,091 as of June 30, 2015, and     
97,737,171 as of December 31, 2015949  996  977 
Additional paid-in capital1,309,441  1,242,810  1,281,497 
Retained earnings379,620  726,179  678,840 
Total shareholders’ equity1,690,010  1,969,985  1,961,314 
      
Total liabilities and shareholders’ equity (1)\\$7,210,640  \\$6,660,484  \\$6,676,684 
            

Note: The balance sheet at December 31, 2015, 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.

(1) Certain amounts as of June 30, 2015, have been reclassified to conform to current period presentation, due to the Company’s adoption of new accounting standards during the fourth quarter ended December 31, 2015.  See Note 1 “Summary of Significant Accounting Policies” to the Consolidated Financial Statements of the annual report on Form 10-K for the year ended December 31, 2015.

    
O’REILLY AUTOMOTIVE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(In thousands, except per share data)
    
 For the Three Months Ended
 June 30,		 For the Six Months Ended
 June 30,
 2016 2015 2016 2015
Sales\\$2,176,689  \\$2,035,518  \\$4,272,839  \\$3,937,421 
Cost of goods sold, including warehouse and distribution expenses1,049,510  976,727  2,048,081  1,891,671 
Gross profit1,127,179  1,058,791  2,224,758  2,045,750 
        
Selling, general and administrative expenses702,118  673,023  1,381,071  1,309,609 
Operating income425,061  385,768  843,687  736,141 
        
Other income (expense):       
Interest expense(18,701) (14,319) (33,522) (28,721)
Interest income1,193  577  1,945  1,157 
Other, net1,241  182  2,258  1,295 
Total other expense(16,267) (13,560) (29,319) (26,269)
        
Income before income taxes408,794  372,208  814,368  709,872 
Provision for income taxes151,000  138,700  301,200  263,500 
Net income\\$257,794  \\$233,508  \\$513,168  \\$446,372 
        
Earnings per share-basic:       
Earnings per share\\$2.69  \\$2.32  \\$5.31  \\$4.42 
Weighted-average common shares outstanding – basic95,967  100,547  96,554  101,078 
        
Earnings per share-assuming dilution:       
Earnings per share\\$2.65  \\$2.29  \\$5.24  \\$4.35 
Weighted-average common shares outstanding – assuming dilution97,282  102,109  97,911  102,684 
            
  
O’REILLY AUTOMOTIVE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
  
 For the Six Months Ended
 June 30,
 2016 2015
Operating activities:   
Net income\\$513,168  \\$446,372 
Adjustments to reconcile net income to net cash provided by operating activities:   
Depreciation and amortization of property, equipment and intangibles106,430  106,007 
Amortization of debt discount and issuance costs1,173  1,051 
Excess tax benefit from share-based compensation(30,136) (32,947)
Deferred income taxes(6,811) (15,326)
Share-based compensation programs9,853  11,304 
Other2,655  2,594 
Changes in operating assets and liabilities:   
Accounts receivable(28,837) (34,199)
Inventory(110,015) (6,186)
Accounts payable306,410  118,804 
Income taxes payable25,170  79,172 
Other9,333  21,807 
Net cash provided by operating activities798,393  698,453 
    
Investing activities:   
Purchases of property and equipment(220,416) (186,531)
Proceeds from sale of property and equipment1,971  1,608 
Payments received on notes receivable1,047  1,981 
Net cash used in investing activities(217,398) (182,942)
    
Financing activities:   
Proceeds from the issuance of long-term debt499,160  — 
Payment of debt issuance costs(3,784) — 
Principal payments on capital leases—  (25)
Repurchases of common stock(856,845) (574,972)
Excess tax benefit from share-based compensation30,136  32,947 
Net proceeds from issuance of common stock32,296  36,021 
Net cash used in financing activities(299,037) (506,029)
    
Net increase in cash and cash equivalents281,958  9,482 
Cash and cash equivalents at beginning of the period116,301  250,560 
Cash and cash equivalents at end of the period\\$398,259  \\$260,042 
    
Supplemental disclosures of cash flow information:   
Income taxes paid\\$279,099  \\$194,715 
Interest paid, net of capitalized interest27,174  27,711 
      
  
O’REILLY AUTOMOTIVE, INC. AND SUBSIDIARIES
SELECTED FINANCIAL INFORMATION
(Unaudited)
  
 For the Twelve Months Ended
June 30,
Adjusted Debt to EBITDAR:2016   2015 
(In thousands, except adjusted debt to EBITDAR ratio)    
GAAP debt (1)\\$1,886,324   \\$ 1,389,205 
Add:Letters of credit39,010   50,506 
 Discount on senior notes3,441   3,132 
 Debt issuance costs10,235   7,663 
 Six-times rent expense1,662,528   1,613,664 
Adjusted debt\\$3,601,538   \\$ 3,064,170 
      
GAAP net income\\$998,012   \\$ 845,047 
Add:Interest expense61,930   55,783 
 Provision for income taxes566,850   487,249 
 Depreciation and amortization210,679   205,208 
 Share-based compensation expense20,448   22,262 
 Rent expense277,088   268,944 
EBITDAR\\$2,135,007   \\$ 1,884,493 
      
Adjusted debt to EBITDAR1.69   1.63 
     
     
 June 30,
 2016  2015
Selected Balance Sheet Ratios:    
Inventory turnover (2)1.5   1.4 
Average inventory per store (in thousands) (3)\\$588  \\$574 
Accounts payable to inventory (4)106.3%  99.0%
Return on equity (5)52.6%  41.7%
Return on assets (1)(6)14.2%  12.8%
       
 For the Three Months Ended
 June 30,		 For the Six Months Ended
 June 30,
 2016 2015 2016 2015
Selected Financial Information (in thousands):       
Capital expenditures\\$116,442  \\$95,391  \\$220,416  \\$186,531 
Free cash flow (7)193,796  197,037  577,977  511,922 
Depreciation and amortization53,652  51,057  106,430  106,007 
Interest expense18,701  14,319  33,522  28,721 
Rent expense\\$69,838  \\$68,074  \\$139,841  \\$136,012 
                
Store and Team Member Information:        
          
 For the Three Months Ended
 June 30,		 For the Six Months Ended
 June 30,		 For the Twelve Months Ended
June 30,
 2016 2015 2016 2015 2016 2015
Beginning store count4,623  4,433  4,571  4,366  4,465  4,257 
New stores opened38  34  90  101  198  215 
Stores closed(1) (2) (1) (2) (3) (7)
Ending store count4,660  4,465  4,660  4,465  4,660  4,465 
 For the Three Months Ended
 June 30,		 For the Twelve Months Ended
June 30,
 2016 2015 2016 2015
Total employment74,067  71,763     
Square footage (in thousands)33,824  32,336     
Sales per weighted-average square foot (8)\\$64.15  \\$62.74  \\$248.77  \\$238.00 
Sales per weighted-average store (in thousands) (9)\\$466  \\$454  \\$1,804  \\$1,722 
(1)  Prior period amount has been reclassified to conform to current period presentation, due to the Company’s adoption of new accounting standards during the fourth quarter ended December 31, 2015.  See Note 1 “Summary of Significant Accounting Policies” to the Consolidated Financial Statements of the annual report on Form 10-K for the year ended December 31, 2015.
(2)  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.
(3)  Calculated as inventory divided by store count at the end of the reported period.
(4)  Calculated as accounts payable divided by inventory.
(5)  Calculated as net income for the last 12 months divided by average total shareholders’ equity.  Average total shareholders’ equity is calculated as the average of total shareholders’ equity for the trailing four quarters used in determining the denominator.
(6)  Calculated as net income for the last 12 months divided by average total assets.  Average total assets is calculated as the average of total assets for the trailing four quarters used in determining the denominator.
(7)  Calculated as net cash provided by operating activities less capital expenditures for the period.
(8)  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.
(9)  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.