Q4 2023 Summary
Published Jan 10, 2025, 5:10 PM UTC- O'Reilly Automotive expects continued growth driven by the professional side of their business, with comp expectations partially driven by ticket count growth as the professional segment remains strong.
- The company is confident in their ability to continue gaining market share due to their competitive advantages and energized teams, even though growth may not match the exceptional rate of 2023.
- Increasing the proportion of owned stores in new openings from around 40% to closer to 60%, the company believes this strategy enhances long-term value creation for shareholders through improved per-store volumes and profitability.
- Management expects market share gains in 2024 to be lower than in 2023, acknowledging they "comped to 7.9% last year, and we're clearly not guiding to that range this year."
- Operating profit pressure is expected to be greater in the first half of 2024 due to higher SG&A expenses from prior investments and timing of technology investments.
- Increasing owned store investments will reduce cash available for share buybacks, potentially affecting shareholder returns. "It's going to be less dollars that we would allocate to that [share buybacks]."
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Growth Guidance and Market Share
Q: Will you grow share at same rate as 2023?
A: Management expects to continue taking market share but acknowledges gains won't be as strong as in 2023. They comped at 7.9% last year but are guiding to 3–5% comp growth this year, assuming industry growth of 2–3%. -
Operating Margin Outlook
Q: Are operating margins at peak levels?
A: Management aims to drive operating profit dollar growth and believes they can continue improving margins through share gains. Operating profit percentage was 18.9% in 2019 and 20.3% in 2023. -
Sustainability of Growth Rates
Q: How sustainable are commercial growth rates in 2024?
A: Management is cautious due to tough comparisons but confident in outcomping the market and gaining share, especially in the fragmented professional segment, with balanced growth from new and existing customers. -
Elevated SG&A and Investments
Q: Will elevated SG&A investment continue in 2024?
A: Management sees continued investment opportunities, especially in technology to improve customer service and remove friction. They prioritize long-term growth over short-term SG&A reductions to capitalize on market volatility. -
Shift to Owned Retail and Buybacks
Q: How does shift to owned retail affect share buybacks?
A: They plan to increase owned new stores from 40% to 60% this year, resulting in fewer dollars allocated to buybacks but aligning with their capital priorities. Owning stores provides compounding long-term returns. -
Competitive Landscape
Q: Any changes in competitive situation?
A: Management sees no significant changes; independent competitors remain strong but no step change observed. They continue to see a rational pricing environment and feel confident in their proposition. -
Maintaining SG&A Spend
Q: Why not maintain higher SG&A spending?
A: Management is disciplined on ROI for SG&A and CapEx. They feel good about their investments and will continue to lean in where they see opportunities, including a recent acquisition. -
First-Half Profit Pressure
Q: Why is first-half operating profit pressured?
A: Prior year's investments and timing of depreciation increase SG&A in the first half. Timing of technology investments also affects the profit cadence. -
Weather Impact on Sales
Q: Did weather affect recent sales?
A: Fourth quarter sales were impacted by unfavorable weather and holiday timing. December sales were negative but better than plan. January's harsh weather also affected results, but overall setup is normal. -
Inflation and Mix in Guidance
Q: How does inflation factor into comp guidance?
A: They expect less than 1% inflation in 2024. Average ticket will benefit from mix and professional growth; comp expectations also rely on ticket count growth.