Greg Johnson
Chief Executive Officer and Co-President at O'Reilly Automotive
Thanks, Tom. Good morning, everyone, and welcome to the O'Reilly Auto Parts Fourth Quarter Conference Call. Participating on the call with me this morning are Brad Beckham, our Chief Operating Officer; and Tom McFall, our Chief Financial Officer. Greg Henslee, our Executive Chairman; David O'Reilly, our Executive Vice Chairman; and Brent Kirby, our Chief Supply Chain Officer, are also present on the call. I'd like to begin our call today by congratulating Team O'Reilly on the tremendous results in the fourth quarter, which capped off another record-setting year. This year marked our company's 65th year since our founding and our 29th year as a publicly traded company, and I feel very comfortable saying it was our best year yet driven by the truly remarkable contributions of our team of over 83,000 hard-working professional parts people. Our team's performance in 2021 was highlighted by our comparable store sales growth of 13.3% and diluted earnings per share growth of 32%. This outstanding performance is even more impressive when you consider that our team delivered these results on top of a record-setting year in 2020, when we achieved comparable sales increase of 10.9% and growth in earnings per share of 32%. There are a number of different metrics I could provide to highlight the strength of our business, and we'll talk through many of those details in our customary updates during the call today.
However, there are two specific numbers that I'd like to provide an incredible picture of just how much growth Team O'Reilly has generated for our shareholders over the past two years. For 2021, our average store generated sales of $2.3 million, which represents an increase of over 23% from the average store sales volume just two years ago in 2019. During this same time -- period of time, our operating profit dollars per store has grown by an incredible 42% as our store and distribution teams leveraged our dual market business model to drive very strong operating profit flow-through. I want to take this opportunity to thank Team O'Reilly for your tremendous back-to-back annual performance. One of the guiding principles of our culture is our team's dedication to our customers and fellow team members, and that commitment was truly on display in 2021. Rolling out the numbers for over the $13 billion of sales, it can be easy to lose sight of the context of what it takes to deliver these results. These big growth numbers are made up of millions of individual interactions with our customers, where our team members constantly go the extra mile to provide the best customer service in our industry to earn our customers' current and future business. Our team truly lived a "Never Say No" philosophy in 2021, while at the same time, consistently executing on best practices to protect the health and safety of our customers and team members and tackle head on the significant challenges brought on by the pandemic.
It's taken a monumental effort, and I again want to express my gratitude for the selfless dedication, hard work and sacrifice of each member of Team O'Reilly. Now I'd like to take a few minutes and provide some color around our fourth quarter results. Our comparable store sales for the fourth quarter grew 14.5%. From a cadence perspective, we continue to see steady trend of elevated sales levels throughout the quarter, continuing the consistent broad-based strength we've experienced since the second quarter of 2020. As a result, our sales results were fairly consistent throughout the quarter, with December being the strongest month on a two- and three-year stack basis. We've continued to see solid sales volumes. The results thus far in 2022 have been impacted by the Omicron variant and by some inclement weather given choppiness in certain regions of the company -- or country, rather. I'll spend more time on this in a few minutes on our sales outlook for 2022, but I'd like to add that we're always pleased to see this type of harsh weather as the wear and tear it inflicts on vehicles benefits us throughout the year. Our comparable store sales results were driven by somewhat stronger growth on the professional side of our business, which continues to trend -- which continues the trend we experienced in the second and third quarters. However, our DIY business was also very strong in the fourth quarter and our expectations against difficult compares from the prior year.
For the quarter, we were very pleased to see the solid growth on both average ticket and comparable ticket counts in both our professional and DIY businesses, with average ticket being the larger contributor. The average ticket growth was aided by heightened inflation with the benefit we realized from same-SKU selling prices landing in the high single digits. However, we continue to be pleased to see growth in average ticket beyond the positive impact of same-SKU inflation driven by the long-term increased complexity of automotive technology. Demand in our industry has remained very resilient for the past two quarters, even as price levels and the broader economy have risen sharply. The acquisition cost increases we saw in 2021 were consistent with the cost pressures experienced across the automotive aftermarket, and the industry continues to be very rational in passing through the inflationary pricing. Finally, even though average ticket was the larger contributor to our comparable store sales for the quarter, we also believe we're pleased to capitalize on solid ticket count comps, which were positive for both the professional and DIY businesses. We've been encouraged by the stability of our customer traffic, especially as we continue to move further past the major macro-level demand tailwinds provided by the government stimulus.
We believe we're very clearly benefiting from market share gains and an increased willingness of customers to invest in their existing vehicles. Next, I want to transition to a discussion of our 2022 sales guidance as well as our 2021 gross profit performance and outlook for gross profit for 2022. As we disclosed in our earnings release yesterday, we're establishing an annual comparable store sales guidance for 2022 at the range of five % to seven %. Our expectations are to generate positive comparable store sales growth on both sides of our business, with stronger growth on the professional business. This range and corresponding expectations for the coming year are higher than we can remember ever providing in our initial annual guidance. So I want to spend some extra time to provide color on the basis for our forecast relating both to our general outlook for the coming year as well as our planned strategy to further invest in pricing on the professional side of our business. To begin, from a macro perspective, we remain very confident about the health of the automotive aftermarket and believe the stable, robust growth trends experienced in our industry are indicative of ongoing core underlying strength. The value proposition for consumers to invest in their existing vehicles remains very strong driven by scarcity of new vehicle supply, high demand for used vehicles, and the quality of engineering and manufacturing of vehicles currently on the road, merits higher mileages.
Our industry history has proven that time -- in times of economic uncertainty motivate consumers to take more cautious financial outlook and allocate additional share of their wallet to maintain their existing vehicles. We believe this has been a positive for our business since the onset of the pandemic and that this value proposition will continue to support solid demand in our industry. We are also encouraged by the resilience of the strong sales trends in our business we've moved -- as we move further past the injection of government stimulus into the economy and believe that economically, consumers remain relatively healthy with employment increasing and miles driven steadily recovering. Beyond this positive macroeconomic backdrop, it is also clear to us that our extremely strong sales results are driven by significant share gains, with our outperformance, the direct result of significant competitive advantages afforded by the strength of our business model and supply chain. For the DIY side of our business, we anticipate delivering generally stable to slightly negative ticket counts, with the headwind coming from lapping the positive impact of governance stimulus in the first half of 2021 and expected pressures from increased prices. We remain cognizant of the impact of sustained inflation on the economically challenged DIY consumers, who have just historically deferred noncritical maintenance and traded down the product value spectrum as prices dramatically increased.
We expect this pressure to ticket comp counts to be more than offset by increased average ticket as our forecast includes an assumption of mid-single-digit same-SKU inflation. The anticipated benefit from same-SKU inflation does not include significant incremental increases in price levels from this point forward in 2022, consistent with our historical approach to issuing guidance. Our projection reflects the static prices from current levels with expected benefit of same-SKU inflation being stronger in the first half of the year as we compare price levels that ramp throughout 2021. From the professional side of our business, our guidance expectations assume robust growth in ticket counts supported by four factors: the stronger economic resilience of the end-user customers on this side of the business; incremental improvement in miles driven from consumers generally returning to an in-person work post pandemic; the long-term industry demographic trend for faster growth on the professional side of our business; and anticipated accelerated growth from the professional pricing initiative, which I will discuss next. Throughout our history, we have been steadfast in earning our professional customers business by providing excellent customer service from highly trained professional parts people with rapid access to industry-leading inventory at competitive prices.
This unwavering commitment to customer service has allowed us to drive exceptional value for our customers and capitalize on competitive advantages to earn a pricing premium in many of our markets. Our service over price philosophy remains unchanged, but we believe we have an opportunity to accelerate our professional share gain through targeted competitive adjustments to our professional pricing strategy. The past two years in the automotive aftermarket have been very turbulent, characterized by volatility in customer demand as a result of the pandemic, significant supply chain shocks and an evolving competitive landscape. These factors have been more disruptive on the do-it-for-me side of the business, which remains very fragmented and where the ability to respond to challenging environments has differed significantly between market participants. Against this backdrop, we have been very successful in gaining professional market share and growing substantially faster than the overall market through the strength of our industry-leading inventory availability, tiered distribution and hub network and world-class professional parts people. However, we believe that the current disruptive environment presents an opportunity for us to enhance our competitive positioning and leverage our competitive advantages to drive accelerated long-term market share gains.
Over the course of the past few quarters, we've tested several professional pricing strategies in multiple markets. We've been very encouraged by the results of our testing. And after dialing in our strategy, we rolled out the professional pricing initiative company-wide at the beginning of February. For 2022, we expect to see a meaningful benefit to our professional customer comps from share gains, which we've incorporated into our comparable sales growth expectations. The professional pricing initiatives will pressure our gross margin rate, which we have also incorporated into our gross profit guidance. While we continually adjust pricing by location, by customer and by product line to reflect changing market conditions, we believe the professional pricing initiative we've put in place appropriately positions us to enhance the value proposition we offer our professional customers and solidify our position on the top of the call list for 2022 and beyond. Next, I'd like to provide some color on our fourth quarter gross margins and additional details supporting our full year 2022 guidance. Our fourth quarter gross margin of 52.7% was a 66 basis point improvement from our fourth quarter of 2020, which exceeded the expectations we discussed on the third call -- third quarter call.
For the full year, gross margin also came in at 52.7%, which was 23 basis points higher than last year and at the upper end of our guidance range instead of the bottom half of the range as previously expected. The principal driver of the better-than-expected performance was lower-than-expected distribution cost. As we've discussed on previous calls, our distribution infrastructure is facing inefficiencies due to extremely high sales volumes, the difficult labor environment and global logistics challenges. While we continue to take targeted actions in the fourth quarter to respond to these pressures, we did not incur the level of incremental expense that we had anticipated. For 2022, we expect gross margin to be in the range of 50.8% to 51.3%. The year-over-year pressure to our gross margin rate is driven by the impact of our professional pricing initiative, a reduced LIFO benefit and a headwind from higher mix of professional business, which we expect to grow faster than DIY. We expect these headwinds to be partially offset by leverage of our distribution cost as supply chain conditions begin to normalize. Before turning the call over to Brad, I'd like to highlight our fourth quarter earnings per share increase of 41% to $7.64 with a full year 2021 increase of 32% to $31.10. For 2022, our guidance is $32.35 to $32.85, representing an increase of 5% versus 2021 at the midpoint. After delivering earnings per share growth of 32% in both 2021 and 2020, our forecasted annual increase for 2022 diluted earnings per share represents a three-year compounded annual growth rate of 22% and is a testament to the historical results our team has been able to generate and repeat through consistent excellent execution. To wrap up my comments, I want to again thank Team O'Reilly for an outstanding year. Your dedication to living out our culture and taking care of our customers every day drives our continued success.
I'll now turn the call over to Brad Beckham. Brad?
