O'Reilly Automotive Q1 Earnings Call Highlights

Key Points

• O'Reilly reported a strong start to fiscal 2026 with comparable store sales up 8.1%, total sales +10.2%, operating profit +14% and diluted EPS +16%, driven by stronger-than-expected transaction growth across professional and DIY customers.
• Management maintained full-year comparable-sales guidance of 3%–5% but raised full-year diluted EPS to $3.15–$3.25 and nudged operating profit guidance up 10 basis points to 19.3%–19.8%, while flagging potential volatility from fuel prices and weather.
• Cash generation and capital returns were strong: first-quarter free cash flow was $785 million, the company repurchased 10 million shares for about $923 million, adjusted debt/EBITDA finished at 2.03x, and management kept plans for 225–235 new stores and $1.3–$1.4 billion in CapEx.

O'Reilly Automotive NASDAQ: ORLY reported a strong start to fiscal 2026, led by better-than-expected comparable store sales growth and operating profit expansion, while management reiterated a cautious stance on the consumer and maintained most of its full-year outlook.

Comparable sales rise 8.1% as transactions outpace expectations

CEO Brad Beckham said the company delivered an 8.1% increase in comparable store sales in the first quarter, which he described as above internal expectations. Total sales rose 10.2%, driven by the comp gain, new store contributions, and international operations. Beckham also said operating profit rose 14% and diluted EPS increased 16% in the quarter.

Beckham attributed the quarter’s outperformance primarily to stronger-than-expected transaction growth on both the professional and DIY sides of the business. He said the professional business remained the larger contributor to overall comps, marking the third consecutive quarter with double-digit professional comparable sales, while the DIY business posted a mid-single-digit comp and was an “equal driver” of the upside versus expectations.

Management also pointed to industry factors that likely helped early-year demand. Beckham said the first quarter can be volatile due to winter weather and the timing of tax refunds, noting that January weather was favorable and that volumes increased into February as refunds flowed. He said the combination of higher average refund size and total refund dollars, along with “warm and generally dry conditions,” appeared to benefit vehicle maintenance activity.

By category, Beckham said results were “broad-based,” with strength in undercar hard parts as well as maintenance categories such as oil, filters, and fluids. He added that the company still sees “some evidence of consumer caution,” with discretionary categories performing better mainly due to softer comparisons.

On pricing, Beckham said average ticket was a mid-single-digit contributor to comps on both sides of the business, and same-SKU inflation of approximately 6% matched expectations. He noted the company expects a larger inflation benefit in the first half of 2026, given more significant cost and price increases in 2025 are not lapped until the third quarter.

Guidance: comp outlook maintained, EPS and operating margin raised

Despite the strong quarter, management maintained its full-year comparable sales guidance range of 3% to 5%. Beckham said first-quarter results pushed performance to the top half of that range, but he emphasized caution given potential volatility from fuel prices and the typical first-quarter effects from weather and tax refunds.

Beckham said the company is increasing full-year diluted EPS guidance to $3.15 to $3.25, citing the first-quarter sales and operating performance and the impact of shares repurchased through the earnings release date.

President Brent Kirby said O’Reilly is also raising full-year operating profit guidance by 10 basis points to a range of 19.3% to 19.8%. He said the update reflects operating leverage from the first quarter while keeping assumptions for the remaining quarters unchanged.

Margins: gross margin improves modestly; SG&A leverage continues

Kirby reported first-quarter gross margin of 51.5%, up 19 basis points from the prior year and in line with expectations. He said seasonal product mix pressured gross margin, but the company offset that through acquisition cost reductions and improved leverage in distribution costs, supported by distribution center productivity and strong sales volumes.

Kirby said the tariff environment did not materially impact first-quarter gross margin and noted that neither results nor outlook include any benefit from potential tariff refunds. He also cited the conflict in Iran as a risk that could disrupt certain categories—particularly motor oil—and increase freight costs, but said there was no material first-quarter impact and the company did not adjust its full-year assumptions for those factors.

O’Reilly maintained full-year gross margin guidance of 51.5% to 52%. Kirby also highlighted private-label progress, saying private-label penetration has climbed to over 50% of total revenue. In response to an analyst question, Kirby said the company does not have a stated penetration target, emphasizing a “good, better, best” line design approach and continued inclusion of national brands where relevant.

On expenses, Kirby said the company generated 34 basis points of SG&A leverage in the quarter. He said SG&A dollars were at the higher end of expectations due to incremental spending to support elevated volumes, resulting in 5.5% SG&A per store growth. O’Reilly continues to expect full-year SG&A per store growth of approximately 3% to 4%, with moderation later in the year as comparisons change.

In Q&A, CFO Jeremy Fletcher said the first-quarter SG&A outcome was broadly in line with expectations, with some pressure from insurance and liability-related items that have been discussed in prior quarters and additional spending tied to a faster pace of business, including incentive compensation. On labor, Fletcher said wage rates are the first place to look, and Beckham credited store leadership for balancing customer service needs with labor management and productivity improvements.

Cash flow, leverage, and repurchases

Fletcher said first-quarter free cash flow was $785 million, up from $455 million in the prior-year period. He attributed the increase to operating income growth, a reduction in net inventory, and the timing of capital spending. Full-year free cash flow guidance remained unchanged at $1.8 billion to $2.1 billion.

Fletcher also provided balance sheet and capital return updates:

• Adjusted debt-to-EBITDA finished the quarter at 2.03x, flat versus year-end 2025 and below the company’s 2.5x leverage target, which it intends to approach “prudently” over time.
• Share repurchases totaled 10 million shares at an average price of $92.45, for $923 million in the quarter. Fletcher said the EPS guide includes repurchases through the call date, but not any additional buybacks.
• The company ended the quarter with an AP-to-inventory ratio of 125% and expects it to moderate to approximately 122% by year-end as inventory investment increases.

Store growth and capital investment plans remain on track

Kirby said O’Reilly opened 59 net new stores across the U.S., Mexico, and Canada in the first quarter and remains on track to open 225 to 235 net new stores in 2026. First-quarter capital expenditures were $244 million, and the company maintained its full-year CapEx plan of $1.3 billion to $1.4 billion.

Inventory per store ended the quarter at $874,000, up 8.5% year over year and up 0.5% from year-end. Kirby said O’Reilly still targets 5% growth per store by the end of 2026, adding that the quarter-end inventory position was slightly below plan due to strong sales and the timing of inventory additions. Inventory turns were 1.6x.

In the Q&A session, Beckham said internal and external data suggests the company’s market share gains are “solid” and potentially beyond what it has seen in recent years, citing execution across store operations, sales, and supply chain. However, he said the company does not disclose the percentage of professional customers for which it is the primary distributor.

Looking ahead, management reiterated that it is monitoring fuel prices and broader consumer dynamics. Beckham said that while the company has not seen a demand pullback so far, sustained high gasoline prices can create short-term shocks for consumers, and prolonged levels “well north” of $4 per gallon would be more likely to affect miles driven based on historical patterns.

About O'Reilly Automotive NASDAQ: ORLY

O'Reilly Automotive, Inc is a leading retailer and distributor in the automotive aftermarket, supplying parts, tools, supplies and accessories for both professional service providers and do‑it‑yourself (DIY) customers. The company's product assortment covers replacement parts, maintenance items, performance parts, collision components and shop equipment, complemented by diagnostic tools, batteries, chemicals and consumables. O'Reilly serves customers through company-operated retail stores, commercial sales programs for repair shops and maintenance fleets, and digital channels that support parts lookup, ordering and fulfillment.

The company operates a broad supply chain that includes regional distribution centers to support rapid replenishment of store inventory and commercial deliveries.

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