O'Reilly Automotive Q3 Earnings Call Highlights

Key Points

• Strong Q3 performance prompted higher guidance: Comparable-store sales rose 7.2%, led by more than 10% growth in the professional segment, and O’Reilly raised its full-year sales, operating-margin and EPS outlook. Full-year diluted EPS is now expected at $3.25–$3.35.
• Gross margin benefited from a one-time tariff refund: Q3 gross margin reached 52.4%, including a $39 million supplier tariff-refund benefit. Management expects fourth-quarter margins to moderate as that benefit will not recur, while petroleum-related inflation continues to pressure product mix and margins.
• Expansion and shareholder returns remain substantial: O’Reilly expects to open 225–235 net new stores in 2026 and targets 265–275 openings in 2027. The company also raised full-year free-cash-flow guidance to $1.9–$2.2 billion and repurchased $1 billion of shares during Q3.

O'Reilly Automotive NASDAQ: ORLY reported third-quarter 2026 comparable store sales growth of 7.2%, exceeding management’s expectations and prompting the automotive-parts retailer to raise its full-year sales, margin, operating-profit and earnings guidance.

Chief Executive Officer Brad Beckham said the company’s third-quarter performance reflected broad-based demand across its professional and retail businesses, supported by strong execution from its more than 96,000 North American team members. Comparable-store sales rose 7.1% through the first nine months of the year and increased 12.8% on a two-year stacked basis in the third quarter.

The company said diluted earnings per share increased 14% from the prior year’s third quarter, following a 12% increase in the comparable period a year earlier. O’Reilly now expects full-year diluted EPS of $3.25 to $3.35, representing an approximately 2% increase from the midpoint of its prior outlook and 11% year-over-year growth at the midpoint.

Professional business led sales gains

O’Reilly’s professional segment was the larger contributor to comparable-store sales growth, posting a comp increase of slightly more than 10% during the quarter. Growth in the business was split evenly between higher transaction counts and higher average tickets, according to Beckham.

Retail sales also increased at a mid-single-digit rate. The company said it experienced a low-single-digit decline in DIY transaction counts, which Beckham said may indicate pressure on consumers. However, higher average tickets more than offset that decline, while customers continued to prioritize vehicle maintenance and repair spending.

Hot weather-related categories performed particularly well during the quarter as summer heat persisted across O’Reilly’s markets. Beckham said those categories benefited from favorable weather conditions and the company’s efforts to capture market share, though he added that sales strength extended across the business.

Same-SKU inflation contributed slightly more than 4% to average ticket growth across the combined DIY and professional businesses. Petroleum-based products, including oil and lubricants, were the primary source of the stronger-than-expected inflation benefit. Management said the impact was somewhat larger in DIY because those categories make up a greater portion of retail sales.

The company raised its full-year comparable-store sales guidance to a range of 5.5% to 6.5%, from a prior range of 4% to 6%. Management said the revision was primarily driven by third-quarter outperformance. O’Reilly expects same-SKU inflation to continue benefiting fourth-quarter results, although it anticipates moderation as it laps a larger comparison from the fourth quarter of 2025.

Tariff refunds lifted gross margin

President Brent Kirby said third-quarter gross margin was 52.4%, up 54 basis points from a year earlier and above the company’s expectations. The result included a $39 million benefit from tariff refunds received from suppliers, equal to 76 basis points of gross-margin benefit.

Excluding the tariff refund, gross margin was at the bottom of O’Reilly’s expected range, Kirby said. The company benefited from acquisition-cost improvements and better leverage of distribution costs on stronger sales volumes. Those gains were partly offset by fuel-price pressure in the supply chain.

Petroleum-based categories also pressured gross margin by about 40 basis points through product mix and margin-rate effects. While O’Reilly and the broader market increased prices to reflect higher acquisition costs, Kirby said price adjustments did not fully preserve gross-margin rates during the quarter. Motor oil and similar products are high-turn, broadly available categories that generally carry lower margins than the company average.

Chief Financial Officer Jeremy Fletcher told analysts that the tariff refunds were a separate, one-time item and were not factored into the company’s pricing decisions. O’Reilly raised its full-year gross-margin outlook by 10 basis points to a range of 51.6% to 52.1%, with fourth-quarter margin expected to moderate from the third-quarter level because it will not include the tariff-refund benefit.

Operating costs, inventory and expansion

O’Reilly achieved 16 basis points of SG&A leverage in the third quarter, better than management had expected. SG&A expense per store increased 4.8%, primarily reflecting spending needed to maintain store-level service as sales volumes rose, along with higher fuel costs and other inflationary pressures.

The company now expects full-year SG&A expense per store growth of 4.5% to 5%. Fletcher said much of the increased spending is variable, including incentive compensation and staffing to support professional delivery activity and in-store service levels.

O’Reilly raised its full-year operating-profit margin guidance by 20 basis points to 19.5% to 20%. At the midpoint, that forecast implies 29 basis points of operating-margin expansion for the year.

Inventory per store ended the quarter at $912,000, up 6.3% from a year earlier. The company continues to expect average inventory per store to rise about 5% for the full year. Inventory turns were 1.6 times, which management said was in line with its targeted productivity level.

Capital expenditures totaled $860 million through the first nine months, and O’Reilly maintained its full-year capital spending outlook of $1.3 billion to $1.4 billion. The company opened 63 stores in the third quarter, bringing year-to-date net new store openings to 173. It remains on pace to open 225 to 235 net new stores in 2026.

For 2027, O’Reilly announced a target of 265 to 275 net new store openings. Beckham said expansion will continue across existing U.S. markets as well as Canada and Mexico, supported by investments in distribution capacity and technology.

Cash flow, debt and repurchases

Fletcher said free cash flow for the first nine months totaled $1.7 billion, compared with $1.2 billion in the prior-year period. The increase reflected operating-income growth and the timing of payments for renewable-energy tax credits. Full-year free-cash-flow guidance was raised to $1.9 billion to $2.2 billion.

The company ended the quarter with adjusted debt to EBITDAR of 2.26 times, compared with 2.04 times at the end of 2025. During the quarter, O’Reilly issued $1.6 billion in senior notes, primarily to term out commercial-paper borrowings ahead of the redemption of maturing senior notes in October.

O’Reilly repurchased 12 million shares for $1 billion during the third quarter, at an average price of $87.34 per share. Through the date of its earnings release, year-to-date repurchases totaled 41 million shares, or $3.7 billion.

About O'Reilly Automotive (NASDAQ:ORLY)

O'Reilly Automotive, Inc is a specialty retailer of automotive aftermarket parts, tools, supplies and accessories. The company serves both do-it-yourself customers and professional service technicians, offering products used for vehicle maintenance, repair and customization. Its merchandise includes replacement parts, batteries, filters, lighting products, shop equipment, automotive chemicals and related accessories.

Founded in 1957 by the O'Reilly family, the company began as a single store in Springfield, Missouri.

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