Q4 2023 O'Reilly Automotive Inc Earnings Call

Operator: Welcome to the O'Reilly Automotive Inc. fourth quarter and full year 2023 earnings call. My name is Matthew, and I will be your operator for today's call. At this time, all participants are in a listen-only mode.

Welcome to the O'reilly Automotive, Inc, fourth quarter and full year 2023 earnings call.

Matthew: My name is Matthew and I'll be your operator for today's call.

Matthew: At this time all participants are in a listen only mode.

Operator: Later, we will conduct a question and answer session. During the question and answer session, if you have a question, please press star 1 on your touchtone phone. I will now turn the call over to Jeremy Fletcher. Mr. Fletcher, you may begin. Thank you, Matthew. Good morning, everyone, and thank you for joining us. During today's conference call, we will discuss our fourth quarter and full year 2023 results and our outlook for 2024. After our prepared comments, we will host a question and answer period. Before we begin this morning, I would like to remind everyone that our comments today contain forward-looking statements, and we intend to be covered by, and we claim protection under, the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. You can identify these statements by four looking words such as estimate, may, could, will, believe, expect, would, consider, should, anticipate, project, plan, intend, or similar words.

Later, we will conduct a question and answer session.

Matthew: During the question and answer session. If you have a question. Please press star one on your Touchtone phone.

Matthew: I'll now turn the call over to Jeremy Fletcher Mr. Fletcher you may begin.

Jeremy Fletcher: Thank you Matthew good.

Jeremy Fletcher: Good morning, everyone and thank you for joining us during today's conference call, we will discuss our fourth quarter and full year 2023 results and our outlook for 2024.

Jeremy Fletcher: After our prepared comments, we will host a question and answer period before we begin this morning, I would like to remind everyone that our comments today contain forward looking statements and we intend to be covered by and we claim the protection under the Safe Harbor provisions for forward looking statements contained in the private Securities Litigation Reform Act.

Jeremy Fletcher: Of 1995.

Jeremy Fletcher: You can identify these statements by forward looking words, such as estimate may could will believe expect.

Jeremy Fletcher: Would consider should anticipate project plan intend or similar words.

Jeremy Fletcher: The company's actual results could differ materially from any forward-looking statements due to several important factors described in the company's latest annual report on Form 10-K for the year ended December 31, 2022, and other recent SEC filings. The company assumes no obligation to update any forward-looking statements made during this call. At this time, I would like to introduce Brad Batten. Go! Go! Go!

Jeremy Fletcher: The company's actual results could differ materially from any forward looking statements due to several important factors described in the Companys latest annual report on Form 10-K for the year ended December 31, 2022 and.

Jeremy Fletcher: And other recent SEC filings.

Jeremy Fletcher: The company assumes no obligation to update any forward looking statements made during this call.

Jeremy Fletcher: At this time I would like to introduce Brad Delco.

Brad Delco: Thanks, Jeremy.

Brad Batten: Thanks, Jeremy. Good morning, everyone, and welcome to the O'Reilly Auto Parts fourth quarter conference call. Participating on the call with me this morning are Brent Kirby, our president, and Jeremy Fletcher, our chief financial officer. Greg Henslee, our Executive Chairman, and David O'Reilly, our Executive Vice Chairman, are also present on the call.

Brad Delco: Good morning, everyone and welcome to the O'reilly auto parts fourth quarter conference call participating on the call with me. This morning are Brent Kirby, our president and Jeremy Fletcher, Our Chief Financial Officer, Greg Henslee, Our executive Chairman and David O'reilly, Our executive Vice Chairman are also present on the call I'd like to begin our call. This morning by congratulating <unk>.

Brad Batten: I'd like to begin our call this morning by congratulating Team O'Reilly on another strong performance in the fourth quarter. Our team faced our toughest prior-year comparisons, where we generated 9% comparable store sales in the fourth quarter last year, which represented our strongest quarterly performance in 2022. Against this very high bar, our team was able to deliver a strong comparable store sales increase of 3.4% in the fourth quarter of 2023. This was a direct result of their unwavering commitment to providing excellent customer service every day in each of our over 6,000 stores.

Jeremy Fletcher: Riley on another strong performance in the fourth quarter, our team faced our toughest prior year comparisons, where we generated 9% comparable store sales in the fourth quarter last year, which represented our strongest quarterly performance in 2022.

Jeremy Fletcher: Against this very high bar, our team was able to deliver a strong comparable store sales increase of three 4% in the fourth quarter of 2023.

Jeremy Fletcher: This was a direct result of their unwavering commitment to providing excellent customer service every day in each of our over 6000 stores.

Brad Batten: For the full year of 2023, our team generated a robust 7.9% compare-and-restore sales increase, which was at the high end of the revised guidance range we provided on last quarter's call. This performance was also almost two full percentage points above the high end of our original 2023 comp sales guidance range of 4 to 6%. We're extremely pleased with the ability of our team to deliver industry-leading results again in 2023, especially since this performance was on top of the incredible sales growth in the preceding three years. These strong top-line sales results drove another year of record-setting earnings per share as diluted EPS increased 15% to $38.47, representing continued strong value creation for our shareholders.

Jeremy Fletcher: For the full year of 2023, our team generated a robust seven 9% comparable store sales increase which was at the high end of the revised guidance range. We provided on last quarter's call. This performance was also almost two full percentage points above the high end of our original 2023.

Jeremy Fletcher: <unk> sales guidance range of 4% to 6%.

Jeremy Fletcher: We're extremely pleased with the ability of our team to deliver industry, leading results again in 2023, especially since this performance was on top of the incredible sales growth in the preceding three years.

Jeremy Fletcher: These strong topline sales results drove another year of record setting earnings per share is diluted EPS increased 15% to $38 and 47, representing.

Jeremy Fletcher: Representing continued strong value creation for our shareholders.

Brad Batten: As strong as this performance was in 2023, I again think it's helpful to view these continued outstanding results in a longer-term context. To give some perspective, just in the last four years, our company has more than doubled earnings per share, with our 2023 EPS 115% above the $17.88 we generated in 2019. After such an amazing run of performance, it would have been far too easy for our team to accept the idea that we may be forced to give back some of our growth.

Jeremy Fletcher: As strong as this performance was in 2023 I again think it's helpful to view. These continued outstanding results in a longer term context to give some perspective just in the last four years, our company has more than doubled earnings per share with our 2023 EPS 115%.

Jeremy Fletcher: Above the $17 88, we generated in 2019.

Jeremy Fletcher: After such an amazing run of performance it would've been far too easy for our team to accept the idea that we may be forced to give back some of our growth instead. They did just the opposite as our business accelerated in 2023.

Brad Batten: Instead, they did just the opposite, as our business accelerated in 2023. I couldn't be more proud of our team's relentless dedication to outperforming the competition by providing the best customer service in the industry. As you'd expect, the incredible momentum we built in our business this year has generated a lot of excitement for our team, and that excitement was on full display at our annual leadership conference held in Dallas just two weeks ago. Each year, we bring all of our store managers and field leadership, including our sales and distribution management teams, together in one place to build leadership skills. Enhance product knowledge, share best practices across our company, celebrate award-winning performances, and, most importantly, set our focus for the year to come. Our conference theme this year was Leaders in Motion, which perfectly defines the focus and attitude of our team.

Jeremy Fletcher: Couldn't be more proud of our team's relentless dedication to outperforming the competition by providing the best customer service in the industry.

Jeremy Fletcher: As you would expect the incredible momentum we built in our business. This year has generated a lot of excitement for our team and that excitement was on full display at our annual leadership conference held in Dallas, just two weeks ago. Each year, we bring all of our store managers and field leadership, including our sales and distribution management teams.

Jeremy Fletcher: Together in one place to build leadership skills.

Jeremy Fletcher: Enhanced product knowledge share best practices across our company celebrate award winning performances and most importantly set our focus on the year to come.

Jeremy Fletcher: Our conference theme. This year was leaders in motion, which perfectly defines the focus on the attitude of our team.

Brad Batten: It's clear the energy created by winning with our customers and driving industry-leading performance is infectious. And all of our leaders are passionate about taking the next step forward and seizing the opportunities in front of us. Now, I'd like to take a few minutes and provide some color on our fourth quarter results.

Jeremy Fletcher: It's clear the energy created by winning with our customers and driving industry, leading performance is infectious and all of our leaders are passionate about taking the next step forward and seizing the opportunities in front of us.

Speaker Change: Now I'd like to take a few minutes and provide some color on our fourth quarter results as we discussed on last quarter's conference call. We started the fourth quarter with solid sales results in line with trends, we saw as we exited the third quarter.

Brad Batten: As we discussed on last quarter's conference call, we started the fourth quarter with solid sales results in line with trends we saw as we exited the third quarter. As we progress throughout the quarter, our results remain relatively consistent from a volume perspective, with each month performing better than our guidance expects. As we expected, our comparable store sales results on a year-over-year basis faced pressure in December against very challenging comparisons the last two years when we capitalized on favorable winter weather. So far this winter, we have seen typical variability in winter weather, with more of the harsh conditions that support our business arriving in January versus December.

Jeremy Fletcher: As we progressed throughout the quarter.

Jeremy Fletcher: Our results remained relatively consistent on a volume from a volume perspective with each month performing better than our guidance expectations as we expected our comparable store sales results on a year over year basis space pressure in December against very challenging comparisons the last two years, when we capitalized on favorable weather.

Jeremy Fletcher: The weather so.

Jeremy Fletcher: So far this winter we have seen typical variability in winter weather with more of the harsh conditions that support our business arriving in January versus December. However, we are very pleased with how we finished out 2023 with broad based solid performance across our core non weather related categories.

Brad Batten: However, we are very pleased with how we finished out 2023 with broad-based solid performance across our core non-weather related categories. Our comparable store sales results were driven by strength on the professional side of our business, where our team delivered yet another quarter of double-digit comp growth in the fourth quarter. Our professional performance was primarily driven by robust growth in ticket counts, and we continue to be pleased with our team's ability to execute our proven business model at a high level and gain share through exceptional customer service. However, our professional strength was partially offset by pressure in our DIY business, where we faced challenging ticket count comparisons to the weather benefits we saw in 2022 as well as a moderating benefit from same-skew inflation.

Jeremy Fletcher: Our comparable store sales results were driven by strength on the professional side of our business, where our team delivered yet another quarter of double digit comp growth in the fourth quarter. Our professional performance was primarily driven by robust growth in ticket counts and we continue to be pleased with our team's ability to execute our proven business.

Jeremy Fletcher: Model at a high level and gain share through exceptional customer service.

Jeremy Fletcher: Our professional strength was partially offset by pressure in our DIY business, while we face challenging ticket count comparisons to the weather benefits. We saw in 2022 as well as the moderating benefit from same SKU inflation.

Jeremy Fletcher: Overall, the combined impact of average ticket growth on both sides of our business was a contributor to our comp growth in the quarter.

Brad Batten: Overall, the combined impact of average ticket growth on both sides of our business was a contributor to our comp growth in the quarter. As we discussed on last quarter's call, as we entered the fourth quarter, we had fully lapped the year-over-year inflation benefits that carried over from price levels that ramped throughout 2022. For the fourth quarter, our same SKU benefit was just over 1%, in line with our expectations.

Jeremy Fletcher: As we discussed on last quarter's call as we entered the fourth quarter. We had we had fully lapped the year over year inflation benefits that carried over from price levels that ramp throughout 2022.

Jeremy Fletcher: For the fourth quarter, our same SKU benefit was just over 1% in line with our expectations.

Brad Batten: Next, I want to transition to a discussion of our guidance for 2024, starting with our sales outlook. As we disclosed in our earnings release yesterday, we're establishing our annual comparable store sales guidance for 2024 in a range of 3 to 5 percent, and we want to provide some additional color on how we view both the broader economic conditions of our industry and the opportunities we have to outperform the market. As we progress through 2023 and now enter 2024, we believe the fundamental backdrop for the automotive aftermarket industry is stable, and the drivers for demand in our industry remain strong. The daily transportation needs of consumers generate robust and resilient demand for our industry, and there continues to be a very compelling value proposition for consumers to invest in the repair and maintenance of their existing vehicles.

Jeremy Fletcher: Next I want to transition to a discussion of our guidance for 2024, starting with our sales outlook as.

Jeremy Fletcher: As we as we disclosed in our earnings release yesterday, we are establishing our annual comparable store sales guidance for 2024 at a range of 3% to 5% and we want to provide some additional color on how we are reviewing both the broader economic conditions in our industry and the opportunities we have to outperform the market.

Jeremy Fletcher: As we progress through 2023 and now into 2024, we believe the fundamental backdrop for the automotive aftermarket industry is stable and the drivers for demand in our industry remains strong.

Jeremy Fletcher: The daily transportation needs of consumers generates robust and resilient demand for our industry and there continues to be a very compelling value proposition for consumers to invest in the repair and maintenance of their existing vehicles. We've been pleased to see improvement in the total miles driven in the U S over the last several quarters and expect.

Brad Batten: We've been pleased to see improvement in the total miles driven in the U.S. over the last several quarters and expect to see continued steady growth in this metric in line with long-term industry trends driven by population growth and an increase in the size of the car park. We also believe our industry has benefited and will continue to benefit from the increasing average age of vehicles as consumers show a strong willingness to prioritize investment in their existing vehicles to keep them on the road longer at higher and higher mileage. From a broader macroeconomic standpoint, we view current conditions as favorable for our customers and, in turn, our industry. We believe the economic health of the consumer is solid, supported by strong employment trends, improved wages, stable fuel prices, and moderating inflation. However, our expertise is not in our ability to predict broader economic conditions. We remain cautious in our outlook regarding the potential for worsening economic conditions or the possibility of short-term economic shocks, particularly any impacts we could see from sustained higher price levels and interest rates, jumps in gas prices, or election year volatility.

Jeremy Fletcher: Expect to see continued steady growth in this metric in line with our in line with long term industry trends driven by population growth and an increase in the size of the car Park.

Jeremy Fletcher: We also believe our industry has benefited and will continue to benefit from the increasing average age of vehicles as consumer show a strong willingness to prioritize investments in their existing vehicles to keep them on the road longer at higher and higher mileages.

Jeremy Fletcher: From a broader macroeconomic standpoint, we view current conditions is favorable for our customers and in turn our industry. We believe the economic health of the consumer is solid supported by strong employment trends improved wages stable fuel prices and moderating inflation.

Jeremy Fletcher: However, our expertise is not in our ability to predict broader economic conditions.

Jeremy Fletcher: We remain cautious in our outlook regarding the potential for potential for worsening economic conditions or the possibility of short term economic shocks, particularly any impacts we could see from sustained higher price levels and interest rates jumps in gas prices or election year volatility.

Jeremy Fletcher: As we have discussed in the past, we maintain our conviction that the consumers in our industry quickly adjust the challenging environments, and we will prioritize the maintenance and repair of their existing vehicles as a counter measure in the face of economic pressures.

Brad Batten: As we have discussed in the past, we maintain our conviction that consumers in our industry quickly adjust to challenging environments and will prioritize the maintenance and repair of their existing vehicles as a countermeasure in the face of economic pressures. Due to the resiliency of our customers and the non-discretionary nature of our business, we have confidence our industry will perform well in 2024, even if the broader economy ends up facing challenges. While our outlook for 2024 incorporates our assumptions of a reasonably stable economic environment, ultimately, our performance this year will depend on our effectiveness in executing our business model, providing exceptional customer service, and, in turn, gaining market share. To that end, I want to spend a few minutes discussing how we view our opportunities on both sides of our business.

Jeremy Fletcher: Due to the resiliency of our customers and the non discretionary nature of our business, we have confidence our industry will perform well in 2024, even if broader even if the broader economy ends up facing challenges.

Jeremy Fletcher: While our outlook for 2024 incorporates our assumptions other reasonably stable economic environment. Ultimately our performance. This year will depend on our effectiveness in executing our business model, providing exceptional customer service and in turn gaining market share.

Jeremy Fletcher: To that end I want to spend a few minutes discussing how we view our opportunities on both sides of our business. We expect both our DIY and professional businesses to be positive contributors to our comparable store sales growth in 2024 with professional again expected to outperform.

Brad Batten: We expect both our DIY and professional businesses to be positive contributors to our comparable store sales growth in 2024, with professional again expected to outperform. We have been truly blown away by the incredible momentum our team has generated with our professional customer base, driving three consecutive years of comparable store sales growth in the mid-team. We were especially excited with the ticket count gains we saw in 2023 as our store, sales, distribution, and office team members delivered on our commitment to excellent customer service and industry-leading inventory availability. We remain bullish in our outlook for growth in professional services in 2024, but expect comps to naturally moderate as we compare against the higher bar we set in 2023. We also believe we have opportunities to gain share on the DIY side of our business but anticipate that any share growth in the DIY will come in the context of the longer-term industry trend of pressure on DIY tickets. We believe the industry dynamic of extended service and repair intervals resulting from increased complexity and quality of parts will drive down DIY ticket counts broadly in our industry.

Jeremy Fletcher: We have been truly blown away by the incredible momentum our team has generated with our professional customer base driving three consecutive years of comparable store sales growth in the mid teens.

Jeremy Fletcher: We were especially excited with the ticket count gains we saw in 2023 is our store sales distribution and office team members delivered on our commitment to excellent customer service and industry, leading inventory availability.

Jeremy Fletcher: We remain bullish in our outlook for growth in professional in 2024, but expect comps to naturally moderate rate as we compare against the higher bar, we set in 2023.

Jeremy Fletcher: We also believe we have opportunities to gain share on the DIY side of our business, but anticipate that any share growth in the DIY will come in the context of longer term in the long term industry trend of pressure to DIY ticket counts.

Jeremy Fletcher: We believe the industry dynamic of extended service and repair intervals, resulting from increased complexity and quality of parts will drive down DIY ticket counts broadly in our industry. As a result, we anticipate DIY traffic will be flat to slightly down in 2024 with an expectation that we will continue to.

Brad Batten: As a result, we anticipate DIY traffic will be flat to slightly down in 2024 with an expectation that we will continue to gain share to partially offset the normal industry drag on ticket count. However, increased complexity and quality of parts also drive higher average ticket values, and we expect total DIY comps to be positive in 2024. For both sides of our business, we expect to see continued growth in average ticket values. However, our 2024 projections assume same-skew inflation will provide a smaller benefit than we have realized in the last three years.

Jeremy Fletcher: Gain share to partially offset the normal industry drag on ticket counts.

Jeremy Fletcher: However, increased complexity and quality of parts also drives higher average ticket values and we expect total DIY comps to be positive in 2024.

Jeremy Fletcher: For both sides of our business, we expect to see continued growth in average ticket values. However, our 2024 projections assume same SKU inflation will provide a smaller benefit than we have realized in the last three years.

Brad Batten: Overall price levels were very much, much more stable in 2023, and consistent with our historical practice, we are assuming only modest increases in price levels from this point forward in 2024. As a result, our guidance assumes a minimal tailwind of less than 1% from same-skew inflation, with overall ticket expected to be up low single digits, driven by increased complexity. Before I move on from sales guidance, I would like to highlight our expectation for the quarterly cadence of our sales growth in 2024. On a weekly volume basis, our business is fairly steady in 2023, and we expect our quarterly comparable store sales growth to be relatively even throughout 2024, absent any unforeseen seasonal variability in weather and a minor shift from the timing of the Easter holiday in the first quarter of 2024 versus the second quarter last year. We are pleased to be off to a solid start in 2024, aided by favorable winter weather in January. However, as I mentioned previously, we did not see much of the winter weather benefit in the fourth quarter.

Jeremy Fletcher: Overall price levels were very much much more stable in 2023 and consistent with our historical practice, we are assuming only modest increases in price levels from this point forward in 2024.

Jeremy Fletcher: As a result, our guidance assumes a minimal tailwind of less than 1% from same SKU inflation with overall ticket is expected to be up low single digits driven by increased complexity.

Speaker Change: Before I move on to <unk> sales guidance I would like to highlight our expectation for the quarterly cadence of our sales growth in 2024 on a weekly volume basis, our business is fairly steady in 2023, and we expect our quarterly comparable store sales growth to be relatively even throughout 2024 absent any unforeseen seasonal.

Speaker Change: Variability in weather and a minor shift from the timing of the Easter holiday in the first quarter of 2024 versus the second quarter last year.

Speaker Change: We are pleased to be off to a solid start in 2024 aided by favorable winter weather in January.

Speaker Change: As I mentioned previously we did not see much of the winter weather benefit in the fourth quarter. However, with the arrival of typical winter conditions in January we would now view the weather backdrop as normal and our assumptions underlying our sales guidance for the full year of 2024 does not include any material impacts from weather.

Brad Batten: However, with the arrival of typical winter conditions in January, we would now view the weather backdrop as normal, and our assumptions underlying our sales guidance for the full year of 2024 do not include any material impacts from weather. Now, I'd like to move on to discuss our capital investment and expansion results in 2023, as well as our plans for 2024. Our capital expenditures for 2023 were just over $1 billion, which exceeded the guidance range we updated on last quarter's call and is approximately $200 million above our initial guidance for the year. As we progressed through 2023, we realized incremental opportunities to further invest in our store and distribution network, as well as accelerate our spend on certain initiatives to refresh our vehicle fleet and enhance our store image and appearance. For 2024, we're setting our capital expenditure guidance at $900 million to $1 billion.

Speaker Change: Now I'd like to move on to discuss our capital investment in expansion results in 'twenty three 'twenty three as well as our plans for 2020 for our capital expenditures for 2023 were just over $1 billion.

Speaker Change: Each exceeded the guidance range, we updated our last quarter's call and is approximately $200 million above our initial guidance for the year.

Speaker Change: As we progress through 2023, we realized incremental opportunities to further invest in our store and distribution network as well as accelerate our spend on certain initiatives to refresh our vehicle fleet and enhance our store image and appearance.

Speaker Change: For 2024, we're setting our capital expenditure guidance at $900 million to $1 billion.

Speaker Change: Well, while our expected total capex will approach similar a similar level of spend is 2023, the composition will change somewhat.

Brad Batten: While our expected total CapEx will approach a similar level of spend as in 2023, the composition will change somewhat. A portion of our capital deployment in 2023 was directed at restarting initiatives that were delayed in previous years and accelerating certain projects where we saw an opportunity to improve the image and convenience of our stores. Our 2024 plans anticipate a leveling of capital investment for these types of projects back to a more normalized annual spend. We also expect to see a reduced CapEx spend for new distribution projects in 2024.

Speaker Change: A portion of our capital deployment in 2023 was directed at restarting initiatives that were delayed in previous years and accelerating certain projects, where we saw an opportunity to improve the image and convenience of our stores.

Speaker Change: Our 2024 plans anticipate a leveling of capital investment for these type projects back to a more normalized annual spend.

Speaker Change: We also expect to see a reduced capex spend for new distribution projects. In 2024, we continue to be on track with our ongoing distribution expansion and Brent will provide a status update on these projects in a few moments.

Brad Batten: We continue to be on track with our ongoing distribution expansion, and Brent will provide a status update on these projects in a few moments. While we still have substantial dollars to invest to move these projects forward in 2024, our anticipated investment this year will be below our spend in 2023 based upon the development timelines for new facilities. These planned reductions in CapEx will be largely offset by an increased investment in new stores, as well as continued strategic investments in technology projects and infrastructure.

Speaker Change: While we still have substantial dollars to invest to move these projects forward in 2020 for our anticipated investment this year will be below our spend in 2023 based upon development timelines for new facilities.

Speaker Change: These planned reductions in Capex will be largely offset by an increased investment in new stores as well as continued strategic investments in technology projects and infrastructure.

Brad Batten: Our growth in new store CapEx is being driven by a shift toward owned store growth versus leased stores in our plan for 2024 new store openings and future store development. As we disclosed last quarter, we have established a target of 190 to 200 net new store openings for 2024 spread across multiple markets in the U.S. and Mexico. We continue to be very pleased with the performance of our new stores and are excited about our growth opportunities in both new and existing markets alike. We have a long-held preference for owned properties as we fuel our expansion, and our ability to successfully open stores that increasingly generate higher sales volumes and stronger cash flows is driving enhanced returns on capital invested in our new store growth.

Speaker Change: Our growth in new store Capex is being driven by a shift toward owned store growth versus lease stores in our planned 2024, new store openings in future store development.

Speaker Change: As we disclosed last quarter, we have established a target of 190 to 200 net new store openings for 2024 spread across multiple markets in the U S and Mexico.

Speaker Change: We continue to be very pleased with the performance of our new stores and are excited about our growth opportunities in both new and existing markets alike.

Speaker Change: We have long held preference toward owned properties as we fuel our expansion and our ability to successfully open stores that increasingly generate higher sales volumes and stronger cash flows is driving enhanced returns on capital invested in our new store growth.

Brad Batten: One of the strengths of our company and a key factor in our growth story has been our ability to balance our organic greenfield growth across our geographic footprint while also supplementing our expansion with strategic acquisitions. The most important factor in the success of our new stores is the ability to staff the store with highly trained, professional parts people who live the O'Reilly culture and are committed to providing excellent customer service in their markets. Over the course of our history, we have been very fortunate to join forces with several great companies through acquisitions, and our ability to partner with seasoned professionals who have strong relationships with customers in markets that are new to our company has been paramount to our success. With this in mind, we are thrilled to have completed our acquisition of Group Del Vasto in January and are extremely excited to partner with their experienced leadership team to enter the Canadian market. As noted in our press release in December, the company is headquartered in Montreal, Quebec, Canada, and operates as Vast Auto Distribution.

Speaker Change: One of the strengths of our company and a key factor in our growth story has been our ability to balance our organic greenfield growth across geographic across our geographic footprint, which all while also supplementing our expansion with strategic acquisitions.

Speaker Change: Most important factor in the success of our new stores is the ability to staff the store with highly trained professional parts people, who live the O'reilly culture and are committed to providing excellent customer service and their markets.

Speaker Change: Over the course of our history, we have been very fortunate to join forces with several great companies through acquisitions, and our ability to partner with seasoned professionals, who have strong relationships with customers in markets that are new to our company has been paramount to our success.

Speaker Change: With this in mind, we are thrilled to have completed our acquisition of <unk> in January and are extremely excited to partner with their experienced leadership team to enter the Canadian market.

Speaker Change: As noted in our press release in December the company is headquartered in Montreal, Quebec, Canada and operates as vast auto distribution that auto is a highly respected family owned business founded over 35 years ago with our company culture focused on the core values of hard work and excellent customer service.

Brad Batten: Vast Auto is a highly respected, family-owned business founded over 35 years ago with a company culture focused on the core values of hard work and excellent customer service. They currently operate two distribution centers and six satellite warehouses that support 23 company-owned stores, a network of strategic independent partners, and thousands of professional customers across Eastern Canada. We are still in the very early innings of the planning process for our future expansion in Canada, and there will definitely be more to come as we grow our footprint. But for now, we are very excited to welcome the 500 plus Bass Auto team members to Team O'Reilly.

Speaker Change: They currently operate two distribution centers and six satellite warehouses that support 23 company owned stores, our network of strategic independent partners and thousands of professional customers across eastern Canada.

Speaker Change: We are still in the very early innings of planning of the planning process for our future expansion in Canada, and there will definitely be more to come as we grow our footprint, but for now we are very excited to welcome. The 500, plus last auto team members to team O'reilly.

Brad Batten: In a few moments, Brent will provide additional details on our gross profit and operating profit results, as well as our expectations for 2024, but before I turn the call over to him, I want to highlight our earnings per share guidance we outlined in our press release last night. We have established our EPS guidance for 2024 at $41.05 to $41.55. While we expect the vast auto acquisition to be slightly accretive to our bottom line in 2024, it will not have a material impact on earnings per share. Our 2024 Operating Plans and Earnings and Profitability Outlook reflect our continued commitment to investing in our business to grow market share and drive industry-leading results. We have been pleased with our ability to capitalize on our strong competitive positioning and generate robust sales momentum and will continue to judiciously manage our capital and operating investments to drive long-term growth and high returns.

Speaker Change: In a few moments Brent will provide additional details on our gross profit and operating profit results as well as our expectations for 2024, but before I turn the call over to him I want to highlight our earnings per share guidance, we outlined in our press release last night.

Speaker Change: We have established our EPS guidance for 2024 at $41 five to.

Brent Kirby: It's a $41 55.

Brent Kirby: While we expect the vast auto acquisition to be slightly accretive to our bottom line in 2024, it will not have a material impact on earnings per share.

Speaker Change: Our 2024 operating plans in earnings and profitability outlook reflects our continued commitment to investing in our business to grow market share and drive industry leading results.

Speaker Change: We have been pleased with our ability to capitalize on our strong competitive positioning and generate robust sales momentum and will continue to judiciously manage our capital and operating investments to drive long term growth and high returns.

Brad Batten: Our entire team remains highly committed to our business and our customers, and we are very confident in our ability to build on the strong historical EPS results I outlined at the beginning of our call today. As I wrap up my prepared comments, I would like once again to thank Team O'Reilly for their hard work, dedication, and performance in 2023. Now, I will turn the call over to Bret.

Speaker Change: Our entire team remains highly committed to our business and our customers and we are very confident in our ability to build on the strong historical EPS results I outlined at the beginning of our call today.

Speaker Change: As I wrap up my prepared comments I would like to once again, thank team O'reilly for their hard work dedication and performance in 2023.

Speaker Change: Now I will turn the call over to Brent.

Brent Kirby: Thanks, Brad.

Brent Kirby: Thanks, Brad. I would also like to begin my comments this morning by congratulating Team O'Reilly on another great year in 2023 and welcoming our newest Canadian team members to our great organization. We're thrilled to partner with the vast auto team to enter the Canadian market. Their experienced leadership team and excellent company culture provide a strong foundation for our growth in Canada, and we view this acquisition as an important part of our strategic expansion plan. Today, I will further discuss our fourth quarter and full year operational results and provide some additional color on our outlook for 2024, starting with Gross Margin. Our fourth quarter gross margin of 51.3% was a 47 basis point increase from the fourth quarter of 2022 and at the high end of our expectations. Our full-year gross margin also came in at 51.3%, in line with last year and also at the high end of our guidance range, as a reminder. Our full-year results as compared to 2022 were impacted by the incremental pressure we faced in the first quarter from the final impacts of calendaring our 2022 Professional Pricing Initiative.

Brent Kirby: I'd also like to begin my comments. This morning by congratulating team O'reilly on another great year in 2023, and welcoming our newest Canadian team members to our Great company.

Brent Kirby: We're thrilled to partner with the best auto team to enter the Canadian market.

Brent Kirby: They're experienced leadership team and excellent company culture provide a strong foundation for our growth in Canada, and we view this acquisition as an important part of our strategic expansion plans.

Brent Kirby: Today, I will further discuss our fourth quarter and full year operational results and provide some additional color on our outlook for 2024.

Brent Kirby: Starting with gross margin our fourth quarter gross margin of 51, 3% was up 47 basis point increase from the fourth quarter of 2022 and at the high end of our expectations. Our full year gross margin also came in at 51, 3% inline with last year.

Brent Kirby: And also at the high end of our guidance range.

Brent Kirby: As a reminder, our full year results as compared to 2022 were impacted by incremental pressure, we faced in the first quarter from the final impacts of Calendaring or 2022 professional pricing initiative.

Brent Kirby: Subsequent to the first quarter, our gross margin for the remaining three quarters of the year improved approximately 30 basis points from the comparable period in 2022. We've been pleased with our consistent solid gross margin results, especially in light of the mixed headwind we faced from our outsized strong performance in our professional business. Our supply chain teams, with outstanding support from our supplier partners, have worked diligently to drive improved gross margins through incremental improvements in acquisition cost and distribution efficiency. For 2024, we expect to continue to see further expansion of gross margin as we calendar our gains in 2023 and drive similar incremental improvements as we progress through the year. We have established a guidance range for 2024 of 51 to 51.5 percent, which includes an anticipated 25 basis points of dilution from the inclusion of the acquired vast auto business in our results. As we outlined in our press release, because of our new partner's current mix of lower-margin distribution business to independent parts stores, we're expecting this headwind to consolidate gross margin, but only expect a net impact of 15 basis points to operating profit Since they operate with a lower mix of own stores and associated operating costs.

Brent Kirby: Subsequent to the first quarter, our gross margin for the remaining three quarters of the year improved approximately 30 basis points from the comparable period in 2022.

Brent Kirby: We've been pleased with our consistent solid gross margin results, especially in light of the mix headwind, we faced from our outsized strong performance in our professional business our.

Brent Kirby: Our supply chain teams with outstanding support from our supplier partners have worked diligently to drive improved gross margins through incremental improvements in acquisition cost and distribution efficiencies.

Brent Kirby: For 2024, we expect to continue to see further expansion of gross margin as we calendar our gains in 2023.

Brent Kirby: And drive similar incremental improvements as we progress through the year, we have established a guidance range for 2024 of 51 to 51, 5%.

Brent Kirby: Which includes an anticipated 25 basis points of dilution from the inclusion of the acquired best auto business in our results.

Brent Kirby: As we outlined in our press release because of our new partners current mix of lower margin distribution business. The independent part stores, we're expecting this headwind to consolidated gross margin, but only expect a net impact of 15 basis points to operating profit since they operate with a lower mix of owned stores.

Brent Kirby: And associated operating costs.

Brent Kirby: Excluding the impact of adding the vast auto business are expected gross profit is projected to be up 24 basis points at the midpoint.

Brent Kirby: Excluding the impact of adding the vast auto business, our expected gross profit is projected to be up 24 basis points at the midpoint. This reflects our confidence in the tremendous amount of focus our supply chain, store operations, and sales have on creating a premium value proposition for our customers. Our quarterly gross margin remained very consistent throughout 2023. And we expect a similar quarterly cadence as we move through 2024. While we cannot completely predict what inflation will look like from a macro perspective, our current assumptions also build in a stable inflation environment, both as it relates to our product input costs and selling prices to our customers, as Brad outlined in his comment. During 2023, we saw puts and takes in the costing environment as a result of inflationary pressures broadly experienced by our supply chain partners, offset by our team's efforts to manage acquisition costs effectively. We really view this as a normal state of condition for our industry and expect a similar rational environment in 2024. Our expectations also assume that customer pricing in our industry will remain rational.

Brent Kirby: This reflects our confidence in the tremendous amount of focus our supply chain store operations and sales teams have on creating a premium value proposition for our customers.

Brent Kirby: Our quarterly gross margin remained very consistent throughout 2023.

Brent Kirby: And we expect a similar quarterly cadence as we move through 2024.

Brent Kirby: While we cannot completely predict what inflation will look like from a macro perspective, our current assumptions also built in a stable inflation environment, both as it relates to our product input cost and selling prices to our customers as Brad outlined in his comments.

Brent Kirby: During 2023, we saw puts and takes in the costing environment as a result of inflationary pressures broadly experienced by our supply chain partners.

Brent Kirby: Set by our teams efforts to manage acquisition cost effectively.

Brent Kirby: We really view this as a normal state of condition for our industry and expect a similar rational environment in 2024.

Brent Kirby: Our expectations also assume customer pricing in our industry will remain rational.

Brent Kirby: As pleased as we've been with our incremental improvements to gross margin rate. We're even more excited with our strong gross profit dollar growth, which saw an increase of 10% in 2023 and is projected for solid growth again in 2024.

Bret Jordan: As pleased as we've been with our incremental improvements to the gross margin rate, we're even more excited with our strong gross profit dollar growth, which saw an increase of 10% in 2023 and is projected for solid growth again in 2024. Our consistent strong performance is the direct result of a continued high level of execution of our business model and our unrelenting commitment to providing our customers with the absolute best parts availability in our industry. This competitive advantage is the direct result of our long-term commitment to making sound investments in our supply chain, distribution network, and inventory position. And we're excited about the projects we have underway to continue to enhance our capabilities in 2024. To start on the distribution side of the business, we have three significant projects in development that will add capacity and service levels to our network, and I'd like to provide a quick update on our progress.

Brent Kirby: Our consistent strong performance is the direct result of our continued high level of execution of our business model and our unrelenting commitment to providing our customers with the absolute best parts availability in our industry.

Brent Kirby: This competitive advantage is the direct result of our long term commitment to making sound investments in our supply chain distribution network and inventory position and we're excited about the projects we have underway to continue to enhance our capabilities in 2024.

Brent Kirby: To start on the distribution side of the business. We have three significant projects in development that will add capacity and service levels to our network and I'd like to provide a quick update on our progress.

Brent Kirby: As we have previously disclosed we currently had new distribution centers under construction to relocate our existing Springfield, Missouri, and Atlanta, Georgia, Dcs to larger more efficient facilities.

Bret Jordan: As we have previously disclosed, we currently have new distribution centers under construction to relocate our existing Springfield, Missouri, and Atlanta, Georgia DCs to larger, more efficient facilities. This expanded capacity will enable us to continue to support new store growth in some of our more mature core market areas, as well as support the increase in per store volumes that have grown significantly during the last several years. Both of these projects are on track. We're projecting the Springfield relocation to be complete in the back half of 2024, and we'll begin the process of transferring stores to the new Atlanta facility at the end of this year.

Brent Kirby: This expanded capacity will enable us to continue to support new store growth in some of our more mature core market areas as well as support the increase per store volumes that have grown significantly during the last several years.

Brent Kirby: Both of these projects are on track, we're projecting the Springfield relocation to be complete in the back half of 2024, and we will begin the process of transferring stores to the new Atlanta facility at the end of this year.

Bret Jordan: We're also making great progress on the development of our new Greenfield Distribution Center in Stafford, Virginia, and continue to expect this facility to be operational in the middle of 2025. It will support our expansion into these new untapped market areas for our company. Our distribution strategy directly aligns with the store growth strategy that Brad outlined earlier.

Brent Kirby: We're also making great progress on the development of our new Greenfield distribution Center in Stafford, Virginia.

Brent Kirby: And continue to expect for this facility to be operational in the middle of 2025.

Brent Kirby: It will support our expansion into these new untapped market areas for our company.

Brent Kirby: Our distribution strategy directly aligns with the store growth strategies that Brad outlined earlier and these new facilities will be key drivers of our ability to capture market share in both existing and new markets.

Bret Jordan: And these new facilities will be key drivers of our ability to capture market share in both existing and new markets. In addition to the investments we're making in our distribution centers, we continue to prioritize the opportunities we have to enhance our hub store network, which is the next level of our tiered supply chain model. Our ability to support our stores with quick access to broad, localized SKU availability is an important factor in our ability to effectively compete up and down the street. We continually evaluate this network to ensure all of our stores have the best access to inventory in their respective markets, and we'll adjust the number, location, and size of hub stores as necessary to achieve this goal.

Brent Kirby: In addition to the investments we're making in our distribution centers, we continue to prioritize the opportunities we have to enhance our hub store network, which is the next level of our tiered supply chain model.

Brent Kirby: Our ability to support our stores with quick access to broad localize SKU availability is an important factor in our ability to effectively compete up and down the street.

Brent Kirby: We continually evaluate this network to ensure all of our stores had the best access to inventory in their respective markets.

Brent Kirby: And we'll adjust the number location and size of hub stores as necessary to achieve this goal.

Bret Jordan: Every year, a portion of our capital and operating investment is geared toward this tier in our distribution model, and our plans for 2024 are in line with this continued commitment. Moving on to inventory, our inventory per store at the end of 2023 was $575,000, which was up 4% from the end of last year, driven by our continued opportunistic investments to support our sales momentum. In the coming year, our planned growth and inventory per store corresponds with the growth we will see in our distribution and hub network. For 2024, we expect per store inventory to increase approximately 4% within our existing chain, with the addition of the acquired vast auto inventory resulting in another 1% of per store growth since their model is more heavily weighted to distribution with a lower store count.

Brent Kirby: Every year, a portion of our capital and operating investment is geared toward this year in our distribution model and our plans for 2024 are in line with this continued commitment.

Brent Kirby: Moving on to inventory our inventory per store at the end of 2023 was $575000, which was up 4% from the end of last year driven by our continued opportunistic investments to support our sales momentum.

Brent Kirby: In the coming year, our planned growth in inventory per store corresponds with the growth we will send see in our distribution and hub network for.

Brent Kirby: For 2024, we expect per store inventory to increase approximately 4% within our existing chain with the addition of the acquired vast auto inventory, resulting in another 1% of per store growth since their model is more heavily weighted to distribution with a lower store count.

Bret Jordan: Our growth objectives are focused on adding expanded inventories in our relocated D.C., augmenting the inventory availability in our hub network, and capitalizing on targeted additions in our stores to ensure we're offering the best possible local assortment and inventory availability. Now, I want to spend some time covering our SG&A and operating profit performance in 2023 and our outlook for 2024. Fourth quarter SG&A expense as a percent of sales was 32.6%, 43 basis points from the fourth quarter of 2022 and above our expectations due to higher than expected self-insured auto liability exposure and legal costs driven by inflation and claims costs. Average per store SG&A expenses for the full year of 2023 were up 7.8%.

Brent Kirby: Our growth objectives are focused on adding expanded inventories and our relocated Dcs augmenting the inventory availability in our hub network.

Brent Kirby: And capitalizing on targeted additions in our stores to ensure we are offering the best possible local assortment and inventory availability.

Brent Kirby: Now I want to spend some time covering our SG&A and operating profit performance in 2023, and our outlook for 2024.

Brent Kirby: Fourth quarter SG&A expense as a percent of sales was 32, 6% up 43 basis points from the fourth quarter of 2022 and above our expectations due to higher than expected self insured auto liability exposure and legal costs driven by inflation and claims costs.

Brent Kirby: Average per store SG&A expense for the full year of 2023 were up seven 8%.

Bret Jordan: Slightly above our revised guidance from the third quarter as a result of these same drivers. As we have discussed throughout the year, the outsized year-over-year SG&A growth as compared to our historical growth rate was the result of planned initiatives targeted at enhancing our long-term operational strength through reinvestment in our stores, technology, and our outstanding team. As we look forward to 2024, we're planning to grow average SG&A per store by 4.5 to 5%, with approximately one half of one point of this increase driven by the addition of the vast auto operation. Our anticipated store growth in 2024 is a step down from the significant investment we made in 2023, but it is higher than we would normally forecast in our initial SG&A guidance. It is driven by a few key factors.

Brent Kirby: Slightly above our revised guidance from the third quarter as a result of these same drivers.

Brent Kirby: As we have discussed throughout the year, the outsized year over year SG&A growth as compared to our historical growth rates was the result of planned initiatives targeted at enhancing our long term operational strength through reinvestment in our stores technology and our outstanding team.

Brent Kirby: As we look forward to 2024, we're planning to grow average SG&A per store of about $4, 5% to 5% with approximately one half of one point of this increase driven by the addition of the vast auto operations.

Brent Kirby: Our anticipated store growth in 2024 is a step down from the significant investment we made in 2023, but is higher than we would normally forecast in our initial SG&A guidance driven by a few key factors.

Bret Jordan: Part of our anticipated increase in 2024 SG&A expense is driven by a year-over-year increase in depreciation expense directly related to our increased CapEx spend in both 2023 and 2024. As we calendar past our prior year investments, this headwind will moderate as we move through 2024, especially as our mix of capital spending in 2024 shifts more toward new store investments. The more significant driver of our planned initiative-driven SG&A spend is our continued investment in our technology capability, both in incremental tools and infrastructure. We've been pleased with the impact our IT investments are having on our business and the opportunities we see to support our growth initiatives as we move forward. Based on these expectations and our projected gross margin rate, we're setting our operating profit guidance range at 19.7 to 20.2 percent. As we disclosed in our press release yesterday, this includes an anticipated dilution of 15 basis points from the inclusion of vast autos results in our consolidated guidance.

Brent Kirby: Of our anticipated increase in 2020 for SG&A expense is driven by a year over year increase in depreciation expense directly related to our increased capex spend in both 2023 and 2024 as.

Brent Kirby: As we calendar past our prior year investments this headwind will moderate as we move through 2024, especially as our mix of capital spending in 2024 shifts more towards new store investments.

Brent Kirby: The more significant driver of our planned initiative driven SG&A spend is our continued investment in our technology capabilities.

Brent Kirby: Both and incremental tools and infrastructure.

Brent Kirby: We've been pleased with the impact our it investments are having on our business and the opportunities we see to support our growth initiatives as we move forward.

Brent Kirby: Based on these expectations and our projected growth margin rate gross margin rate, we're setting our operating profit guidance range at $19, 7% to 22%.

Brent Kirby: As we disclosed in our press release yesterday. This includes an anticipated dilution of 15 basis points from the inclusion of vast autos results in our consolidated guidance.

Bret Jordan: Excluding that impact, our guidance for 2024 brackets our 2023 results with the midpoint of our expected operating profit range down significantly from last year, based on the anticipated cadence of our SG&A growth during the year. We expect more pressure on operating profit in the first half of the year than the back half. As Brad previously mentioned, we are highly committed to growing our share of the market and driving industry-leading results. Before I close my comments, I want to join Brad in expressing the privilege it was to spend time with our company leaders at our annual leadership conference in January. Our team certainly had much to celebrate given their outstanding performance in 2023, but it was evident that our team was not satisfied with resting on our past success.

Brent Kirby: Excluding that impact our guidance for 2024 brackets, our 2023 results with the midpoint of.

Brent Kirby: Our expected operating profit range down slightly from last year.

Brent Kirby: Based on the anticipated cadence of our SG&A growth during the year.

Brent Kirby: We expect more pressure to operating profit in the first half of the year than the back half.

Brent Kirby: As Brad previously mentioned, we are highly committed to growing our share of the market and driving industry leading results.

Brent Kirby: Before I close my comments I want to join Brad in expressing the privilege. It was to spend time with our company leaders at our annual leadership conference in January.

Brent Kirby: Teams certainly had much to celebrate given their outstanding performance in 2023.

Brent Kirby: But it was evident that our team is not satisfied with the resting on our past success, rather they are intensely focused on providing excellent customer service and continuing to grow market share in 2024 and beyond.

Bret Jordan: Rather, they are intensely focused on providing excellent customer service and continuing to grow market share in 2024 and beyond. Now, I will turn the call over to Jeremy. Thanks, Brent. I would also like to congratulate Team O'Reilly on another outstanding year.

Brent Kirby: Now I will turn the call over to Jeremy.

Jeremy Fletcher: Thanks, Brent I would also like to congratulate team O'reilly on another outstanding year now we will fill in some additional details on our fourth quarter results and guidance for 2024.

Jeremy Fletcher: Now, we will fill in some additional details on our fourth quarter results and guidance for 2024. For the fourth quarter, sales increased $188 million, driven by a 3.4% increase in comparable store sales and a $71 million non-comp contribution from stores opened in 2022 and 2023 that have not yet entered the comp base. For 2024, we expect our total revenues to be between $16.8 and $17.1 billion. Our guidance for total revenues includes the benefit of leak day in 2024, but this additional day will not be included in our comparable store sales calculation consistent with our historical practice. Our fourth quarter effective tax rate was 17.7% of pre-tax income, comprised of a base rate of 18.9%, reduced by a 1.2% benefit for share-based compensation.

Jeremy Fletcher: For the fourth quarter sales increased $188 million driven by a three 4% increase in comparable store sales and a $71 million non comp contribution from stores opened in 2022, and 2023 that have not yet entered the comp base.

Brent Kirby: For 2024, we expect our total revenues to be between 16, eight and $17 1 billion.

Brent Kirby: Our guidance for total revenues includes the benefit from leap day in 2024, but this additional day will not be included in our comparable store sales calculation consistent with our historical practice.

Brent Kirby: Our fourth quarter effective tax rate was 17, 7% of pretax income.

Brent Kirby: Comprised of a base rate of 18, 9% reduced by a one 2% benefit for share based compensation.

Jeremy Fletcher: This compares to the fourth quarter of 2022 rate of 18.2% of pre-tax income, which was comprised of a base tax rate of 19.9% reduced by a 1.7% benefit from share-based compensation. The fourth quarter of 2023 base rate, as compared to 2022, was lower as a result of an increase in certain federal and state tax credits. For the full year, our effective tax rate was 21.9% of free tax income, comprised of a base rate of 23.1%, reduced by a 1.2% benefit for share-based compensation.

Brent Kirby: This compares to the fourth quarter of 2022, right at 18, 2% of pretax income.

Brent Kirby: Which was comprised of a base tax rate of 19, 9% reduced by a one 7% benefit from share based compensation.

Brent Kirby: The fourth quarter of 2023 base rate as compared to 2022 was lower as a result of an increase in certain federal and state tax credits.

Brent Kirby: For the full year, our effective tax rate was 21, 9% of pretax income comprised of a base rate of 23, 1% reduced by a one 2%.

Brent Kirby: The benefit for share based comp compensation for the full year of 2024, we expect an effective tax rate of 22, 6%.

Jeremy Fletcher: For the full year of 2024, we expect an effective tax rate of 22.6%, comprised of a base rate of 23.1%, reduced by a benefit of 0.5% for share-based compensation. We expect the fourth quarter rate to be lower than the other three quarters due to the tolling of certain tax periods. Also, variations in the tax benefit from share-based compensation can create fluctuations in our quarterly tax rate.

Brent Kirby: Price of a base rate of 23, 1% reduced by a benefit of 0.5% for share based compensation.

Brent Kirby: We expect the fourth quarter rate to be lower than the other three quarters due to the tolling of certain tax periods also variations in the tax benefit from share based compensation can create fluctuations in our quarterly tax rate.

Jeremy Fletcher: Now we will move on to free cash flow and the components that drove our results in 2023 and our expectations for 2024. Free cash flow for 2023 was $2 billion versus $2.4 billion in 2022. The decrease of $383 million was the result of the increased capital expenditures Brad discussed earlier, as well as an increase in net inventory in 2023 versus the substantial working capital reduction in net inventory we realized in 2022. These headwinds were partially offset by growth in income and a benefit from favorable timing of tax payments and dispersal for the Renewable Energy Tax Credit.

Brent Kirby: Now, we will move on to free cash flow and the components that drove our results in 2023 and our expectations for 2024.

Brent Kirby: Free cash flow for 2023 with $2 billion.

Brent Kirby: Versus $2 4 billion in 2022 the.

Brent Kirby: The decrease of $383 million.

Brent Kirby: Was the result of the increased capital expenditures, Brad discussed earlier as well as an increase in net inventory in 2023 versus the substantial working capital reduction in net inventory we realized in 2022.

Brent Kirby: These headwinds were partially.

Brent Kirby: Offset by growth in income and a benefit from favorable timing of tax payments and disbursements for renewable energy tax credits.

Jeremy Fletcher: For 2024, we expect free cash flow to again be in the range of $1.8 to $2.1 billion. We anticipate the benefit to free cash flow from growth and operating income will be offset by a headwind as we compare to the benefit we realized in 2023 from favorable timing of tax payments and purchases of renewable energy tax credits. As Brad and Brent discussed in their prepared comments, in 2024, we have planned for capital expenditures and inventory growth at similar levels to the investments we made in 2023, and as a result, we expect a comparable impact on free cash flow. I also want to touch briefly on the component of our net inventory driven by our APD inventory ratio. We finished the fourth quarter at 131%, which was lower than the rate we saw through much of 2023.

Jeremy Fletcher: For 2024, we expect free cash flow to again be in the range of one eight to $2 1 billion.

Brent Kirby: We anticipate the benefit to free cash flow from growth in our operating income will be offset by a headwind as we compare to the benefit we realized in 2023 from favorable timing of tax payments and purchases of renewable energy tax credits.

Brent Kirby: As Brad and Brent discussed in their prepared comments in 2024, we have plan for capital expenditures and inventory growth at similar levels to the investments we made in 2023.

And as a result, we expect that comparable impact to free cash flow.

Brent Kirby: I also wanted to touch briefly on the component of our net inventory driven by our AP to inventory ratio.

Jeremy Fletcher: We finished the fourth quarter at 131%, which was reduced from the rate we saw through much of 2023.

Jeremy Fletcher: This moderation in AP reflects the timing impact of payments associated with the substantial inventory purchases we made at the end of 2022 to support our strong sales volumes and significant inventory additions as we exited last year. For 2024, we expect to see continued moderation and an impact from our Canadian acquisition and currently expect to finish the year at a ratio of approximately 127 percent. Moving on to debt, we finished the fourth quarter with an adjusted debt-to-EBITDA ratio of 2.03 times, as compared to our end-of-2022 ratio of 1.84 times, with the increase driven by our successful issuance of $750 million of three-year senior notes in November and borrowings under our commercial paper program, partially offset by the June retirement of $300 million of maturing notes.

Jeremy Fletcher: This moderation in AP reflects the timing impact of payments associated with this substantial inventory purchases. We made at the end of 2022 to support our strong sales volumes and significant inventory additions as we exited last year.

Brent Kirby: For 2024, we expect to see continued moderation and an impact from our Canadian acquisition and currently expect to finish the year at a ratio of approximately 127%.

Brent Kirby: Moving on to debt, we finished the fourth quarter with an adjusted debt to EBITDAR ratio of 2.03 times as compared to our end of 2022 ratio of 184 times with the increase driven by our successful issuance of $750 million of three year senior notes in November.

Jeremy Fletcher: And borrowings under our commercial paper program.

Brent Kirby: Partially offset by the June retirement of $300 million of maturing notes.

Jeremy Fletcher: We continue to be below our leverage target at 2.5 times and plan to prudently approach that number over time. We continue to be pleased with the execution of our share repurchase program, and for 2023, we repurchased 3.6 million shares at an average share price of $883.13 for a total investment of $3.2 billion. Since the inception of our share repurchase program in 2011, we have repurchased 94 million shares at an average share price of $247, for a total investment of $23.3 billion.

Jeremy Fletcher: We continue to be below our leverage target of two five times and plan to prudently approach that number over time.

Jeremy Fletcher: We continue to be pleased with the execution of our share repurchase program and for 2023, we repurchased three 6 million shares at an average share price of $883 13.

Brent Kirby: For a total investment of 33.

Jeremy Fletcher: $3 2 billion.

Jeremy Fletcher: Since the inception of our share repurchase program in 2011, we have repurchased 94 million shares at an average share price of $247.

Jeremy Fletcher: For a total investment of $23 3 billion.

Jeremy Fletcher: We remain very confident that the average repurchase price is supported by the expected discounted future tax flows of our business, and we continue to view our buyback program as an effective means of returning excess capital to our shareholders. As a reminder, our EPS guidance Brad outlined earlier includes the impact of shares repurchased through this call but does not include any additional share repurchase. Before I open up our call to your questions, I would like to thank the entire O'Reilly team for their dedication to our company and our customers. Your hard work and commitment to excellent customer service continue to drive our outstanding performance. This concludes our prepared comments. At this time, I would like to ask Matthew, the operator, to return to the line, and we will be happy to answer your questions. Thank you. We will now begin the question and answer session. If you have a question, please press star 1 on your remote control. If you wish to be removed from the queue, please press start.

Jeremy Fletcher: We remain very confident that the average repurchase price is supported by the expected discounted future cash flows of our business and we continue to view our buyback program as an effective means of returning excess capital to our shareholders. As a reminder, our EPS guidance Brad outlined earlier includes the impact of shares repurchased.

Brent Kirby: Through this call, but does not include any additional share repurchases.

Speaker Change: Before I open up our call to your questions I would like to thank the entire O'reilly team for their dedication to our company and our customers your hard working commitment to excellent customer service continues to drive our outstanding performance.

Jeremy Fletcher: This concludes our prepared comments at this time I would like to ask Matthew the operator to return to the line and we will be happy to answer your questions.

Speaker Change: Thank you we will now begin the question and answer session. If you have a question. Please press star one on your phone.

Jeremy Fletcher: If you wish to be removed from the queue. Please press star two.

Jeremy Fletcher: We ask that we're posing your question. Please pickup your handset if you're on speaker phone to provide optimum sound quality.

Operator: We ask that while you're posing your question, please pick up your handset if you're on speakerphone to provide optimum sound quality. Please limit your questions to one question and one follow-up. Again, if you have any questions, please press star 1 on your...

Operator: Please limit your questions to one question and one follow up question.

Speaker Change: Once again, if you have any questions. Please press star one on your phone.

Operator: Your first question is coming from Scot Ciccarelli from true Securities. Your line is live.

Scot Ciccarelli: Your first question is coming from Scot Ciccarelli from Truist Securities. Your line is live. Hey, good morning. This is Josh speaking on behalf of Scott.

Josh: Hey, Good morning, this is Josh young on for Scott.

Brad Batten: As we look at 24, how are you thinking about the sustainability of the growth rates you've been putting up on the commercial side of the business? And then as we think about the transaction growth and commercial, would you attribute it more to doing business with new customers? Or is that coming more from WalletShare? Yeah, hey, Josh. It's Brad.

Scot Ciccarelli: As we look for how are you thinking about the sustainability of the growth rates, you've been putting up on the commercial cyber commercial side of the business and then as we think about the transaction growth in commercial would you attribute it more to doing business with new customers or is that coming more from wallet share with existing accounts.

Brad Batten: Yeah, Hey, good morning, Josh It's Brad I'll kick this off and see if you guys have anything else, but you know.

Brad Batten: I'll kick this off and see if the guys have anything else. But, you know, as I think, you know, we have a lot of moving pieces this year, you know, we're going up against a huge performance last year in 2023. On top of everything, we generated, you know, with mid teens comp sales growth on the professional side the last three years. So I want to be a little bit careful talking about the sustainability of that as a percentage, you know, as our bases continue to get bigger. You know, again, there's a lot of moving pieces in 2024. We want to be a little bit cautious about everything going on in 24.

Brad Batten: As I think you know.

Brad Batten: There's a lot of moving pieces this year, we're going up against the.

Brad Batten: Huge.

Brad Batten: Performance last year in 2023 on top of everything we generated with mid teens comp sales growth on the professional side. The last three years, so I want to be a little bit careful talking about the sustainability of that as a percentage as our basis continue to get bigger again theres a lot of moving pieces in 2024, we want to be a.

Brad Batten: Little bit cautious of everything going on in 'twenty four but.

Brad Batten: But what I can talk to you about from an absolute confidence perspective, is our ability to continue to outcomp the market and continue to take share, especially on the professional side of the business, you know, we couldn't be more confident in our team's ability to continue to drive share gains on the professional side. As you know, that side of the business is still extremely fragmented. And, you know, we have a lot of initiatives in place, as well as just our fundamental everyday execution that we've always had to make sure we continue to drive share gains here in 2024. In terms of the transaction part of it, Josh, I would say it's probably a combination of both, you know, when we think about the makeup of our professional business, and you think of, you know, kind of how we're always working on that, working up that call list, you know, we're always going to be focused on new business, you know, there's customers out there, even in existing markets, that still don't buy hardly anything from us, simply because of the relationship they have with somebody else.

Brad Batten: But what I can talk to you about from an absolute confidence perspective is our ability to continue to out comp the marketing continuing to take share, especially on the professional side of the business. We couldnt be more confident in our team's ability to continue to drive share gains on the professional side as you know that side of the business is still extremely.

Brad Batten: Dreaming fragmented and we have a lot of initiatives in place as well as just our fundamental everyday execution that we've always said to make sure. We continue to drive share gains here in 2024 in terms of the transaction part of it Josh I would say, it's probably a combination of both when we think about the makeup of our.

Brad Batten: <unk> business and you think of kind of how we're always working on that working up that call list.

Brad Batten: We're always going to be focused on new business, there's customers out there even in existing markets that still don't buy hardly anything from this be simply because of the relationship they have with somebody else and.

Brad Batten: And, you know, that business and those relationships are built over time, but we're out there chipping away at it every day. And so, you know, we have that business that we're not doing today. And when, you know, Brent and I and Jeremy look at our performance on the professional side, we're seeing fairly balanced growth, both with existing customers and new ones, and we feel like that is going to continue for the foreseeable future. I got it.

Brad Batten: That business and those relationships has built over time, but we're out there chipping away on it every day and so we have that business that we're not doing today in mobile when Brent nine Jeremy look at our performance on the professional side, we're seeing fairly balanced growth, both with existing customers and new and we feel like that is going to continue for the.

Brad Batten: Seeable future.

Speaker Change: Got it very helpful. Thanks, and then just this year you obviously had the elevated SG&A growth on that investment spending.

Brad Batten: Very helpful. Thanks. And then just this year, you obviously had the elevated SG&A growth on that investment spending. And it sounds like that may be the case again in 24.

Brad Batten: It sounds like that may be the case again in 2004 can you just give us some more color on where your biggest remaining investment opportunities are and do you think can be finished with this sort of accelerated investment cycle by the end of this year.

Brad Batten: Can you just give us some more color on where your biggest remaining investment opportunities are? And do you think you'll be finished with this sort of accelerated investment cycle by the end of this year? Yeah, I'll take that, Josh. And again, see if the guys have anything else. You know, obviously, a very fair question.

Speaker Change: Yeah, I'll take that Josh again see if you guys have anything else you know obviously, a very fair question.

Brad Batten: You know, as we talked through the quarters in 2023, you know, we continue to see opportunities to play from our position of strength. You know, we're always thinking about the long game when it comes to making sure that we're driving the profitability of our business through sustained, you know, share gains. We talked about it a minute ago. Really, as we said a couple times last year, you know, we had the question, "Is this going to continue in 2024?". And our answer has been the entire time that, you know, we're going to wait and see and see how we feel about the continued ability for us to capitalize on some of the volatility that's happening with some weaker competitors. And, as you've seen, you know, that's still how we feel.

Speaker Change: As you know as we talked through the quarters in 2023, we continue to see opportunities to play from our position of strength, we're always thinking about the long game when it comes to making sure that we're driving the profitability of our business through sustained share.

Brad Batten: Share gains that we talked about it a minute ago.

Brad Batten: Really as we said a couple of times last year. We had the question is just going to continue in 2024, and our answers than the entire time that we're going to wait and see and see how we feel about the continued ability for us to capitalize on some of the volatility thats happening with some weaker competitors and as you've seen that's still how we feel.

Brad Batten: You know, really, when we look up, look at the makeup of that, you know, we're obviously a rifle approach when it comes to, you know, our store payroll and how we manage that each and every day. We're also still taking a rifle approach on making sure those staffing levels really affect both sides of our business on the share gains; we want to make sure that we continue to staff for that, you know, really the makeup that Brent just talked about, you know, really how we're seeing that is, you know, the biggest driver that is going to be our continued investments in tech. And how we're thinking about that is pretty simple.

Brad Batten: Really when we look up look at the makeup of that.

Brad Batten: We're obviously rifle approach when it comes to our store payroll and how we manage that each and every day. We're also still rifle approach on making sure those staffing levels.

Brad Batten: To to really affect both sides of our business on the share gains we want to make sure that we continue to staff for that.

Brad Batten: Really the makeup that Brent just talked about.

Brad Batten: Really how we're seeing that is the biggest driver of that is going to be our continued investments in tech and how we're thinking about that is pretty simple.

Brad Batten: You know, we have had an amazing run for the last many years, but we're not looking backwards; we're looking forward to the next many years of our business. You know, we only own 10% of the market in the U.S., and so we have an extreme opportunity to make some of these investments when it comes to technology and specifically in the form of, how are we going to help our frontline team members provide better customer service? How are we going to remove friction from the customer experience, both with our DIY customers and our professional customers?

Brad Batten: We have had an amazing run the last many years, but we're not looking backwards. We're looking at the next many years of our business.

Brad Batten: We only own 10% of the market in the U S and so we have an extreme opportunity to get after some of these investments when it comes to technology and specifically in the in the form of how are we going to help our frontline team members to give better customer service how are we going to remove friction from the customer experience both with our DIY customers.

Brad Batten: And our professional customers and so we feel extremely good about those investments in SG&A and we felt like.

Brad Batten: And so, you know, we feel extremely good about those investments in SG&A, and we feel like, you know, there's things we could do. Josh, you know, here for the short term to drive down SG&A, but that wouldn't be the right thing to do, knowing we only own 10% of the market and knowing that we're playing the long game. And the only thing I would add, Josh, to Brad's comments, especially as it relates to the tech investments. Everything we invest in, to Brad's point, we're playing the long game, but we invest through a filter of expecting a return on it, and a return in the marketplace, and an outsized return with our customer base. So that's the lens we look through when we make those investments. Great. A very helpful caller.

Brad Batten: There's things we could do Josh here for the short term to drive drive down the SG&A, but that wouldn't be the right thing to do knowing we only own 10% of the market and knowing that we're playing the long game here.

Speaker Change: Yeah, and the only thing I would add just to brad's comments, especially as it relates to the tech investments are.

Brad Batten: We invest in de Brad's point, we're playing the long game, but we invest through a filter of expecting a return on it.

Brad Batten: And our return in the marketplace and then outsized return with our customer base. So that's the lens, we look through when we make those investments.

Speaker Change: Great very helpful color. Thanks, guys.

Brad Batten: Thanks, guys. Thank you. Thank you. Your next question is coming from Kate McShane from Goldman Sachs. Your line is live. Hi, good morning.

Speaker Change: Yes. Thank you.

Kate Mcshane: Thank you. Your next question is coming from Kate Mcshane from Goldman Sachs. Your line is live.

Kate Mcshane: Hi, good morning, Thanks for taking our question.

Kate Mcshane: Thanks for taking our question. We wondered if you could talk a little bit more about the change to more owned retail and can you walk us through what that means for the availability of cash for share buybacks over the longer term? Yeah, hi, Kate. Good morning. This is Jeremy.

Kate Mcshane: I Wonder if you could talk a little bit more about the teams more owned retail and can you walk us through what that means for availability of cash for share buybacks over the longer term.

Kate Mcshane: Yes, hi, good morning. This is Jeremy great question.

Jeremy Fletcher: Great question. You know, it's been kind of an interesting transition over a lot of our history as a company; we've always had a preference or a bias towards owning properties. We feel like that long-term investment in our ability to get compounding returns out of an increasing store basis is an attractive part of how we're able to deploy capital for our shareholders and invest back in our business. And, and we've spoken, you know, kind of, gosh, over the long course of time, especially as we moved to sort of our current capital structure in 2011, and started to dial up our share buyback, we've been consistent around how we think about the prioritization of our use of capital.

Jeremy Fletcher: It's been kind of an interesting transition over a lot of our of our history as a company. We've always had a preference of our bias towards owned properties, we feel like that that long term investment and our ability to gate compounding returns out of an increasing store basis is an attractive part of how we are able to.

Jeremy Fletcher: Deploy capital for our shareholders.

Jeremy Fletcher: Invest back in our business and we've spoken kind of gosh over the long course of time, especially as we move to sort of our current capital structure in 2011.

Jeremy Fletcher: And started to dial up our share buyback we've been consistent around how we think about the prioritization of our use of capital in the first part of that has always been within our existing operations and how we think about funding.

Jeremy Fletcher: And the first part of that's always been within our existing operations and how we think about funding, the things that are going to make our existing stores better. And then as we focus on growth, we know that that's been a very valuable engine for a long period of time for our shareholders. You know, that's always been tempered a little bit by what are the best opportunities and things that are available within our market. And so we've always had a balance.

Jeremy Fletcher: The things that are going to make our existing stores to be better and then as we focus on growth we know that.

Jeremy Fletcher: That's been a very valuable engine for long course of time for our shareholders.

Jeremy Fletcher: That's always been tempered a little bit by what are the best opportunities and things that are available within our market and so we've always had a balance.

Jeremy Fletcher: You know, as we've worked through the last few years, we've seen the economics on those investments improve really on both sides, but for sure, as we own those properties, and the per store volumes and our profitability per store have improved, there's an even, I think, more powerful value creation mechanism there as we invest in our own stores. And I think that's helped. I think, you know, there's also been an ability to identify those properties within the marketplace that has been a little bit easier.

Jeremy Fletcher: As we as we work through the last few years.

Jeremy Fletcher: We've seen the economics on those investments improve really on both sides, but for sure as we own those properties is the per store volumes and our profitability per store have improved there is.

Jeremy Fletcher: And even I think more powerful value creation mechanism there as we invest in our own stores and I think that's helped I think theres also been.

Jeremy Fletcher: <unk> ability to.

Jeremy Fletcher: Identify those properties within the marketplace that has been it has been a little bit easier. So so those have been the driving factors and it's obviously been moving that that direction for at least some period of time you don't you don't make those decisions for the next year.

Jeremy Fletcher: So, those have been the driving factors. And it's obviously been moving in that direction for at least some period of time. You don't, you know, you don't make those decisions for the next year at the beginning of the year that they've been in play. But, but for us, for this year, you know, we would expect, instead of being around 40% of owned new stores in our mix to be closer to 60% for the year, and feel like that that's a positive thing, you know, in terms of how it affects our ability to deploy cash from a share buyback perspective. Obviously, at the increments, it's going to be less dollars that we would allocate to that. But that's Yeah, and Kate, I may just jump in.

Speaker Change: At the beginning of the year, they've been in play, but but for US for this year, we would expect instead of being around 40% of owned new stores in our mix to be closer to 60% for the year and feel like that that's a positive thing.

Speaker Change: Terms of how it affects our ability to deploy cash from a share buyback perspective, obviously at the increments.

Jeremy Fletcher: <unk> be less dollars that we would allocate to that but that's also in line with our historical priorities around uses of capital and Kate I May just jump in this is Brad Jeremy did a great job kind of really frame. It up your the answer to your question. The one thing I would highlight and just reiterate from what Jeremy said was how incredibly.

Brad Batten: This is Brad, Jeremy did a great job, you know, kind of really framing up your the answer to your question, the one thing I would highlight, and just reiterate from what Jeremy said was how incredibly impressed we are with our ability to open new stores, our team is just doing from from site acquisition, all the way through the build, all the way through the store execution, and our field teams ability to build the right team with a great store manager, professional parts people, we are just incredibly pleased with our new store performance, both in backfill markets in kind of the center part of the country in our existing footprint, as well as our new new greenfield markets. Thank you. Thanks, Kate. Thanks, Kate. Your next question is coming from Mike Baker from DAD. Your line is live.

Brad Batten: Impressed we are with our ability to open new stores. Our team is just doing from site acquisition all the way through the build all the way through the store execution and our field team's ability to build the right team with a great store major professional parts people, we're just incredibly poor.

Brad Batten: Pleased with our new store performance, both in backfill markets in kind of the center part of the country and our existing footprint as well as our new Greenfield markets.

Brad Batten: Okay.

Mike Baker: Thank you.

Mike Baker: Thanks, Ken Thanks, Dave Okay.

Brad Batten: Your next question is coming from Mike Baker from D. A Davidson your line is live.

Mike Baker: Alright, great. Thanks can you sort of alluded to it but a little more color on the competitive <unk>.

Mike Baker: Alright, great, thanks. Can you, you sort of alluded to it, but a little more color on the competitive situation. You guys have been pretty big market share gainers if you just look at your comps versus competitors, or even your comps versus, I don't know if you look at the NAICS data, sales through automotive supply in tire stores. With your comps a little bit lower this quarter because of tough comparisons, you are a little bit below that industry data. I'm wondering if there's anything changing in your view in terms of the competitive situation or market ability to take market share or anything along those lines. Thanks. Hey, good morning, Mike. It's Brad.

Brad Batten: Situation you guys have been pretty big market share gainers. If you just look at your comps versus competitors or even your comps versus I don't know if you look at the Nics data.

Brad Batten: Sales through automotive.

Brad Batten: Supply and tire stores.

Brad Batten: With your comps a little bit lower this quarter because of the tough comparisons that you are a little bit below that industry data I'm wondering if there's anything changing.

Brad Batten: In your view in terms of competitive situation or markets ability to take market share or anything along those lines. Thanks.

Mike Baker: Hey, good morning, Mike, It's Brad I'll take a stab at that so maybe just to answer your question directly on the NII Ics data.

Brad Batten: I'll take a stab at that. So maybe just to answer your question directly on the NAICS data, you know, we, in our business, at least at O'Reilly, have never been able to tie that out exactly to correlate the way that some do. Not to say directionally, there's not something there.

Brad Batten: In our business at least at O'reilly have never been able to tie that out exactly to correlate the way that that some do not to say directionally theres not something there, but we.

Brad Batten: But we haven't seen anything change in the competitive dynamic, you know, as we look at our performance in Q4 by month. And, you know, Mike, I spent a lot of time just looking at the outputs from our CRM tool that our sales team uses out in the field. And listen, you know, those independent competitors that you know very well, I mean, they're incredibly well-run. You know, we have a tremendous amount of respect for those WDs, the independents, the two-steppers. They do an incredible job, and they're honestly our toughest competitor.

Brad Batten: We haven't seen anything change in the competitive dynamic as we look at our performance in Q4 by month.

Brad Batten: Hi.

Brad Batten: Mike I spent a lot of time, just looking at the outputs from our CRM tool that our sales team has out in the field and listen those independent competitors that you know very well.

Brad Batten: They are incredibly well ramp that we have a tremendous amount of respect for those W. DS the independents. The two steppers they do an incredible job and there are honestly, our toughest competitor and they hold the most market share when we look at the total addressable market on the professional side of our business that they are great competitors.

Brad Batten: And they hold the most market share when we look at the total addressable market on the professional side of our business. That said, there's been nothing that we see that has pointed to anything that has been a step change or anything different. But they were tough all year last year, and they, you know, continue to be tough in Q4. And so I wouldn't tie that directly to what you're seeing in that data. We just aren't seeing that.

Brad Batten: That said Theres been nothing that we see that as pointed anything that is has been a step change or anything different that they were tough all year last year.

Brad Batten: We continue to be tough in Q4 and so.

Brad Batten: Tie that directly to what you are seeing that data, we just really are seeing that.

Brad Batten: Okay.

Brad Batten: Okay, Mike, Mike, this is Brent. I would add to everything Brad said and also add that we continue to see a very rational pricing environment out there amongst the competition. And, you know, as it relates to our ability to continue to win, when it comes down to professional parts, people, and parts availability and service, we feel very good with our proposition going forward. Okay, that makes sense.

Brad Batten: Michael Mike This is Brian I would add to everything Brad said I would also add that we continue to see a very rational pricing.

Brad Batten: Pricing environment out there amongst the competition.

Brad Batten: As it relates to our ability to continue to win when it comes down to professional parts people in parts availability and service, we feel very good with our proposition going forward.

Brad Batten: Okay that makes sense.

Mike Baker: Another follow-up to something you said, you talked about the operating profit pressure being a little bit greater in the first half, but gross margins relatively consistent, and comps relatively consistent, so presumably the SG&A is a little bit higher in the first half. Is that just timing of when you're adding some investments or more store labor in the first half of the year versus the second half? Just curious what would cause that to occur.

Brad Batten: Another follow up to something you said you talked about the operating.

Mike Baker: Profit pressure to be a little bit greater in the first half, but gross margins relatively consistent.

Mike Baker: Comps relatively consistent so presumably the SG&A is a little bit higher in the first half is that just timing of when you're adding some investments or more store labor in the first half of the year versus second half just just curious what would what would cause that to occur.

Speaker Change: No Mike, it's really a little bit more of the impact of the investments we made throughout 2023.

Jeremy Fletcher: No, Mike, it's really a little bit more of the impact of the investments we made throughout 2023. And especially those Some of those capital investments, you know, thinking about things like, you know, the rollout of our store fleet or the ability to get all the way through all of our stores with our LED lighting upgrade, the timing of how those investments float in, in, in the prior year and the depreciation impact of that means that we've got, you know, some compare noise that would hit us a little bit heavier in the first part of our year There is also some degree of timing for some of the technology investments that Brent spoke about that is the cadence of what that looks like. So that's the reason for that, I guess, commentary around how we would expect cadence to look.

Jeremy Fletcher: Especially as those some of those capital investments.

Jeremy Fletcher: Thinking about things like the rollout of our store fleet or ability to get all the way through all of our stores with our led lighting upgrades the timing of how those investments flowed in.

Jeremy Fletcher: In the prior year and the depreciation impact of that means that we've got some compare some compare noise that would hit us a little bit heavier in the first part of our year. There's also some degree of timing of some of the technology investments that Brian spoke to that is the cadence of what that looks like.

Jeremy Fletcher: So that's that's the reason for that I guess commentary around how we would expect cadence to look.

Mike Baker: Yep, makes perfect sense. Alright, I appreciate the call. Thank you. Thanks, Mike. Thank you. Your next question is coming from Michael Lasser from UBS. Your line is live. Good morning.

Mike Baker: Yes makes perfect sense, all right I appreciate the color. Thank you.

Michael Lasser: Thanks, Mike Thanks, Mark.

Mike Baker: Thank you. Your next question is coming from Michael Lasser from UBS. Your line is laws.

Michael Lasser: Good morning. Thank you so much for taking my question.

Michael Lasser: Thank you so much for taking my question. As you set your guidance for 3-5% comp growth for the year, what have you assumed about the industry growth rate and your ability to take share within the industry? Have you assumed that, basically, you will grow your share at the same rate that you did in 2023? Hey, good morning, Michael. Great question.

Michael Lasser: Do you think youre, gaining Michael redefine good morning, as you set your guidance for 3% to 5% comp growth for the year. What have you assumed about the industry growth rate in your ability to take share within the industry have you assumed that essentially you will grow your share gain right.

Speaker Change: You did in 2023.

Speaker Change: Hey, Good morning, Michael Great question, we appreciate it so.

Brad Batten: We appreciate it. So, um, kind of, kind of, obviously, we want to balance our confidence and our ability to continue to take share, to continue to outcompete the market, and on both sides of the business, not just professional. You know, as I said earlier, I think maybe Brent and I both did, you know, we see 2024, generally, as a quote, unquote, normal year. Now, you know, what's the definition of normal?

Brad Batten: Got it kind of obviously, we want to balance our confidence in our ability to continue to take share to continue to out comp the market both sides of the business not just professional.

Brad Batten: As I said earlier, I think maybe Brent and I. Both did we see 2024 generally.

Brad Batten: As an overall market is more of a quote unquote normal year now whats the definition of normal.

Brad Batten: You know, you look back at the last many years and how much volatility, how much opportunity, how many things have happened, you know, kind of previous to COVID, you know, we generally think that a normal year, based on all our history, all our decades of doing this, that a normal year for the industry is probably more in that, you know, two, two to 3% range. And so, you know, I think that ties into kind of what we're saying with our guide. Again, you know, like, like, Michael, you know. We always say we're not very good at predicting the future. And it's hard to say exactly what the future holds for the industry in 2024.

Brad Batten: Look back if you look back at the last many years and how much volatility how much opportunity how many things have happened.

Brad Batten: Previous to Covid.

Brad Batten: We generally think that a normal year based upon all of our history. All our decades of doing this that a normal year for the industry is probably more than that.

Brad Batten: Two.

Brad Batten: 2% to 3% range and so I think that ties into kind of what we're saying with our guide.

Brad Batten: <unk>.

Brad Batten: You know Michael we always say, we're not very good at predicting the future and it's hard to say exactly what the what the future holds for the industry in 2024, but I think I would generally point you to that kind of 2% to 3% range.

Brad Batten: But I think I would generally point you to that kind of two to 3% range. Michael, the only thing I would add to that is, Michael, the only thing I would add to that is, you know, if you have to ask the question, do we think our market share gains will be as strong in 2024 as they were in 2023? The answer, obviously, is no.

Brad Batten: Michael the only thing I would add.

Speaker Change: Michael the only thing I would add to that is is you have to ask the question is do we think our market share gains will be as strong in 2024 as they were in 2023. The answer obviously is no I mean, we we caught up to $7 nine last year, and we're clearly not guiding to that range. This year, we feel like that we still have the same.

Bret Jordan: I mean, we compiled to 7.9 last year, and we're clearly not guiding to that range this year. But we feel like we still have the same competitive advantages. We really feel like our teams are energized and enthusiastic about the momentum we've created to move forward. But we're continuing to face increasingly hard comps, especially on the professional traffic side of our business. So that's, I think, implicit within how we think about the way this year will play out. It's just our knowledge that we're going to continue to make gains, but we're doing that on a bigger base. Okay.

Bret Jordan: Competitive advantages, we really feel like our teams are energized and enthusiastic about the momentum we've created to move forward.

Bret Jordan: But we're continuing to calendar increasingly.

Bret Jordan: Our hard comps, especially on the professional traffic side of our business. So that's I think implicit within how we think about the way. This year will play out is just our knowledge that we're going to continue to make gains, but we're doing that on a on a bigger base.

Speaker Change: Okay. My follow up question is Brad as you begin the tenure.

Brad Batten: My follow-up question is, Brad, as you begin the tenure of being CEO of O'Reilly, do you think that the company is at a peak operating margin rate level? And how much of your focus is on continuing to improve the percentage rate of this organization over time, given that there have been a lot of investments made over the last few years? Thank you very much.

Brad Batten: Being CEO of O'reilly do you think that the company is at.

Brad Batten: At our peak operating margin rate level and how much within your focus is on continuing to improve the percentage rate of this organization over time given that there has been a lot of investments been made over the last few years. Thank you very.

Brad Batten: Yeah, thank you so much, Michael. So, as you know, our primary focus, you know, I've been here for 27 years, you know, grew up with the company, and everything that we do is always started as a company with our mission statement that we're going to be the dominant auto parts supplier in all our market areas. And we always focus on not just the business we have but what's out there in the market, total addressable, not only for the US but now Mexico and Canada. And so every, you know, we start with that. And then, you know, we always have done that profitably, and our goal has always been to drive operating profit dollar growth. And that that has not changed. You know, when I think back, Michael, over the last five years, I absolutely don't want to live in the past.

Brad Batten: Yeah.

Brad Batten: Yes. Thank you so much Michael.

Brad Batten: So as you know our primary focus I have been here for 27 years grew up with the company and our everything that we do is always started as a company with our mission statement that we're going to be the dominant auto parts supplier in all of our market areas and we always focus on not just the business, we have but what's out there in the market total addressable.

Brad Batten: Not only for the U S, but now Mexico, and Canada, and so we start with that and then we always have done that profitably and our goal has always been to drive operating profit dollar growth.

Brad Batten: And that that has not changed.

Brad Batten: When I think back Michael over the last five years I, absolutely don't want to live in the past, but when you. When you think about the fact that we ended 2019 with an operating profit percentage of 18, 9%.

Brad Batten: But, you know, when you think about the fact that we ended 2019, with an operating profit percentage of 18.9%, and ended the year with a 20.3% in 2023, you know, I think that kind of answers your question, you know, kind of points to where we're thinking about the future in terms of what I want to make sure we do. And what we want to make sure we do is we want to set up for a similar trajectory going forward in the years to come. Not meaning that we're, you know, assuring anybody of what our rates are going to be, but we know we can do it through share gains and driving operating profit dollar growth. That's where our heads are at. It's where it's always been now. Do we have pride in where we've gotten to?

Brad Batten: And ended the year with a 23% at 2023.

Brad Batten: That kind of to your question.

Brad Batten: <unk> kind of points to where we are thinking about the future in terms of what I want to make sure we do and what we want to make sure. We do is we want to set up for a similar trajectory going forward in the years to come not not meaning that we're assuring anybody of what our rate is going to be but we know we can do it through share gains and driving operating profit.

Brad Batten: Dollar growth, that's where our heads at it's where it's always been at now do we have pride in where we've gotten a rate absolutely, especially since going all the way back to when we bought <unk> in 2008 were extremely proud of where we've gotten our rate in.

Brad Batten: Absolutely. Especially since going all the way back to when we bought CSK in 2008, we're extremely proud of where we've gotten our rate. And, you know, the questions have always been, hey, what is the right operating profit percentage? And our answer has always been as high as we can possibly get.

Brad Batten: The question has always been hey, what is the right.

Brad Batten: What is the right operating profit percentage and our answer has always been as high as we can possibly get so we're going to continue to have that focus we're going to focus on share gains doing it profitably and driving that operating profit dollar growth and we will continue to make sure that we drive that rate as much as we possibly can.

Brad Batten: So we're going to continue to have that focus. We're going to focus on share gains, doing it profitably, and driving that operating profit dollar growth. And we'll continue to make sure that we increase that rate as much as we possibly can. Thank you very much.

Brad Batten: Thank you very much.

Brad Batten: Thanks, Mike. Your next question is coming from Simeon Gutman from Morgan. Your line is live. Good afternoon, everyone.

Simeon Ari Gutman: Thanks, Michael.

Brad Batten: Your next question is coming from Simeon Gutman from Morgan Stanley. Your line is live.

Simeon Ari Gutman: Good afternoon, everyone and Brad we were talking about SG&A earlier.

Simeon Ari Gutman: Brad, we were talking about SG&A earlier, and last year you spent a little more, and you did get a return. I know it's not perfectly linked, but it looks like you got a payoff last year. How much debate did you have around maintaining an even higher level of spend? I know there's some tapering, but why not continue to lean in while there's, call it, displacement going on in the industry behind you? Yeah, hey, thanks, Simeon. I'll start that off and see if the guys have anything else. So yeah, you know, I think that's right. You know, we feel really good.

Simeon Ari Gutman: Last year, you spent a little more than you did get a return I know, it's not perfectly blink, but it looks like you got to pay off last year.

Speaker Change: How much debate did you have around maintaining an even higher level of spend I know theres, some tapering, but why not continue to lean in while there is call it displacement going on in the industry behind you.

Speaker Change: Yeah, Hey, Thanks, Simeon I'll start that off and see if the guys have anything else. So yeah, I think thats right.

Brad Batten: We feel really good there's been a lot of talk about kind of we've been asked about catch up with what we spent this last year and I think we want to.

Brad Batten: There's been a lot of talk about, you know, kind of, we've been asked to catch up, you know, with what we've spent this last year. And I think we want to, you know, more reframe that to timing, you know, because anything that we were quote, unquote, catching up on. To Brent's point earlier, one of the other questions, we have a very solid discipline internally on return on every amount of spend that we make, whether it be SG&A, whether it be CapEx, and how those play together between CapEx and OpEx with depreciation. And so we feel really good about the money we spend; we feel really good about the returns. And, you know, we're going to continue to lean into that in both directions.

Brad Batten: More reframe that to timing because anything that we were quote unquote catching up on.

Brad Batten: To <unk> point earlier, one of the other questions. We have a very solid discipline internally here on a return on every amount of spend that we make whether it be SG&A, whether it be capex.

Brad Batten: How those play together between Capex and Opex with depreciation and so we.

Brad Batten: We feel really good about the money. We spent we feel really good about the returns and.

Brad Batten: We're going to continue to lean into that both directions and.

Brad Batten: And, you know, that's really what got us to where we are today. To kind of the root of your question is, you know, you know, where's that line of what's the right spend? And, you know, that really just lends itself back to our guidance that, you know, we feel really good about every, every moving piece of our SG&A, we feel good about the returns, as well as, you know, CapEx and everything that we're talking about when it comes to tech investments, when it comes to safer vehicles, the image and appearance of our stores, and all the things you've heard us talk about. We're going to There's a follow-up, oh, oh, please.

Brad Batten: That's really what got us to where we're at today to counting the root of your question is.

Brad Batten: Where does that line of whats the right spend and that's.

Brad Batten: They really just lands us back to our guidance that we feel really good about every every movement piece of our SG&A, we feel good about the returns.

Brad Batten: Well as Capex and everything that we're talking about when it comes to tech investments when it comes to safer vehicles, the image and appearance of our stores and all of the things you've heard US talk about we're going to continue to lean into that as you've seen.

Brad Batten: Okay.

Speaker Change: Since then as a follow up please.

Jeremy Fletcher: Hey Simeon, just one other thing to maybe add to Brad's comment and kind of speak to your question too is, you know, obviously, we just leaned into an acquisition too as part of investing in a future opportunity, and we feel good about that investment as well. Still more shape to come to that over time, but definitely continue to invest where we see opportunity. Yeah, and a quick follow-up, more short term. I don't think I heard it in the prepared remarks. And maybe you'd never venture to guess what the weather means in a quarter.

Brad Batten: Hey, Simeon just just one other thing to maybe add to brad's comment and kind of speak to your question to us.

Jeremy Fletcher: We just leaned into an acquisition too as part of investing in our future opportunity and we feel good about that investment as well still more shaped to come to that over time, but definitely continue to lean in where we see opportunity.

Jeremy Fletcher: Yes.

Speaker Change: And a quick follow up more short term and I don't think I heard it in the prepared remarks, maybe you'd never venture to guess what weather.

Jeremy Fletcher: <unk> in a quarter give.

Simeon Ari Gutman: You know, given that you face two years of favorable weather, but any idea and is there deferred maintenance, or is that getting resolved with the ongoing run rate of the business? He's talking about the fourth quarter, Simeon. Yeah, any fourth quarter impact? And then, you know, does that create deferred maintenance? Or is that just gotten realized as the weather has become more favorable, you know, for maintenance and repair?

Jeremy Fletcher: Given that your phase two years of favorable weather, but any idea is there deferred maintenance or that got that got resolved with the ongoing run rate of the business.

Simeon: If you're talking about fourth quarter Simeon.

Simeon Ari Gutman: Yes, any fourth quarter impact and then it does that create deferred maintenance or does that just gotten realize as the weather has become more favorable.

Simeon Ari Gutman: For for maintenance and repair.

Simeon: Yeah No. Appreciate the question a good one for sure there was a fourth quarter impact.

Jeremy Fletcher: Yeah, no, appreciate the question. A good one. For sure, there's a fourth quarter impact. You know, I would tell you that, for both the weather impact and, you know, the calendar, the timing of the holiday was a little bit unfavorable to us.

Jeremy Fletcher: I would tell you is it for both for both the weather impacted the calendar the timing of the holiday was a was a little bit unfavorable to us the bulk of what we saw was anticipated and it would have been built into how we thought about the guidance as we moved into the fourth quarter.

Jeremy Fletcher: The bulk of what we saw was anticipated and would have been built into how we thought about the guidance as we moved into the fourth quarter. It had a lot to do with how we performed in 2022, which was very strong in 21, also. So there is, you know, definitely a degree to which the timing of, you know, winter showing up in January versus December impacted those results.

Jeremy Fletcher: <unk> had a lot to do with how we.

Jeremy Fletcher: How we performed in 2022, which was very strong in 'twenty, one or so so so there is there's definitely a degree to which the timing of winter showing up in January versus December impacted those results.

Jeremy Fletcher: You know, in terms of how you think about that from major shifts to deferral, you know, we're not talking about a huge needle mover, and it's, you know, literally as simple as a couple of weeks in December last year versus a couple of weeks in January this year. And that's why, within the prepared comments, we talked about, you know, kind of on balance as we think about the full winter season, we're sort of where we would expect to be in the setup for the remainder of the year. That's how we would, you know, view it as kind of normal for our industry. Okay, thanks for the question. Good luck! Thanks, Simeon.

Jeremy Fletcher: In terms of how you think about that from major shifts the deferral.

Jeremy Fletcher: We're not talking about about a huge needle mover in it.

Speaker Change: It's really I mean.

Jeremy Fletcher: I mean literally as simple as a couple of weeks in December last year versus a couple of weeks in January of this year and Thats why within the prepared comments, we talked about.

Jeremy Fletcher: Kind of a balance as we think about the full winter season were short of where we would expect to be in the setup for the remainder of the year is how we would.

Simeon: View is kind of normal for our industry.

Speaker Change: Okay. Thanks for the question good luck.

Speaker Change: Thanks, Amy and SME.

Simeon Ari Gutman: Thank you. Your next question is coming from Greg Melich from Evergreen. Your line is live.

Jeremy Fletcher: Thank you. Your next question is coming from Greg Melick from Evercore. Your line is live.

Greg Melich: Thanks for the follow up on sales and then maybe a bit on SG&A just to make clear and I've got to the fourth quarter rate was December I think you said pressured was it actually negative in December and as the first quarter running above the range for the year given the polar vortex.

Greg Melich: I'd like to follow up on sales and then maybe a bit on SG&A. Just to make sure I understand the fourth quarter right. Was December, I think you said pressured, actually negative in December?

Jeremy Fletcher: And is the first quarter running above the range for the year given the polar vortex? Yeah, so I can answer both those questions, Greg. December was negative for us. It was better than our plan, candidly, but we kind of knew it would be. It was substantially good last year. You know, we don't give discrete quantification of where we run at the beginning of the year just because, you know, there's always a challenge with short periods of time and how the weeks can vary just on a one-year comparison, but we do feel, you know, we do feel comfortable that we're running well. We're pleased with how we set up, and we largely attribute that shrink so far to the couple weeks of really, really harsh weather that we got in January.

Speaker Change: Yes, so I can I can answer both those questions Greg.

Jeremy Fletcher: December was negative for us.

Jeremy Fletcher: It was better than our plan candidly, but but.

Jeremy Fletcher: But we have a new would be it was substantially good.

Jeremy Fletcher: Last year.

Jeremy Fletcher: We.

Jeremy Fletcher: We don't give discrete quanta clarification of where we run at beginning of the year just because.

Jeremy Fletcher: There is always a challenge for short periods of time and how the week two weeks can vary on a one year comp, but we do feel we do feel comfortable that.

Jeremy Fletcher: We're running well we're pleased with how we set up and we largely attribute that that shrink so far to the the.

Jeremy Fletcher: A couple of weeks of really really harsh weather that we got in January.

Jeremy Fletcher: Got it. And then maybe a follow up on sales. I want to make sure I get the inflation and mix part of this right. So inflation will be around 1%. And then should we assume another 200 bips of complexity and mix within your three to five guide? Is that a fair build up?

Speaker Change: Got it and then maybe a follow up on sales I want make sure I get the inflation and mix part of this right. So inflation same SKU will be around 1% and then should we assume another 200 bps of complexity and mix within your three to five guide is that a fair buildup.

Speaker Change: Yeah, I don't know that I put too fine a point like that on it on a Greg for 2024 first.

Jeremy Fletcher: Yeah, I don't know that I'd put too fine a point like that on it, Greg, for 2024. First, you know, I don't know what inflation will be in 2024. Our guidance is a little bit less than 1%. We'll get a benefit from the average ticket above that, even independent of professionals growing faster, which naturally pulls the total company average ticket up. But we would still expect that, you know, a portion of our comp expectations for next year are driven by ticket count growth, as the professional side of the business is expected to continue to be solid.

Jeremy Fletcher: I don't know what <unk> Duane.

Jeremy Fletcher: Duane Dewey for R. R. R. R guidance is a little bit less than 1% will will get a benefit from.

Jeremy Fletcher: The average.

Jeremy Fletcher: Ticket up above that.

Jeremy Fletcher: Even independent of professional growing faster, which is actually pulls the total company average ticket up but but we would still expect that a portion of our comp expectations for.

Jeremy Fletcher: For next year are driven by ticket count growth.

Jeremy Fletcher: The professional side of the business.

Jeremy Fletcher: <unk> is expected to continue to be solid.

Jeremy Fletcher: Great. Well, I'll let somebody else ask when you get the flex capacitor in stock that we see on the website. Thank you, Greg. Keep looking for it.

Speaker Change: Great well I'll, let somebody ask someone else asked but when you get the flux capacitor and stock that we stay on the website.

Speaker Change: Keep looking for it.

Greg Melich: Thanks, Greg. Have a good quarter. Thanks. Thank you. We have reached our loaded time for questions.

Speaker Change: Have a good quarter.

Speaker Change: Thanks, Dave.

Greg Melich: Thank you we have reached our allotted time for questions I'll now turn the call back over to Mr. Brad Burke for closing remarks.

Brad Batten: I'll now turn the call back over to Mr. Brad Beckham for closing remarks. Thank you, Matthew. We would like to conclude our call today by thanking the entire O'Reilly team for your unwavering dedication to our customers and the outstanding results you produced in 2023. I would like to thank everyone for joining our call today, and we look forward to reporting our first quarter results in April. Thank you. Thank you. This does conclude today's conference call. You may disconnect your phone lines at this time and have a wonderful day. Thank you for your participation.

Brad Batten: Thank you Matthew we would like to conclude our call today by thanking the entire O'reilly team for your unwavering dedication to our customers and the outstanding results you produced in 2023 I would like to thank everyone for joining our call today and we look forward to reporting our first quarter results in April. Thank you.

Brad Batten: Thank you. This does conclude today's conference call. You may disconnect. Your phone lines at this time and have a wonderful day. Thank you for your participation.