Q2 2025 O'Reilly Automotive Inc Earnings Call
Matthew: Quarter 2025 Earnings Call. My name is Matthew and I'll be your operator for today's call. At this time, all participants are on a listen-only mode.
Welcome to the O'Reilly Automotive Inc, second quarter, 2025 earnings call.
Matthew: My name is Matthew, and I'll be your operator for today's call.
Matthew: Later we'll conduct a question and answer session. During the question and answer session, if you have a question, please press star 1 on your touch-tone phone.
Matthew: At this time, all participants are on a listen-only mode.
Later, we'll conduct a question and answer session.
Jeremy Fletcher: I'll now hand 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 second quarter 2025 results and our outlook for the remainder of the year. After our prepared comments, we will host a question and answer period.
During the question and answer session. If you have a question, please press star 1 on your touchtone phone.
Speaker Change: I'll now hand the call over to Jeremy Fletcher, Mr. Fletcher, you may begin,
Jeremy Fletcher: Thank you, Matthew. Good morning, everyone. And thank you for joining us. During today's conference call, we will discuss our second quarter, 2025 results and our outlook for the remainder of the year.
Jeremy Fletcher: 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 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. 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, 2024, and other recent SEC filings.
Jeremy Fletcher: After our prepared comments we will host a question and answer period.
Jeremy Fletcher: Before we, 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 of 1995
Jeremy Fletcher: You can identify these statements by forwarding words. Such as estimate may could will believe expect would consider should anticipate project plan intend or similar words
Jeremy Fletcher: The company assumes no obligation to update any forward-looking statements made during this call.
Brad Beckham: At this time, I would like to introduce Brad Beckham. Thanks, Jeremy. Good morning, everyone, and welcome to the O'Reilly Auto Parts second quarter conference call. Participating on the call with me this morning are Brent Kirby, our President, and Jeremy Fletcher, our Chief Financial Officer. Greg Hensley, our Executive Chairman, and David O'Reilly, our Executive Vice Chairman, are also present on the call.
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. 10K for the year. Ended December 31st 2024 and other recent SEC. Filings the company assumes. No obligation to update any 4 looking statements made during this call.
Jeremy Fletcher: At this time, I would like to introduce Brad Beckham.
Brad Beckham: Thanks, Jeremy. Good morning, everyone. And welcome to the O'Reilly Auto Parts. Second quarter conference call.
Brad Beckham: It is once again my pleasure to begin our call today by congratulating Team O'Reilly on their performance in the second quarter and the solid results they have delivered in the first half of 2025. Our team's proven ability to provide superior value and excellent customer service drove our second quarter comparable store sales increase of 4.1%. These solid results contributed to a year-to-date comp growth at the high end of our expectations, and we are pleased with our team's ability to generate this level of sales momentum in the first half of 2025. Our second quarter sales growth drove an 11% increase in earnings per share to 78 cents, and I'd like to thank our over 92,000 team members for their unwavering commitment to executing our business model at an extremely high level and providing the best customer service in our industry.
Speaker Change: Participating on the call with me this morning are Brent Kirby, our president and Jeremy Fletcher, our Chief Financial Officer, Greg Hensley, our executive, chairman and David O'Reilly our Executive, Vice chairman are also present on the call.
Speaker Change: It is once again my pleasure to begin our call today by congratulating team O'Reilly on their performance, in the second quarter and the solid results. They have delivered in the first half of 2025.
Speaker Change: Our team has proven ability to provide Superior value and excellent customer service. Drove our second quarter comparable, store sales, increase of 4.1%.
Speaker Change: These solid results, contribute to a year to-day comp growth at the high end of our expectations. And we are pleased with our team's ability to generate this level of sales momentum in the first half of 2025,
Brad Beckham: The composition of our comparable store sales growth in the second quarter was similar to the first quarter, with solid contributions from both sides of our business. Our professional business was once again the more significant driver of our sales results with an increase in comparable store sales exceeding 7% fueled by continued strong ticket count growth. Our teams continue to set the standard for how seamlessly and effectively they partner with and support our professional customers to grow their business. Our continued robust share gains in our professional business are a testament to the close relationships we have fostered with our customers and our continued efforts to enhance our service levels to earn a greater share of their spend.
Speaker Change: The composition of our comparable store sales growth in the second quarter was similar to the first quarter with solid contributions from both sides of our business.
Speaker Change: Our professional business was once again the more significant driver of our sales results with an increase in comparable store sales exceeding 7%, fueled by continued strong tick account growth.
Speaker Change: Our teams continue to set the standard for how seamlessly and effectively, they partner with, and support our professional customers to grow their businesses.
Brad Beckham: DIY was also a contributor to our sales growth in the quarter with a low single-digit comp. From a traffic standpoint, we did see pressure to DIY ticket counts as we exited the quarter in June that resulted in a small decline in DIY ticket count for the full year, but we were pleased to see positive overall sales growth in DIY in the quarter, driven by growth in average ticket size. Average Ticket continues to be a contributor to our sales growth on both sides of the business, driven by increasing complexity in vehicle repairs. We also saw a modest benefit from effective pricing management in the second quarter.
Speaker Change: Our continued, robust, share, gains in our professional business are a testament to the close relationships. We have fostered with our customers and our continued efforts to enhance our service levels to earn a greater share of their spend.
Speaker Change: DIY was also a contributor to our sales growth in the quarter with a low single-digit comp.
Speaker Change: From a traffic standpoint. We did see pressure to DIY ticket counts as we exited the quarter in June that resulted in a small decline in DIY ticket count for the full year, but we were pleased to see positive overall sales growth in DIY in the quarter driven by growth in average ticket size.
Speaker Change: Average ticket continues to be a contributor to our sales growth on both sides of the business driven by increasing complexity in vehicle repairs.
Brad Beckham: The contribution to our average ticket from same-skew inflation for the second quarter was just under one and a half percent and reflects the early stages of the impact of changes in the tariff environment in our industry, which I will discuss more in a moment. Turning to the cadence of our sales performance, results were reasonably steady throughout the second quarter. As I noted previously, our comparable store sales for the quarter landed at the high end of our expectations, and we saw this outperformance primarily in the first two months of the quarter. As we remarked on last quarter's call, favorable spring weather supported strong volumes in our business as we exited the first quarter, and that momentum continued through April and May.
Speaker Change: We also saw a modest benefit from effective pricing Management in the second quarter.
Speaker Change: The contribution to our average ticket from same SKU inflation. For the second quarter was just under 1 and a half percent and reflects the early stages of the impact of changes in the Tariff environment in our industry, which I will discuss more in a moment.
Speaker Change: Turning to the Cadence of our sales. Performance results were reasonably steady throughout the second quarter as I noted previously. Our comparable store sales for the quarter landed at the high-end of our expectations and we saw this outperformance primarily in the first 2 months of the quarter,
Brad Beckham: Business normalized somewhat in June, but was still in line with plan. The moderation at the end of the second quarter was driven, at least in part, by minor pressure in hot weather-related categories where we were up against a tough comparison to a strong performance in June last year. On balance, we think weather impacts evened out over the quarter and were ultimately neutral to our full second quarter results, but did contribute to some minor differences in the month-to-month cadence. Thus far in July, summer weather has been typical for the season, and we have been pleased with the continued solid trends in our business to start the third quarter.
Speaker Change: as we remarked on last quarter's, call favorable Spring weather supported, strong volumes in our business as we exited the first quarter and that momentum continued through April and May
Speaker Change: Business normalized somewhat in June, but was still in line with plan.
Speaker Change: The moderation. At the end of the second quarter was driven at least in part by minor pressure in hot. Weather related categories where we were up against a tough comparison to a strong performance in June last year.
Speaker Change: On balance we think weather impacts evened out over the quarter and we're ultimately neutral to our full second quarter results but did contribute to to some minor differences in the month-to-month Cadence.
Brad Beckham: From a category perspective, our second quarter results reflected trends similar to what we've seen over the last few quarters. We continue to generate strong performance in maintenance categories, including oil, filters, and spark plugs, and we're also pleased with solid performance in undercar hard part categories, particularly on the professional side of our business. We are encouraged by the resiliency of performance in these categories and believe it reflects favorable vehicle dynamics in our industry, as well as continued willingness of consumers to prioritize the care of their existing vehicles. However, we also saw continued softness in discretionary categories in line with trends we have seen over the last year.
Speaker Change: Thus far in July summer, weather has been typical for the season and we have been pleased with the continued solid Trends in our business. To start the third quarter.
Speaker Change: From a category perspective, our second quarter results reflected Trends similar to what we've seen over the last few quarters. We can continue to generate strong performance in maintenance categories, including oil filters and spark plugs. And we're also pleased with solid performance in underclock, heart Park categories, particularly on the professional side of our business.
Speaker Change: We are encouraged by the resiliency of performance in these categories and believe it reflects favorable vehicle Dynamics in our industry, as well as continued. Willingness of consumers to prioritize the care of their existing vehicles.
Brad Beckham: As we have noted in the past, discretionary products make up a small subset of our total sales primarily on the DIY side of our business. While not a substantial headwind to our overall results, the continued sluggishness in these categories is an indicator to us that consumers are still remaining cautious and conservative in how they are managing the spend in the current environment.
Speaker Change: However, we also saw continued softness. In discretionary categories, in line with Trends, we have seen over the last year.
Speaker Change: As we have noted in the past, discretionary products, make up a small subset of our total sales, primarily on the DIY side of our business.
Brad Beckham: Next, I would like to provide some color on our revised four-year comparable store sales guide. As noted in yesterday's press release, we updated our guidance from the previous range of 2-4% to a range of 3-4.5%.
Speaker Change: While not a substantial headwind to our overall results. The continued sluggishness in these categories is an indicator to us. That consumers are still remaining cautious and conservative in how they are managing the spend in the current environment.
Speaker Change: Next, I would like to provide some color on our revised full-year comparable store sales guidance.
Brad Beckham: It isn't typical for us to revise our guidance to a range of 1.5% at this stage of the year, but we feel this update is appropriate for a few reasons. The midpoint of our revised comp range represents a 75 basis point increase over our previous midpoint and is in line with trends we have seen in our business in the first half of the year. The increase in our guidance range at the top end also reflects the potential for incremental benefit we could realize from the effective price management that we talked about earlier as we navigate the challenging tariff environment.
Speaker Change: As noted in yesterday's, press release, we updated our guidance from the previous range of 2 to 4% to a range of 3 to 4 and a half percent.
Speaker Change: It isn't typical for us to revise, our guidance to a range of 1 and a half percent at this stage of the year. But we feel this update is appropriate for a few reasons.
Speaker Change: The midpoint of our revised comp range represents a 75 basis point increase. Over our previous midpoint, and is in line with Trends. We have seen in our business in the first half of the year.
Brad Beckham: As I previously noted, we have begun to see some incremental same-skew benefit filter into our numbers from industry-wide pricing actions spurred by the first round of tariffs.
Speaker Change: Uh, we talked about earlier, as we navigate the challenging tariff environment.
Brad Beckham: Brent will discuss more of this in detail during his prepared comments, but we continue to be successful in working with our supplier partners to respond to and mitigate the impacts from tariffs. Likewise, we have begun to see industry adjustments in response to the incremental pressures to product acquisition costs and anticipate our industry will continue to behave rationally.
As I previously noted, we have begun to see some incremental same SKU benefit filter into our numbers from industrywide, pricing actions spurred by the first round of tariffs.
Speaker Change: Brent will discuss more of this in detail during his prepared comments, but we continue to be successful in working with our supplier, Partners to respond to and mitigate the impacts from tariffs.
Brad Beckham: However, in establishing our outlook for the remainder of 2025, we remain cautious as to the uncertainty of the timing, magnitude, and ultimate impact of changes in the pricing environment in our industry. We are also cautious concerning the potential adverse impact to consumers and their resulting response in the face of rising prices. Our stance is driven, in part, by our current assessment of the health and confidence of consumers. We continue to view the consumer as relatively healthy, buoyed by strong employment and wage rate growth. We also believe the strong value proposition of maintaining and repairing an existing vehicle coupled with the high quality of vehicles creates a very compelling incentive for our customers to prioritize their auto parts spend.
Speaker Change: Likewise we have begun to see industry adjustments in response to the incremental pressures to product acquisition costs and anticipate. Our industry will continue to behave rationally.
However, in establishing our outlook, for the remainder of 2025, we remain cautious as to the uncertainty of the timing magnitude and ultimate impact of changes in the pricing environment in our industry.
Speaker Change: We are also cautious concerning the potential adverse impact to Consumers and their resulting response in the face of rising prices.
Speaker Change: our stance is driven in part by our current assessment of the health and confidence of consumers
Speaker Change: We continue to view the consumer as relatively healthy booed by strong employment and wage rate growth.
Brad Beckham: However, as I noted earlier, we also think that consumers in our industry remain cautious in a very uncertain environment, and are remaining conservative in the management of their overall households. Should consumers face rapid, broad-based price increases in the back half of the year, we could encounter short-term reactions, particularly by lower-income DIY consumers, who may look to ease pressure in face of these shocks by cutting back on spending wherever possible.
Speaker Change: we also believe the strong value proposition of maintaining and repairing an existing vehicle coupled, with the high quality of vehicles, creates a very compelling incentive for our customers to prioritize their Auto Parts spent
Speaker Change: However, as I noted earlier, we also think that consumers in our industry remain cautious in a very uncertain environment and a remaining conservative in the management of their overall household. Spend.
Brad Beckham: As a result of these factors, our forward-looking guidance expectations do not incorporate a significant net benefit from tariff-induced inflation beyond the modest price changes we have already seen thus far. While we are cognizant that these macroeconomic factors could cause volatility in our industry in the remainder of 2025, we are also confident that disruptions to consumer demand will be short lived. Over the course of many economic cycles, consumers in our industry have proven their resilience in responding to short-term shocks, whether caused by tariff-driven inflation, spikes in gas prices, or other factors. The core fundamental drivers of demand in our business remain very solid, underpinned by the increasing age and quality of the vehicle fleet and the growth of the North American car park and the corresponding steady annual increases in miles driven.
Should consumers face rapid broad-based pricing increases in the back half of the year. We could encounter short-term reactions, particularly by lower income DIY consumers who may look to ease pressure in face of these shocks by cutting back on spending wherever possible.
As a result of these factors our forward-looking guidance, expectations, do not incorporate a significant net benefit from tariff induced inflation, beyond the modest price changes. We have already seen thus far
Speaker Change: While we are cognizant that these macroeconomic factors could cause volatility in our industry in the remainder of 2025, we are also confident that disruptions to Consumer demand will be short-lived.
Speaker Change: Over the course of many economic Cycles. Consumers in our industry have proven, the their resilience in responding to short-term shocks, whether caused by tariff driven inflation spikes in gas prices or other factors.
Brad Beckham: We also view periods of acute challenges in our industry as opportunities to leverage our strategic advantages and enhance our competitive position. We currently hold just a fraction of the addressable market share in a fragmented industry. Our primary growth vehicle is centered on our ability to provide constantly improving value to our customers to earn a larger share of auto parts demand. This relentless focus on excellent customer service is an imperative every day in each of our markets regardless of the broader macro condition. In challenging environments, our teams of professional parts people dig even deeper to distinguish the value we provide to our customers, knowing there is always more market share gains to be earned.
Speaker Change: The core fundamental drivers of demand. In our business remain, very solid underpinned by the increasing age and quality of the vehicle Fleet and the growth of the Noir North American car park and the corresponding steady annual increase in miles driven.
Speaker Change: We also view periods of acute challenges. In our industry is opportunities to leverage our strategic advantages and enhance our competitive positioning
Speaker Change: We currently hold just a fraction of the addressable market share in a fragmented industry.
Our primary growth vehicle is centered on our ability to provide constantly improving value to our customers to earn a larger share of Auto Parts demand.
Speaker Change: This Relentless focus on excellent. Customer service is an imperative for every day in each of our markets, regardless of the broader macro conditions,
Brad Beckham: Before I wrap up and turn the call over to Brent, I wanted to call out the update to our diluted earnings per share guidance. As noted in our press release yesterday, we have updated our EPS guidance to a range of $2.85, to a range of $2, excuse me, $2.85 to $2.95.
In challenging environments, our teams of professional Parts, people dig even deeper, to distinguish the value. We provide to our customers knowing there is always more market, share gains to be earned.
Brad Beckham: We were pleased to complete our board and shareholder approved 15 for one stock split in the second quarter, so this quarter's press release is the first reporting period where we've provided EPS results and guidance factoring in the increased share cap. At the midpoint, our updated guidance is an increase of approximately one percent from the midpoint of our previous guidance adjusted for the stock split, with the increase reflecting our second quarter results and expectations for the remainder of 2025.
Speaker Change: Before I wrap up and turn the call over to Brent, I wanted to call out the update to our diluted earnings per share guidance. As noted in our press release. Yesterday, we have updated our EPS guidance to arrange of 2.85 to a range of $2. Excuse me, $2.85 to $2.95.
We were pleased to complete our board and shareholder approved, 15 for 1 stock, split in the second quarter, so this quarter's press release, is the first reporting period, where we provided EPS results, and guidance, factoring in the increase. Share count.
Brad Beckham: As I wrap up my prepared comments, I would like to once again thank Team O'Reilly for their strong performance in the second quarter.
at the midpoint, our updated guidance is an increase of approximately 1% from the midpoint of our previous guidance, adjusted for the stock, split with the increase, reflecting our second quarter results, and expectations, for the remainder of 2025,
Brent Kirby: Now I'll turn the call over to Brent. Thanks, Brad. Before I dig in further to our results, I would like to echo Brad's comments on the dedication of Team O'Reilly. The sales momentum we have generated in the first half of 2025 is the direct result of the hard work of each of our team members in our stores, distribution centers, and offices. And I want to thank the entire team for their commitment to our customers.
Speaker Change: As I wrap up my prepared comments, I would like to. Once again, thank T-Mobile Riley for their strong performance in the second quarter. Now, I'll turn the call over to Brent.
Thanks, Brad.
Further to our results. I would like to Echo Brad's comments on the dedication of Team O'Reilly.
Brent Kirby: I would like to begin my comments this morning by discussing our second quarter gross margin results and our outlook for the remainder of 2025. For the quarter, our gross margin of 51.4% was up 67 basis points from the second quarter of 2024. In establishing our full year gross margin outlook, we assumed a slightly lower gross margin rate in the second quarter as compared to the first, third, and fourth quarters, which is typical for the seasonal composition of our product mix and consistent with our results in 2024. So while our second quarter gross margin performance fell in the middle of our full year guidance outlook, it handily exceeded our expectations for the quarter.
The sales momentum, we have generated in the first half of 2025, is the direct result of the hard work of each of our team members in our stores, distribution centers and offices. And I want to thank the entire team for their commitment to our customers.
Speaker Change: I would like to begin my comments this morning by discussing our second quarter gross margin results, and our outlook for the remainder of 2025.
Speaker Change: For the quarter, our gross margin of 51.4% was up 67 basis points for the second from the second quarter of 2024.
In establishing our full year gross margin Outlook. We assumed a slightly lower gross margin rate in the second quarter as compared to the first third. And fourth quarters, which is typical for the seasonal, composition of our product mix and consistent with our results in 2024.
Brent Kirby: Our performance in the quarter was driven by continued strong management of our supply chain environment and solid distribution productivity, coupled with the timing benefit from the impact of tariff-related costs and pricing adjustments. On the tariff front, as Brad discussed in his comments, we did begin to see some impact to our business in the second quarter. As we've discussed at length in the past, the process by which we respond to any changes in the acquisition cost environment, including increases spurred by tariff modifications, begins with close coordination with our supplier partners to mitigate the impact to our customers.
Speaker Change: So while our second quarter, gross margin performance fell in the middle of our full year. Guidance Outlook. It handled the exceeded our expectations for the quarter.
Our performance in the quarter was driven by continued strong management of our supply chain environment and solid distribution productivity, coupled with the timing benefit from the impact of Terror for lady cost and pricing adjustments.
Speaker Change: On the Tariff front as Brad, discussed in his comments, we did begin to see some impact to our business in the second quarter.
Speaker Change: As we've discussed at length in the past, the process, by which we respond to any changes in the acquisition cost environment.
Brent Kirby: As we have worked through the changing tariff landscape over the last several months, we believe that coordination has been very effective and has allowed us to negotiate appropriate cost increases that do not reflect the full impact of incremental tariff rates, while also temporarily delaying the timing of the application of those cost changes where possible. In anticipation of the impact of tariff cost pressures, we closely monitored the pricing environment in our industry as we moved through the second quarter and, where appropriate, made adjustments to selling prices. Our industry has historically been very rational in its response to changing input cost and price.
Speaker Change: Including increases spurred by tariff modifications begins with close coordination, with our supplier Partners to mitigate the impact to our customers.
Speaker Change: As we have worked through the changing tariff landscape over the last several months, we believe that coordination has been very effective and has allowed us to negotiate appropriate. Cost increases that do not reflect the full impact of incremental tariff rates while also temporarily delaying the timing of the application of those cost changes where possible.
Speaker Change: In anticipation of the impact of tariff cost pressures. We closely monitored the pricing environment in our industry as we move through the second quarter and where appropriate made adjustments to selling prices.
Brent Kirby: And we believe those same dynamics are prevailing in the current environment. Typically, in our industry, we see changes in acquisition cost and any corresponding price movements sync up fairly closely. but can sometimes experience temporary timing differences that create short-term headwinds or tailwinds within a quarter. In these instances, we can realize a short-term benefit from the timing of pricing changes that are slightly out ahead of when the corresponding cost increases filter into our income state. Within the second quarter, we did realize a benefit from this timing dynamic, which contributed to our positive gross margin results. As we look to the back half of the year, we aren't currently projecting significant further incremental benefit or pressure to gross margin rates from tariffs.
Speaker Change: Our industry has historically been very rational in its response to changing input costs and pricing.
Speaker Change: And we believe those same Dynamics are prevailing in the current environment.
Typically in our industry we see changes in acquisition cost and any corresponding price movements sync up fairly closely. But can sometimes experience temporary timing differences that create short-term headwinds or Tailwinds within a quarter
Speaker Change: In these instances, we can realize a short-term benefit from the timing of pricing changes that are slightly out. Ahead of when the corresponding cost increases filter into our income statement,
Speaker Change: Within the second quarter, we did realize the benefit from this timing Dynamic which contributed to our positive gross margin results.
Brent Kirby: But the environment remains fluid, both as it relates to the exact timing and magnitude of any tariff revisions that have yet to be implemented, as well as the timing of market responses in our industry. Given the existing tariff landscape and our ongoing work with our supply chain partners, we do anticipate further impacts to acquisition costs and are cautious that we could encounter short-term timing headwinds to gross margin rate in the back half of the year depending on the speed with which our industry digests inflation pressures. Ultimately, we believe these short-term timing differences will even out over the long run, and our industry will settle at an equilibrium that is in line with the rational pricing dynamics that have persisted over many cycles in many different environments in the automotive aftermarket.
Speaker Change: As we look to the back half of the year, we aren't currently projecting significant further incremental benefits or pressure to gross margin rates from tariffs.
Speaker Change: But the environment remains fluid both as it relates to the exact timing and magnitude of any tariff revisions that have yet to be implemented, as well as the timing of Market responses in our industry.
Speaker Change: Given the existing tariff landscape and our ongoing work with our supply chain Partners. We do anticipate further impacts to acquisition costs and are cautious that we could encounter short-term timing headwinds to gross margin rate in the back half of the Year depending on the speed with which our industry digest inflation pressures.
Brent Kirby: Independent of these tariff related impacts, we are pleased with our gross margin performance in the quarter and the trends we continue to see in our business. We believe our consistent results, despite facing a mixed headwind from a faster growth on the professional side of our business, reflect continued strong management by our supply chain teams working closely with our supplier partners. Given our experience thus far in 2024 and 2025, and factoring in that we could see tariff-induced choppiness in gross margin results in the back half of the year, we are leaving our full-year gross margin guidance unchanged at a range of 51.2 to 51.7 percent.
Ultimately we believe these short-term timing differences will even out over the long run and our industry will settle at an equilibrium that is in line with the rational pricing dynamics that have persisted over. Many cycles in many different environments in the automotive aftermarket
independent of these tariff related impacts. We are pleased with our gross margin performance in the quarter and the trends. We continue to see in our business.
Speaker Change: We believe our consistent results, despite facing a mix headwind from a faster growth. On the professional side of our business, reflect continued strong management by our supply chain teams working closely with our supplier partners.
Brent Kirby: As Brad discussed earlier, we remain cautious as to the potential adverse impact our customers could face from the heightened inflation in the remainder of 2025, but remain confident that we will still be able to profitably earn our customers' business by delivering Strong value proposition driven by our professional parts people and industry-leading parts availability, even in an environment of rising prices. Turning to SG&A, our second quarter average SG&A per store growth of 4.5 percent was above our expectations and reflects a combination of the incremental spend to deliver excellent customer service in support of our above plan sales performance and inflation pressure in our cost structure, particularly in areas more challenging to manage in the short term, such as expenses pertaining to our medical and casualty insurance program.
To 51.7%.
Speaker Change: As Brad discussed earlier we remain cautious as to the potential adverse impact. Our customers could face from the heightened inflation in the remainder of 2025.
Speaker Change: But remain confident that we will still be able to profitably. Earn our customers business by delivering a strong value, proposition driven by our professional Parts, people and industry-leading parts of availability, even an environment of rising prices.
Brent Kirby: For more information visit SG&A.com Based on the inflation pressure we are currently seeing, coupled with our top line outlook for the remainder of the year, we are revising our full year guidance for average SG&A per store growth to a range of 3 to 3.5 percent. While the pressures we are seeing have driven SG&A above our expectations, we continue to believe that the initiatives that we are executing and the enhancements to customer service we have been able to generate are integral factors in the market share gains that we are capturing on both sides of our business.
Turning to sgna our second quarter average sgna per store growth of 4.5% was above our expectations and reflects. A combination of the incremental, spend to deliver, excellent. Customer service in support of our above plan sales, performance, and inflation pressure in our cost structure. Particularly in areas more challenging to manage in the short term such as expenses pertaining to our medical and Casualty Insurance programs.
Based on the inflation pressure, we are currently seeing coupled with our Topline outlook. For the remainder of the year, we are advising our full year. Guidance for average, sgna per store growth to a range of 3 to 3.5%.
Brent Kirby: As such, we will continue to diligently manage our SG&A spend to prioritize a high standard of excellent customer service and take advantage of the opportunities to fuel growth. Based on our SG&A expectations and projected gross margin range, we continue to expect our full year operating profit to come within our guidance range of 19.2 to 19.7 percent.
Speaker Change: While the pressures we are seeing have driven sgna above our expectations. We continue to believe that the initiatives that we are executing in the enhancements to customer service, we have been able to generate our integral factors in the market, share gains, that we are capturing on both sides of our business.
As such, we will continue to diligently manage our sgna. Spend to prioritize a high standard of excellent customer service, and take advantage of the opportunities to fuel growth.
Brent Kirby: We successfully opened 105 net new stores across the U.S. and Mexico in the first half of 2025, and we continue to be pleased with the performance of our new stores. We continue to see solid growth in greenfield expansion markets, but we are also capitalizing on great growth opportunities across our footprint. As a result, our store growth thus far in 2025 was spread across 34 different U.S. states, Puerto Rico, and Mexico. Underpinning our very successful new store expansion efforts are the pivotal investments we continue to make to enhance our industry-leading distribution network. We remain steadfast in our commitment to equipping our store teams with rapid, industry-leading access to inventory.
Speaker Change: Based on our sgna expectations and projected gross margin range. We continue to expect our full year, operating profit to come within our guidance range of 19.2 to 19.7%.
Speaker Change: We successfully opened 105, net new stores across the US and Mexico in the first half of 2025, and we continue to be pleased with the performance of our new stores.
Speaker Change: We continue to see solid growth in Greenfield expansion markets but we are also capitalizing on great growth opportunities across our footprint.
Speaker Change: As a result, our store growth thus far in 2025 was spread across 34 different US states, Puerto Rico, and Mexico.
Speaker Change: Underpinning, our very successful new store expansion efforts are the pivotal Investments. We continue to make to enhance our industry-leading distribution Network.
Brent Kirby: To that end, we are excited to announce that we have acquired a facility in Hazlett, Texas, a suburb of Fort Worth, that will become our 33rd distribution center. This new facility, which we will refer to as our Fort Worth, D.C., is approximately five hundred and sixty thousand square foot with an expected capacity to serve three hundred and fifty stores in the South Central United States. These market areas represent some of our most mature markets, while also being strong contributors of highly profitable growth for many years. Even with the relatively high store counts we have in Texas and surrounding markets, we still see tremendous opportunity to continue growing in this part of the country in the future.
Speaker Change: We remain steadfast in our commitment to equipping our store teams with rapid industry-leading access to inventory.
Speaker Change: To that end. We are excited to announce that we have acquired a facility in Hazlet Texas. A suburb of Fort Worth that will become our 33rd Distribution Center.
This new facility which we were referred to as our Fort Worth. DC is approximately 560,000 square foot with an expected capacity to serve 350 stores in the South Central. United States.
Speaker Change: These Market areas represent some of our most mature markets, while also being strong contributors of Highly profitable growth for many years.
Brent Kirby: but are running up against constraints with our distribution capacity. The backfill addition of this facility will not only give us additional capacity and enhance service capabilities in the important Fort Worth metro market, but will also free up much needed capacity in surrounding DCs to support growth across the South Central region of the country. We are still in the early innings of development for this new DC, having just acquired the facility with substantial infill work still ahead of us. As a result, we anticipate this distribution center will be in operation in 2027.
Speaker Change: Even with the relatively High store counts, we have in Texas and surrounding markets. We still see tremendous opportunity to continue growing in this part of the country in the future.
Speaker Change: But are running up against constraints with our distribution capacity.
Speaker Change: The backfill edition of this facility will not only give us additional capacity and enhance service capabilities in the important Fort Worth Metro Market, but will also free up, much-needed capacity and surrounding DCS to support growth. The south central region of the country.
Speaker Change: We are still in the early Innings of development. For this new DC. Having just acquired the facility with substantial infill work, still ahead of us.
Brent Kirby: We are also excited to be nearing the completion of our Stafford, Virginia Distribution Center. We plan to start transferring stores to be serviced by Stafford at the end of the third quarter with the new facility servicing its initial store base by the end of this year. We could not be more excited about the store development opportunities that these two new facilities will unlock for the company in both the largely untapped Mid-Atlantic region and in strong existing markets in the South Central U.S.
Speaker Change: As a result, we anticipate this distribution center will be an operation in 2027.
Speaker Change: We are also excited to be nearing the completion of our Stafford Virginia Distribution Center.
We plan to start transferring stores to be serviced by Stafford. At the end of the third quarter, with the new facility servicing, its initial store Bass, by the end of this year.
Brent Kirby: As I close my comments, I want to thank Team O'Reilly for their continued dedication to our company's success. Your commitment to providing consistent, excellent customer service to all of our customers each and every day continues to be the key to our long-term success.
Speaker Change: We could not be more excited about the store development opportunities, that these 2 new facilities will unlock for the company. In both, the largely untapped Mid-Atlantic region and in strong existing markets in the South Central us,
Jeremy Fletcher: Now, I will turn the call over to Jer. Thanks Brent. I would also like to begin today by thanking Team O'Reilly for another successful quarter.
Speaker Change: As I close my comments, I want to thank team O'Reilly for the continued dedication to our company, success your commitment to providing consistent. Excellent customer service, to all of our customers each and every day continues to be the key to our long-term success.
Jeremy Fletcher: Now we will take a closer look at our second quarter results and update our guidance for the remainder of 2025. For the second quarter, sales increased $253 million, driven by a 4.1% increase in comparable store sales and an $86 million non-comp contribution from stores open in 24 and 25 that have not yet entered the comp base. For 2025, we now expect our total revenues to be between $17.5 and $17.8 billion. Our second quarter effective tax rate was 22.4% of pre-tax income, comprised of a base rate of 23.2%, reduced by a 0.8% benefit for share-based compensation.
Speaker Change: Thanks Brent. I would also like to begin today by thanking Tina Riley for another successful quarter.
Speaker Change: now, we will take a closer look at our second quarter results and update our guidance for the remainder of 2025,
for the second quarter sales, increased 253 million driven by a 4.1% increase in comparable, store sales, and an 86 million non-comp contribution from stores, open in 24 and 25. That have not yet entered the comp base.
For 2025, we now expect our total revenue to be between 17.5 and 17.8 billion.
Speaker Change: Our second quarter effective tax rate was 22.4% of pre-tax income.
Jeremy Fletcher: This compares to the second quarter of 2024 rate of 23.2% of pre-tax income, which was comprised of a base tax rate of 23.8% reduced by a 0.6% benefit for share based compensation. For the full year of 2025, we now expect an effective tax rate of 22.3%. We expect the fourth quarter rate to be lower than the other three quarters due to the tolling of certain open tax periods. Also, variations in the tax benefit from share-based compensation can create fluctuations in our quarterly rate.
Speaker Change: Comprised of a base rate of 23.2% reduced by a 0.8% benefit for share-based compensation.
Speaker Change: This compares to the second quarter of 2024 rate of 23.2% of pre-tax income, which was comprised of a base tax rate of 23.8% reduced by a 0.6% benefit for share-based compensation.
Speaker Change: For the full year of 2025. We now expect an effective tax rate of 22.3%
Speaker Change: We expect the fourth quarter rate to be lower than the other 3 quarters due to the tolling of certain open tax periods.
Jeremy Fletcher: Now we will move on to free cash flow and the components that drove our results. Free cash flow for the first six months of 2025 was $904 million versus $1.2 billion in the first half of 2024. The reduction in free cash flow was primarily the result of the timing of payment for renewable energy tax credits, with a higher cash outflow for these payments occurring in the second quarter of 2025 versus the third quarter of 2024. For the full year 2025, our expected free cash flow guidance remains unchanged at a range of $1.6 to $1.9 billion.
Speaker Change: Also variations in the tax benefit from share-based compensation. Can create fluctuations in our quarterly rate
Speaker Change: Now, we will move on to free cash flow and the components that drove our results. Free cash flow for the first 6 months of 2025 was 904 million versus 1.2 billion. In the first half of 2024,
Speaker Change: the reduction in free cash flow was primarily the result of the timing of payment for renewable energy tax credits with a higher cash outflow for these payments occurring in the second quarter of 2025 versus the third quarter of 2024.
Jeremy Fletcher: Inventory per store finished the quarter at $833,000, which was up 90% from this time last year and up 4% from the end of 2024. Broad-based inventory availability is critical to the success of our business and we have been pleased with the investments we have made in inventory in 2025. Our projected increase in 2025 in average inventory per store remains unchanged at $5,000.
For the full year. 2025 our expected pre-cast flow, guidance remains unchanged at a range of 1.6 to 1.9 billion dollars.
Inventory, for stores finished the quarter at 833,000.
Speaker Change: Which was up 90% from this time. Last year and up 4% from the end of 2024
Broad-based inventory availability, is critical to the success of our business and we have been pleased with the Investments. We've made in inventory in 2025
Jeremy Fletcher: I also want to touch briefly on our AP to inventory ratio. We finished the second quarter at 127 percent, which was down from 128 percent at the end of 2024, but slightly above our expectations. For the remainder of 2025, we expect to see continued moderation resulting from our planned incremental inventory investment across our store and distribution network, and currently expect to finish the year at a ratio of approximately 125%.
Are projected, increase in 2025 and average inventory for store remains unchanged at 5%.
Speaker Change: I also want to touch briefly on our AP to inventory ratio.
Speaker Change: We finished the second quarter at 127%, which was down from 128% at the end of 2024, but but slightly above our expectations.
Jeremy Fletcher: Moving on to debt, we finished the second quarter with an adjusted debt to EBITDA ratio of 2.06 times as compared to our end of 2024 ratio of 1.99 times. with an increase in adjusted debt partially offset by EBITDA growth. We continue to be below our leverage target of 2.5 times and plan to approvingly approach that number over time.
Speaker Change: For the remainder of 2025, we expect to see cons continued, modder moderation, resulting from our plan incremental inventory investment across our store and distribution Network. And currently expected to finish the year at a ratio of approximately 125%
Moving on to debt. We finished the second quarter with an adjusted debt to i-bidder ratio of 2.06 times as compared to our end of 2024 ratio of 1.99 times.
Speaker Change: With an increase in adjusted debt, partially offset by i-bidder growth.
Jeremy Fletcher: We continue to be pleased with the execution of our share repurchase program, and during the second quarter, on a split-adjusted basis, we repurchased 6.8 million shares at an average share price of $90.71 for a total investment of $617 million. 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 BIPAC program as an effective means of returning excess capital to our shareholders. As a reminder, our EPS guidance that Brad outlined earlier includes the impact of share repurchase through this call, but does not include any additional share repurchase.
We continue to be below our leverage Target of 2.5 times and plan to improve that number over time.
Speaker Change: We continue to be pleased with the execution of our share repurchase program. And during the second quarter on a split adjusted basis. We repurchased 6.8 million shares, and an average share price of $90.71 for a total investment of 617 million.
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.
Jeremy Fletcher: Before I open up our call to your questions, I would once again like to thank the entire O'Reilly team for their continued hard work and dedication to providing consistently high levels of service to our customers. This concludes our prepared comments.
Speaker Change: As a reminder, our EPS, uh, guidance that Brad outlined earlier includes the impact of shares. Repurchased through this call, but does not include any additional share repurchases.
Speaker Change: before I open up our call to your questions, I would
Once again, like to thank the entire O'Reilly team for their continued hard work and dedication to providing consistently high levels of service to our customers.
Matthew: 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.
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.
Matthew: We will now begin the question and answer session. If you have a question, please press star 1 on your phone. If you wish to be removed from the queue, please press star 2.
Thank you. We will now begin the question and answer session. If you have a question, please press star 1 on your phone.
Matthew: We do ask that while posing your question, please pick up your handset if you're listening on speakerphone to provide optimum sound quality.
Speaker Change: If you wish to be removed from the queue, please press star 2.
Matthew: Please limit your questions to one question and one follow-up question. And once again, if you have a question, please press star 1 on your phone.
We do ask that while posing your question. Please, pick up your handset if you're listening on speakerphone to provide Optimum sound quality
Speaker Change: Question and 1, follow-up question.
Simeon Gutman: Your first question is coming from Simeon Gutman from Morgan Stanley. Your line is live. Good morning, everyone.
And once again, if you have a question, please press star 1 on your phone.
Your first question is coming from Simeon. Gutman from Morgan Stanley. Your line is live
Brent Kirby: My first question- Hey, good morning, Senator. All right. Good morning, guys. So- Call it two or three months ago when we began this tariff journey. probably a range of outcomes that we're forming. What Would Happen to Price? tariff rates now that have changed. Suppliers, and now you're probably making decisions on price. Can you, without stating magnitude, which I don't think you'll share with us, can you tell us, is the pressure on pricing, which I assume is up... Is that around the same? Is it higher or is it lower than when you started this journey about three or four years Yeah, Simeon, this is Brent.
Simeon Gutman: Hi, good morning, everyone. Uh, my first question,
Speaker Change: Good morning, guys.
so,
Speaker Change: Call it 2 or 3 months ago when we began this tariff Journey.
There was probably a range of outcomes that were forming in terms of what would happen to price, you've had tariff rates now that have changed with suppliers. And now you're you're probably making decisions on pricing.
Can you without stating magnitude, which I don't think you'll share with us. Can you tell us is is, is the pressure on pricing, which I assume is upward? Is that around the same? Is it higher, or is it lower than when you started this journey about 3 or 4 months ago?
Brent Kirby: I can start and these guys can add in. Yeah, I would just tell you that the backdrop is the consumer. You know, Brad talked about that in his prepared comments and you know, as far as defining is the pricing pressure greater or less than it was a few months ago, it's really hard to say. You know, the consumer we know at the lower end is pressured right now and has been for some time. What I would tell you is what we continue to see is we've got a very rational industry. We've got a very rational history of these kinds of things in the past, certainly not dealt with some of the headlines on tariffs that we're dealing with now.
Speaker Change: Um, yeah, Simeon. This is Brent. I can start and, uh, these guys can add in. Yeah, I I would just tell you that the the backdrop is the consumer, you know, Brad talked about that in his prepared comments and and um, you know
Speaker Change: As far as defining, is the processing, pressure greater, or less than it was a few months ago. It's really hard to say. Um, you know, the the, uh, the, the consumer, we know at the lower end is, is, is pressured right now and has been for some time. Uh, what I would tell you is what we continue to see is we've got a very rational industry.
Brent Kirby: This is a little bit uncharted, but if you go back a few years and look at how things behaved back in, you know, the 2018 timeframe, the cost eventually do, you know, do get to, you know, get to the price at some point in the process. Our goal is to minimize any impact to our consumer because we know they're under pressure. So we work very closely with our supplier partners. It's really hard to gauge, you know, is the pressure greater now than it was a few months ago? I think the pressure is what the pressure is.
Jeremy Fletcher: We're going to continue to do what we do and do everything we can to keep the prices reasonable for our consumers and, you know, be fair with our suppliers as we work.
Jeremy Fletcher: Yeah, Simeon, just real quick, I think Brent summed it up really well. I think if I think back to kind of the beginning of the year, just what we've been through, what the consumer's been through, what our industry's been through, broader retail too, over the last, you know, six months to a year, I think if we had to say it as close to, you know, the answer you're driving to as we could, we're not surprised. I think it's generally a similar pressure to the input cost, similar pressure to the to the retails that from a pricing standpoint that we would have expected.
Industry. We've got a very rational history uh of of these kind of things in the past, certainly not dealt with some of the headlines on tariffs that we're dealing with now, just a little bit Uncharted. But if you go back a few years and look at how things behaved back in, you know, the 2018 time frame, uh, the, the cost eventually, do, you know, do get to, uh, you know, get to the price at some point in the process. Our goal is to minimize any impact to our consumer because we know they're under pressure, so we work, very closely with our supplier Partners. I it's really hard to gauge, you know, is the pressure greater now than it was a few months ago. I think the pressure is what the pressure is. We're going to continue to do what we do and, and, and do everything we can to keep the prices reasonable for our consumers and, and, uh, you know, be fair with our suppliers as we work through this. Yeah, I'm assuming just real quick. I, I think Brent summed, it up really well. I, I think if I think back to kind of the beginning of the year, just what we've been through, what the consumer
Simeon Gutman: I think the pressure is similar to the consumer. We're just trying to balance out the best we possibly can, how we're thinking about the balance of the year in terms of possible opportunities, and also just having caution in the way we're thinking about it, that depending on how things go, there could be increased pressure to the Okay, fair enough.
Speaker Change: Has been through what our industry's been through, uh, broader retail to over the last, you know, 6 months to a year. I think if we had to say it uh as close to, you know, the answer you're driving to as we could. It's it's we're not surprised I think. Um, it's generally a similar pressure uh to to the input costs uh, similar pressure to the, to the, uh, retails that that, um, from a pricing standpoint that we would have expected. I think the pressure is similar to the consumer. We're just trying to balance out
Speaker Change: Um, the best we possibly can, how we're thinking about the balance of the year, in terms of possible opportunities and also just having, um, caution in the way we're thinking about it that depending on how things go um there could be increased pressure to the consumer.
Brent Kirby: And then the back half guide. mathematically tells us that SG&A dollar growth That's the math. If it doesn't, if it surprises us at the upside, what would be the cause of it? And then, you know, Brad, the age old, you know, spending versus investing. http://TheBusinessProfessor.com Yes, I mean, it's a it's a fair and important question. And if you don't mind, I'm going to let Jeremy talk through kind of our thoughts to start out. And then I'll come back to more the kind of short to long term question. Yeah, it's a good question to call out, Simeon, and I think when you look at our updated guide, where we think the full year will finish at that three to three and a half per store SGA growth that Brent referenced earlier, just keep in mind that that does include a comparison benefit as we move through the fourth quarter, where we had to take a charge from a reported number perspective on that.
Speaker Change: Okay, fair enough. And then the back half guide.
Mathematically tells us that sgna dollar growth is going to taper a bit from the Run rate.
That's the math. What if it doesn't if it surprises us at the upside, what would be the cause of it. And then, you know, Brad the age-old, you know, spending versus investment versus, you know, return. Like how do you think about that? It, you know, should there be a higher rate of of, of Senate going forward? Thanks. Yeah, I mean, it's a, it's a fair and important question. Um, and if you don't mind, I'm going to let Jeremy talk through, um, kind of our thoughts to start out, and then I'll come back to more the kind of short to long-term question.
Jeremy Fletcher: It does contemplate that the back half of the year may be excluding the dynamic around that comparison that would put us more in that three to four percent range for personal growth, and really, that's a reflection relative to what we saw in the first half of just the cadence of how some of that spend is expected to occur through the balance of the year, some of the more unique pressures that we would have seen in the first half. I think to your question. You know, the types of things that could drive us to see that be further pressured in the balance sheet or beyond what we're really seeing today would be any continuation of inflation or cost-driven pressures within our cost structure that we are unfortunately at times can be takers of, especially on things that are more difficult to manage, things that Brent pointed out within his comments.
Yeah. It's a it's a it's a good question to call out to see me and and I think when you look at our our updated guide where where we think the full year will finish at that 3 to 3 and a half first story, you know growth that Brent referenced earlier, just keep in mind that that does include a comparison benefit as we as we move through the, the fourth quarter where we had to to take the charge from a reported number perspective on that it it does contain that that the back half of the year maybe excluding the the dynamic around that that that compares and that would put us.
Jeremy Fletcher: But then also, as we see the cadence of our business and continues the opportunities to fuel top line growth within a market that might end up being a little bit more disrupted in the balance of the year, to the extent that we're starting to capture volume benefits or any of those types of things, it's always been, I think, a pretty firm commitment of our company to service that business well. Those are the points kind of in the cycle where our customers most rely on us to step in and provide really excellent service to help solve problems for them.
Speaker Change: To see that that be further pressured in the balance that you're beyond what we're really seeing today would be, you know, any continuation of of inflation or cost driven pressures within our cost structure that, that that we are are unfortunately, at times can be takers of, especially on things that are more difficult to manage things, that, that Brent pointed out within his comments. But then also, as we see the, the Cadence of our business and, and continue to see opportunities to fuel, uh, Topline growth, uh, within, you know, within a market that might end up being a little bit more disrupted in the balance of the year to the extent that, that, that we're starting to capture, uh, volume benefits or any of those types of things. It's always been. I I think a a pretty firm commitment of our company to to service that that business. Well, those are the, the points, uh, in, in in, you know, kind of in the cycle where our customers most rely on us to to step in and provide really uh, excellent service.
Brent Kirby: And so we remain pretty committed to managing our business in a way that provides value for our customers at a very high level and puts us well-positioned to capture, share, to fuel growth. And so that, from a component perspective, might be among the factors that would cause SGA to differ from our expectations in moving forward. For sure, I think we've factored what we know and how best we can forecast that for how we've updated our outlook there. But those are really the things that kind of cause it to be variable moving forward. Yeah, well said.
Speaker Change: To help solve problems for them. And so we, we remain pretty committed to, uh, to to managing our business in the way that provides value for our customers, uh, at a very high level and, and puts us, well, positioned to, to capture share to to fuel growth. Uh, and so that, that, from a, a component perspective might be, you know, among the factors that would would cause SG to, to differ from our expectations and moving forward for sure. We, I think we've, we've
Brent Kirby: There is some inflationary pressure additional to what we saw a quarter ago and two quarters ago. But the bottom line is, Simeon, we're in this for the long haul. We're very proud at O'Reilly, as you know, of the operating profit rate that we've been able to establish and grow over a long period of time. We still feel confident in the mid to long term we can continue to create leverage. But we're going to do that through share gains. We're going to do that through the fact that we have 10% share in the U.S. and even less in Mexico and Canada with these new platforms. And we feel like these years, last year and even this year, continue to show us that there's some volatility with some of our competitors, mainly on the independent WD type side.
Brent Kirby: And we're going to continue to play from a position of strength. We're going to make solid, decisive, long term decisions. And any of these quarters, as you know, as well as any one, there's things that we could have done to bring in the quarter. But it wouldn't have been the right thing to do for the mid and long term. And that's what we're focused on.
Speaker Change: Factor what we know and how best we can forecast that for for how we've updated our, our Outlook there. Uh, but those are are are really the things that that kind of caused it to be variable moving forward. Yeah. Well, well said, um, you know that there is some, you know, inflationary pressure additional to what we, um, saw, you know, a quarter ago and 2 quarters ago, but, uh, the bottom line is Simeon. You know, we're in this for the Long Haul. Um, we're very proud in O'Reilly's, you know, of of the operating profit, you know, uh, rate that we've been able to establish and grow over a long period of time. Um, you know, we still feel confident in the mid to long term, we can continue to create leverage but we're going to do that through through share gains. We're going to do that you know through the fact that we have 10% share uh in the US and even less in Mexico and Canada with these new platforms and and we feel like um these years, you know last year and and even this year continued to show us that there's some volatility with some of our competitors um mainly on the independent w.
Simeon Gutman: Excellent. Thanks. Well done. Thanks, Simeon. Thank you.
Speaker Change: WD type side. And uh, we're going to continue to play from a position of strength. We're going to make solid decisive long-term decisions and any of these quarters as you know, as well as anyone, you know, there's things that we could have done to to bring in the quarter, but it wouldn't have been the right thing to do for the mid and long term and that's what we're focused on.
Excellent, thanks. Well done. Good luck.
Thanks Simeon. Simeon.
Michael Lasser: Your next question is coming from Michael Lasser from UBS. Your line is live. Good morning. Thank you so much for taking my question.
Thank you. Your next question is coming from Michael Lasser from UBS. Your line is live.
Michael Lasser: Brad, has the cost of doing business within the auto aftermarket just simply increased, perhaps as a result of a lot of the weaker marginal competitors having already gone away? So the industry is left with stronger players, and it's more expensive to gain that share. And that's caught O'Reilly a bit off guard and has been a surprise. And that's why these SG&A dollars have been consistently underexpected and have come in a bit heavier than anticipated.
Good morning. Thank you so much for taking my question. Brad has the cost of doing business within the auto aftermarket to Simply increase perhaps as a result of a lot of the weaker marginal competitors having already gone away. So the industry is left with stronger players.
Brent Kirby: And if that's the case, how does the model need to change in order to navigate through this moving forward? Hey, good morning, Michael. Fantastic question. So, really, kind of back to a couple points that we made on Simeon's question. I think the direct answer to your question, quite frankly, is a little bit of both. Is there going to be times, like it always has been in our industry, where we do feel like expense pressure is understandable and needed, along with investments. I think there's going to be cycles like that. And I think, to some degree, we're in a cycle like that, where we are going to see the cost of doing business for the long-term have pressure on it.
Speaker Change: And it's more expensive to gain that share and that's caught O'Reilly a bit off guard and been a surprise and that's why these sta dollars have been consistently under, um, under expected and have come in a bit heavier than uh, anticipated. If that's the case, how does the model need to change in order to navigate through this moving forward?
Hey, good morning, Michael fantastic question. Uh, so so really kind of back to a couple points, uh, that we made on on simeon's question, you know, I think the, you know, direct answer to your question, quite frankly is a little bit of both. Um, is there going to be times? Like, it always has been in our industry where where we do feel like, um, you know, expense pressure is, uh, understandable and needed along with, uh, you know, Investments. You know, I, I think there's going to be Cycles like that.
Brent Kirby: What we don't think has changed, to kind of the middle and latter part of your question, is the long-term focus for us on our operating profit rate, on what we built over a long period of time. We don't feel like that's necessarily changed. And the reason I say about it, Michael, is when I look back at the top 10 chains, specifically in the U.S. today, versus 10 years ago, versus 20 years ago, or versus almost 30 years ago, when I started in this business and with O'Reilly, as you know, consolidation has continued to take place.
Brent Kirby: And we see consolidation going to continue to take place. And we feel like, again, to what I said about Simeon's question, we feel like we continue to operate in a unique time where there is still some volatility with some of our weaker, smaller players. And so, again, the answer is a little bit of both. We feel like there continues to be an opportunity for us to invest and not react to short-term things that we could do from an expense standpoint. But we feel like the basic fundamentals of our industry, our ability to turn our 10% share into a much larger number over the mid- to long-term, that we feel confident we can continue to have O'Reilly standards when it comes to leveraging our overall expense structure and continuing to maintain and incrementally grow our operating profit percentage over time.
Started in this business and with O'Reilly um, as you know, consolidation has continued to take place and we see consolidation going to continue to take place and and we feel like um, again to what I said about simeon's question we feel like, um, we continue to operate in a unique time where there is still some volatility with some of our weaker smaller players, and, uh, so again the answer is a little bit of both. Um, you know, we feel like there there continues to be an opportunity for us to in, in, in invest and not react to short-term things that we could do from an expense standpoint, but we feel like the, the, the basic fundamentals of our industry, our ability to turn our 10%, share into a much larger number over the mid to long term that that we feel confident. We can continue to have O'Reilly standards when it comes to leveraging our overall expense structure and continuing to maintain and incrementally, grow our operating proper percentage over time.
Michael Lasser: Thank you very much for that.
Michael Lasser: My follow up question is, given your experience in June, where the DIY business was a bit softer, does that give you pause as we move throughout the rest of the year, either in the consumer's ability to absorb all this inflation and how it's going to respond in terms of elasticity, or some other factors, whether it's immigration policy reform, or anything else that might be impacting your core consumer? And we should have more moderate expectations as a result of that experience? Or is that just a one off situation that we shouldn't extrapolate moving forward? Thank you very much.
Speaker Change: I too, thank you very much for that. My follow-up question is given your experience in June, where the DIY business was a bit softer. Does that give you pause as we move throughout the rest of the year, either in the consumer's ability to absorb all this inflation and how it's going to uh, respond in terms of the elasticity or some other factors. Whether it's immigration policy reform,
Brent Kirby: Yeah, another great question, Michael. I'll start this off and then see if Jeremy and Brent want to jump in. But we want to answer that balance because there is still so much caution and just, you know, pause for us to get too far over our skis with how the consumer is going to react the remainder of the year as there continues to be pressure. So, I want to balance this out. Directly to the question about June, we don't think that signals anything beyond what I just said. And what I mean by that is when we got into June, quite frankly, when you look at our southern markets and really all our markets to some degree, it was very wet.
Speaker Change: Or anything else, that might be, uh, an impact in the your core consumer and we should have more moderate expectations as a result of of that experience. Or is that just a 1-off situation that we shouldn't extrapolate moving forward? Thank you very much.
Brent Kirby: You know, we've really had a hot summer and it's getting hotter, which is generally a good thing for us. But it was a very wet June. And when we look at category performance and we look at geography performance, it wasn't that there were stark differences, but there were some minor differences that really convicted us that some of the pressure in June, if not all of it, was kind of normal pressure that we saw that we think more offset maybe the remainder of the quarter. We look at the quarter very balanced and, you know, still very early in July, but we feel good about the start of July.
Speaker Change: Yeah, another great question, Michael. I'll I'll start this off and then see if Jeremy and Brent want to jump in. But we, we want to answer that balanced because there is still so much caution and just, um, you know, pause for us to get too far over our skis with how the consumer is going to react the remainder of the year, as there continues to be pressure. So I, I want to balance this out, directly to the question about June, um, we we, we don't think that signals anything beyond what I just said. And what I mean by that is when we got into June, quite frankly, when you look at our Southern markets and, and really, all our markets to some degree, it was very wet. Um, you know, we we, we've really had a hot summer and it's getting hotter. Um, which is generally a good thing for us. Um, but it was a very wet June. And and when we look at category performance and we look at geography performance, it wasn't that there was Stark differences. But there was some minor differences that that that really um convicted us that uh, the sum of the pressure in June
Michael Lasser: Thank you very much and good luck. Thanks, Michael.
If not, all of, it was kind of normal pressure that we saw that, we think more offset maybe, um, the remainder of the quarter, um, we we look at the quarter very balanced, and, uh, you know, still very early in July, but we feel good about the start of July.
Speaker Change: Thank you very much and good luck.
Speaker Change: Thanks. Thanks.
Matthew: Thank you.
Scot Ciccarelli: Your next question is coming from Scot Ciccarelli from Truist. Your line is locked.
Scot Ciccarelli: Good morning, guys. increases related to the tariffs. Is there any difference on how you price or maybe even the timing? between your DIY and commercial segment. Just trying to get a feel here for if the... Hey Scott, for some reason you're cutting in and out. We're not getting all of your questions. I think maybe you're pointing towards a question around does how we think about the tariff and managing through the tariff, does it differ on the DIY and professional side? So really, I'll maybe start there, and Brent or Brad can chime in from their perspective.
Speaker Change: Thank you. Your next question is coming from Scott, chikari from truist. Your line is live.
Speaker Change: Uh, good morning, guys.
Increases related to the tires. Is there any different on how you price? Or maybe even the timing?
Speaker Change: Between your DIY and Commercial segment. Just trying to get a feel here. For if, if the
Speaker Change: Hey Scott, for some reason you're cutting in and out, we're not getting all of your questions.
I I I think maybe you're pointing towards a question around does does how we think about the the Tariff and managing through the Tariff is it does it differ on the DIY and professional side?
Jeremy Fletcher: You know, I would tell you, we actively manage that process. It's a very in-depth and involved process, and it's one that we're going down from a category-by-category basis. And even how we think about the professional side of our customer base, you know, we're trying to understand the different ways we compete in that space and the different types of customers we have. So I think it would be a little bit of a simplification to say that they both look exactly the same, just because it's a fairly complex process. And for sure, there are times at which we have better visibility on the DIY side.
Speaker Change: Correct. So really, I'll maybe start there in, in, in, in, in Burbank, and, and chime in from from their perspective. Uh, you know, I would tell you, we actively manage that process. It's a very in-depth and involved process, and it's 1, um, that that we're going down from a category by category basis. And and even how we think about the professional side of our C customer base,
Jeremy Fletcher: It's a little bit simpler of a change there to think through what those modifications would be, whereas we're going to have a different process to understand where the market sits and how the market's moving in a little bit more diversified way with our professional customers. Having maybe laid out those dynamics a little bit, our approach and what we think we see is relatively consistent on both sides of our process. That, you know, that can differ a little bit category to category, and particularly as we think through this kind of timing component. But, but ultimately, as we kind of work through to get to that equilibrium that Brent talked about, that does tend to work in pretty close parity on both sides of our.
Jeremy Fletcher: Okay, got it.
Speaker Change: With our professional customers, uh, having having maybe laid out those Dynamics a little bit, our our approach. And what we think we see is relatively consistent on both sides of our business. That, you know, that can differ a little bit category, the category, uh, in particularly as we think, through this, kind of timing component, but but ultimately, as we kind of work through to get to that equilibrium that that Brent talked about, um, that that does does tend to work in pretty close parody, uh, on both sides of our business.
Scot Ciccarelli: Thank you. Thanks, Scott.
Speaker Change: Okay, got it. Thank you.
Matthew: Good night.
Matthew: Thank you.
Zach Fadem: Your next question is coming from Zach Fadem from Wells Fargo. Your line is live. Hey, good morning.
Thank you.
Speaker Change: Thank you, your next question is coming from Zack, fathom from Wells Fargo. Your line is live.
Zach Fadem: Um, when you think about the typical consumer reaction to rising prices in the category historically, can you help level set us on the mix of your business that you would say requires immediate action like like a dead battery versus what mix is deferrable or discretionary? Yeah, Zach, good morning. Thanks for the question.
Speaker Change: Hey, good morning. Um, when you think about the typical consumer reaction to to Rising prices in the category, historically, can can you help level set us on the mix of your business? That you would say, requires immediate action? Like a, like a dead battery versus what mix is deferrable or discretionary.
Jeremy Fletcher: You know, we've never really put a very fine point on on that specific split, just just candidly, because there's a fair enough other items that they kind of fall sort of in an in-between space. I would tell you that there is a high, a high majority of what we sell that that requires either an immediate fix, or they can only be deferred over very, very short periods of time. You know, in response to your first question, maybe start there, and Brad and Brent can jump in as well. You know, interestingly, I think for us, you know, our industry does not typically see a lot of price sensitivity as it relates to the, you know, the individual job or the individual ticket for our customer because of what we talked about from a non-discretionary perspective.
Speaker Change: Yeah. Zach, good morning. Thanks for the question. You know, we've never really put a, a very fine point on on that specific split. Um, just just candidly because there's a, a fair enough other items that, that kind of fall sort of in, and in between space. Uh, I I would tell you that there's a high, a high majority of what we sell that that require
Speaker Change: Either an immediate fix or uh that can only be deferred over very very short periods of time.
Jeremy Fletcher: You know, if you need that alternator, if you have that battery that fails, it's a required fix. You need your vehicle to be able to get to work, to haul your kids around and those types of things. I think from our perspective, what gives us more caution is less. Any Price Sensitivity or Elasticity Round is specifically the prices we move up, but just the broader pressure, the inflation really across all of our customers' pocketbook spend can have to how they think about decisions where they do have deferral, if they can push off that oil change, or can maybe delay fixing an air conditioner service or a part or something along those lines, or might choose to do things like trade down the value spectrum or those items. I think that's where, within our industry, those are more shocks to the consumer than they are individual pricing pressure on the things that we sell.
Speaker Change: You know, in response to your first question. Maybe start there in in in Brad of rent can jump in as well. You know, interestingly I think for us, uh, you know, our industry does not typically see a lot of of price sensitivity as it relates to the, you know, the individual job or the individual ticket for for a customer. Because of what we talked about from a non-discretionary person, uh, it, you know, if you if you need that alternator, if you, if you had that battery. It feels uh, it's it's a required fix. You need your vehicle to be able to, to get to work to, to haul your kids around and those types of things. I, I think, I think from our perspective, what what gives us more caution is less.
Uh, any price sensitivity to your elasticity around is specifically the prices we move up, but just the broader pressure that that that, that inflation really across all of our customers pocketbooks been can have to how they think about, uh, decisions, where where they do have deferral. What if they can push off that oil change or can um, you know, maybe delay, uh, fixing the air conditioner, uh, service or part or something along those lines or, or might choose to do things like trade down the value Spectrum or or those items. I I think that's where uh within our industry. Those are more shocks to the consumer, then they are uh in
Brent Kirby: But we have seen that short-term pressure where deferrals can happen, but typically normalizing it, caught back up as the consumer adjusts to the things that they buy from us.
Brent Kirby: Yeah, Zach, I think just real quick, Jeremy said it very well. The lines in our business between failure, maintenance, and discretionary aren't always just black and white. There's some gray area kind of in between. And I think Jeremy kind of walked through the way we look at it very, very well. I think we just continue to try to stay balanced, though we haven't seen hardly any. We may have seen a little bit over the last couple quarters in terms of deferral. We're still very positive about our maintenance categories. Obviously, failure categories, the way we see them, are performing well, and we continue to see pressure in the discretionary.
Speaker Change: Individual pricing pressure on the things that we sell, uh, but but we have seen that short-term pressure. Uh, we're we're deferrals can happen, um, but but typically, uh, but typically normalized and get caught back up as a consumer adjusted and things that they buy from us. Yeah, Zack I I think just real quick, um, Jeremy said it very well, the, the lines in our business between failure maintenance and discretionary aren't always just black and white. There's some gray area kind of in between and I think Jeremy kind of walked through you know uh the way we look at it very, very well. I think we just continue to try to stay balanced that though. We haven't seen
Brent Kirby: So we're still positive and constructive, but we also want to stay constructive in terms of just the back half of the year, and if pricing continued to pipe through, do we get to a point where the consumers, at a point like we've seen in years past, where they just need to defer a little bit. Like we mentioned in prepared comments, when we've seen those type times, even though I think what we're going through right now is unprecedented in a lot of ways, when we have seen that type shock to the consumer, it is fairly short-lived in our industry.
Speaker Change: Hardly any, we may have seen a little bit over the last couple quarters in terms of deferral. Um, you know, we we're still very positive, um, about our maintenance categories. Uh, obviously failure categories, the way we see them are, are, uh, performing well and not and we continue to see pressure in the discretionary. So we're, we're still positive and constructive. Oh, are we? But we also want to stay constructive in terms of just the back half of the year. And if, if pricing continue to pipe through, um, do we get to a point where the consumer is in a, at a point, like, we've seen in, in years past where they just need to defer a little bit, um, like we mentioned in prepared, comments, when we've seen those type times. Even though, I think what we're going through right now is is unprecedented in a lot of ways when we have seen that type that type shock to the consumer.
Zach Fadem: Appreciate that.
Speaker Change: It is fairly short-lived in our industry.
Zach Fadem: And then with respect to your Virginia D.C. opening, can you talk about just the expected impact or opportunity for unlocking share gains in the Mid-Atlantic and Northeast? And would you say this could, you know, ultimately result in an acceleration in new openings or perhaps getting more aggressive in taking share in that region?
Speaker Change: I appreciate that. And then with respect to your Virginia DC opening, can you talk about just the expected impact or opportunity for unlocking, share gains in in the Mid-Atlantic and and Northeast and would you say this could you know, ultimately result in an acceleration in in new openings or perhaps getting more aggressive in in taking share in that region?
Brent Kirby: Yeah, Zach, great question. This is Brent. I can start and Brad and Jeremy can jump in. Yeah, we're super excited about that DC, super excited about having that capacity. You know, we've been a little strained with our distribution capacity in the southeast and up that eastern, you know, mid-Atlantic for several years now as we've grown our store count and grown our volumes there. So, getting that DC online is something we're really excited about. You know, if you think about that I-95 corridor and you think about number of vehicles, number of people that are along that corridor and really kind of a last frontier a little bit for us in terms of our, you know, domestic expansion.
Brent Kirby: So, we'll be moving some stores over from existing DCs, but we'll still have plenty of capacity to grow in that mid-Atlantic region. So, certainly something our real estate teams are focused on and looking at and our operational teams are focused as well. So, we see that as a big growth opportunity.
Brad Beckham: Yeah, Zach, Brent said it really well, we couldn't be more excited about our opportunities kind of in that upper mid-Atlantic market. Very competitive markets, but it has all the market share opportunities to go along with it. And so, you know, as we continue to look at kind of that upper, you know, northern Virginia, getting into DC, Baltimore, eventually Philly and New York City, depending on where you draw the line, you know, in some of those regions, you can almost come up with a third of the population of the U.S. to Brent's point on population, car park, vehicle, vehicle registrations, et cetera.
Speaker Change: This is Bren, I can start and Brad. Jeremy can jump in. Yeah, we're we're super excited about that. DC, super excited about having that capacity, you know, we've been a little strained, uh, with our distribution capacity in the Southeast and up up that Eastern, you know, Mid-Atlantic for for several years. Now, as we've, grown our store, count grown our volumes there. So getting that DC Online is something we're really excited about. You know, if you think about that, I 95 Corridor and you think about number of vehicles, number of, uh, people that are along that Corridor and really kind of a last frontier, a little bit for us, in terms of our, you know, uh domestic expansion. So they'll be uh, you know, we'll be moving some uh, stores over from existing DC's. But we'll still have plenty of capacity to grow in that Mid-Atlantic region. So uh, certainly something, our real estate teams are focused on and looking at and our operational teams are are focused as well. So we see that as a big growth opportunity for us. Yeah. Zach Brent said it really well. We couldn't be more excited about our opportunities. Kind of in that upper Mid-Atlantic Market very competitive market.
Brad Beckham: And so it's going to be a big opportunity to take a little bit of pressure off some existing DCs, but also more importantly, to really get after that part of the country where we have a lot of opportunities.
Speaker Change: Markets, but it has all the market share opportunities to go along with it. And so, you know, as we continue to look at kind of that upper, you know, Northern Virginia, getting into DC Baltimore, uh, eventually Philly and, and New York City, um, depending on where you draw the line, you know, and some of those regions you can almost come up with a third of the population of the US to Brent's point on population. Um, car park vehicle vehicle, registration is ETC. And so it's going to be a big opportunity to take a little bit of pressure off. So,
Matthew: Thanks for the time. Thanks, everybody. Thank you.
Existing DCS. But also more importantly, to really get after that part of the country, uh, where we have a lot of opportunity.
Speaker Change: Thanks for the time.
Thanks.
Steven Zaccone: Your next question is coming from Steven Zaccone from Citi. Your line is live. Great, good morning. Thanks very much for taking my question.
Speaker Change: Thank you. Your next question is coming from Steven zakone from City, your line is live
Steven Zaccone: I wanted to ask, just given the disruption in the industry from tariffs, and stuff of that nature, do you see this as an opportunity to really accelerate share gain you know, work closer with the vendors, kind of take some share from customers out there. Just how do you think through that ability to accelerate share? Yeah, good morning, Steve. Thank you very much. Well, number one, you know, while there is some disruption, you know, we work in a very resilient industry, you know, our industry, consumers are resilient, our competitors are resilient. And so we'll want to balance that a little bit with, you know, we know our big sophisticated competitors and the best of the best of some of the smaller competitors, WDs, two-stepper type independents, you know, they'll navigate through this pretty well.
Speaker Change: Great. Good morning. Thanks very much for taking my question. Um, I wanted to ask just given the um destruction the industry from Tiff and stuff of that nature. Do you see this as an opportunity to really accelerate share gains? You know, work closer with the vendors kind of take some share from customers out there. Just how do you think through that ability to accelerate share games?
Brent Kirby: I mean, we don't want to take that for granted.
Brent Kirby: That said, the other side of it is anytime there's this type complexity in our industry, I would, you know, really start this part by just giving a call out to our supply chain that's led by Brent, you know, our merchants, our inventory control purchasing teams, distribution operations, just really, especially the merchandise team, how they're navigating this, our experience in the industry, our tenure, our remote from within philosophy that has worked through these type things so many different times, even though it is a little bit unique, we do feel like there's an opportunity for disruption, especially when it gets to the less sophisticated and maybe some of the competitors that are already struggling on the independent side.
Yeah, good morning Steve, thank you very much. Well, number 1, you know, while there is some disruption, you know, we work in a very resilient industry, you know, our industry, uh, consumers are resilient our competitors are resilient and so won't want to balance that a little bit with um, you know, we know our big sophisticated competitors and the, the best of the best of of some of the smaller competitors WDS 2-Step or type Independents um, you know, they'll they'll navigate through this pretty. Well, I mean we don't want to take that for granted.
Speaker Change: Um, that said, the other side of it is anytime there's this type complexity in our industry. Um, uh, I I would, you know, really start this part by just giving a call out to our supply chain. That's led by Brent. Um, you know, our our Merchants, our inventory control purchasing teams distribution operations, just really, especially the merchandise.
Speaker Change: Team how they're navigating this our experience in the industry are um tenure our promotion within philosophy, that has worked through these type things. So many different times, even though it is a little bit unique, we we do feel like there's an opportunity.
Steven Zaccone: And so, yes, we see opportunity, but we also know that we have a lot of work to do ourselves to make sure we do run our playbook, we do our part, because this is complex, there's a lot of work to do, but we also don't take our competitors for granted. So definitely opportunity, but we feel like our industry overall will be resilient, and as well as our consumers, as long as we all work together to figure it out. Okay, understood.
Speaker Change: Um for disruption that especially when it gets to the less sophisticated and maybe some of the competitors that are already struggling on the independent side. And so yes, we see opportunity. But we also know that we have a lot of work to do ourselves. Um, to make sure we do run our Playbook, we do our part, because this is complex, there's a lot of work to do, um, but we also don't take our competitors for granted so definitely opportunity. But um, we feel like our industry overall be resilient and uh, as well as our consumers, as long as uh, we all work together to figure it out.
Jeremy Fletcher: Then just a follow-up I had on Stage 2 Inflation. What should we anticipate as the level of safety inflation in the second half of the year? Sound like second quarter was up just a little under one and a half. Yeah, so the specific answer to that question is, and I think Brad mentioned it in his prepared comments, is we're not factoring into the back half of of the year within our updated guidance, a substantial ramp up in the net benefit that we would see. impact because of just what exists out there on the horizon from a tariff perspective, what we think the industry typically does when they move through it.
Okay. Understood then just to follow up. I had on teams to inflation. What should we anticipate as a level of same to inflation in the second half of the Year? Sounds like a second quarter was up just a little under 1 and a half percent. Thanks.
Yeah. So the specific answer to that question is and I think, you know, Brad mentioned it in his prepared comments is is we're not we're not factoring you into the back half of
Jeremy Fletcher: But we're hesitant to plan for a windfall in our top line from that because of the cautions and concerns we've got about just the overall shock and the impact to the consumer. And that's largely in keeping with how we've managed thinking about inflation in forward-looking inflation projections than what we've done previously. But certainly there is, you know, we're not in a static environment, I wouldn't leave with that impression. It's changing, even understanding what the cost environment is doing is changing period to period. We think that there's going to be some movement there, but we, you know, we do have reservations at least somewhat in projecting that forward until we start to work through it and realize.
Speaker Change: From a tariff. What we think the industry typically does when they move through it. Uh, but but we're we're we're hesitant uh, to to plan for a windfall, uh, in our top line from that because of the, the the cautions and concerns, we've got about just the overall shock and the impact to the consumer and that's largely in keeping with how we we've managed thinking about inflation in in forward-looking inflation projections than what we've done previously. Uh, but but, but certainly, there is, you know, we're not in a static environment. I don't want to leave with that impression. Uh it it's it's changing even understanding what the cost environment uh, is doing is changing period to period. We think that there's going to be some movement there. Uh, but uh, but we, you know, we do have reservations at least somewhat in in projecting that forward until until we start to work through it and realize it
Steven Zaccone: Okay, that's helpful detail. Thanks very much. Thank you.
Speaker Change: That's helpful detail. Thanks very much.
Speaker Change: Thank you.
Max Rakhlenko: Your next question is coming from Max Rakhlenko from TD Cowan. Your line is live. Hey, Greg, thanks a lot. So we get the sense that peers are taking different stances on the level of price that they're pushing through. So just curious, do you think that your price spreads are similar to historic levels, especially against the WDs? Or are you noticing any changes there?
Speaker Change: Thank you. Your next question is coming from Max. Winko from TD Cowen. Your line is live.
Hey great, thanks a lot. So we get the sense that tears are taking different stances on the level of price that they're pushing through. So just curious, do you think that your price spreads are similar to Historic levels especially against WDS? Or are you noticing any changes there?
Max Rakhlenko: Good morning, Max. I appreciate the question.
Brad Beckham: I guess maybe we would have a little bit different assessment on how we think the industry is reacting and responding kind of in this period of time. We do spend a little bit of time thinking about it and looking at it, so we feel like we have a pretty decent handle on kind of what we're seeing. I think one of the challenges, and Brent kind of talked to it in terms of how he walked through and his prepared comments, sort of the process by which all this happens. We don't all show up, I think, at the marketplace at the same time and just find out that the price changed on Tuesday for everybody in the same way.
Brad Beckham: There is a pretty thorough and involved process for how this works through the system, and so there are just naturally, because the supply bases are similar, but there are actually different manufacturers in some instances where there's just some fluidity to how the timing of all of that works, and so there'll be lines and categories where we'll be a follower because we see a competitor move before that or where we'll lead, and often we lead more often than not, I guess I would say. But by and large, we think that the rationality of the market in this environment, even though it's a little bit more volatile in this iteration of tariffs than it has been in the past, it's still largely consistent with what we've seen historically, and we don't anticipate that we'll see anything moving forward that is unusual to our previous practices.
Speaker Change: Uh, good morning, Max, appreciate the question. Um, I I guess maybe we would have a little bit different assessment uh, um, on on how we think the industry is reacting and responding kind of in this period of time. Uh, we do spend a little bit of time, thinking about it and looking at it. So, um, so so we feel like we have a pretty decent handle on on, kind of what we're seeing. I, I think 1 of the challenges and Brent, kind of talked to it in, in terms of, uh, of how he walked through and is prepared comments, sort of the process by which all this happens. Uh, you know, we all show up I think at the marketplace at the same time and and just find out that the price change on on Tuesday, for everybody. In the same way there, there is a pretty, uh, thorough and involved process for how, uh, for how this works through the system. And so there are just naturally because the the supply bases are similar, but they're actually different manufacturers in some instances where, uh, where there's just some some fluidity.
That how the timing of all of that works. And and so, they'll be, they'll be, uh, lines and categories where, uh, where we'll, we'll, we'll, we'll be a follower because we see a competitor move before that and, and or where we'll lead. And, and often we, we lead more more often more often than not, I guess I would say. But, but, but by and large, we think that the, the rationality of the market, uh, in in this environment, even though it's a little bit more volatile,
Brad Beckham: Yeah, well said, Max. Good morning. This is Brad. We're not seeing anything that would tell us that – well, we're not seeing anything at all, not only that won't tell us, but we're actually not seeing any changes in the general spreads between the independent competitors all the way up to our big public national competitors. Okay, great.
In this iteration of of tariffs and it has been in the past is still, is still largely consistent with what we've seen historically. We don't anticipate that we'll see anything moving forward that is is unusual to our prior prior previous practices. Yeah, well well said max, good morning, this is Brad. Um, we're not seeing anything. Um, that would, uh, tell us that. Well, we're not seeing anything at all. Not only that won't tell us, but we're actually not seeing any, uh, changes in the general spreads between the, you know, independent competitors. All the way up to our big uh, big big public, National competitors.
Brent Kirby: And then just on SG&A, any specific callouts that you can make as far as areas that you're investing to capitalize on the market share? Yeah, we don't like to dig down too deep into details there, but I don't think the answers would surprise anyone, Max. It's the things that are most impactful to the service we provide to our customers, which really starts with our teams. And how do we think about putting our teams in the right position to be successful in taking care of their customers? How do we make sure that they've got the inventory availability in their hand, are supported by access to inventory?
Okay, great. And then just on sg&a, any specific call outs that you can make, as far as the areas that you're investing to capitalize on the market share opportunity.
Brent Kirby: faster than the industry in every instance that you can. You know, you could put those two umbrellas over a big swath of what we do, and I think you'd be pretty far along the way. And so those are always going to be the things that I think are prioritized and important to us, you know, in conjunction with some of the technological things that we are continually evolving and modernizing to be sure that we're equipping our teams with the tools that are going to make them most effective at taking care of our customers. Yeah, Max, it's not always just, you know, for example, when we outperform on sales incentive compensation, we love that pressure.
Yeah, we don't like to, to dig down too deep into details there, but but I don't think, I don't think the answers would surprise any anyone Max? It's, it's the things that are most impactful, uh, to the service we provide to our customers, which, which really starts with our teams and, and how do we think about putting our teams in the right position, uh, to be successful in, in taking care of their customers. How do we make sure that they've got the inventory availability in their hand or supported by access to inventory? That's, that's faster than than the industry. In every instance that you can, you know, you could, you could put those 2 umbrellas over a, a big swath of what we do, and
Brent Kirby: It's some of the things that Jeremy talked about, basic blocking and tackling that we see additional opportunity, but it's not always just when things are above expectations. It could be in a little bit tougher month when things are a little bit more normal or there's a little bit of pressure, short-term pressure, just weather or something that's affecting the business a certain week or month within a quarter that we just decide, you know what, we're not going to overreact to the way we're scheduling. We may take an opportunity if the shops are a little bit slow to wow them with additional delivery service to make sure when things pick back up we're top of mind.
Brent Kirby: It's just balancing not only when things are better, but also when things maybe have a little bit of toughness week to week, month to month. We're just going to step in there and just decide that we're going to out-hustle everybody else.
Max Rakhlenko: Awesome, thanks a lot guys and best regards. Thanks, Max.
That pressure. Uh it's some of the things that Jeremy talked about basic blocking and tackling that we see additional opportunity but it's not always just when things are above expectations, it could be in in a little bit of tougher month when things are a little bit more normal or there's a little bit of pressure short-term pressure, just whether or something that's affecting the business a certain week or month within a quarter that we just decide, you know what? We're not going to overreact. Um to the way we're scheduling we may take an opportunity. If the shops are a little bit slow to wow them with additional delivery service to make sure when things pick back up, we're top of mind. And so it's just balancing, not only when things are better, but also, when things maybe have a little bit of toughness week, to week, month to month, um, we're just going to step in there and just decide that we're going to hustle everybody else.
Speaker Change: Awesome. Thanks a lot, guys. And best regards.
Steven Forbes: Thank you. And your next question is coming from Steve Forbes from Guggenheim. Your line is live. Good morning, guys. Maybe just revisiting some of the expense pressures you talked about, medical casualty, self-insurance pressures. Can you just help frame that for us? What is the pressure in terms of rate of growth and is there sort of end of sight to it? And then a follow-up on that, you think about the operational challenges that everyone's sort of facing today. Are the field teams themselves, whether it's the territory or DMs, are they seeing more points of friction occurring?
Thanks man. Thank you.
And your next question is coming from Steve Forbes, from Guggenheim, your line is live.
Steve Forbes: Good morning, guys.
Maybe just revisiting some of the, some of the expense pressures. You talked about, you know, medical C casualty Self Insurance pressures.
Steven Forbes: Is that the message on sort of what you're leaning into? And how are you doing it?
Brent Kirby: Spanning control changes or any sort of broader message around just how unique this opportunity is today to drive share capture? Yeah, no, appreciate the question, Steven. I'll maybe take the second one first. You know, our business is, to Brad's earlier point, there's a lot of resiliency, there's a lot of stability within our business. So, what you don't really see is kind of maybe these bellwether moments where you just hear a lot from the field organization about, man, something's really changed and there's a dynamic that's different. Now, you'll see that more on a disaggregated basis because our guys are always really tuned into their markets and if you spend any time in one of our stores in our field organization and you walk and talk, there's always going to be something at the top of their list of opportunity.
Steve Forbes: Can you just help frame us frame that for us? Like what what, what is the pressure in terms of rate of growth and and is there sort of end of sight to it? Uh, and then a follow up on that. You think about the operational challenges that, you know, everyone sort of facing today are are the field teams themselves, right? Whether it's the territory, right? DMS are they seeing more points of friction? Right. And and is that is that the message on sort of what you're leaning into uh, in in in in how are you doing it? Right? Like you know span of control changes or or or any sort of broader message around you know just how unique this opportunity is today to to drive share capture.
Brent Kirby: That's just how we're engineered in our DNA to always be looking for things. But there's not some net incremental business. More often than not, when you see those types of things, it's because we're realizing and actually capturing something well and we're making sure that acceleration and volume in an individual market is not overstressing our system, that we're serving it well. And so, that's some of what you see. Beyond that, some of the broader inflation things that Brent called out earlier that you asked about, we're just in a heightened period of some pressure and inflation on those things.
Yeah, no, appreciate the question. Stephen. I maybe take the second 1 first, you know our our our business is is to to press earlier Point. There's a lot of resiliency. There's a lot of stability within our business. So what what you don't really see is is kind of maybe these these Bell weather moments where you just hear a lot a lot from the field organization about, I mean something's really changed and there's a dynamic that's that's different. Now you'll see that more more on a disagreed basis because our our guys are always really tuned in to their markets. And and if you, if you spend any time in 1 of our stores, in our field organization, and you walk and talk, there's always going to be something at the top of their list, of, of opportunity. That's just how, uh, that's how we're engineered in our DNA to always be looking for things. But but there's not not some net increment.
Brent Kirby: It's not always linear in how those things come through. As we've thought about the balance of the year, we anticipate we're going to continue to see it to some degree as we move forward. But generally, over the course of time, those things normal out to long-term run rates that are kind of typical of the costs in those environments. So, it's not a longer-term concern, but at times when there's unique pressure there, you can see it persist from a few-quarter perspective.
Steve Forbes: This is more often than than not when when you see those types of things. It's because it's because we're, we're realizing and actually capturing something well and and we're we're making sure that that that acceleration and volume and it and individual markets not over stressing our, our system that we're serving it. Well and so that's that's some of what you see, you know, beyond beyond that some of the broader inflation things that that bring Colorado, that you asked about. Um, you know, we we we're just in a heightened uh, period of some pressure and inflation on those things. It it it's not always linear in how those things come through. As we thought about the balance of the year. We anticipate, we're going to continue to see it to some degree as as we move forward. But but generally over the course of a Time, those things normal out to, to long term run rates that are are, are kind of typical of, of, of the, the, the costs in those environments. So, it's it's, it's not a, a longer term concern, but but
Steve Forbes: At times when there's unique pressure, there we you you can see it persists from from a few quarter perspective.
Brent Kirby: And then just a quick follow up on the facility in Virginia, is there a rule of thumb for us on sort of the number of stores that the fulfillment center starts with? And then sort of what's the ideal sort of ramp cadence of capacity utilization in a DC? Sort of rule of thumb math?
and then just a quick follow-up on the facility in Virginia is, is there, is there a rule of thumb for us on sort of
Speaker Change: Yeah, the number of stores, uh, that that the that the fulfillments that are starts with and then and then sort of what's the ideal sort of ramp Cadence.
Brent Kirby: Yeah, Steven, thanks for the question. This is Brent. You know, honestly, when you think about our distribution centers, they're, you know, they're where the people are, they're where the cars are, vehicles and major metros. And quite frankly, we've got different capacities across our network. You know, some of those DCs are expect to serve 250 stores, 225 stores, larger regional DCs are up to 350 stores, you know, Stafford, in the case of Stafford, it's going to be a regional DC for us, large DC, 350 stores. You know, we'll probably have by the end of this year, we'll probably have, you know, a little bit of a third of the capacity of it, maybe a little bit more transferred from some other locations and the rest of it's going to be, you know, growth opportunities for us.
Speaker Change: Uh, of capacity utilization in the DC, you know, you sort of role thumb math.
Brent Kirby: Thank you.
You know, growth opportunities for us.
Matthew: Yep, thank you.
Speaker Change: Thank you.
Speaker Change: Yep, thank you.
Matthew: Thank you.
Matthew: We've reached our allotted time for questions.
Brad Beckham: I'll now turn the call back over to Mr. Brad Beckham for closing remarks. Thank you, Matt. We would like to conclude our call today by thanking the entire O'Reilly team for your continued dedication to our customers. I would like to thank everyone for joining our call today, and we look forward to reporting our third quarter results in October. Thank you.
Thank you. We've reached to a lot of time for questions. I'll now turn the call back over to Mr. Brad Beckham for closing remarks.
Thank you, Matt. We would like to conclude our call today, by thanking the entire O'Reilly team for your continued dedication to our customers. I would like to thank everyone for joining our call today and we look forward to reporting our third quarter results in October. Thank you.
Matthew: 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.
Speaker Change: 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.