O'Reilly Automotive, Inc. (ORLY) Q4 2025 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call presents a mixed outlook. While there are positive indicators like increased store sales guidance and stable gross margins, concerns about SG&A pressures, uncertain healthcare expenses, and cautious expansion in new markets temper enthusiasm. The Q&A highlights management's cautious optimism but also their inability to provide clear guidance on SG&A stabilization and tariff impacts. These factors, combined with a lack of significant positive catalysts, suggest a neutral stock price movement in the short term.
Key Financial Performance
Comparable Store Sales (Q4 2025) Increased by 5.6% year-over-year. This growth was driven by strong performance in the professional business (over 10% increase) and a positive DIY comp in the low single digits.
Full Year Comparable Store Sales (2025) Increased by 4.7% year-over-year. This was attributed to strong execution of the business model and market share gains.
Total Sales (2025) Increased by 6.4% to $17.8 billion year-over-year. Growth was driven by comparable store sales growth and new store expansion.
Operating Profit (2025) Increased by 6.4% to $3.5 billion year-over-year. Operating profit as a percentage of sales remained flat at 19.5%, reflecting effective cost management despite rising costs.
Diluted Earnings Per Share (Q4 2025) Increased by 13% to $0.71 year-over-year. Growth was driven by strong sales and operational performance.
Diluted Earnings Per Share (Full Year 2025) Increased by 10% to $2.97 year-over-year. This reflects consistent earnings growth and operational efficiency.
Gross Margin (Q4 2025) Increased by 49 basis points to 51.8% year-over-year. This was due to improved acquisition costs and effective pricing management.
Gross Margin (Full Year 2025) Increased by 39 basis points to 51.6% year-over-year. This was driven by supply chain efficiencies and strong sales momentum.
Inventory Per Store (2025) Increased by 9% to $870,000 year-over-year. This was due to opportunistic investments to support sales momentum.
SG&A Expense as a Percentage of Sales (Q4 2025) Decreased by 25 basis points to 33.0% year-over-year. This was due to favorable comparisons to prior year charges, though partially offset by increased self-insurance costs.
Average SG&A Per Store (2025) Increased by 4% year-over-year. This was driven by inflation in self-insurance programs and investments in operational enhancements.
Free Cash Flow (2025) Decreased to $1.6 billion from $2 billion in 2024. The decline was due to accelerated tax credit payments and higher capital expenditures.
AP-to-Inventory Ratio (2025) Decreased to 124% from 128% in 2024. This was due to planned incremental inventory investments.
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Operating Highlights
Comparable Store Sales: Increased by 5.6% in Q4 2025, bringing the full year comp to 4.7%, which was at the high end of the revised guidance range.
Total Sales: Increased by 6.4% to $17.8 billion in 2025, reflecting a growth of over $6 billion since 2020.
Diluted Earnings Per Share (EPS): Generated $0.71 in Q4 2025, a 13% increase over the prior year. Full year EPS was $2.97, a 10% increase over 2024.
New Store Expansion: Targeting 225 to 235 net new store openings in 2026, including growth in Mexico and Canada. Opened the first greenfield location in Canada in Q4 2025.
Professional Business Growth: Professional business saw over 10% comparable store sales growth for the second consecutive quarter in Q4 2025.
Gross Margin: Improved to 51.8% in Q4 2025, a 49 basis point increase from Q4 2024. Full year gross margin was 51.6%, up 39 basis points from 2024.
Inventory Investment: Inventory per store increased by 9% in 2025 to $870,000, with plans for a 5% increase in 2026.
Distribution Network: Opened a new distribution center in Stafford, Virginia, and progressing on a new facility in Fort Worth, Texas, expected to be operational in Q1 2028.
Market Expansion into Canada: Opened the first greenfield location in Canada in Q4 2025, with plans for additional store openings in 2026.
Capital Expenditures: Set at $1.3 billion to $1.4 billion for 2026, focusing on new store growth, distribution capabilities, and technology investments.
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Risk or Challenges
Cost Pressures: Substantial cost pressures in 2025, including rising costs related to team member health care and self-insurance programs, dampened the company's financial performance.
DIY Business Challenges: Pressure on DIY transaction counts, particularly in discretionary categories like appearance and accessories, due to broad-based inflation and macroeconomic pressures.
Inflation and Tariffs: Rising acquisition costs and inflation, including tariff-induced product cost pressures, impacted pricing and gross margins.
Self-Insurance and Legal Costs: Heightened cost inflation in self-insurance programs, including team member health care, workers' compensation, and litigation costs, created financial headwinds.
Economic Uncertainty: Cautious consumer behavior due to macroeconomic pressures, impacting transaction counts and sales trends, particularly in the DIY segment.
Supply Chain Investments: Significant capital expenditures for distribution infrastructure and new store openings, which could strain financial resources if not managed effectively.
Market Competition: Pressure to maintain market share and outperform competitors in both professional and DIY segments.
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Guidance & Outlook
Comparable Store Sales Growth: Annual comparable store sales guidance for 2026 is set at a range of 3% to 5%, with expected growth in both professional and DIY businesses. Growth in average ticket values is anticipated, primarily supported by same-SKU inflation.
Revenue Projections: Total revenues for 2026 are expected to be between $18.7 billion and $19 billion.
Capital Expenditures: Capital expenditures for 2026 are projected at $1.3 billion to $1.4 billion, driven by an increase in new store growth and continued investment in distribution capabilities.
New Store Openings: Target of 225 to 235 net new store openings for 2026, including expansion in the U.S., Mexico, and Canada.
Gross Margin: Gross margin for 2026 is expected to be in the range of 51.5% to 52%, reflecting incremental improvements in acquisition costs and a stable cost and price inflation environment.
Earnings Per Share (EPS): EPS guidance for 2026 is set at $3.10 to $3.20, reflecting a 6.1% increase over 2025 at the midpoint.
Free Cash Flow: Free cash flow for 2026 is expected to be in the range of $1.8 billion to $2.1 billion, driven by growth in operating income and moderated capital expenditures.
Inventory Investment: Per-store inventory is expected to increase approximately 5% in 2026, focusing on hub store inventories and targeted additions in store assortments.
Professional Business Growth: Professional ticket counts are expected to remain strong, reflecting incremental market share gains, though with some moderation compared to prior years.
DIY Business Trends: DIY transaction counts are expected to be slightly negative due to long-term industry trends and cautious consumer confidence, but the company anticipates outperforming the industry.
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Shareholder Return Plan
Share Repurchase Program: In 2025, O'Reilly Automotive repurchased 23 million shares at an average share price of $92.26, for a total investment of $2.1 billion. Since the inception of the share repurchase program in 2011, the company has repurchased 1.5 billion shares at an average share price of $18.77, totaling $27 billion. The company views the buyback program as an effective means of returning excess capital to shareholders. The 2026 EPS guidance includes the impact of shares repurchased through this call but does not account for additional share repurchases.
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Key Q&A
Q:How long could expenses like healthcare continue to run above historical levels, and does SG&A per store growth moderation in 2H imply normalized SG&A growth in 2027?
A:Jeremy Fletcher stated that it is hard to predict the timing of healthcare expenses stabilizing, as pressures have persisted longer than expected. He expressed cautiousness for 2026, especially in the first part of the year, but expects costs to moderate and stabilize over time. Regarding SG&A, he avoided providing a clear exit rate for 2027 but emphasized the structural efficiency of managing expenses and investments in differentiation to drive sales momentum.
Q:Are there any other SG&A line items to consider for modeling purposes?
A:Jeremy Fletcher highlighted self-insurance items, depreciation growth due to CapEx investments, and technology spend as key components of SG&A to consider.
Q:What is the Virginia DC opportunity, and how aggressive is the company in exploring the Northeast and East Coast corridor?
A:Brad Beckham explained that the Virginia DC is a large regional distribution center operating at about one-third capacity, servicing areas like Greensboro, North Carolina, and Ohio. The company plans to expand aggressively in the Northeast and East Coast corridor through greenfield projects and acquisitions, such as the Salvo acquisition in Baltimore. The DC will support a hub-and-spoke model with frequent replenishments and hourly service in the Greater Washington, D.C. area, providing a competitive advantage.
Q:Will the expansion in the Northeast and East Coast corridor lead to expense growth or deleverage in 2026?
A:Jeremy Fletcher acknowledged that organic growth typically comes with some leverage pressure, as new stores are less productive initially. He noted that the Virginia DC's incremental growth is not significantly different from other regions. However, building infrastructure in newer markets like Mexico and Canada has been less efficient, contributing to some cost pressures.
Q:Why is the initial guidance for 2026 higher than 2025, and what is the impact of potential tariff rollbacks?
A:Jeremy Fletcher attributed the higher guidance to a different pricing assumption, reflecting visibility into inflation and like-for-like pricing. He noted that the industry has been disciplined in maintaining price increases, even if cost pressures ease. Brent Kirby added that the administration's focus on tariffs makes rollbacks unlikely, and the guidance assumes the current environment.
Q:What is the risk of elevated SG&A growth continuing in 2026, and is it a function of the competitive environment?
A:Jeremy Fletcher stated that recent SG&A pressures are more discrete and tied to heightened inflation in core business costs. He emphasized that the company has historically leaned into investments that drive sales momentum and does not view these as new industry table stakes. He expressed cautious optimism that pressures will stabilize over time.
Q:How is the consumer environment affecting the business, and what is the impact of tax refunds?
A:Brad Beckham noted that larger ticket jobs have been under pressure, but December showed improvement due to winter weather. The consumer remains cautious, but the business is resilient due to its nondiscretionary nature. Tax refunds are expected to boost sales, but the impact will vary across income levels. Jeremy Fletcher added that DIY trends have leveled out, and the company continues to gain market share.
Q:What is the impact of same-SKU inflation and potential tariff reductions on inventory costs?
A:Jeremy Fletcher explained that same-SKU inflation will benefit the first half of 2026 due to low comparisons in 2025. Tariff reductions would quickly reflect in gross margin results due to LIFO reporting, but the company expects a stable tariff environment.
Q:What is the market share opportunity in the Northeast and Mid-Atlantic regions?
A:Brad Beckham stated that the company has a 10% market share nationally, with significant opportunities even in mature markets. In the Mid-Atlantic and Northeast, market share is closer to the national average or lower, with no presence in some areas like New York. The company plans to execute its business model to capture these opportunities.
Q:What levers can the company pull to manage persistent SG&A pressures?
A:Jeremy Fletcher emphasized that managing costs like self-insurance and team member expenses has always been a priority. The company is leveraging technology to improve efficiency and mitigate pressures, but these costs have been tightly controlled for a long time, leaving limited quick fixes.
Q:Review of Unclear Management Responses
A:Management avoided providing a clear exit rate for SG&A growth in 2027 and used vague language when discussing the timing of healthcare expense stabilization. They also did not provide specific details on the impact of potential tariff rollbacks or the exact magnitude of cost pressures in newer markets like Mexico and Canada.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
DC
DIY transaction
OReilly
acquisition pricing
appearance
assumption
cadence SGA
capital investment
car parc
comp ticket
confidence ability
cost pressure
digit side
distribution team
dynamic expectation
effectiveness
expectation store
expense
health care
hub
improvement
infrastructure
leverage benefit
liability
margin rate
market share
member health
midpoint
pricing environment
product
program headwind
put cost
ramp
sale cadence
sale mix
sale momentum
store SGA
store opening
support store
technology
ticket inflation
volume year
winter weather
ORLY Transcript
O'Reilly Automotive, Inc. (ORLY) Q4 2025 Earnings Call Transcript
Unknown2-5
The earnings call presents a mixed outlook. While there are positive indicators like increased store sales guidance and stable gross margins, concerns about SG&A pressures, uncertain healthcare expenses, and cautious expansion in new markets temper enthusiasm. The Q&A highlights management's cautious optimism but also their inability to provide clear guidance on SG&A stabilization and tariff impacts. These factors, combined with a lack of significant positive catalysts, suggest a neutral stock price movement in the short term.
O'Reilly Automotive, Inc. (ORLY) Q3 2025 Earnings Call Transcript
Positive10-23
The earnings call reveals a generally positive sentiment. Strong guidance updates, including improved comparable store sales and EPS guidance, along with strategic inventory investments, suggest optimism. Despite some concerns about inflation and free cash flow, management's confidence in market expansion and effective risk management is reassuring. The Q&A section highlights cautious optimism, with potential growth opportunities in international markets and effective cost management. Overall, the positive guidance and strategic initiatives outweigh the concerns, leading to a positive sentiment rating.
O'Reilly Automotive, Inc. (ORLY) Q2 2025 Earnings Call Transcript
Unknown7-24
The earnings call summary presents a mixed picture: positive aspects include the stock split announcement, store growth, and increased EPS guidance. However, concerns arise from pricing pressures due to tariffs, increased SG&A expenses, and inflationary pressures. The Q&A session highlights management's lack of clarity on pricing pressure and inflation concerns, leading to uncertainty. Given these mixed signals and the absence of a market cap to gauge potential reaction strength, the overall sentiment remains neutral, suggesting a stock price movement between -2% and 2% over the next two weeks.
O'Reilly Automotive, Inc. (ORLY) Q1 2025 Earnings Call Transcript
Unknown4-24
The earnings call presented mixed signals. While there are positive aspects such as strong comparable store sales growth and a robust share repurchase program, concerns about economic uncertainty, supply chain challenges, and SG&A cost pressures temper the optimism. The Q&A highlighted management's confidence but also exposed uncertainties, especially regarding tariffs and SG&A spending. The neutral guidance and consistent gross margins suggest stability but not significant upside. Given these factors, the stock price is likely to remain within a neutral range over the next two weeks.
ORLY Report
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