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Form 8-K O REILLY AUTOMOTIVE INC For: Apr 27

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April 27, 2016 4:38 PM EDT

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 8-K

CURRENT REPORT PURSUANT
TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

Date of report (Date of earliest event reported): April 27, 2016

O’REILLY AUTOMOTIVE, INC.
(Exact name of registrant as specified in its charter)
 
Missouri
000-21318
27-4358837
(State or other jurisdiction
of incorporation or
organization)
(Commission File Number)
(I.R.S. Employer Identification No.)
 
233 South Patterson
Springfield, Missouri 65802
(Address of principal executive offices, Zip code)
 
(417) 862-6708
(Registrant’s telephone number, including area code)
 
(Not Applicable)
(Former name or former address, if changed since last report.)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2):

[ ] Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))


Section 2 – Financial Information

Item 2.02 Results of Operations and Financial Condition

On April 27, 2016, O’Reilly Automotive, Inc. issued a press release announcing its 2016 first quarter earnings. The text of the press release is attached hereto as Exhibit 99.1.

Section 9 – Financial Statements and Exhibits

Item 9.01 Financial Statements and Exhibits

Exhibit Number
Description
99.1
Press Release dated April 27, 2016

The information in this Current Report on Form 8-K, including the exhibit hereto, shall not be deemed “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended.



SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.


Date: April 27, 2016
O’REILLY AUTOMOTIVE, INC.
 
 
 
 
 
By:
/s/
Thomas McFall
 
 
Thomas McFall
 
 
Executive Vice President of Finance and Chief Financial Officer
 
 
(principal financial and accounting officer)

 



EXHIBIT INDEX

Exhibit Number
Description
99.1
Press Release dated April 27, 2016















Exhibit 99.1
FOR IMMEDIATE RELEASE
O’REILLY AUTOMOTIVE, INC. REPORTS FIRST QUARTER 2016 RESULTS

•
First quarter comparable store sales increase of 6.1%
•
Record high first quarter operating margin of 20%
•
26% increase in first quarter diluted earnings per share to $2.59

Springfield, MO, April 27, 2016 – O’Reilly Automotive, Inc. (the “Company” or “O’Reilly”) (Nasdaq: ORLY), a leading retailer in the automotive aftermarket industry, today announced record revenues and earnings for its first quarter ended March 31, 2016.

1st Quarter Financial Results
Sales for the first quarter ended March 31, 2016, increased $194 million, or 10%, to $2.10 billion from $1.90 billion for the same period one year ago. Gross profit for the first quarter increased to $1.10 billion (or 52.4% of sales) from $987 million (or 51.9% of sales) for the same period one year ago, representing an increase of 11%. Selling, general and administrative expenses for the first quarter increased to $679 million (or 32.4% of sales) from $637 million (or 33.5% of sales) for the same period one year ago, representing an increase of 7%. Operating income for the first quarter increased to $419 million (or 20.0% of sales) from $350 million (or 18.4% of sales) for the same period one year ago, representing an increase of 19%.

Net income for the first quarter ended March 31, 2016, increased $43 million, or 20%, to $255 million (or 12.2% of sales) from $213 million (or 11.2% of sales) for the same period one year ago. Diluted earnings per common share for the first quarter increased 26% to $2.59 on 99 million shares versus $2.06 on 103 million shares for the same period one year ago.

Commenting on the Company’s first quarter results, O’Reilly’s President and CEO, Greg Henslee stated, “We are very proud to report a strong start to 2016, highlighted by a 6.1% increase in comparable store sales, which represents our 10th consecutive quarter of comparable store sales growth greater than 5%, and a 26% increase in first quarter diluted earnings per share to $2.59, which is our 29th consecutive quarter of diluted earnings per share growth greater than 15%. As we previously discussed, our first quarter 2016 results included one additional day due to Leap Day, which is excluded from our comparable store sales results, but benefited our first quarter EPS by approximately $0.05 per share. Our consistently strong performance is the direct result of the unwavering commitment of our over 73,000 Team Members dedicated to providing excellent customer service, and I would like to thank each of our hard working Team Members for our strong first quarter performance and their relentless focus on our long-term success.”

Mr. Henslee continued, “As we have commented on in the past, our gross margin results can face headwinds relating to merchandise acquisition cost improvements, which is a positive driver to our long-term gross margin expansion, but can create short term pressure on our gross margin results due to reducing our inventory value to the lower acquisition cost in accordance with our LIFO accounting. Our second quarter earnings per share guidance includes an expected non-cash impact from a specific new supplier contract resulting in LIFO headwinds of approximately $23 million. While this item impacts our second quarter gross margin expectations, we still anticipate full-year gross margin to be within our previously guided range of 52.3% to 52.7% of sales as our gross margin benefits from these cost reductions for the remainder of 2016.”



Share Repurchase Program
During the first quarter ended March 31, 2016, the Company repurchased 1.2 million shares of its common stock, at an average price per share of $254.02, for a total investment of $313 million. Subsequent to the end of the first quarter and through the date of this release, the Company repurchased an additional 0.3 million shares of its common stock, at an average price per share of $270.61, for a total investment of $71 million. The Company has repurchased a total of 52.7 million shares of its common stock under its share repurchase program since the inception of the program in January of 2011 and through the date of this release, at an average price of $108.84, for a total aggregate investment of $5.74 billion. As of the date of this release, the Company had approximately $509 million remaining under its current share repurchase authorization.

1st Quarter Comparable Store Sales Results
Comparable store sales are calculated based on the change in sales for stores open at least one year and exclude sales of specialty machinery, sales to independent parts stores and sales to Team Members, as well as the sales from Leap Day in the three months ended March 31, 2016. Comparable store sales increased 6.1% for the first quarter ended March 31, 2016, versus 7.2% for the same period one year ago.

2nd Quarter and Updated Full-Year 2016 Guidance
The table below outlines the Company’s guidance for selected second quarter and updated full-year 2016 financial data:
 
For the Three Months Ending
June 30, 2016
 
For the Year Ending
December 31, 2016
Comparable store sales
3% to 5%
 
3% to 5%
Total revenue
 
 
$8.4 billion to $8.6 billion
Gross profit as a percentage of sales
 
 
52.3% to 52.7%
Operating income as a percentage of sales
 
 
19.3% to 19.7%
Diluted earnings per share (1)
$2.54 to $2.64
 
$10.10 to $10.50
Capital expenditures
 
 
$460 million to $490 million
Free cash flow (2)
 
 
$750 million to $800 million
(1) 
Weighted-average shares outstanding, assuming dilution, used in the denominator of this calculation, includes share repurchases made by the Company through the date of this release.
(2) 
Calculated as net cash provided by operating activities less capital expenditures for the period.

Non-GAAP Information
This release contains certain financial information not derived in accordance with United States generally accepted accounting principles (“GAAP”). These items include adjusted debt to earnings before interest, taxes, depreciation, amortization, share-based compensation and rent (“EBITDAR”) and free cash flow. The Company does not, nor does it suggest investors should, consider such non-GAAP financial measures in isolation from, or as a substitute for, GAAP financial information. The Company believes that the presentation of adjusted debt to EBITDAR and free cash flow provide meaningful supplemental information to both management and investors that is indicative of the Company’s core operations. The Company has included a reconciliation of this additional information to the most comparable GAAP measure in the selected financial information below.

Earnings Conference Call Information
The Company will host a conference call on Thursday, April 28, 2016, at 10:00 a.m. central time to discuss its results as well as future expectations. Investors may listen to the conference call live on the Company’s website at www.oreillyauto.com by clicking on “Investor Relations” and then “News Room.” Interested analysts are invited to join the call. The dial-in number for the call is (847) 585-4405; the conference call identification number is 42060798. A replay of the conference call will be available on the Company’s website through Thursday, April 27, 2017.

About O’Reilly Automotive, Inc.
O’Reilly Automotive, Inc. was founded in 1957 by the O’Reilly family and is one of the largest specialty retailers of automotive aftermarket parts, tools, supplies, equipment and accessories in the United States, serving both the do-it-yourself and professional service provider markets. Visit the Company’s website at www.oreillyauto.com for additional information about O’Reilly, including access to online shopping and current promotions, store locations, hours and services, employment opportunities and other programs. As of March 31, 2016, the Company operated 4,623 stores in 44 states.



Forward-Looking Statements
The Company claims the protection of the safe-harbor for forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. You can identify these statements by forward-looking words such as “estimate,” “may,” “could,” “will,” “believe,” “expect,” “would,” “consider,” “should,” “anticipate,” “project,” “plan,” “intend” or similar words. In addition, statements contained within this press release that are not historical facts are forward-looking statements, such as statements discussing, among other things, expected growth, store development, integration and expansion strategy, business strategies, future revenues and future performance. These forward-looking statements are based on estimates, projections, beliefs and assumptions and are not guarantees of future events and results. Such statements are subject to risks, uncertainties and assumptions, including, but not limited to, the economy in general, inflation, product demand, the market for auto parts, competition, weather, risks associated with the performance of acquired businesses, our ability to hire and retain qualified employees, consumer debt levels, our increased debt levels, credit ratings on public debt, governmental regulations, terrorist activities, war and the threat of war. Actual results may materially differ from anticipated results described or implied in these forward-looking statements. Please refer to the “Risk Factors” section of the annual report on Form 10-K for the year ended December 31, 2015, for additional factors that could materially affect the Company’s financial performance. Forward-looking statements speak only as of the date they were made and the Company undertakes no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by applicable law.

For further information contact:
Investor & Media Contact
 
Mark Merz (417) 829-5878



O’REILLY AUTOMOTIVE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
 
March 31, 2016
 
March 31, 2015
 
December 31, 2015
 
(Unaudited)
 
(As Adjusted, Unaudited)
 
(Note)
Assets
 
 
 
 
 
Current assets:
 
 
 
 
 
Cash and cash equivalents
$
716,008

 
$
473,646

 
$
116,301

Accounts receivable, net
178,282

 
162,020

 
161,078

Amounts receivable from suppliers
68,486

 
69,545

 
72,609

Inventory
2,701,760

 
2,527,982

 
2,631,015

Other current assets (1)
36,927

 
39,326

 
29,023

Total current assets (1) 
3,701,463

 
3,272,519

 
3,010,026

 
 
 
 
 
 
Property and equipment, at cost
4,473,747

 
4,080,350

 
4,372,250

Less: accumulated depreciation and amortization
1,559,820

 
1,381,502

 
1,510,694

Net property and equipment
2,913,927

 
2,698,848

 
2,861,556

 
 
 
 
 
 
Notes receivable, less current portion
12,172

 
12,414

 
13,219

Goodwill
757,130

 
756,384

 
757,142

Other assets, net (1)
35,081

 
37,605

 
34,741

Total assets (1)
$
7,419,773

 
$
6,777,770

 
$
6,676,684

 
 
 
 
 
 
Liabilities and shareholders’ equity
 
 
 
 
 
Current liabilities:
 
 
 
 
 
Accounts payable
$
2,782,609

 
$
2,470,749

 
$
2,608,231

Self-insurance reserves
71,069

 
67,676

 
72,741

Accrued payroll
66,842

 
75,059

 
59,101

Accrued benefits and withholdings
49,175

 
42,413

 
72,203

Income taxes payable
114,321

 
78,939

 
1,444

Other current liabilities
231,661

 
200,888

 
232,678

Current portion of long-term debt
—

 
6

 
—

Total current liabilities (1)
3,315,677

 
2,935,730

 
3,046,398

 
 
 
 
 
 
Long-term debt, less current portion (1)
1,885,877

 
1,388,801

 
1,390,018

Deferred income taxes (1)
76,450

 
97,981

 
79,772

Other liabilities
201,928

 
211,758

 
199,182

 
 
 
 
 
 
Shareholders’ equity:
 
 
 
 
 
Common stock, $0.01 par value:
 
 
 
 
 
Authorized shares – 245,000,000
 
 
 
 
 
Issued and outstanding shares –
 
 
 
 
 
96,726,677 as of March 31, 2016,
 
 
 
 
 
101,347,744 as of March 31, 2015, and
 
 
 
 
 
97,737,171 as of December 31, 2015
967

 
1,013

 
977

Additional paid-in capital
1,301,057

 
1,234,133

 
1,281,497

Retained earnings
637,817

 
908,354

 
678,840

Total shareholders’ equity
1,939,841

 
2,143,500

 
1,961,314

 
 
 
 
 
 
Total liabilities and shareholders’ equity (1)
$
7,419,773

 
$
6,777,770

 
$
6,676,684

Note: The balance sheet at December 31, 2015, has been derived from the audited consolidated financial statements at that date, but does not include all of the information and footnotes required by United States generally accepted accounting principles for complete financial statements.
(1) 
Certain amounts as of March 31, 2015, have been reclassified to conform to current period presentation, due to the Company’s adoption of new accounting standards during the fourth quarter ended December 31, 2015. See Note 1 “Summary of Significant Accounting Policies” to the Consolidated Financial Statements of the annual report on Form 10-K for the year ended December 31, 2015.


O’REILLY AUTOMOTIVE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(In thousands, except per share data)




 
For the Three Months Ended 
 March 31,
 
2016
 
2015
Sales
$
2,096,150

 
$
1,901,903

Cost of goods sold, including warehouse and distribution expenses
998,571

 
914,944

Gross profit
1,097,579

 
986,959

 
 
 
 
Selling, general and administrative expenses
678,953

 
636,586

Operating income
418,626

 
350,373

 
 
 
 
Other income (expense):
 
 
 
Interest expense
(14,821
)
 
(14,402
)
Interest income
752

 
580

Other, net
1,017

 
1,113

Total other expense
(13,052
)
 
(12,709
)
 
 
 
 
Income before income taxes
405,574

 
337,664

Provision for income taxes
150,200

 
124,800

Net income
$
255,374

 
$
212,864

 
 
 
 
Earnings per share-basic:
 
 
 
Earnings per share
$
2.63

 
$
2.09

Weighted-average common shares outstanding – basic
97,140

 
101,612

 
 
 
 
Earnings per share-assuming dilution:
 
 
 
Earnings per share
$
2.59

 
$
2.06

Weighted-average common shares outstanding – assuming dilution
98,537

 
103,257











O’REILLY AUTOMOTIVE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)


 
For the Three Months Ended 
 March 31,
 
2016
 
2015
Operating activities:
 
 
 
Net income
$
255,374

 
$
212,864

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization of property, equipment and intangibles
52,778

 
54,950

Amortization of debt discount and issuance costs
546

 
525

Excess tax benefit from share-based compensation
(14,762
)
 
(21,188
)
Deferred income taxes
(3,322
)
 
(4,441
)
Share-based compensation programs
5,178

 
5,890

Other
1,481

 
1,355

Changes in operating assets and liabilities:
 
 
 
Accounts receivable
(19,206
)
 
(19,867
)
Inventory
(70,745
)
 
26,807

Accounts payable
174,378

 
53,582

Income taxes payable
127,638

 
117,221

Other
(21,183
)
 
(21,673
)
Net cash provided by operating activities
488,155

 
406,025

 
 
 
 
Investing activities:
 
 
 
Purchases of property and equipment
(103,974
)
 
(91,140
)
Proceeds from sale of property and equipment
864

 
658

Payments received on notes receivable
1,047

 
935

Net cash used in investing activities
(102,063
)
 
(89,547
)
 
 
 
 
Financing activities:
 
 
 
Proceeds from the issuance of long-term debt
499,160

 
—

Payment of debt issuance costs
(3,725
)
 
—

Principal payments on capital leases
—

 
(19
)
Repurchases of common stock
(312,656
)
 
(134,813
)
Excess tax benefit from share-based compensation
14,762

 
21,188

Net proceeds from issuance of common stock
16,074

 
20,252

Net cash provided by (used in) financing activities
213,615

 
(93,392
)
 
 
 
 
Net increase in cash and cash equivalents
599,707

 
223,086

Cash and cash equivalents at beginning of the period
116,301

 
250,560

Cash and cash equivalents at end of the period
$
716,008

 
$
473,646

 
 
 
 
Supplemental disclosures of cash flow information:
 
 
 
Income taxes paid
$
23,765

 
$
8,675

Interest paid, net of capitalized interest
23,063

 
23,435





O’REILLY AUTOMOTIVE, INC. AND SUBSIDIARIES
SELECTED FINANCIAL INFORMATION
(Unaudited)


 
For the Twelve Months Ended
March 31,
Adjusted Debt to EBITDAR:
2016
 
2015
(In thousands, except adjusted debt to EBITDAR ratio)
 
 
 
GAAP debt (1)
$
1,885,877

 
$
1,388,807

Add:
Letters of credit
38,936

 
50,506

 
Discount on senior notes
3,586

 
3,259

 
Debt issuance costs
10,537

 
7,940

 
Six-times rent expense
1,651,944

 
1,597,278

Adjusted debt
$
3,590,880

 
$
3,047,790

 
 
 
 
 
GAAP net income
$
973,726

 
$
817,186

Add:
Interest expense
57,548

 
54,283

 
Provision for income taxes
554,550

 
467,700

 
Depreciation and amortization
208,084

 
201,678

 
Share-based compensation expense
21,187

 
23,889

 
Rent expense
275,324

 
266,213

EBITDAR
$
2,090,419

 
$
1,830,949

 
 
 
 
 
Adjusted debt to EBITDAR
1.72

 
1.66



 
March 31,
 
2016
 
2015
Selected Balance Sheet Ratios:
 
 
 
Inventory turnover (2)
1.5

 
1.4

Average inventory per store (in thousands) (3)
$
584

 
$
570

Accounts payable to inventory (4)
103.0
%
 
97.7
%
Return on equity (5)
49.5
%
 
39.6
%
Return on assets (1)(6)
14.2
%
 
12.4
%


 
For the Three Months Ended 
 March 31,
 
2016
 
2015
Selected Financial Information (in thousands):
 
 
 
Capital expenditures
$
103,974

 
$
91,140

Free cash flow (7)
384,181

 
314,885

Depreciation and amortization
52,778

 
54,950

Interest expense
14,821

 
14,402

Rent expense
$
70,003

 
$
67,938





Store and Team Member Information:
 
 
 
 
 
 
 
 
 
 
 
For the Three Months Ended 
 March 31,
 
For the Twelve Months Ended
March 31,
 
2016
 
2015
 
2016
 
2015
Beginning store count
4,571

 
4,366

 
4,433

 
4,216

New stores opened
52

 
67

 
194

 
223

Stores closed
—

 
—

 
(4
)
 
(6
)
Ending store count
4,623

 
4,433

 
4,623

 
4,433


 
For the Three Months Ended 
 March 31,
 
For the Twelve Months Ended
March 31,
 
2016
 
2015
 
2016
 
2015
Total employment
73,599

 
69,708

 
 
 
 
Square footage (in thousands)
33,559

 
32,101

 
 
 
 
Sales per weighted-average square foot (8)
$
62.39

 
$
59.24

 
$
247.28

 
$
234.98

Sales per weighted-average store (in thousands) (9)
$
452

 
$
429

 
$
1,792

 
$
1,699



(1)    Prior period amount has been reclassified to conform to current period presentation, due to the Company’s adoption of new accounting standards during the fourth quarter ended December 31, 2015. See Note 1 “Summary of Significant Accounting Policies” to the Consolidated Financial Statements of the annual report on Form 10-K for the year ended December 31, 2015.
(2)    Calculated as cost of goods sold for the last 12 months divided by average inventory. Average inventory is calculated as the average of inventory for the trailing four quarters used in determining the denominator.
(3)    Calculated as inventory divided by store count at the end of the reported period.
(4)    Calculated as accounts payable divided by inventory.
(5)    Calculated as net income for the last 12 months divided by average total shareholders’ equity. Average total shareholders’ equity is calculated as the average of total shareholders’ equity for the trailing four quarters used in determining the denominator.
(6)    Calculated as net income for the last 12 months divided by average total assets. Average total assets is calculated as the average of total assets for the trailing four quarters used in determining the denominator.
(7)    Calculated as net cash provided by operating activities less capital expenditures for the period.
(8)    Calculated as sales less jobber sales, divided by weighted-average square footage. Weighted-average square footage is determined by weighting store square footage based on the approximate dates of store openings, acquisitions, expansions or closures.
(9)    Calculated as sales less jobber sales, divided by weighted-average stores. Weighted-average stores is determined by weighting stores based on their approximate dates of opening, acquisition or closures.




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