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

July 27, 2016 4:34 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): July 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 July 27, 2016, O’Reilly Automotive, Inc. issued a press release announcing its 2016 second 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 July 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: July 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 July 27, 2016















Exhibit 99.1
FOR IMMEDIATE RELEASE

O’REILLY AUTOMOTIVE, INC. REPORTS SECOND QUARTER 2016 RESULTS


Second quarter comparable store sales increase of 4.3%
16% increase in second quarter diluted earnings per share to $2.65
Second quarter operating margin of 19.5%

Springfield, MO, July 27, 2016O’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 second quarter ended June 30, 2016.

2nd Quarter Financial Results
Sales for the second quarter ended June 30, 2016, increased $141 million, or 7%, to $2.18 billion from $2.04 billion for the same period one year ago. Gross profit for the second quarter increased to $1.13 billion (or 51.8% of sales) from $1.06 billion (or 52.0% of sales) for the same period one year ago, representing an increase of 6%. Selling, general and administrative expenses (“SG&A”) for the second quarter increased to $702 million (or 32.3% of sales) from $673 million (or 33.1% of sales) for the same period one year ago, representing an increase of 4%. Operating income for the second quarter increased to $425 million (or 19.5% of sales) from $386 million (or 19.0% of sales) for the same period one year ago, representing an increase of 10%.

Net income for the second quarter ended June 30, 2016, increased $24 million, or 10%, to $258 million (or 11.8% of sales) from $234 million (or 11.5% of sales) for the same period one year ago. Diluted earnings per common share for the second quarter increased 16% to $2.65 on 97 million shares versus $2.29 on 102 million shares for the same period one year ago.

“We are proud to report another solid quarter, highlighted by an operating margin of 19.5% and a 16% increase in second quarter diluted earnings per share to $2.65, which exceeded the top of our guidance range and represents our 30th consecutive quarter of diluted earnings per share growth of greater than 15%,” commented Greg Henslee, O’Reilly’s President and CEO. “For the second quarter, our focus on customer service generated a 4.3% increase in comparable store sales, which was on top of a 7.2% increase from the second quarter of 2015 and was above the mid-point of our second quarter guidance range. This performance is the direct result of Team O’Reilly’s commitment to providing consistently excellent service to our customers, and I would like to thank our over 74,000 dedicated Team Members for their continued hard work and countless contributions to our ongoing success.”

Year-to-Date Financial Results
Sales for the first six months of 2016 increased $335 million, or 9%, to $4.27 billion from $3.94 billion for the same period one year ago. Gross profit for the first six months of 2016 increased to $2.22 billion (or 52.1% of sales) from $2.05 billion (or 52.0% of sales) for the same period one year ago, representing an increase of 9%. SG&A for the first six months of 2016 increased to $1.38 billion (or 32.3% of sales) from $1.31 billion (or 33.3% of sales) for the same period one year ago, representing an increase of 5%. Operating income for the first six months of 2016 increased to $844 million (or 19.7% of sales) from $736 million (or 18.7% of sales) for the same period one year ago, representing an increase of 15%.




Net income for the first six months of 2016 increased $67 million, or 15%, to $513 million (or 12.0% of sales) from $446 million (or 11.3% of sales) for the same period one year ago. Diluted earnings per common share for the first six months of 2016 increased 20% to $5.24 on 98 million shares versus $4.35 on 103 million shares for the same period one year ago.

Mr. Henslee continued, “In the first half of 2016, we opened 89 net, new stores across 28 states and are on track to hit our target of 210 net, new stores by the end of the year. In May, we seamlessly opened our 27th distribution center in Selma, Texas, just outside of San Antonio. This new, 389,000 square foot, state-of-the-art facility allows our distribution Team to better support our stores in our robustly growing San Antonio and Austin metro markets and frees up capacity in our three existing Texas distribution centers, better positioning those facilities to support future store growth. Our ongoing investment in our distribution infrastructure creates capacity for future growth and reflects O’Reilly’s continued commitment to providing our customers unparalleled service with industry-leading parts availability.”

Share Repurchase Program
During the second quarter ended June 30, 2016, the Company repurchased 2.1 million shares of its common stock, at an average price per share of $262.17, for a total investment of $544 million. During the first six months of 2016, the Company repurchased 3.3 million shares of its common stock, at an average price per share of $259.14, for a total investment of $857 million. Subsequent to the end of the second quarter and through the date of this release, the Company repurchased less than 0.1 million shares of its common stock, at an average price per share of $269.33, for a total investment of $4 million. The Company has repurchased a total of 54.6 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 $113.94, for a total aggregate investment of $6.22 billion. As of the date of this release, the Company had approximately $782 million remaining under its current share repurchase authorizations.

2nd 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 six months ended June 30, 2016. Comparable store sales increased 4.3% for the second quarter ended June 30, 2016, on top of 7.2% for the same period one year ago. Comparable store sales increased 5.1% for the six months ended June 30, 2016, on top of 7.2% for the same period one year ago.

3rd Quarter and Updated Full-Year 2016 Guidance
The table below outlines the Company’s guidance for selected third quarter and updated full-year 2016 financial data:
 
For the Three Months Ending
September 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
 
 
19.5% to 19.9%
Diluted earnings per share (1)
$2.77 to $2.87
 
$10.30 to $10.70
Capital expenditures
 
 
$460 million to $490 million
Free cash flow (2)
 
 
$800 million to $850 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, July 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 42806224. A replay of the conference call will be available on the Company’s website through Thursday, July 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 June 30, 2016, the Company operated 4,660 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)
 
June 30, 2016
 
June 30, 2015
 
December 31, 2015
 
(Unaudited)
 
(As Adjusted, Unaudited)(1)
 
(Note)
Assets
 
 
 
 
 
Current assets:
 
 
 
 
 
Cash and cash equivalents
$
398,259

 
$
260,042

 
$
116,301

Accounts receivable, net
186,192

 
175,289

 
161,078

Amounts receivable from suppliers
78,824

 
75,017

 
72,609

Inventory
2,741,030

 
2,560,975

 
2,631,015

Other current assets (1)
33,828

 
36,103

 
29,023

Total current assets (1) 
3,438,133

 
3,107,426

 
3,010,026

 
 
 
 
 
 
Property and equipment, at cost
4,587,944

 
4,166,557

 
4,372,250

Less: accumulated depreciation and amortization
1,608,704

 
1,422,741

 
1,510,694

Net property and equipment
2,979,240

 
2,743,816

 
2,861,556

 
 
 
 
 
 
Notes receivable, less current portion

 
15,311

 
13,219

Goodwill
757,130

 
756,852

 
757,142

Other assets, net (1)
36,137

 
37,079

 
34,741

Total assets (1)
$
7,210,640

 
$
6,660,484

 
$
6,676,684

 
 
 
 
 
 
Liabilities and shareholders’ equity
 
 
 
 
 
Current liabilities:
 
 
 
 
 
Accounts payable
$
2,914,641

 
$
2,535,971

 
$
2,608,231

Self-insurance reserves
71,177

 
65,892

 
72,741

Accrued payroll
62,596

 
83,547

 
59,101

Accrued benefits and withholdings
59,966

 
52,984

 
72,203

Income taxes payable

 
29,130

 
1,444

Other current liabilities
258,295

 
229,528

 
232,678

Total current liabilities (1)
3,366,675

 
2,997,052

 
3,046,398

 
 
 
 
 
 
Long-term debt (1)
1,886,324

 
1,389,205

 
1,390,018

Deferred income taxes (1)
72,961

 
87,096

 
79,772

Other liabilities
194,670

 
217,146

 
199,182

 
 
 
 
 
 
Shareholders’ equity:
 
 
 
 
 
Common stock, $0.01 par value:
 
 
 
 
 
Authorized shares – 245,000,000
 
 
 
 
 
Issued and outstanding shares –
 
 
 
 
 
94,881,546 as of June 30, 2016,
 
 
 
 
 
99,592,091 as of June 30, 2015, and
 
 
 
 
 
97,737,171 as of December 31, 2015
949

 
996

 
977

Additional paid-in capital
1,309,441

 
1,242,810

 
1,281,497

Retained earnings
379,620

 
726,179

 
678,840

Total shareholders’ equity
1,690,010

 
1,969,985

 
1,961,314

 
 
 
 
 
 
Total liabilities and shareholders’ equity (1)
$
7,210,640

 
$
6,660,484

 
$
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 June 30, 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 
 June 30,
 
For the Six Months Ended 
 June 30,
 
2016
 
2015
 
2016
 
2015
Sales
$
2,176,689

 
$
2,035,518

 
$
4,272,839

 
$
3,937,421

Cost of goods sold, including warehouse and distribution expenses
1,049,510

 
976,727

 
2,048,081

 
1,891,671

Gross profit
1,127,179

 
1,058,791

 
2,224,758

 
2,045,750

 
 
 
 
 
 
 
 
Selling, general and administrative expenses
702,118

 
673,023

 
1,381,071

 
1,309,609

Operating income
425,061

 
385,768

 
843,687

 
736,141

 
 
 
 
 
 
 
 
Other income (expense):
 
 
 
 
 
 
 
Interest expense
(18,701
)
 
(14,319
)
 
(33,522
)
 
(28,721
)
Interest income
1,193

 
577

 
1,945

 
1,157

Other, net
1,241

 
182

 
2,258

 
1,295

Total other expense
(16,267
)
 
(13,560
)
 
(29,319
)
 
(26,269
)
 
 
 
 
 
 
 
 
Income before income taxes
408,794

 
372,208

 
814,368

 
709,872

Provision for income taxes
151,000

 
138,700

 
301,200

 
263,500

Net income
$
257,794

 
$
233,508

 
$
513,168

 
$
446,372

 
 
 
 
 
 
 
 
Earnings per share-basic:
 
 
 
 
 
 
 
Earnings per share
$
2.69

 
$
2.32

 
$
5.31

 
$
4.42

Weighted-average common shares outstanding – basic
95,967

 
100,547

 
96,554

 
101,078

 
 
 
 
 
 
 
 
Earnings per share-assuming dilution:
 
 
 
 
 
 
 
Earnings per share
$
2.65

 
$
2.29

 
$
5.24

 
$
4.35

Weighted-average common shares outstanding – assuming dilution
97,282

 
102,109

 
97,911

 
102,684












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


 
For the Six Months Ended 
 June 30,
 
2016
 
2015
Operating activities:
 
 
 
Net income
$
513,168

 
$
446,372

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization of property, equipment and intangibles
106,430

 
106,007

Amortization of debt discount and issuance costs
1,173

 
1,051

Excess tax benefit from share-based compensation
(30,136
)
 
(32,947
)
Deferred income taxes
(6,811
)
 
(15,326
)
Share-based compensation programs
9,853

 
11,304

Other
2,655

 
2,594

Changes in operating assets and liabilities:
 
 
 
Accounts receivable
(28,837
)
 
(34,199
)
Inventory
(110,015
)
 
(6,186
)
Accounts payable
306,410

 
118,804

Income taxes payable
25,170

 
79,172

Other
9,333

 
21,807

Net cash provided by operating activities
798,393

 
698,453

 
 
 
 
Investing activities:
 
 
 
Purchases of property and equipment
(220,416
)
 
(186,531
)
Proceeds from sale of property and equipment
1,971

 
1,608

Payments received on notes receivable
1,047

 
1,981

Net cash used in investing activities
(217,398
)
 
(182,942
)
 
 
 
 
Financing activities:
 
 
 
Proceeds from the issuance of long-term debt
499,160

 

Payment of debt issuance costs
(3,784
)
 

Principal payments on capital leases

 
(25
)
Repurchases of common stock
(856,845
)
 
(574,972
)
Excess tax benefit from share-based compensation
30,136

 
32,947

Net proceeds from issuance of common stock
32,296

 
36,021

Net cash used in financing activities
(299,037
)
 
(506,029
)
 
 
 
 
Net increase in cash and cash equivalents
281,958

 
9,482

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

 
250,560

Cash and cash equivalents at end of the period
$
398,259

 
$
260,042

 
 
 
 
Supplemental disclosures of cash flow information:
 
 
 
Income taxes paid
$
279,099

 
$
194,715

Interest paid, net of capitalized interest
27,174

 
27,711






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


 
For the Twelve Months Ended
June 30,
Adjusted Debt to EBITDAR:
2016
 
2015
(In thousands, except adjusted debt to EBITDAR ratio)
 
 
 
GAAP debt (1)
$
1,886,324

 
$
1,389,205

Add:
Letters of credit
39,010

 
50,506

 
Discount on senior notes
3,441

 
3,132

 
Debt issuance costs
10,235

 
7,663

 
Six-times rent expense
1,662,528

 
1,613,664

Adjusted debt
$
3,601,538

 
$
3,064,170

 
 
 
 
 
GAAP net income
$
998,012

 
$
845,047

Add:
Interest expense
61,930

 
55,783

 
Provision for income taxes
566,850

 
487,249

 
Depreciation and amortization
210,679

 
205,208

 
Share-based compensation expense
20,448

 
22,262

 
Rent expense
277,088

 
268,944

EBITDAR
$
2,135,007

 
$
1,884,493

 
 
 
 
 
Adjusted debt to EBITDAR
1.69

 
1.63



 
June 30,
 
2016
 
2015
Selected Balance Sheet Ratios:
 
 
 
Inventory turnover (2)
1.5

 
1.4

Average inventory per store (in thousands) (3)
$
588

 
$
574

Accounts payable to inventory (4)
106.3
%
 
99.0
%
Return on equity (5)
52.6
%
 
41.7
%
Return on assets (1)(6)
14.2
%
 
12.8
%


 
For the Three Months Ended 
 June 30,
 
For the Six Months Ended 
 June 30,
 
2016
 
2015
 
2016
 
2015
Selected Financial Information (in thousands):
 
 
 
 
 
 
 
Capital expenditures
$
116,442

 
$
95,391

 
$
220,416

 
$
186,531

Free cash flow (7)
193,796

 
197,037

 
577,977

 
511,922

Depreciation and amortization
53,652

 
51,057

 
106,430

 
106,007

Interest expense
18,701

 
14,319

 
33,522

 
28,721

Rent expense
$
69,838

 
$
68,074

 
$
139,841

 
$
136,012






Store and Team Member Information:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
For the Three Months Ended 
 June 30,
 
For the Six Months Ended 
 June 30,
 
For the Twelve Months Ended
June 30,
 
2016
 
2015
 
2016
 
2015
 
2016
 
2015
Beginning store count
4,623

 
4,433

 
4,571

 
4,366

 
4,465

 
4,257

New stores opened
38

 
34

 
90

 
101

 
198

 
215

Stores closed
(1
)
 
(2
)
 
(1
)
 
(2
)
 
(3
)
 
(7
)
Ending store count
4,660

 
4,465

 
4,660

 
4,465

 
4,660

 
4,465


 
For the Three Months Ended 
 June 30,
 
For the Twelve Months Ended
June 30,
 
2016
 
2015
 
2016
 
2015
Total employment
74,067

 
71,763

 
 
 
 
Square footage (in thousands)
33,824

 
32,336

 
 
 
 
Sales per weighted-average square foot (8)
$
64.15

 
$
62.74

 
$
248.77

 
$
238.00

Sales per weighted-average store (in thousands) (9)
$
466

 
$
454

 
$
1,804

 
$
1,722



(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 openings, acquisitions or closures.





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