The paragraph is an introduction to the O'Reilly Automotive, Inc. earnings call for the fourth quarter and full year 2024. Matthew, the operator, opens the call and introduces the participants, including Jeremy Fletcher, Brad Beckham, and other executives. The call will discuss O'Reilly's financial results and outlook for 2025, followed by a Q&A session. It includes a reminder about forward-looking statements, highlighting that actual results may vary and the company is not obligated to update these statements.

The paragraph highlights the company's performance in 2024, acknowledging the hard work of their staff which led to a 2.9% increase in comparable store sales and a 5.7% rise in diluted earnings per share. Despite industry challenges and falling short of some expectations, the company marked its 32nd consecutive year of growth in these metrics. They achieved record earnings despite a $35 million charge impacting earnings per share, especially affecting the fourth-quarter results. Fourth-quarter sales grew by 4.4%, with balanced growth in both professional and DIY sectors, indicating stronger performance compared to the earlier months of the year.

In the fourth quarter of 2024, the company experienced mid-single-digit growth in its professional business and over 3% growth in DIY, marking the best quarterly result for the year despite ongoing pressure on consumer demand. While discretionary categories like tools and parts remained weak, maintenance categories performed well. Winter weather-related categories also showed strong performance due to milder comparisons to the previous year's winter. Jeremy Fletcher explained that normal winter weather conditions returned, creating steadier month-to-month sales. October sales benefited from 2024 having one fewer Sunday, and December saw gains from easier weather comparisons. These results were influenced by comparisons to the prior year rather than intra-quarter business changes. The paragraph concludes by indicating upcoming discussions on average ticket and traffic dynamics.

In the fourth quarter, ticket count growth significantly contributed to the increase in comparable store sales, with the professional business segment showing strong performance throughout 2024. DIY ticket counts also increased, marking the best quarterly performance for the year due to strong maintenance category sales and favorable winter weather. However, on a two-year basis, DIY traffic was slightly down, reflecting the year's overall trends. The company believes its customer transaction count results are leading the industry, demonstrating market share gains. Average ticket values increased, aided by inflation, contributing to the fourth quarter's sales growth. For the full year of 2024, the company achieved a 2.9% comparable store sales increase, aligning with its high-end guidance, despite challenges compared to remarkable growth in previous years. The focus on customer service has helped sustain and grow market share. For 2025, the company projects a comparable store sales growth outlook of 2% to 4%, considering industry and macroeconomic conditions.

The automotive aftermarket industry has faced recent challenges, similar to past cyclical downturns, yet remains stable due to the resilience of its core dynamics. Vehicles lasting longer and costing more to replace contribute to a growing U.S. car park with an increasing average vehicle age, maintaining steady demand. Industry growth has been limited, achievable primarily through market share gains and consolidation, but the long-term outlook is positive, driven by stable demand. However, short-term economic pressures, such as high prices, rising interest rates, and energy cost spikes, are risks factored into the 2025 outlook. Despite current challenges, the industry is expected to rebound in the long run.

The company aims to achieve industry-leading results through effective execution of its business model and exceptional customer service. For 2025, it anticipates growth in both DIY and professional segments, with stronger growth in professional due to higher ticket counts and market share gains. DIY growth will be affected by increased parts quality leading to less frequent service but higher ticket value. The company expects average ticket growth from same SKU inflation and assumes only modest price increases through 2025. Sales projections do not account for potential tariff changes. Quarterly sales growth is expected to be consistent, with slight challenges in the first and fourth quarters.

In the first quarter, sales volumes are meeting expectations, despite a challenging comparison to favorable weather last year. Capital expenditure for 2024 is over $1 billion, slightly exceeding guidance, mainly due to distribution infrastructure projects, with a projection of $1.2 billion for expansion. The company plans to accelerate store and distribution growth. For 2025, they aim to open 200 to 210 new stores in North America, focusing on both organic and greenfield growth across U.S., Puerto Rico, and Mexico, while also planning to increase store density and prepare for growth in Canada. Expansion in Mexico is ongoing, with 25 new stores opened in 2024 and similar growth expected in 2025, including extending beyond Guadalajara.

The paragraph discusses the company's 2025 strategy, highlighting a focus on expanding their store network with an emphasis on owning rather than leasing new locations, as well as investing in their hub store network to enhance localized supply capabilities. This approach is aimed at improving sales and cash flow returns. The 2025 plan includes a mix of 60% owned and 40% leased stores, with increased capital investment in expanding the size and number of hub stores and enhancing distribution capabilities to maintain their competitive edge in inventory availability. Brad Beckham emphasizes the flexibility of their hub strategy and the importance of these investments.

The paragraph discusses O'Reilly's investment plans for 2025, focusing on expanding stores, hubs, and distribution, alongside refreshing store appearances and investing in technology. It highlights the company's 2024 financial performance, specifically a consistent gross margin of 51.2%, albeit slightly down from the previous year due to acquiring a Canadian business and a mix headwind in their professional segment. However, the company managed to offset these pressures through supply chain improvements and expects further gross margin enhancements in 2025.

The company is optimistic about achieving gross profit growth in 2025, projecting a guidance range of 51.2 to 51.7%, which is a 25 basis points increase from 2024. This growth is expected due to distribution efficiencies and a premium value proposition in supply chain and operations, assuming stable inflation and rational industry pricing. The company has not factored in potential tariff changes since their timing and effects are uncertain, though past experiences, like the 2018 tariffs and recent inflation, suggest the industry can rationally manage increased costs. They expect consistent quarterly gross margins in 2025, similar to 2024, and plan to update supply chain and distribution initiatives next.

The paragraph discusses the company's commitment to enhancing parts availability through investments in its supply chain and distribution networks. It highlights the successful opening of a new distribution center in Atlanta, Georgia, capable of servicing 350 stores, and the nearing completion of another center in Stafford, Virginia, set to open in 2025. The company plans to invest in expanding and improving its distribution infrastructure and inventory in 2025 to support growth and efficiency.

The paragraph discusses Jeremy Fletcher's report on store inventory and financial performance. At the end of 2024, inventory per store increased by 5.5% to $799,000, with plans for an additional 5% increase in 2025 to support sales momentum and enhance local assortments. Fourth-quarter SG&A expenses rose to 33.3% of sales, partly due to a $35 million charge for historical auto liability claims related to store delivery fleet accidents. This increase was driven by higher costs to resolve these claims, not by more frequent accidents. Efforts are being made to improve safety and reduce future losses.

The paragraph discusses the changes in average per-store SG&A expenses for 2024 and outlines expectations for 2025. In 2024, SG&A expenses rose by 4.6%, partially due to a fourth-quarter charge, but were ultimately in line with revised expectations. The company is disappointed by the fourth-quarter impact but satisfied with overall results, achieving an 18 basis point leverage increase. For 2025, the company plans to grow average SG&A per store by 2% to 2.5%, and projects an operating profit guidance range of 19.2% to 19.7%. They anticipate managing expenses prudently in 2025, similar to adjustments made in 2024 in response to market conditions.

The paragraph discusses O'Reilly's financial performance and future expectations. It highlights their commitment to investing in key capabilities to maintain growth and market share. For the fourth quarter, O'Reilly achieved a sales increase of $264 million, driven by a rise in comparable store sales and contributions from new stores. The company projects total revenues for 2025 to be between $17.4 and $17.7 billion. The effective tax rate for Q4 was 19.6% and is expected to be 22.6% for the full year of 2025. The paragraph also credits the O'Reilly team's continued dedication and outlines the impact of tax credits on the previous year's effective tax rate.

The paragraph outlines financial projections and results for 2024 and 2025. The base tax rate is 23%, reduced by a 0.4% benefit for share-based compensation, with fluctuations expected each quarter. Earnings per share (EPS) guidance for 2025 is set at $42.60 to $43.10, representing a 5.4% increase over 2024. Free cash flow in 2024 was $2 billion, unchanged from 2023, with future projections of $1.6 billion to $1.9 billion for 2025 due to increased capital expenditures and inventory investments. The AP to inventory ratio decreased slightly in 2024 and is expected to moderate further in 2025 to approximately 125%. The paragraph concludes with a mention of moving on to debt.

The company ended the fourth quarter with an adjusted debt to EBITDA ratio of 1.99 times, down from 2.03 times at the end of 2023, due to EBITDA growth offsetting a modest increase in adjusted debt. The leverage remains below the target of 2.5 times, with plans to gradually approach this target. In 2024, the company repurchased 1.9 million shares at an average price of $1,072, totaling $2.1 billion. Since 2011, a total of 96 million shares have been repurchased at an average price of $264, amounting to $25.4 billion. The company believes the repurchase price is justified by future cash flows and sees the buyback program as a way to return capital to shareholders. The EPS guidance includes current repurchases but excludes future ones. The paragraph ends with thanks to the team and an invitation for questions, with the first question coming from Josh Young, related to sourcing exposure to China and Mexico and vendor price increase expectations.

The paragraph discusses the impact of potential tariffs on sourcing materials from different countries like China, Mexico, and Canada. Despite not anticipating tariffs, there is concern about their looming threat. The company has taken steps to diversify its global supply chain and reduce reliance on high-risk areas, which started with China's tariffs in 2018 and 2019. Their strategy involves working with suppliers to understand the true impact of any tariffs and leveraging their proprietary brand portfolio, which comprises over 50% of their revenue, to source from various suppliers and countries. This approach allows the company to adapt to changing conditions and manage the challenges posed by tariffs in the retail industry.

The paragraph includes a discussion between Joshua Young and another speaker about the challenges of dealing with changing costs in their supply chain. Young mentions that it's difficult to provide a complete picture due to the dynamic nature of costs, especially in sourcing, and emphasizes their confidence in handling these changes due to past experiences. He notes that some costs, like distribution, aren’t impacted, and the industry can leverage pricing power to pass through increased costs. The paragraph also mentions a transition to a Q&A format with a subsequent question from Michael Lasser of UBS.

In the paragraph, Brent Kirby addresses a question about O'Reilly's decision to guide its comparable store sales growth to a range of two to four percent, rather than the usual three to five percent. He explains that the company has thoroughly considered various factors, including market conditions and competition, and acknowledges some uncertainty and choppiness in weekly sales performance. Despite achieving a 4.4% growth in Q4, O'Reilly remains cautious due to a cautious consumer environment and continued pressure on discretionary spending, although they are confident in their ability to gain market share. Kirby notes that while it's challenging to predict long-term trends, O'Reilly operates as a significant player in a large industry.

The paragraph discusses the potential for O'Reilly to exceed its initial performance expectations due to various factors such as favorable weather conditions and opportunities arising from industry store closings. The response to the question acknowledges the need to reassess their guidance if circumstances change, considering factors like pricing benefits from tariffs, economic impact, inflation levels, and consumer response. These changing conditions could affect the company's income statement and overall financial outlook.

The paragraph discusses the company's financial strategy for the year, emphasizing a focus on providing high-quality customer service over short-term financial results. The approach includes prudent investments to ensure long-term customer satisfaction and business growth. Brad Beckham adds that comparable store sales could be influenced by factors like inflation or market share gains. The company is committed to leveraging these opportunities to enhance service and ensure ongoing success. Michael Lasser acknowledges the information, and the interaction concludes with expressions of gratitude.

In the paragraph, Gregory Melich from Evercore ISI asks about the factors affecting the company's fourth-quarter performance, specifically regarding inflation and SKU pricing. Jeremy Fletcher responds, noting that same SKU pricing was just under 1% and discusses various factors impacting the company's gross margin. These include the inclusion of Canadian business center results, customer mix, product seasonality, and distribution costs due to facility relocations. Despite some pressures, the company has been able to steadily improve acquisition costs and create value with suppliers. Brent adds that the factors Jeremy mentioned affected the gross margin in Q4.

The paragraph discusses the business outlook for 2024 and 2025, emphasizing a positive perspective on cost management and revenue trends. Gregory Melich inquires about the impact on the top line, noting past expectations of a 2-3 point contribution from inflation and Average Unit Retail (AUR) expansion. Jeremy Fletcher responds, indicating that trends for 2024 and expectations for 2025 align, with a slight increase above inflation in average ticket value. He mentions that consumer pressure might constrain additional purchases, slightly compressing benefits from product complexity. However, overall results are expected to normalize, with contributions from same SKU sales, ticket complexity, and professional growth driving ticket count improvements next year.

In the paragraph, various speakers—including Brad Beckham—engage in a discussion with Bret Jordan from Jefferies about regional performance and potential disruptions in the market due to store closures by a competitor on the West Coast. Overall, there were no significant regional standouts noted in the fourth quarter, and performance was consistent across different areas. Regarding the competitor's store closures, Beckham mentions it's too early to determine the impact. While the sales and operations team aims to capitalize on opportunities created by these closures, the highly competitive nature of these markets, with many independent players, means that automatic gains in market share are not guaranteed.

The paragraph discusses the company's approach to navigating low sales volumes and potential opportunities, emphasizing the need to focus on quality, sustainable business. It suggests that while some business may not align with their goals, there are still potential opportunities on their terms. The conversation then shifts to addressing the competitive landscape, particularly regarding nontraditional retail competition in the DIY market. The speaker reassures that their performance in maintenance categories, such as oil and filters, is strong and that they are not currently concerned about competition from nontraditional retailers.

In the paragraph, the speakers discuss their company's strategy of emphasizing service and availability over competing on price, which continues to show strength and demand. David Bellinger from Mizuho asks about the company's efforts to modernize their distribution centers with automation and whether this will be implemented in new facilities. Brent Kirby responds, highlighting that recent projects in Springfield and Atlanta have included goods-to-person automation. He emphasizes the importance of their distribution network for their business model, focusing on parts availability and consistent, accurate delivery promises. The company views these advancements as an evolution of distribution technology in the marketplace.

The paragraph discusses a company's approach to improving efficiency and effectiveness across its distribution centers through strategic investments in technology and infrastructure. The speaker emphasizes that while they assess cost-benefit outcomes, they don't implement the same technology suite uniformly across all centers. Instead, each distribution center is evaluated based on the market it serves and its specific needs. Additionally, the discussion shifts to a question about the company's exposure to gas and diesel prices and how a decrease in energy costs could affect operating expenses. However, the response indicates that they do not typically quantify or delve deeply into this aspect.

The paragraph features a conversation during a Q&A session where David Bellinger thanks Brent Kirby after discussing the impact of fluctuating gas prices on operating costs, noting that significant shifts are rare and typically not impactful long-term. Michael Baker from D.A. Davidson then expresses confusion about the current quarter's trends, mentioning expectations for lower first-quarter comparisons and seeking clarification regarding recent performance metrics. Jeremy Fletcher responds, emphasizing the company's focus on short-term volume trends and business consistency despite normal seasonal changes.

The paragraph discusses the company's performance metrics and the impact of weather on business volumes. It highlights that January saw lower comparative figures than December due to different weather conditions. The start of the year appeared similar to the previous year, with favorable weather in December and January. The first quarter is described as having variability due to winter and spring weather transitions, as well as the timing of tax refunds. Michael Baker acknowledges the explanation and addresses the issue of inflation. Despite general inflation trends and rising CPI in the auto parts sector, the company experienced less than one percent inflation on a like-for-like basis in the third quarter and does not anticipate a significant increase in inflation for 2025, except for possible tariffs.

In the paragraph, Jeremy Fletcher discusses the reasons why their industry hasn't seen a significant increase in inflation, unlike the general economy. He explains that their industry experiences slower price adjustments due to the nature of their products and sales cycles. Fletcher suggests that the broader economic trend in inflation is still uncertain and that their company remains cautious about predicting future inflation impacts. He believes that there may be an opportunity to manage inflation's effects on their business, which is why they avoid making speculative forecasts. The paragraph ends with a transition to questions from Stephen Forbes of Guggenheim Securities.

The paragraph discusses the impact of rising self-insurance costs on the industry, particularly in relation to servicing costs and potential industry consolidation or attrition. Stephen Forbes addresses a question on how these insurance costs affect the industry, noting that while their specific experience may not be entirely unique, their industry is distinctive in terms of fleet operations and professional service. He emphasizes the importance of managing these costs, despite the current increased pressure, to continue operating safely and effectively. The rising costs associated with resolving accidents are identified as a primary factor driving this pressure.

In the paragraph, the speaker addresses the costs associated with owned versus leased store models, emphasizing that owned stores typically involve higher capital costs, ranging from $3 million to $3.4 million, covering construction and equipment. Leased stores have substantially lower costs, typically between $400,000 to $600,000, depending on the building condition. Despite the cost differences, both models are deemed essential and beneficial for long-term investment and capital use. The speaker expresses confidence in the growth and performance improvements of new stores, making them attractive investments. The conversation concludes with the operator noting the end of the allotted time for questions, turning the call over for closing remarks.

In the paragraph, Brad Beckham expresses gratitude to the O'Reilly team for their dedication to customers and thanks participants for joining the call. The call concludes with the operator allowing participants to disconnect and wishing them a good day. They also mention anticipation for reporting first-quarter results in April.

This summary was generated with AI and may contain some inaccuracies.