O\'Reilly motor (NASDAQ:ORLY)
At 11: 00 a. m. on April 25, 2013, etexecuesthomas G. Q1 2013 Earnings CallMcFall -
Chief Financial Officer, Chief Accounting Officer and Executive Vice President of FinanceHenslee -
Jeff M. Chief Executive Officer and presidentShaw -Executive Vice-
Matthew J. , president of store operations and sales analysis. Fassler -
Goldman Sachs Group Limited
Research Department Michael lather
Christopher Horvers, research arm of UBS Investment Bank-
Research Department, JPMorgan Chase
Research Department RBC Capital Market Co. , Ltd. ISI Group Inc.
Research Department Sam Reid
Good morning, operations officer, Barclays Capital Research Division.
My name is lazasha. I will be your conference operator today.
At that time, you are welcome to watch the release of the first quarter of the 2013 earnings call. [
I will transfer the call to Sir now.
Tom McFall, Chief Financial Officer
You can start, Sir. Thomas G.
Thank you, Latasha.
Good Morning, everyone. Welcome to our conference call.
We have a short statement before I introduce our CEO, Greg Henslee.
The company claims protection of Safe Harbor
Statement in the sense of the Private Securities Litigation Reform Act of 1995.
You can identify these statements by forwarding
Expect, believe, expect, should, plan, plan, estimate, project, will, or something like that.
In addition, the statement of non-historical facts contained in the earnings release and this conference call is forward --
Outlook statements, such as statements that discuss, among other things, expected growth, store development, integration and expansion strategies, business strategies, future revenue and future performance. These forward-
Forward-looking statements are based on estimates, predictions, beliefs and assumptions, not guarantees of future events and outcomes.
These statements are affected by risks, uncertainties and assumptions, including but not limited to competition, product demand, auto parts market, overall economy, inflation, consumer debt levels, government regulations, the company\'s increased debt level, the credit rating of the company\'s public debt, the company\'s ability to hire and retain qualified employees, risks associated with the performance of the acquired business, weather, terrorist activities, war and war threats.
The actual results may differ materially from the expected results described or implied in these forwards
Look at the report.
See the risk factors section of Table 10-Annual Report
For the year ended December 31, 2012, other factors that may have a significant impact on the company\'s financial performance. These forward-
Forward-looking statements are issued only from the date of publication and the company is not obliged to publicly update any forward-looking statements
Forward-looking statements, whether for new information, future events or other reasons, unless required by applicable law.
I would like to introduce Greg Henslee at this time. Gregory L.
Thank you, Tom.
Good Morning, everyone. Welcome to the first quarter conference call of O\'Reilly Auto Parts.
It was certainly our Chief Financial Officer Tom mcfarr who joined me on the conference call this morning;
Our executive vice president of store operations and sales, Jeff Shaw.
Our executive chairman, David O\'Reilly.
Ted Wise, our Executive Vice President of expansion, also attended the meeting.
First of all, I would like to thank our 56,000 team members for their continued efforts and dedication to the success of our company.
We will enter 2013, and the first quarter is a challenging 1/4 with strong sales growth due to the difficulty of comparing it to 2012.
Remind everyone that in the first quarter of last year, we sent out 7 on the phone.
Driven by the pull, comparable store sales rose 4%
Due to the early warm weather in most of our markets and 1 markets, the spring business entered the first quarter.
Benefit 3% from Leap Day
Except for the weather-
The associated adverse factors, the expiry of the payroll tax holiday and the time when Easter entered the first quarter of this year compared to 2012 made it difficult to generate strong comparable store sales growth.
Despite these significant adverse factors, through our team\'s continued focus on exceptional customer service, we were able to maintain a stable sales trend from 2012 to this quarter and produce a positive comp of 0.
6%, which is flat to 2% in the first quarter within our comparable store sales guidance.
We estimate that the impact of calendar changes on Leap Day and Easter first quarter has had a negative impact on our comps of about 1. 5%.
So on an adjusted basis, our team delivered 2.
1% comp in addition to the same adjusted 6.
Compared with the first quarter of last year, 1% comp.
Therefore, we are quite satisfied with our performance in these difficult comparisons.
Operating profit as a percentage of sales fell by 34 basis points in the first quarter.
But as we said before at last year\'s conference call, operating profit in first quarter of 2012 benefited about 15 to 20 basis points from Leap Day, because we realized the sales revenue of Leap Day, there is basically no additional fixed cost.
Excluding the leap day comparison, the remaining deleveraging is the result of comparison to the strong SG & a leverage on strong sales in 2012, as our SG & A spending in 2013 is in line with our expectations.
Given the significant comparative resistance we faced in the first quarter, we are satisfied that our team was able to increase operating profit by 1% over last year.
This robust operating performance, coupled with a decrease in the number of shares repurchased last year and a reduction in tax rates, Tom will discuss later in the conference call, driving a strong growth of 19% per share earnings in the first quarter, and put us on a strong year in 2013.
Now, I would like to take some time to further discuss our sales results for the first quarter and provide a little color on what we think about the macro situation in the industry.
From the point of view of the percentage of comparable store sales, due to the difficult comparison between the early spring weather last year and the late spring weather this year, the quarter started stronger than at the end.
As we move into the second quarter, this should bode well for our business.
So far, in April, our comp store sales have steadily increased as the weather in the spring reaches many markets.
The bad weather comparison mainly affected our markets in the central and northern Midwest, which had a negative impact on our comparable store sales performance of about 200 basis points.
While these markets have been dragged down similarly to the last two quarters of 2012, the reasons are different.
The drag in the first quarter of 2013 was due to the fact that it was very difficult compared to the warm weather in early 2012, and the drag in the third and fourth quarters of 2012 was caused by the mild winter in the first quarter of last year.
Based on current sales trends, we expect these markets to return to the historical model and contribute to comps for the rest of 2013 as we face easier comparisons.
The difficulties brought about by spring gas and Easter holidays in early 2012 are more influential to the DIY business, while Leap Day comparison has the same impact on both sides of our business.
So, according to our expectations, the comps of our DIY business is negative in the first quarter, but when you exclude the impact of the calendar issue, it is flat.
No matter whether there is a calendar shift or not, professional client companies are positive.
The acquired store continues to exceed the core O\'Reilly store and continues to grow on our overall comp results.
However, when you adjust the impact of Leap Day and Easter calendar changes, the core O\'Reilly store performed positively in the first quarter.
We are satisfied with the progress of the acquisition store and the appeal of the professional customers we have acquired in these markets, and still believe that we have a great opportunity in the future to gain a greater share of the business in this regard.
As we have seen for a while, the overall competition in the first quarter was driven primarily by the increase in average fares.
This trend is the result of the increasing complexity and longevity of vehicles on the road today and the increasing cost of related parts, at the same time, we continue to see the sales generated in the increasingly large hard parts category of our cars, with higher average fares, especially when we compare it to the effect of early spring weather on mixing in the first quarter of last year.
I would add that inflation is not a huge driver of our average fare growth.
Our continued success in building a professional customer business in the acquisition market has led to an increase in the number of tickets for the business, and the number of DIY tickets continues to be under pressure.
From a macro point of view, we
Term outlook for automotive aftermarket.
After adjusting leap day, the total number of vehicles driving in the United StatesS.
So far, it has been flat in 2013, rising slightly.
Although the rise in gas prices from 2012 to 2013 did not help our business, gas prices are relatively comparable to last year, we believe that the fall in natural gas prices into the second quarter is positive for the summer sales season.
Although it is difficult to quantify, the failure of the payroll tax holiday has had a negative impact on us.
But like other issues that affect consumer wallets in the short term, we expect this impact to be short term
Consumers will soon adapt to the return of normal payroll tax rates.
We are encouraged that unemployment is slowly moving in the right direction.
But the current growth rate is still high, which reduces commuting mileage and leads to a high level of economic uncertainty.
When we see long
The future of our business scope, we are still very optimistic about the fundamentals of our industry as the United StatesS.
The fleet of 0. 241 billion cars and light trucks traveled on the road, with an average age of 10.
8 years continues to age and goes through more routine maintenance cycles as consumers continue to be aware of the value of investing in the repair of higher equipment
Thanks to better engineering and manufacturing, we expect the growth trend of vehicle age to continue and are excited about O\'Reilly\'s opportunity to make the most of these trends in the future.
We look forward to the coming of the second quarter and we would like to see the solid business trends we have experienced in the last two quarters continue and set our comparable store sales guidance to 4% to 6%.
This guide assumes that the weather is normal in the second quarter and inflation is at historical standards.
While the guidance range for the second quarter is significantly higher than our results for the first quarter, the number of US dollars we forecast is in line with our current trend, and the guidance reflects the relaxation of the comparison since 2012.
In fact, at the midpoint of our boot range, 2-and 3-
The annual comparable store sales tax for the second quarter was lower than our first quarter results.
So far, the business has maintained a stable trend in April.
With simpler comparisons, our comp store sales results support our guidance from 4% to 6%.
As a reminder, from our release last year, sales growth in 2012 showed weakness in April, followed by strong June and weak.
Therefore, June will be a critical month as we see on the calendar that last year\'s mild winter had a negative impact on the business in the northern Plains and the Middle West.
After completing our expected range for comps in the first quarter, we also reiterated the full year comp store sales guidance of 3% to 5%.
In this comp guide, we expect that the weather will be a bit normal for the rest of the year, and as unemployment and the corresponding commuter mileage slowly recover, the total number of mileage of vehicles traveling will gradually increase.
However, we believe that consumers will continue to face pressure in the foreseeable future.
In addition, we are very excited about the opportunity to develop in the long run
Establish a long-term relationship with our professional customers in the acquisition market and expect these increases in hard drive sales and the increase in repair complexity I discussed earlier to further drive the growth of our average ticket.
I would like to make some comments now on another strong gross margin performance in the first quarter.
We are pleased to maintain a very strong gross margin.
Our first quarter gross margin component is very similar to the fourth quarter of last year. On a year-over-
Compared to 2012, we saw an improvement of 59 basis points by improving the operation efficiency and excellent shrinkage effect of the distribution center.
For the whole of 2013, we slightly increased the gross profit margin guidance from 49 ranges. 9% to 50.
Range from 3% to 50% flat to 50.
4% based on better-than-
First quarter performance expectations.
Within this guidance, our inherent expectation is that industry pricing will remain reasonable, our merchandising team will be able to continue their higher portfolio of great work professional customer businesses in step-by-step increasing acquisition costs, which is lower than the gross margin of our DIY business.
We also hope that the efficiency of our distribution center will be improved, especially in the newer DCs.
But as we discussed on the phone in the last quarter compared to 2012, this improvement will be offset by a reduction in the cost of capitalized distribution, this is related to the store inventory expansion plan that we completed throughout last year.
We also expect strong contraction results in 2013.
Before I transfer the call to Jeff I would like to provide an update on our acquisition of VIP Auto and some information on some initiatives we plan to capture and increase the share of our DIY business.
So far, our acquisition of the VIP retail segment has gone well, consisting of 56 stores in Maine, New Hampshire and Massachusetts.
We have converted computer systems for distribution centers and stores to O\'Reilly systems and trained to keep our new team members up to speed on O\'Reilly pointof-
Sales System and catalog part appearance-up systems.
Over the next few months, we will reset the interior, layout and decor, which will provide us with the space we need to deploy the inventory levels required for a dual market strategy.
When we change the external signage in the fall, we will complete the final step of the integration.
We do not expect any significant increase in sales of these stores in 2013.
But as we build the O\'Reilly brand and develop relationships with professional customers in these markets, we are excited about the opportunities in these new markets.
Finally, I would like to talk about some of the initiatives we are taking to take a bigger share of the DIY market.
Developing our DIY business remains the main focus of our company, and we believe we have great opportunities to increase the number of our average stores based on the industry average.
One of the plans we are implementing is the loyalty card program.
The project was designed for our customers to track their purchases and earn points for every dollar and then redeem them into coupons for future purchases.
The program will also include targeted promotions and special offers specifically for our loyalty program members.
We are excited about the potential of new projects and are confident that this will enable us to enhance our engagement with our customers to gain more business and take advantage of additional sales opportunities.
We will also see the benefits of building up a customer\'s purchase history that is relevant to the ability to use this information to guide our marketing efforts to meet the specific needs and purchase patterns of our customers.
Most importantly, we believe that the loyalty program is an effective way to reward our customers and thank them for their continued operation while creating a double
The way to promote the growth of DIY market share value proposition.
We are currently in the pilot phase of the project and start testing in selected markets this month.
We will use this short pilot to address any technical issues and plan to launch the full project chain-
By the end of the second quarter.
The last initiative I would like to discuss is the work we are doing to replace our point of view --of-
Sales trading engine.
This change does not affect the directory interface that our team members and customers see, but rather the enhancements to the system architecture, which is the backbone of our transaction processing.
We are implementing an industry.
The leading retail solution replaces our traditional local system.
The new system allows us to increase our flexibility to implement more advanced, targeted promotions and through our in-
Store system and our electronics
The new system will also provide us with the tools we need to quickly meet the changing business needs and enable us to focus on continuous improvement in areas such as electronic parts catalogues, which is the core competence of our company.
In the second half of this year, we will test the new system in the pilot store and fully launch the chain
Wide in the first half of 2014.
Before I transfer the call to Jeff, I want to thank our team members again for their strong execution in the first quarter, and they continue to be committed to providing our loyal customers with the absolute best customer service in our industry.
I will transfer the phone to Jeff now. Jeff M.
Thank you, Greg. Good morning, everyone.
I would like to join Greg in thanking the O\'Reilly team for their performance in the first quarter and for their unwavering commitment to delivering the best customer service in the industry day after day.
Our business environment was tough in the first quarter, as we expected.
When the business is tough, the service you provide for DIY and professional customers becomes more important.
We have always believed that we should follow our discipline and walk an extra mile for every customer.
Even in difficult times, we are allowed to continue to develop long-term relationships in our business.
This commitment to our customers is at the heart of our decision last year to increase both inventory and our store
In order to ensure the quality of customer service, maintain the level of staffing in our stores.
We believe that it is this commitment to our customers that allows us to grow our business in the first quarter, even if it is difficult to compare.
The first project I would like to highlight today is the performance of our SG & A in the first quarter.
In the difficult macroeconomic environment we have faced in recent quarters, we are still very concerned about cost control.
But what I would like to stress is that this is the review that we have made in the last few quarters, and we will manage our expenses with care, in any case, we will not make any cuts that endanger our ability to provide the highest service.
Develop customer service that is short-term
SG & A was reduced by 93 basis points in 2013 based only on the tough comparison with last year, including 15 to 20 basis point earnings on leap day in 2012, with no additional fixed costs.
As far as SG & A\'s total USD expenditure is concerned, we are satisfied with the strong expense controls we implemented in the first quarter as our SG & a usd expenditure is going on as planned.
In the first quarter, each of our stores SG & A was flat with 2012, the highest year of the Year --over-
Annual growth in any quarter of 2012 was partly due to strong sales and operating income performance receiving higher incentive pay.
We feel that we have allocated SG & A spending for the current business trend, and we expect that spending on each store in SG & A will increase by about 0 throughout the year. 5%.
Our first quarter results and year-round expectations reflect our commitment to maintaining a high level of customer service to grow our business while actively managing costs.
We executed this script throughout the history, and we see, again and again, that consistent, excellent customer service is a factor in winning and maintaining the customer\'s business.
I want to talk about our distribution center business now.
As Greg mentioned earlier, our ability to drive cost growth
Efficiency savings in our DCs are a positive driver of our gross profit margin performance this quarter.
As we actively manage costs to improve the operational efficiency of the latest DCs, these ongoing efficiency improvements are in line with our expectations.
DCs also played an important role in supporting our inventory availability plan, and their support helped drive an increase in the number of stores in all markets.
We are working to drive more streamlined and efficient operation of our DCs, and we are currently implementing projects to improve our DC management system, strengthen manual scheduling and optimize our DC routing network.
Next, I would like to share with you some of the initiatives we are taking to further enhance the quality customer service we provide.
As we discussed earlier on the phone, we launched our proprietary catalog of electronic parts in the first half of 2012.
Our electronic parts catalog o\' cat is a key tool in the store to provide top-level products
First-class customer service for DIY and professional customers.
That\'s why we ran our new directory. by-
The third legacy side
Party directory, so that our team members can choose which one to use when learning the new system, while further enhancements.
By the end of the first quarter, almost all of our team members are using a new directory based on its superior features and content.
So we canceled the traditional directory in April.
We will continue to take advantage of the functionality of our new system and continuously improve the catalog to ensure that our customers will benefit from the most powerful catalog in the industry.
As the conversion of our new directory is complete, we are now focusing on implementing our proprietary business --to-
The first commercial platform for online calls.
The redesign of this B2B platform leverages the catalog improvements we make in our electronic parts catalog, giving our professional stores access to enhanced product content and images, as well as enhanced search and recognition capabilities
Ultimately, our first call online system is designed to be a proprietary business tool for our customers to locate and order the right parts in the most efficient way possible, so that they can get the vehicle through their Bay.
The new system also strengthens how we integrate promotions and incentives for professional customers and allows us to manage relationships in a seamless way.
This system can help us build strong connections with our customers, and the enhancements we are launching will make these connections even deeper.
We have completed testing of the new system in the first quarter and are currently rolling out the new system and switching our customers from our legacy system, we hope to finish the work in the summer.
The last initiative I would like to report on is the ongoing appeal that we see from hubs and stores --
Our inventory investment in 2012.
Huge demand for services in industries
Provide the required parts to the customer.
We believe that our investment last year contributed to our sales momentum in 2013.
We will continue to monitor the deployment of inventory, but we currently believe that the level of availability we provide is a difference.
Finally, I would like to provide some information on the progress of our new store growth in the first quarter.
In terms of the opening of the new store, we performed very strongly in the first quarter, and a total of 65 new stores were opened in the quarter.
As we discussed in the previous quarters, our expanded store footprint gives us the ability to expand the growth of organic stores.
Our new store opening in the first quarter is balanced across the country.
We are very satisfied with the management team that leads these new stores, and we are excited about the opportunities we see when entering the new market.
We are still expected to reach the target of 190 new net stores announced before 2013.
As Greg mentioned earlier, we modified the computer system in advance at the VIP store.
We are pleased to continue to advance this acquisition and build a strong O\'Reilly business in the northeast.
The transition and training has been very smooth so far, however, we are still in the early stages of promoting the business model and it will take us some time to drive the results of these new markets.
As always, we continue to actively look for more bolts-
Acquisition to complement our organic store growth but still a patient and disciplined buyer.
Before I transfer the call to Tom, I would like to thank again our store and distribution center team for the excellent service they provide to our customers on a daily basis.
Now I transfer the phone to Tom. Thomas G.
Now we will take a closer look at our results and add some colors to our guide.
Comparable store sales increased by 0 year on year this quarter.
The comps increased by 6% over the previous year. 4%.
Excluding the impact of leap days in these two periods, comps is 1.
In the first quarter of 2013, 9% ranked above 6. 1% in 2012.
As Greg discussed, our comparable store sales in the first quarter went through tough comparisons and were slightly affected by late spring weather, within our guidance expectations, this gives us the bottom half of our scope of guidance.
We believe that this is only time-related to the original spring and autumn airlines and has not changed our guidance for the full year we expect 2013 in January.
Sales increased by $56 million during the quarter, of which comp store sales increased by $9 million, non-comp store sales increased by $50 million, and non-comp store sales decreased by $2 million, sales of non-stores and closing of stores decreased by $1 million.
Due to significant changes in the business model and classification of historical data, the acquired VIP store is included in the sales of non-comp stores.
We will start to include these stores, sales and companies. -
Excuse me, January 1, 2014 at our comp base.
Gross profit for the quarter increased by 59 basis points over the previous year.
Our gross margin performance is slightly higher than we expected, mainly due to the more favorable differences in business over the years in spring.
As Greg mentioned earlier, we are satisfied with our continuous growth in profit margins, and we expect gross margin to be trending within our previous expectations of the 2013 balance.
But we slightly raised the gross profit margin guidelines to 50%--to 50.
Flow through mixing 4%-
Related beats in the first quarter.
SG & A was 34 this quarter.
5% of sales, 33.
The previous year was 6%.
$ SG & A for the first quarter met our expectations and we continue to expect an increase of about $0 per store SG.
5% throughout the year.
Diluted earnings per share for the first quarter were $1.
$36 per share, an increase of 19% over diluted earnings of $1 per share.
First quarter of 2012.
Earnings per share in the first quarter benefited from a rate of 35.
9% of pre-tax income, the tax rate is 38.
The first quarter of 2012 was 5%.
This favorable tax rate is the result of positive results of income tax audit resolution and benefits of certain work tax credits.
We were able to qualify for these work tax credits earlier than expected in 2013, with EPS benefits of approximately $0.
First quarter 02 compared to our initial guidance expectations.
But we still expect the tax rate to be around 37 for the whole year.
4% of pre-tax income.
We updated the EPS guide for the whole year to $5. 64 to $5. 74.
Our total sales guidance for the rest of the year remains unchanged.
Therefore, the change in this EPS guide reflects the first quarter of the above
Planned earnings per share and the impact of incremental stock repurchase since we last provided guidance during our fourth quarter conference call in February.
In the same quarter, we established Diluted earnings guidance of $1 per share. 46 to $1. 50.
As a reminder, our EPS guidelines for this year and the second quarter take into account the stocks that were repurchased yesterday, but do not reflect the impact of any potential future stock repurchases.
Transfer to balance sheet.
At the end of the first quarter, our average inventory per store was $568,000, up 8% from $526,000 at the end of 2012, but down slightly from $573,000 at the end of 2012.
We continue to end each store with a flat list of projects ending on 2012 and 2013, and we continue to look for opportunities to redeploy existing inventory investments to be more productive. Our quarter-
The percentage of end AP to inventory is 85.
Due to the increase in inventory in the first few months of this year, 7% is better than we expected.
However, we still expect that the ratio at the end of 2013 is relatively flat compared to the end of 2012, as incremental improvements and supplier terms are offset by the headwinds of 2012 inventory construction payments.
With our cash payment cycle of over 2012 inventory investments, we will continue to look forward to gradually increasing our AP percentage after this year.
The capital expenditure of $73 million in the first quarter was in line with our expectations.
We keep the guidance on capital expenditure for the whole year from $0. 385 billion to $0. 415 billion.
Free cash flow fell to $0. 153 billion this quarter, compared to $0. 339 billion in 2012, which is entirely due to a significant improvement in net inventory investment in 2012, driven by our supplier financing program.
We have not changed our free cash flow expectations for the full year and have maintained the original guidance range of $0. 45 billion to $0. 5 billion.
Next, I would like to update on our stock repurchase program.
We re-purchased about 2 in the first quarter.
5 million shares, with an average price of $92 and a total cost of $0. 228 billion.
35, with most of this repo happening before our year --
Revenue was released in early February.
After the end of the first quarter, on the date we posted revenue, we re-purchased about 0.
The average price of 6 million shares is $101. 21.
This has enabled us to accumulate since the establishment of our stock repurchase program in January 20 through the average price of 35 million shares yesterday for $77. 14.
We have discussed several times since our repo program started and we still believe that the best use of our cash is to reinvest into our business.
However, we still believe that repurchase is an effective use of the excess available cash and we will continue to have the opportunity to continue with this plan.
Finally, I would like to provide some color on our leverage and expectations for increasing incremental debt in 2013.
At the end of the first quarter, our adjusted debt to the Adjusted EBITDA was 1.
84 x, flat from the end of the year, has been below our long-term goal
The term target leverage range is 2 to 2. 25x.
As we pointed out in our last conference call, we still want to gradually increase our leverage and enter our long-term
The scope of the semester in 2013.
Based on the leverage targets we set in early 2011, we feel comfortable taking on debt at these levels.
But we are still committed to maintaining and improving our investment. grade rating.
At this point, I would like to ask the operator Latasha to return to the line and we would be happy to answer your question. Question-and-
Your first question comes from Matthew faisler of Goldman Sachs. Matthew J. Fassler -
Goldman Sachs Group Limited
The first question I want to ask is, when you think about the normalization of some weather factors that hinder your business later in the first quarter, you think about your comparison of cycling, it\'s easier for you to ride your bike in the next few quarters as you see business pick up from low single to single
Single or better, should this pickup be DIY or commercial?
Or will it be evenly distributed in the franchise? Gregory L.
Matt, I think there are both ways.
I think, because when DIY customers work in their driveway and outside and other places, the weather at the end of spring this year will allow some of our DIY businesses to grow further this year.
In addition, some businesses are related to spring cleaning, waxing cars, cleaning up the interior and doing some minor maintenance.
So, yes, we would like to have a good pickup in DIY.
But at the same time, both professional and business are doing well in any case, so we expect this to continue. Matthew J. Fassler -
Goldman Sachs Group Limited
The research department got it.
The second question is related to the loyalty program.
Obviously, it makes a lot of sense to collect this data.
When we consider the effectiveness of loyalty programs, one of the dynamics we consider is the frequency of shopping.
So, about how many visits your DIY customers have to your store in any year, what can you tell us?
With this in mind, how do you see the accumulation of points and deploy them in the store? Gregory L. HensleeYes.
Apart from the different marketing surveys we \'ve done, we don\'t have a lot of good information about this right now, so we\'ll--
Based on what we know, this is also based on selected surveys in different markets where we hired companies and did some of our own research ---
We usually have a shop a few times a year.
Now, there is a big change depending on the type of customer.
And more medium and heavyit-yourself-
Ers, you can have a lot of stores with the same customer.
I remember that even in my history at the store, you might see the same customer 2 or 3 times a month, so the kind of person who helped their family keep the car running, maybe there\'s an old car with a problem.
But on average, if you\'re taking very light DIYers that might just come in and change the wiper blades, mix with these customers a few times a year.
But with this loyalty program we will learn more about it and be able to market these customers with coupons or special offers that we would like to offer them, to be consistent with the time we expect, this maintenance of their vehicles is required based on our historical purchase records. Matthew J. Fassler -
Goldman Sachs Group Limited
Research Department and final follow-upup to that.
Do you think shopping parts are more frequent than chemicals and other consumables? Gregory L.
They are the people who make cars.
They are helping friends put on tie rods and change things like belts and hoses.
The next question comes from Michael Lasser of UBS. Michael lather.
Matt, research arm at UBS Investment Bank, knows all the answers because in any case, he stays in the store twice a month.
But the problem I want to focus on is gross margin. It was --
As you said earlier in the script, the increase in gross margin comes from contraction and distribution efficiency.
Later, it sounds like you may have seen some of the benefits of mixing.
Could you please clarify?
Maybe you can also provide a quantitative breakdown if possible. Gregory L.
I commented and then I asked Tom to do the quantitative part.
But our shrinking and distribution costs, we have some benefits from these two areas that we expect to continue to see.
When I talk about mixing differences, we talk about the fact that we don\'t see this kind of light maintenance that you usually see in spring and cleanup.
Maybe some things like oil changes have decreased in these things.
Our idea is that some products are promoted to some extent, a little lighter than the hard parts business we currently drive gross margin. Thomas G.
This is macfaren. This is Tom.
In addition to that, I would add that Greg was focused on this year in the early commentary of the script --over-year change.
At the back of the conference call, my comment on this combination is that from the point of view of guidance, we are different from what we think.
So when we see the improvement of our guidance, it\'s mixed --related.
As Greg mentioned, the shift in the type of business we do in the spring has had this effect. Michael lather.
The research arm of UBS Investment Bank is very helpful.
The second question is about a lot of suppressed things.
The increase in demand is partly due to weather conditions over the past 12 to 15 months.
When you talk about seeing an improvement in the trend in April, is there a number of supplementary categories that are particularly seriously affected?
Or is it too early to say? Gregory L.
HensleeWell, it\'s too early to say. We\'re seeing --
What we are seeing now is the typical spring business, we sell a lot of products such as cleaning chemicals, changing oil, maintaining belts and hoses that people have delayed, and we saw a lot in the first quarter.
For example, we did a very good job in battery and cooling system-
There may be more weather. related.
Cold weather can cause problems with the cooling system and hot weather can cause problems with the cooling system as it can cause problems with the battery.
These categories do a good job.
So I think what we\'re seeing right now is just a more typical spring product demand.
My guess is there must be something suppressed.
Demand increased this spring
The type of business we usually experience now.
I know that after spending many years in O\'Reilly, we didn\'t talk much about the weather, just because of the weather, there is nothing you can do about it.
But, in our first quarter and in the one quarter of last year, this is indeed an unusual comparison, where we only have an incredibly early string.
As many of you know, this is very unusual.
This year, in the middle of the country, we went through--
We don\'t have spring yet. We\'ve had --
Until this week, many markets have not experienced much spring.
Even in the Midwest, they are snowing now.
This is just an unusual comparison.
However, the spring weather we usually encounter will produce the spring demand we usually expect, which has not yet occurred in some markets, so we expect this to be the driving force for comps in the second quarter.
Your next question comes from Chris Horvers at JPMorgan Chase.
Chris Christopher Hofer
JPMorgan research wants to clarify that I think in the first quarter you talked about SG & A for each store, up 1% to 1.
You just mentioned 0 at 5% this year. 5%.
Is there any change?
Or what is missing from my notes? Thomas G.
When we talked on the first quarter conference call, we were talking about not including VIP.
We decided to go to the chain this quarter. wide.
Lower number of VIP stores at lower cost
Based on this.
Chris Christopher Hofer
J. P. Morgan, research. I found you.
Follow up on the previous issue and would love to hear your thoughts on the brake
s, the rotor, the rotating appliances and some things under the car.
How does this really illustrate or inform about the debate around the slowdown in the industry and the impact of the weather? Gregory L.
HensleeWell, there\'s a lot--
As you can imagine, we have a lot of information about this.
When you look at our product sales by category, it is difficult to conclude.
But I can give you some information that I have and the way I look at the issue.
For example, in the first quarter, the battery was very strong and I think it was directly related to the fact that we had some winter weather over a period of time, from a similar perspective, we really didn\'t have winter weather last year.
From the point of view of comp store sales, the cooling system performed very well.
If you have problems, you have to solve them.
If your car is overheating due to a cooling system failure, or if your battery is dead, your car won\'t start either and you have to replace them.
The rotating appliances are very good.
Again, if your AC generator or starter is not working, you have to replace it if you want to drive.
For example, from a comparative point of view, what is not done is like a refrigerant.
One factor is that the cost of refrigerant this year is lower than last year.
But from the point of view of demand, it is easy to speculate that the demand for refrigerant in Cold Spring is not as much as we did last year, so the refrigerant has dropped
I think that\'s what we hear throughout the industry.
I think there may be several factors that will affect this.
But one of them is that a lot of the time, when you\'re done with the brakes, it\'s not because your brakes stop working.
This is because friction materials, brake pads or shoes are worn out according to what you drive and you need to replace them.
A lot of the time, when you rotate the tire or change oil in the store or in any other case, it will be recognized.
But in most cases, the brakes are not metal. to-
The metal or consumer will hear this and the brakes have been replaced.
This is one of the places where the brakes are a little left, do you want to replace them now?
I think the customer is a bit small in the delay mode.
If the brakes are 3,000, 4,000 miles left, which is not uncommon in the case of thin brake pads, I think there are more customers choosing to drive in the first quarter, especially when they are refunded, because we have the effect of delaying the tax refund, or just the tough economic conditions, it would make them say, \"Look, I\'ll squeeze every bit of the brake pads out of these things.
\"So I\'m not going to associate it with this.
Our other differences are like oil, and we have--
It\'s not as good as we used to be in oil.
I\'ll link this to some of our promotions last year, but most of our oil sales are DIY, and a lot of DIYers just don\'t get the chance to get out of the driveway with as much oil as the typical spring.
Chris Christopher Hofer
The research department of JPMorgan Chase is very helpful. So then --okay, got you.
Finally, from an inflation perspective, can you talk about the inflation experience for this quarter, perhaps compared to last year?
Just a reminder of how it is performing in the second, third and fourth quarters from the perspective of inflation, deflation. Gregory L.
Do you want that? Thomas G. McFallYes.
Let me go through my data here.
In the first quarter, we will become a fairly historical norm between 1% and 1. 5%.
We expect to be there for the rest of the year.
When we looked at last year, so last year, the help of last year was a little small and consistent throughout the year.
Chris Christopher Hofer
Research at JPMorgan Chase has not been very helpful? Thomas G. McFallCorrect.
Chris Christopher Hofer
JPMorgan Chase, research, do you have a deflation quarter? Thomas G.
McFallWell, if you look at the changes in our LIFO reserves, I think you will see a small number of changes every quarter.
The operator and your next question comes from Ciccarelli, a Scot in RBC Capital Markets.
Research Department of RBC Capital Market Co. , Ltd. , so there is a little follow-up
I think it\'s about Chris.
I think we all know the weather is a challenge.
Obviously, you have been a fairly stable share winner over the years.
But my question, I think, is a bigger one.
As new car sales continue to rise, is there any reason to believe that the industry will not return to the comp industry of 1% to 3%, what is the new car sales before the breakdown of 08? Gregory L.
HensleeI believes that over time, Scot may be based on new car sales in the next few years.
I don\'t know what we have now, maybe 14 million new cars are expected to be sold this year, maybe a little more than that.
0. 241 billion of the car population, so it really takes years for this to have a big impact.
What I want to say is that the car still outside is old.
This will continue.
I think through the recession and people\'s experience with some of the models that were later designed to be better,-
I feel like I\'m repeating myself because I know I \'ve said it many times before.
But these later model cars, as well as those driving cars, are aware of this, and the drive systems of these cars are solid and they can be driven on very high mileage.
But that doesn\'t stop all the things that have been going on in the aftermarket from being replaced, things like brake and chassis parts, belts, hoses, fluid changes, filters, and ignition parts.
In the future, in the emissions section, all the sensors that power the computer system that help run the fuel injection and intake system and all that stuff.
But when there\'s a problem with these things, it\'s hard for consumers to say, \"Well, that\'s the reason to get rid of the car, that\'s one reason to trade the car, because the engine transmission and differential and the interior and body of the car are still in very good condition.
\"Given the option to drive another year or a few years, or pay $400 a month, they choose to drive.
So I think there will be--
I think the old cars on the road will offset the increase in the sales level of the new cars we see in a period of time.
What\'s your opinion, Tom? Thomas G.
I would also add that we have experienced many very, very good years in high SAAR.
What we really focus on is not SAAR, but the total number of vehicles and the total number of mileage on the road.
Our expectation is that SAAR will improve as the economy improves.
In the past 2 or 3 years, the number of vehicles on the road has flattened and we will see an increase in the number of vehicles on the road.
As the unemployment rate goes down, people go out and become more confident, and we will also see higher employment rates, and we will see more mileage driven, which will be the driving force for the demand in our industry.
So we don\'t see--
We think the rising SAAR is positive because it says we have more money in the pockets of our consumers, more people at work, and we have more opportunities for parts to wear out
The operator and your next question comes from a line of Michael Montagne from the ISI Group.
Michael MontagneISI Group Inc.
, The first problem I encountered in the research department was about promotion and pricing capabilities.
When you look at the whole market now, just thinking about some of the slowdown in the first quarter, would you say it\'s still rational?
Considering the outlook for gross margin, it looks like you feel good about it, but just want to know what you think. Gregory L.
I think it\'s still very rational.
I think we are very good at cutting each other these days.
We have not seen major changes related to the pricing strategy of our competitors.
It has actually been a while.
We are still on the promotion.
Our typical promotions are varied.
But the change in oil, for example, has a back-and-forth volley between about $19.
99 brands change oil for $21.
99 brand oil change, but it has been a while.
So what I\'m trying to say is that from the point of view of fixed pricing or promotional pricing, there is actually no change in strategy.
We are all trying to increase the traffic in the store through promotional activities.
Michael MontagneISI Group Inc.
, The research department, and then with the outlook for gross margin slightly higher, the EBIT margin is consistent, is there any factor in the SG & a line that drives this difference?
Secondly, with the introduction of the affordable medical bill, we have been thinking that for many retailers, this may be a general headwind of 70 to 80 basis points.
Is there a way to quantify the number, or the number that you can all share, to offset it on what you are doing? Gregory L.
HensleeYou talks about SG & A, and I will talk about the Affordable Care Act. Thomas G. McFallOkay.
On SG & A, our profit increased slightly.
As you said, the scope of EBIT is the same.
The change in gross margin is less important to drive us to change the amount of operating profits.
So I would like to say that this is more of a potential adjustment range. Gregory L. HensleeYes.
There is a lot more to quantify and identify in the Affordable Care Act.
There are even things that are changing, such as team members being forced into the health program and recently being delayed from January 1 to 14.
So there are still some-
Maybe not seen yet, so it\'s a bit difficult to quantify.
We seek help from outside the company to help us quantify and plan.
Our plan is just to do what we need to do to reduce our expenses.
So we will continue to work hard.
Part of it is just changing or gradually changing our part-time, full-
Time mix, we have been working for a while.
Then we can do something with our plan to help offset some of the costs that we might be paying ---
We won\'t have a burden before.
But our effort will be to try to mitigate the additional costs that we will have so that it will not be considered additional operating costs.
Michael MontagneISI Group Inc.
So what I \'ve heard is that it sounds like you can do something to offset, and in fact, it may not be a big step function for all of you.
Is that fair? Gregory L.
Excuse me, can you say it again?
Michael MontagneISI Group Inc.
I\'m just saying, it sounds like you\'re all taking steps to mitigate this.
In fact, the general numbers of 70 to 80 basis points may be a little higher than what you think you can do. Gregory L.
HensleeI believes that if we all just say that we will continue to do what we are doing, we will only put that on the chin.
According to the situation of the company, I think this number may be very close.
There is a big difference between companies.
My expectation is that most companies will not accept this without making some adjustments to the purpose for which they are selling their products, only to remain intact from a profit perspective.
The operator and your next question comes from Sam Reid\'s line at Barclays Capital. Sam Reid -
Research Division Barclays Capital we noticed that at the end of your quarter, the income tax return data really started to pick up.
I was wondering if you started seeing a corresponding increase in demand for the quarter when customers started receiving returns.
On top of that, there may be more benefits if you see this when you enter 2Q. Gregory L. HensleeYes.
I think there will be uneven comparisons when people usually get a little tax refund from last year to later this year.
It is unusual this year that as people get these tax rebates, there is no spring yet, even though the calendar says it will snow on the ground or the weather is really cold.
So there\'s a bit of a twist here and how we look at it.
But what we expect is-
What we expect is-
So far, I think we \'ve seen this in comparable store sales in April, because they\'re very good and more reflective of what we\'ll see in the spring, that is, some people now have tax refunds and spend their money on things they postpone.
With the weather in spring, they can do the work they need to do. Sam Reid -
The Barclays Capital research department is great.
And then there\'s one. up.
Do you have any latest ideas for your expansion in Florida?
This may have been covered.
But anything you have that might be incremental will help. Gregory L.
We are going to open a shop there.
Our plan is to continue to expand there. We\'ve been --
We feel that we have done a good job in winning market share.
We have a very solid team there.
Of course, the distribution center is in progress and there is still a way to go before the completion.
But we already have hub operations and we are getting a share step by step.
This is one of our contributors to store growth this quarter.
I think we opened five more stores there this quarter.
So we continue to grow there and have plans to have a lot of influence in Florida over time.
Then the next question comes from the lines of Jack Willow. ph]
From Focus Research [ph].
Unknown analysts would like to know if your technology will allow you to better match the population of the store ---
The cars around the store, and the inventory you have in the store, so that when someone comes to the store, you are not where they want it. Gregory L. HensleeYes. Jack [ph]
This is a big deal for us.
The car population is so diverse, such as Seattle and Orlando, and even Springfield, Missouri, where we are, to Houston, Texas, there is such a big difference.
Well, there are not many of us-
Because sometimes you have winter weather, there is wheel drive here.
They really don\'t have winter weather in Houston, so while there are a lot of pickup trucks in the SUVs, most of them are two --
Wheel Drive, here you have four more-wheel drives.
Then you have the brand difference, and in coastal areas you tend to import more goods from Europe and Asia, while in the central area of the country you have less goods.
Therefore, deploying inventory in our store depends entirely on the number of vehicles around the store.
This is one of the key criteria we use when we stock in our new store.
Then, when we make continuous adjustments to these stocks, with the launch of new products or the increase in demand, one of the key factors is how much of this part of the car is appropriate in the market.
Such a thing is. -
Computers have become very common in running our business, and we are able to use technology to use the databases we buy from outside the company to help us drive what we put in our stores, and do better management of our inventory.
Very good unknown analyst.
The other thing I want to know is
Business and Internet.
To what extent can your customer go to other websites to buy parts directly?
When they do, what is the comparison of the price they pay? Gregory L.
Henswell, there are some beautiful ones. -
There is no doubt that there are auto parts on the Internet.
There are actually several websites that have access to inventory.
Some of these companies have very little inventory, many from--
They entered into disembarkation agreements with warehouse distributors and other companies in stock.
Email in general
Business company, I will mention a couple, maybe like the U. S.
Things like auto parts or RockAuto that they will try to sell under the US --and-
The mortar guys are just because they have to do something to try to get someone to agree to wait to get a part instead of driving a few blocks to get a part.
In most markets, I am not talking about rural areas because there are no parts stores in rural areas, but there are a lot of parts stores in the United StatesS.
There is a convenient factor here.
Most people live near a parts shop.
But the Internet is relatively low.
It is more expensive than the price of our store.
There is also an additional factor that can be frustrating when ordering parts that you are not sure you need and trying to process a return.
Therefore, our business is less inclined to do a lot of e-commerce. commerce-
Many businesses are wise, mainly because of the factors I mentioned and then the technical expertise needed to determine exactly what went wrong with the car.
Many times when customers walk into our store they know they have problems and they think they know what they need, but in the end we sell them something else.
So it\'s a factor, but it\'s not a huge factor for us.
We have arranged the time for Q & A.
I\'m transferring the phone to our host now.
Greg Henslee wrote the words closing. Gregory L.
Thank you, Latasha.
At the end of our conference call today, we would like to thank once again our 56,000 team members who are committed to providing the best customer service in our industry.
It is your hard work and dedication to serving our customers that drives our success.
I would also like to thank everyone on the phone for their time this morning.
We look forward to reporting our second quarter results in July, when we will talk to you. Thank you.
This is the end of today\'s call.
You can disconnect now.
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