O'Reilly Automotive 2026 Q2 Earnings Call

Thank you, Matthew. Good morning, everyone, and thank you for joining us. During today's conference call, we will discuss our second quarter results and our updated outlook for the remainder of 2026. After our prepared comments, we will host a question-and-answer period. Before we begin this morning, I would like to remind everyone that our comments today contain forward-looking statements. We intend to be covered by and we claim the protection under the safe harbor provisions for forward-looking statements contained in 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.

The company's actual results could differ materially from any forward-looking statements due to several important factors described in the company's latest annual report on Form 10-K for the year ended December 31, 2025, and other recent SEC filings. The company assumes no obligation to update any forward-looking statements made during this call. At this time, I would like to introduce Brad Beckham.

Thanks, Jeremy. Good morning, everyone, and welcome to the O’Reilly Auto Parts second quarter conference call. Participating on the call with me this morning are Brent Kirby, our president, and Jeremy Fletcher, our chief financial officer. Greg Henslee, our executive chairman, and David O’Reilly, our executive vice chairman, are also present on the call. It's once again my pleasure to begin our quarterly call by congratulating Team O’Reilly on another strong quarter and a very successful first half of 2026. Our team's steadfast commitment to providing consistently high levels of service to our customers drove a comparable store sales growth of 6% for our second quarter. Year-to-date, our comparable store sales have increased 7% and driven total sales growth of over 9%.

As a result of our team's relentless focus on delivering profitable sales growth, we generated a 10% increase in diluted earnings per share in the second quarter on top of the 11% growth we delivered in the second quarter of 2025. For the first six months of 2026, our diluted EPS grew 13%, and I want to thank all of Team O'Reilly for the momentum they have created in our business so far in 2026. Now I'd like to take a few minutes to walk through the details of our second quarter comparable store sales performance. Our comp growth of 6% surpassed our expectations, driven by solid results in both our professional and DIY businesses. Our professional business continues to be the larger contributor to total comps, but we again saw the outperformance versus our expectations split evenly between both sides of our business, similar to first quarter results.

In aggregate, our comparable store sales gains continue to be driven by increases in average ticket values and robust professional ticket count growth. The growth in average ticket was primarily the result of same-sku inflation, which totaled 5.5% for our consolidated business and was in line with our expectations. Average ticket strength was the primary contributor to our low single-digit DIY comparable store sales increase in the second quarter. This benefit was partially offset by pressure to transaction counts, which were down low single digits and slightly below our expectations, in part due to headwinds in hot weather-related categories. Despite this pressure, we believe we're outperforming the market and gaining DIY share, and we continue to see tremendous growth opportunity on this side of our business. We also continue to be pleased with the robust sales growth we are generating with our professional customers.

Comparable store sales on this side of our business grew right at 10% in the second quarter, reflecting our fourth consecutive quarter of double-digit comps. The sales growth was fairly evenly split between an increase in average ticket value that was in line with our expectations and robust ticket count growth, which again outpaced our forecast. We don't quantify the individual ticket and traffic components of our sales results on a quarterly basis. However, I will share that our professional ticket count growth was in the mid-single digits in the second quarter and has essentially been within that range every quarter since our business normalized coming out of the pandemic. We are very excited about the continued momentum in our professional business and our team's ability to compound the market share gains they are winning quarter after quarter, year after year with our professional customers.

Next, I want to provide some detail on the cadence of our sales results as we move through the quarter. As I previously mentioned, our second quarter results surpassed our expectations, and we outpaced these projections each month of the quarter, with April's results outperforming a little more than May and June. As we discussed on last quarter's call, favorable spring weather supported by strong volumes in both our DIY and professional businesses as we exited the first quarter, and we saw much of that momentum continue in April. As we moved into our summer selling season, our sales trends moderated to a very consistent week-to-week pace through the remainder of the quarter. Finishing out the quarter, our June sales were solid on a one-year basis against a softer comparison in June of 2025.

We didn't realize the normal ramp-up in demand for certain hot weather-related categories that we typically like to see from the onset of summer heat at the end of the second quarter. We have definitely seen summer take hold across our markets in July, though, and we are very pleased with the strong step-up in sales results to start the third quarter. Turning to our revised full-year guidance, I want to provide some color on the update to our expected comparable store sales range. As noted in yesterday's press release, we have increased from the previous range of 3%-5% to a range of 4%-6%. This update flows through the outperformance we delivered in the first half of 2026 but leaves our expectations for comparable store sales growth for the back half of the year unchanged.

Looking forward, we are pleased with the strong start to the third quarter, but we're cognizant of the potential that the benefits we have realized so far this quarter are the result of normal month-to-month weather volatility, and we don't want to overreact to trends that could moderate over time. Included in our outlook for the remainder of the year is our expectation for the same SKU benefit to moderate in the third and fourth quarters as we calendar the tailwind from tariff-driven price increases that we realized in 2025. As a reminder, those benefits started to flow into our comp results as we moved through the third quarter last year, with the lion's share of the impact reflected in price levels by the time we exited the third quarter.

As a result of this dynamic, we are projecting the inflation benefit to moderate to 1%-2% for the back half of 2026, with the third quarter expected at the top end and continued moderation to the bottom end of that range by the fourth quarter. These assumptions reflect our standard approach for setting guidance. We assume only modest levels of prospective future price changes. While we've passed along some incremental price increases in 2026, resulting primarily from the cost pressures due to the increased crude oil prices, we are cautious as to how long these benefits will persist through the balance of the year. We are also cautious concerning the potential adverse impact to consumers and their resulting response in the face of continued economic pressure.

We have some very relevant recent experience that points to the potential for choppiness in consumer demand in the face of volatility in price levels. However, we have been pleased with the resiliency of the consumer and believe our customers have adjusted well to the current economic conditions and will continue to prioritize the maintenance and repair of their existing vehicles. Ultimately, we remain optimistic about the health of our industry, and our teams are committed as ever to build on our strong sales momentum. We believe it's prudent to incorporate into our updated guidance expectations some potential volatility as we finish out 2026. Before I move on from our guidance, I would also like to note that we are increasing our full-year diluted earnings per share guidance to a range of $3.20-$3.30.

Our increase in EPS guidance is driven by our sales and operating performance in the first half of 2026 and the impact of shares repurchased through the date of our earnings release yesterday. Before I wrap up my prepared comments and turn the call over to Brent, I'd like to spend a few minutes discussing our strategic priorities for use of capital and how these priorities align with the growth opportunities we see for our business. We are off to a strong start in 2026, and we remain extremely excited about our opportunities to build on this momentum, to drive continued growth, and to capture a larger share of the fragmented addressable market in our industry. We have refined our strategy to capitalize on this tremendous opportunity over many years, building and strengthening a world-class customer service organization and executing a sustainable growth plan.

Our capital allocation priorities directly align with that consistent long-term strategy. Our top priorities for use of capital continue to be reinvestments in our existing store and distribution network and organic growth through new store openings. We are currently 6,695 stores strong across North America, and Team O’Reilly includes over 95,000 of the most technically competent and customer-focused professional parts people in our industry. Our greatest opportunity to grow our business is to match the hard work and dedication of these team members with attractive stores, robust inventory availability, and enhanced technology. Our teams operate with a continuous improvement mindset, and we have been pleased with the returns on targeted investments in our existing business, which have helped fuel industry-leading comparable store sales growth.