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O’Reilly Automotive Reports 4th Quarter, Full-Year 2017 Results; Announces Additional $1B Share Repurchase Authorization

Sales for the year ended Dec. 31, 2017, increased $385 million, or 4 percent, to $8.98 billion from $8.59 billion for the same period one year ago.

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O’Reilly Automotive has announced record revenues and earnings for its fourth quarter and full year ended Dec. 31, 2017. The results represent 25 consecutive years of comparable store sales growth and record revenue and operating income for O’Reilly since becoming a public company in April of 1993.

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4th Quarter Financial Results

Greg Henslee, O’Reilly’s CEO, commented, “We generated comparable store sales of 1.3 percent for the fourth quarter, as we faced tough comparisons from a very favorable demand environment in the prior year, as well as calendar headwinds. As we discussed on our third quarter earnings call, December of 2016 was a very strong month, driven by extreme winter weather across the country. We also faced unfavorable calendar shifts in the fourth quarter of 2017, due to the timing of the Christmas holiday, which fell on a Monday in 2017 versus a Sunday in 2016, and one additional Sunday during the fourth quarter of 2017. Sunday represents our lowest volume day, and these combined calendar shifts resulted in a 70 basis point headwind to our fourth quarter 2017 comparable store sales results. Despite these challenges, Team O’Reilly’s hard work and dedication to providing unsurpassed levels of customer service drove our comparable store sales results above the mid-point of our guidance range, and I would like to thank all of our team members for their unwavering commitment to our long-term success.”

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Sales for the fourth quarter ended Dec. 31, 2017, increased $92 million, or 4 percent, to $2.19 billion from $2.10 billion for the same period one year ago. Gross profit for the fourth quarter increased to $1.16 billion (or 52.9 percent of sales) from $1.11 billion (or 53.1 percent of sales) for the same period one year ago, representing an increase of 4 percent.

Net income for the fourth quarter increased $56 million, or 23 percent, to $302 million (or 13.8 percent of sales) from $246 million (or 11.7 percent of sales) for the same period one year ago. Diluted earnings per common share for the fourth quarter increased 36 percent to $3.52 on 86 million shares versus $2.59 on 95 million shares for the same period one year ago. The U.S. Tax Cuts and Jobs Act, enacted in December 2017, significantly reduced the federal corporate income tax rate, and required the company to revalue its deferred income tax liabilities based on the lower enacted federal corporate income tax rate. The company’s net income for the fourth quarter includes a one-time $53 million benefit related to the revaluation of its deferred income tax liabilities, and the company’s diluted earnings per common share of $3.52 for the fourth quarter also includes a one-time 62 cent benefit from the revaluation. The company adopted a required new share-based compensation accounting standard during the first quarter of 2017, which requires excess tax benefits from share-based compensation payments to be recorded in the income statement. The company’s diluted earnings per common share of $3.52 for the fourth quarter ended Dec. 31, 2017, includes a 15-cent benefit from the adoption of the new accounting standard.

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Full-Year Financial Results

Commenting on O’Reilly’s full year 2017 performance, Henslee stated, “Despite industry challenges, O’Reilly generated our 25th consecutive year of comparable store sales growth and record revenue and operating income as a result of the commitment and dedication of our team to providing unsurpassed levels of customer service. During 2017, we also achieved another significant milestone with the opening of our 5,000th store. The performance of our new stores continues to exceed our expectations, driven by well-trained and knowledgeable teams of professional parts people who provide outstanding customer service the moment a store opens. As we look ahead, we are excited to continue to drive our growth through the 200 net, new stores we plan to open in 2018.”

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Sales for the year ended Dec. 31, 2017, increased $385 million, or 4 percent, to $8.98 billion from $8.59 billion for the same period one year ago. Gross profit for the year increased to $4.72 billion (or 52.6 percent of sales) from $4.51 billion (or 52.5 percent of sales) for the same period one year ago, representing an increase of 5 percent.

Net income for the year increased $96 million, or 9 percent, to $1.13 billion (or 12.6 percent of sales) from $1.04 billion (or 12.1 percent of sales) for the same period one year ago. Diluted earnings per common share for the year increased 18 percent to $12.67 on 90 million shares versus $10.73 on 97 million shares for the same period one year ago. The company’s diluted earnings per common share of $12.67 for the year includes a 59 cent benefit from the revaluation of its deferred income tax liabilities and a 50 cent benefit from the adoption of the new share-based compensation accounting standard.

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Henslee continued, “As we head into 2018, we believe the long-term demand drivers for our industry remain intact, including steady improvements in miles driven and a growing and aging vehicle fleet, and we are very well-positioned to continue to provide outstanding service to our customers. We are pleased with the level of demand we have seen thus far in 2018, driven by favorable winter weather conditions; however, we face the toughest comparisons in the back half of the quarter and, based on this, we are establishing our first quarter comparable store sales guidance at a range of two to four percent.”

Henslee concluded, “The Tax Cuts and Jobs Act will dramatically reduce our federal income taxes, and in 2018, we expect these savings will be approximately $215 million. We plan to allocate a portion of these income tax savings back into our business to further enhance our best-in-class customer service. These investments will be centered around customer service, including attracting and retaining technically proficient professional parts people through enhanced benefits and wages, investing in our omni-channel efforts and improving in-store technology. We are confident these investments will help drive our continued success, and we are excited to roll out these projects in the coming year. For 2018, we expect these initiatives will result in approximately $30 million of incremental capital expenditures and will result in approximately 70 basis points of headwind to operating profit and our 2018 guidance incorporates these incremental costs.”

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Share Repurchase Program

During the fourth quarter, the company repurchased 1.3 million shares of its common stock at an average price per share of $222.73, for a total investment of $279 million. During the year, the company repurchased 9.3 million shares of its common stock at an average price per share of $233.57, for a total investment of $2.17 billion. Subsequent to the end of the fourth quarter and through the date of this release, the company repurchased an additional 0.5 million shares of its common stock, at an average price per share of $261.72, for a total investment of $130 million. The company has repurchased a total of 66.7 million shares of its common stock under its share repurchase program since the inception of the program in January of 2011 and through the date of this release, at an average price of $137.31, for a total aggregate investment of $9.16 billion.

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Today, the company also announced that its board of directors approved a resolution to increase the authorization amount under its share repurchase program by an additional $1 billion, raising the aggregate authorization under the program to $10.75 billion. The additional $1 billion authorization is effective for a three-year period, beginning on Feb. 7, 2018.

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