管理層發言
Welcome to the O'Reilly Automotive, Inc. second quarter 2026 earnings call. My name is Matthew, and I will be your operator for today's call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. And during the question-and-answer session, if you have a question, please press 1 on your touchtone phone. I will now turn the call over to Jeremy Adam Fletcher. Mr. Fletcher, you may begin.
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. And 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 W. 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 G. Kirby, our president, and Jeremy Adam Fletcher, our chief financial officer. Gregory L. Henslee, our executive chairman, and David O'Reilly, our executive vice chairman, are also present on the call. It is 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 would 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 are 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 do not 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 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 the softer comparison in June 2025. But we did not 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% to 5% to a range of 4% to 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 are 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 do not 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% to 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 have passed along some incremental price increases in 2026, resulting primarily from the cost pressures due to 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 and 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, but we believe it is 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 to $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 would 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 6,700 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. We have also been pleased with the continued success of our organic store growth and remain excited about opportunity to further consolidate the industry through the opening of stores in both new geographies and existing market areas. The success of our organic growth strategy is the result of our commitment to never compromise on our proven model. For each new store we open, we aggressively identify and develop a knowledgeable and enthusiastic team of professional parts people to provide unsurpassed customer service from day one, supported by the very best inventory availability, and selling tools in the industry. Over the course of our history, we have supplemented our capital investments in our existing network and organic store growth with targeted opportunistic acquisitions. While we continue to view the acquisition of existing parts stores as an effective use of capital, we will also remain highly selective and strategic as we evaluate future opportunities consistent with our proven framework. Our success with acquisitions has been directly tied to the discipline we apply in selecting and executing on those opportunities and then the process we undertake to integrate the acquired companies. Our blueprint is focused on opportunities with a clear strategic rationale where we have a high degree of confidence we can implement the O'Reilly culture, as well as our business and operating models. This disciplined strategy has allowed us to accelerate growth in markets that complement our existing footprint by quickly establishing both the proven O'Reilly model and a strong core of local parts professionals who have strong, long-standing customer relationships. We have successfully executed this strategy through acquisitions ranging from a single store to over 1,000 stores. With our commitment to fully integrating every acquisition we view each transaction as significant. However, with our current footprint, we expect the universe of opportunities that meet our strategic criteria to be primarily smaller tuck-in acquisitions and expansion markets. This also means we have no expectation or intention of executing a large transformative acquisition in the foreseeable future. Our final priority for use of capital after we have exhausted all opportunities to invest in our business is to return value to shareholders through our share repurchase program. Jeremy will provide a recap of the execution of our buyback program in his prepared remarks, but I would emphasize that we continue to feel good about the effectiveness of this program. As I wrap up my prepared comments, I would like to once again thank Team O'Reilly for their continued dedication to our company and strong performance in the second quarter. Now I will turn the call over to Brent.
Thanks, Brad. I would also like to join Brad in congratulating Team O'Reilly on a strong performance in the second quarter. Driven by their steadfast dedication to our customers. I would like to begin my comments this morning by discussing our second quarter gross margin results, and our outlook for the remainder of 2026. For the second quarter, our gross margin of 51.4% was unchanged from the second quarter of 2025. In establishing our gross margin outlook, we assumed a slightly lower gross margin rate in the second quarter as compared to the full year, which is typical for the seasonal composition of our product mix. So while our gross margin rate for the second quarter came in slightly below our full year guidance range, our results were in line with our expectations for the quarter. We continue to see very stable solid gross margin performance with only a few minor puts and takes driving the outcome for the quarter. We continue to benefit from incremental acquisition cost reductions and improved leverage of distribution cost, on our strong top line sales performance. On a year-over-year basis, these benefits were offset by mix pressures from the faster rate of professional sales growth and our product mix in the quarter. We also faced our most challenging quarterly comparison in 2026 related to the timing benefit that we realized in the second quarter of 2025 from the impact of tariff related cost and pricing adjustments. Given our in line first half performance, and the current stable market environment, we are maintaining our full year gross margin guidance range of 51.5% to 52%. At the midpoint, this reflects an expansion of 16 basis points compared to 2025. Through the first half of 2026, we are on track with our full year target with our year-to-date gross margin rate of 51.5% representing an 11-basis-point expansion over the prior year. We are pleased to be able to continue to deliver incremental margin expansion while at the same time generating the robust gross profit dollar increases that come with our market leading professional sales growth. Our experienced merchandise and supply chain teams continue to successfully partner with our supplier network to drive value for our customers and deliver these great results while also proactively managing through any issues to global supply chains. Moving to SG&A. Our second quarter SG&A per store grew at 4.8%, which included incremental spend to support elevated sales volumes similar to what we saw in the first quarter. We also experienced some modest incremental pressure from higher fuel prices. We continue to be pleased with our team's effectiveness in driving productivity through the management of our operating structure and our spend in the second quarter and first half of 2026 was within the range of our expectations. As we outlined coming into 2026, we anticipated growth in SG&A per store to be higher in the first half of the year, driven in part by expected year-over-year SG&A pressures from self-insurance, and legal line items that ramped in the second half of 2025. Our experience for the first six months of 2026 for those line items has been in line with our expectations. So while we saw modest pressure to our SG&A as a percent of sales, deleveraging 9 basis points in the second quarter, we outperformed versus our expectations as a result of the strong sales growth generated by our team. We continue to expect our full year SG&A per store growth to be at or below 4%. But we are making a slight revision to tighten our full year range to 3.5% to 4%, which incorporates the flow through of our results for the first half of 2026. This reflects an expected moderation of per store operating expense in the back half of the year as comparisons ease, which is unchanged from our prior guidance. We are also reiterating our full year operating profit guidance range of 19.3% to 19.8%, which reflects the sales, gross margin and operating expense forecast that we have outlined today. For the first half of 2026, our operating margin expanded 21 basis points, split evenly between gross margin expansion and SG&A leverage, and driving an increase in operating profit dollars of 10%. We strongly believe that our greatest long-term strategic opportunity is our ability to leverage our industry leading business model and execution to provide the best customer service in our industry. Our company operates in a fragmented industry and still holds a small percentage of the total addressable market. We have demonstrated that we are willing to aggressively lean into the investments and initiatives that equip us to address this opportunity. And we are very pleased to deliver productive returns on those efforts so far in 2026. Before I turn the call over to Jeremy, I want to provide an update on our store growth and capital investments for the first half of 2026 and our outlook for the remainder of the year. Year to date, we have opened 110 net new stores, with that growth spread across 31 U.S. states, Puerto Rico, Mexico and Canada. And we remain on track to open 225 to 235 net new stores in 2026. Capital expenditures in the first six months of 2026 were $552 million and we still expect a total capital expenditure investment for 2026 of $1.3 billion to $1.4 billion. Our planned expenditures in 2026 mirror the capital allocation priorities that Brad outlined earlier, including acceleration in new store growth, corresponding enhancement of our distribution capabilities to support our industry leading inventory availability, and targeted initiatives to maintain and refresh the image and appearance of our store fleet and enhance our technology tools. We continue to pair these capital investments in our existing business with targeted investments in inventory. Inventory per store finished the second quarter at $892,000 which was up 7% from this time last year and up 2% from the end of 2025. This growth is slightly below what we originally projected for the first half of the year as a result of normal seasonal timing differences in the deployment of inventory. However, we are still targeting growth of 5% per store by the end of 2026. We are excited to be able to highlight the tangible impact of these investments when we host our upcoming Analyst Day at our new Atlanta Distribution Center on September 17. We relocated our previous DC in Atlanta to this new 690,000-square-foot facility at the end of 2024. The incremental distribution capacity provided by this DC is enabling us to unlock additional expansion in the Southeastern United States and support import processing capabilities. This new facility is a great illustration of our proven business model and the continuous improvements we make to refine the processes and technology in our buildings to relentlessly enhance inventory availability and the value proposition that we offer our customers. As I close my comments, I want to once again thank Team O'Reilly for their commitment to providing excellent consistent customer service to all our customers each and every day. Now I will turn the call over to Jeremy.
Thanks, Brent. I would also like to thank all of Team O'Reilly for another strong quarter. Now, we will fill in some additional details on our second quarter results and outlook for the remainder of 2026. For the second quarter, sales increased $367 million, driven by a 6% increase in comparable store sales, and a $100 million non-comp contribution from stores opened in 2025 and 2026 that have not yet entered the comp base. For 2026, we now expect our total revenues to be between $18.9 billion and $19.2 billion. Our second quarter effective tax rate was in line with our expectations at 22.6% of pretax income, comprised of a base rate of 23.3%, reduced by a 0.7% benefit from share-based compensation. This compares to the second quarter of 2025 rate of 22.4% of pretax income, which was comprised of a base tax rate of 23.2%, reduced by a 0.8% benefit for share-based compensation. For the full year of 2026, we now expect an effective tax rate of 22.5%. We expect the quarterly rate to fluctuate due to variations in the tax benefit from share-based compensation and the tolling of certain tax periods in the fourth quarter. Now we will move on to free cash flow and the components that drove our results. Free cash flow for the first six months of 2026 was $1.5 billion versus $904 million in the first half of 2025. The increase in free cash flow was primarily driven by robust growth in operating income and the timing of payment for renewable energy credits, with a higher cash outflow for these payments occurring in the second quarter of 2025. For the full year of 2026, our expected free cash flow guidance remains unchanged at a range of $1.8 billion to $2.1 billion. I also want to touch briefly on our AP-to-inventory ratio. We finished the second quarter at 124%, which was in line with the same level at the end of 2025. For 2026, we expect to see continued moderation resulting from our planned incremental inventory investment and expect to finish the year at a ratio of approximately 122%. Moving on to debt. We finished the second quarter with an adjusted debt-to-EBITDAR ratio of 2.17x, which is an increase from our ratio at the end of 2025 of 2.03. This incremental step up in leverage reflects additional borrowings through our commercial paper program and is consistent with our intention to prudently approach our optimal leverage target of 2.5x. We continue to be pleased with the execution of our share repurchase program. And during the second quarter, we repurchased 17 million shares at an average share price of $90.40, for a total investment of $1.5 billion. Our 2026 year-to-date share repurchases through the date of yesterday's press release totaled 34 million shares for a total investment of $3.1 billion. We have consistently viewed our buyback program as an effective means of returning excess capital to our shareholders. And the step up in share repurchase volume in 2026 reflects our strong cash flow generation and incremental borrowings as we move towards our leverage target. As Brad discussed earlier, we are very excited about the opportunities we have to execute our strategic roadmap and we will continue to prioritize capital investments in our existing business to grow market share. When it is appropriate to return excess capital to shareholders, we are very confident that the average repurchase price is supported by the expected discounted future cash flows of our business. Before I open up the call to your questions, I would like to thank our team for their commitment to the excellent customer service that drives our success. This concludes our prepared comments. At this time, I would like to ask Matthew, the operator, to return to the line, and we will be happy to answer your questions.
分析師問答
Thank you. We will now begin the question-and-answer session. If you have a question, please press 1 on your phone. If you wish to be removed from the queue, please press 2. We do ask that while posing your question, please pick up your handset if you are listening on speakerphone to provide optimum sound quality. Please limit your questions to one question and one follow-up question. Once again, if you have a question, please press 1 on your phone. The first question comes from Michael Lasser from UBS. Your line is live.
Good morning. Thank you so much for taking my question. Brad, right or wrong? The investment community is going to parse all of your very helpful words around O'Reilly's approach to capital allocation and M&A very carefully and this is all coming up given the speculation around O'Reilly's interest in the business of one of its main competitors. And the interpretation is if that was the case, is this a signal that O'Reilly either sees the competitive landscape or the customer consolidation changing such that it needs to at least look at a competitor for an acquisition to maintain its competitive position in the market. Can you address that and potentially put this to rest one last time? Thank you very much.
Hey. Good morning, Michael. Great question there. So, yeah, I want to start out by stating, as you know, it has been our long-time practice and our current practice not to comment or spend unproductive time on speculation or rumors. I think we were very clear in our prepared comments what our priorities are today and are going to be over the foreseeable future. And I think to the latter part of your question, the answer to that is no. We work in this amazing industry where we have 10% of the market. It is crazy for me to think over my 30-year history starting in 2000 that we have well over 6,500 stores, and we still only have 10% of the market, both in the U.S. and when you look across North America. And so, what I would say to that, Mike, is we are more convicted than ever about the fundamentals of our industry. We are more convicted than ever about the strength of O'Reilly and the fact that we feel like there is going to continue to be consolidation organically through us running our playbook. Doing what we do well, focusing on our culture, promoting from within, being a store and customer-centric business that is focused on taking DIY share from our DIY competitors and continuing to do what we do on the DIFM side, investing in inventory, getting it closer to the customer, delivery service, relationships, all the things we are doing to continue to consolidate the industry on the DIFM side. So my answer to you is no. There is nothing structural or fundamentally different about how we think about our ability to take market share in running our playbook that you know so very well. Thank you very much for that, Brad.
My follow-up question is there is a lot of debate on what the demand and sales trends in the industry are going to look like in the back half of the year as this like-for-like inflation starts to fade. So is it your expectation that, particularly on the DIY side, there will be an acceleration in units as the moderation in pricing happens, especially at a time where gas prices probably remain elevated, and there is a lot of distraction out there. And have you seen an acceleration in units in July? Does that give you any incremental confidence that the outlook would remain consistent even as pricing dynamics unfold? Thank you very much.
Yeah. Thanks again, Michael. Another great question. So just want to start this one out with the fact that I could not be more pleased with our team's results on the DIY side of the business. As any year goes, in DIY there are puts and takes month-to-month, quarter-to-quarter. I'm just excited about not only the second quarter, but even more so what we have been able to do on the DIY side of the business in the first half of the year. We feel strongly that we are taking market share, and we are always working to continue to drive foot traffic and do everything we can to drive our retail business. Second thing I would say is just to reiterate what we said earlier is, as we worked through the second quarter, it was evident as we got toward the end of the quarter that it was wet and not as hot as it can normally be in the latter part of the second quarter. And we absolutely saw pressure to some of those hot-weather-related categories that we would normally start to really see solid performance, especially in June. And we have been really pleased to see that come back here these first three to four weeks of July. It is evident so far that those hot-weather-related categories, it has absolutely gotten hot in the far majority of our markets, and we feel really good about where our DIY business is headed, at least for the beginning of the third quarter here. That said, there is a lot of quarter left and we just want to be really careful, and we want to balance the fact that we feel like we have good momentum. We feel like our consumer and our customer specifically continues to be relatively healthy, but we also want to remain cautious in the way we are looking at the back half, not knowing what the future holds here in the short term with oil prices, fuel prices, just still a cautious consumer. And so we want to make sure that we balance that out, as we always do, with some cautiousness as it relates to how we feel like the rest of the year is going to play out. I may let Jeremy just talk a little bit to your question on units versus the inflation lap.
Yeah. So maybe the only thing that I would add, Michael, it is a good question. To some degree, how we think about the back half we are always going to be a little bit reluctant to polish our crystal ball anymore than the rest of you do about what we see happening. But in large part, the way that we thought about it coming into this year and now that we are halfway into the year about how to think about the back half of the year is a little bit more consistent with what our broader view around guidance and expectations would be in any period. And that is we continue to expect that average ticket is going to be a solid driver of our sales growth opportunity. Historically, for us, it has typically meant a benefit from same SKU inflation, but been a little bit more muted within our industry in a lot of the periods at the time of the year we formed this type of outlook. So we think we get a little bit from same SKU, but then some of the average ticket benefits that we get around the complexity of the mix of products that we sell that continues to be more valuable and costly even as that engineering and technology gets better for our customers. And then having that average ticket supplemented by ticket count growth for our business that we feel like is still an opportunity for us. For sure, on the professional side of the business, that has been more robust. I think that is true broadly for the industry and for where we are at. DIY ticket counts just, I think, from a secular perspective are challenged by some of the same dynamics around the increased complexity of the parts, but we still think that we have got tremendous opportunity for growth in that area as well. So as we have thought about the back half of the year, that is kind of the outlook that we carry into most periods as to how we can drive comps and what our opportunity is to outperform the market. Ultimately, you know, there are opportunities for volatility that we could see. We have outlined those, I think, pretty clearly. For sure, there was some of that last year. There were some partial offsets to the same SKU benefit that we saw in some of those components that we think kind of revert back to their norms. And that is sort of how you would lay out what our expectation is, and that is what is implicit in what we have guided to finish out the year here.
Thank you very much, and good luck.
Thanks, Michael. Thank you.
Your next question is coming from Christopher Horvers from JPMorgan. Your line is live.
Thanks. Good morning, guys. I wanted to dig more in on the DIY customers. It looks like they slowed from the first quarter to the second quarter. You also had a moment where gas prices were $4.50 in the middle of May. So I guess how would you diagnose what looks like a 2-point slowdown sequentially on gas versus DIY starting to exaggerate deferral as gas prices peak there. And then how are you thinking about the risk in the back half of the year? As we got into the third quarter last year, there was a moment where you started to lap easier comparisons on the DIY side of the business, but then sort of the macro uncertainty and some of the pressures on the low-end consumer sort of kept the trend where it was versus being alleviated by the easier comparison. So, you know, a broad question of how do you think about what happened in DIY from Q1 to Q2? What was the intra-quarter behavior around gas prices? And how are you thinking about the deferral potential in the back half of the year?
Yeah. All great questions, Christopher, and we will try to take them in order. For sure, some level of month-to-month change as we move through first quarter and into second quarter. The gas price question is always a little bit of a challenge to parse out because often the reaction is not extended at any point in time and you do not know that we would really point to anything in particular about consumer reaction to that that we think is real noteworthy or meaningful as we move through the quarter. For sure, maybe for a short period of time in May, we could have seen some of that flow through. Sometimes when you start to parse too short a timeframe, it gets a little bit challenging. When we just think about overall kind of first quarter versus second quarter, obviously pleased with where first quarter was at. We talked quite a bit about it last quarter on the call. We had an extremely strong March and a good start to the spring selling season. We absolutely felt like that was buoyed by some solid tax refund money that was working its way through the system and saw that as a really solid start to the quarter. In the second quarter in April, not quite as strong as April as we were in March, but all things we spoke through. The more we moved through the second quarter, we kind of feel like we settled at a level that was indicative of strong results for us. We are pleased with how the cadence of the quarter progressed as we moved through it. But certainly, I think we understood that there was some part of what we saw in the first quarter that was unique to the weather and the consumer benefits around tax refunds that we saw within the quarter. As we moved through that and into the back half of the year, second quarter to Brad's point we finished on some of the hot-weather categories, not quite as robust as you like to see. We figured we would probably pick that back up here in July. And then we will move through the balance of the year. To your point, some of the comparisons were choppy as the broader economy moved through some of the responses to price levels being increased more broadly across the economy. We talked through those as they occurred last year. I think you articulated very well. We do not necessarily think that we will see that level of volatility in the back half of the year. We think that there is probably a lot more stability there, although we are cognizant that we could see some of that again just depending upon what happens from a broader consumer perspective. We will have the opportunity in some of those periods to lap periods of time where maybe consumers were reacting a little bit to the things that were happening in 2025. Broadly speaking, ultimately, we will see where it all lands as we move through the rest of the year. We feel pretty good about the momentum that we have been able to create from an execution perspective relative to where the market is. So our focus and intention is to outperform and to be able to deliver solid results in any market, and ultimately sometimes the highs and lows are determined by the short-term things that we see in the consumer.
Yeah. Absolutely. Seems like this year, your share gains have really widened. I wanted to follow-up on the outlook for inflation, understanding the back half of the year you are sort of baking in the normalcy and what you assumed really at the start of 2026. But I wanted to pull apart, are you seeing sort of product cost increase requests given related to the fuel cost of shipping products over from Asia that your vendors want to pass on to you? And if you get them, would you pass them through? And then on the other hand, more of the periodic cost of shipping from DC to customer and to store, how do you anticipate handling that? Do you have a, has your outlook changed at all in that regard? And as you look back on the industry historically, does the industry pass on that sort of periodic cost of domestic transportation from DC to store and to customer versus for sure passing on the product input cost side?
Great questions, Christopher. I will start there and Brad or Brent might want to add anything I miss. From the over-the-ocean freight, the inbound cost as we think about it is a component of our acquisition cost. That obviously fluctuates from period to period, and we have seen some minor impacts there, but nothing of huge concern to us at this point. And to your point, we would characterize that within the context of just broadly where we see acquisition and cost pressures. We would tell you that has all been pretty rational and stable this year, and the industry continues to operate and pass those through to customers as appropriate. So nothing really in that dynamic that we would view as unusual, and that is incorporated into how we thought about the normal rate of inflation that we are expecting for the back half of the year. From an operating cost standpoint, we are seeing, you know, we think everybody would see some pressure to run our trucks to maintain a high level of service to our customers. We are seeing some pressure from fuel prices that have increased. We would just to dimensionalize that a little bit for you, it kind of falls within the range of some of the normal puts and takes we see within our SG&A spend. Brent outlined it within his comments. That was pretty much in line with our expectations. So in any given quarter, we are going to have a range of where we think they will fit, and we were probably closer to the top end of that range with the sales volume being what it is and some of that incremental. By and large, in most instances, that is managed along with the overall cost structure of the business. It is not an item that you would see a discrete price change move through. Having said that, that is just part of the broader inflation that is always going to be a part of our operating costs below the gross profit line. Those are all things that as we see inflation in acquisition costs in our industry, it is very rational in how we pass those through. It has always been our approach to make sure we are maintaining gross margin rate in those instances, and that benefit helps us to cover the normal operating cost inflation dynamics that we see in our business, and those typically track up pretty well. If we were ever in a situation where we saw even more enhanced pressure on fuel or any other items that was dislocated from the cost we paid for our products, then we feel really comfortable that we could identify that and pass it through, and the market would be rational about that. But those things typically in our history and our business have worked pretty much in sync and in tandem.
Super helpful. Thanks so much.
Thanks, Christopher. Thanks, Christopher.
Your next question is coming from Zachary Fadem from Wells Fargo. Your line is live.
Hey. Good morning. You are pointing us to an SG&A per-store level that is moving back closer to that 3% range. The first question is whether you think this is the right run rate now as we move past an elevated period. And as we normalize, is it fair to think about a 3% comp leverage point? And should we anticipate a return to operating margin expansion at this level?
Yes. Good morning, Zachary. I will take the first stab at that question. I completely understand and appreciate the question on the longer-term run rate. I would be remiss if I did not remind you that we will provide guidance for 2027 as we move closer to the year. And so we are always reluctant to put a stake in the sand around what the expected core year-to-year guidance thought process should be because every environment becomes a little bit unique and different. For sure, in the back half of the year, we are calendaring up against some substantial pressures in our business, and we spent a lot of time last year talking about some of the things that we saw in third quarter and fourth quarter that elevated our SG&A levels. The positive of that is as we calendar against some of those things, we will see the impact of some of those pressures being built into the base and not necessarily seeing a reacceleration on top of that in the back half of the year. That is part of why we got comfort in why implicitly the per store SG&A growth rate within our guidance is less in the back half of the year than it is in the front half of the year. I would caution against saying that is now the new run rate because as we roll into 2027, we will obviously have to have a read on where we think the broader inflation environment is and the broader economy is, particularly as it pertains to wage rates and those types of things. And then we will also continue to be proactive and aggressive where we see opportunities to lean into our business and do the types of things that we know will enhance the value that we create for our customers and help us to drive the share gains that we have. So I am not trying to be evasive around the question, but we do not view it internally in that way. We are going to make sure that we match the business opportunities that we have to be sure that we are driving the right result for our customers on a long-term perspective that we know will help us to address this great opportunity.
Yeah, Zachary. I may just add that we feel really good about the back half and where we said we are going to land. Still a lot of year to go, but have a lot of conviction about our ability to execute. But I would be remiss if I did not say that when I think about our 7% year-to-date comparable store sales increase and top line growth of 9%, our focus priority one is this 10% of the market we have. We feel like we can change that very aggressively over the next few years, especially over the next decade. So our focus is on taking profitable share. First and foremost, our next priority is solidly driving operating profit dollar growth. And so we want to stay focused on those things. But we also want to balance that with the fact that we are very proud of the operating profit percentages we have been able to generate over the last couple decades as well as our leverage points to make sure we are dragging it to the bottom line. And so we are focused on both, but we want to keep an eye on the top line, and we are not going to make short-term decisions that are going to affect our ability to take share for the mid and long-term.
And putting your share gains aside for a minute, I think there is some concern that the broader industry is beginning to slow, call it inflation, consumer pressures, oil prices, etc. I am curious to hear whether or not you agree with that sentiment and how you would view industry trends right now for both DIY and pro and how these dynamics influence your expectations for the broader category this year?
Great question. Clearly, there is going to be some impact from just the calendaring of the price increases that the industry passed through last year. The clearest point of deceleration is the dynamic around comparisons that we should expect to see. One of the benefits we have been able to see day to day and week to week is we understand the cadence of our business and the volumes that we do and what we see in terms of customers and their transactions that change from period to period. As we look at our consumer and what they have looked like in 2026, we still feel good about the resiliency of that consumer to be able to adjust to some of the pressures occurring within the broader marketplace. We think that even as we have moved over the last calendar year through some of the items that caused volatility in the last year and some of the puts and takes from fuel prices this year, we still operate an industry with a very resilient consumer and they will take care of their vehicles and want to keep them on the road at higher mileages and older ages because that is a great decision for a car owner to do. We think all of those things lend probably more stability to how we view the outlook than there would be volatility. We are always going to be cautious the back half of the year. We will get further into the year and start to get into the holiday selling season and other impacts. But outside of the very real calendaring of same-SKU inflation that will moderate back to kind of normal levels, the rest of how we would view the broader industry is positive and consistent with our broader view on our industry in most periods.
Yeah, Zachary. I would just wrap that up by saying that while it is always a little hard for us to set share gains aside because that is our focus every day, if I do that, I just have to pull it back up to the fact that I do not know that I agree that the industry is going to slow. There could be some short-term volatility. We will see what happens with pressure to the consumer. But I am looking at over 293 million light cars and light trucks in the U.S. now, and the average age continues to increase to 13 years old. We are over 3.3 trillion miles driven in 2025 in the U.S. alone. Those dynamics are very similar in Mexico and Canada. So while there could be some short-term volatility, the core fundamentals of our industry suggest we are not going to see an industry slowdown. Appreciate the thoughts. Thanks for the time.
Your next question is coming from Greg Melich from Evercore ISI. Your line is live.
Hi. Thanks. I wanted to follow-up on what really drove a lot of the in like-for-like inflation, which is the tariffs. Have you guys received any rebates so far and or any forthcoming in your guidance plans in the back half? And then my follow-up is on Phase 2 there.
Yeah, Greg. I can start on the tariffs and these guys can add in. You know, the tariff environment has been pretty choppy for some time now, and our team has done a fantastic job navigating through that. Our merchandise team has done a tremendous job working with suppliers on that. One thing I will remind you is we are not paying a lot of direct tariffs. A lot of our sourcing model historically has been driven by other suppliers that were the importer of record. In terms of just having a big tariff rebate check, per se, that is really not the way our supply chain model has historically worked. Now with that said, we have worked very diligently and the team's done a fantastic job working with our suppliers to make sure that as those tariff refunds come in, that we are benefiting from sharing the benefit from those refunds with our supplier partners. In addition to that, as we always do, our team continues to do a fantastic job diversifying our supply chain with country of origin. We continue to make progress there in the first half of the year, and we are continuing to build capabilities that allow us to, in the cases that it benefits us, become the importer of record. In the cases it does not, not be that importer of record. When you think about direct tariff refunds or rebates as some retailers have spoken about, that is something we are doing in cost of goods and how we negotiate the cost of goods. We have been very pleased with the job the team's done throughout the tariff regime of the last year and a half and have been proud of the work of the team in the first half of this year and feel comfortable with the ability to do even more of that as we move into the back half of the year and move forward in terms of benefit of best first cost of goods and best utilization of transportation dollars in bringing those goods to market at the best possible cost to maximize our margin opportunity. That is really the way we think about it and that is the way we have been operating. We feel the team's done a great job. There may be a little bit of a misinterpretation about direct refunds when you think about our supply chain model versus some others in retail.
Got it. And maybe then a follow-on to that is given that you are working with your vendors, when you are working with them, is this something that basically ends up being an offset from what might be other rising energy cost pressures and if there is a way to think about having more perhaps rate go up in gross margin to what you are seeing in SG&A from fuel costs?
Everything's on the table in those negotiations. Any input costs, whether it is commodities, labor, raw materials, transportation, whatever those components are of cost of goods in total, everything is part of those negotiations. What I would tell you is we feel confident in our ability and partnership with those suppliers to continue to improve our gross margin performance just like I pointed to at the midpoint of the year in terms of our guide and maintaining that. We feel confident there as we look to the back half and feel confident even with some of the newer capabilities that we are building to even further address that as we move forward.
Got it. Thanks and good luck.
Thanks, Gregory. Thanks, Gregory.
Your next question is coming from Simeon Gutman from Morgan Stanley. Your line is live.
Hey. Good morning, everyone. I know you guys do not manage the stock price, but one of the premises is that the profit growth would need to accelerate to create earnings upside, drive the multiple and then obviously more earnings. The sales are good. We know SG&A is coming down. I wanted to focus on gross margin. If there are any levers there that can be cranked up to think about how incremental margins can accelerate going forward.
Yeah, I can start there, Simeon, and Brad can jump in. We feel good about our gross margin performance in the second quarter and front half of the year. I think for us, there is a pretty consistent playbook around how we feel like we can make incremental improvements from a margin perspective. We have proven over the long course of time that we are a great partner for our suppliers. We view the opportunities we have in the business as a combined set of opportunities for us and our supplier partners. As we grow, they benefit from it, and that helps us to articulate a great value proposition that we can leverage to acquire parts better as we move forward. I think that has been inclusive of how we can manage our portfolio of proprietary brands and being very thoughtful and strategic about how we position ourselves around those. Distribution is a huge part of our business, and we are working hard to leverage those costs while keeping a real eye toward the productivity our efforts drive and the ability to drive sales gains and growth. The underpinning of everything we do is how we think about creating the best value proposition for our customers and how to drive gross profit dollar growth by being able to consolidate the industry and grow faster. There are opportunities to incrementally improve that margin rate. Our capabilities and flexibility to improve will leverage our supply chain from the point of manufacturers and continue to evolve as we work through cycles. We have been able to diversify country of origin, and we will continue to pursue opportunities there to get incrementally better. But it is really all consistently focused on what is the right long-term strategy. In any given quarter, we will perform within a tighter band and there will be puts and takes, but we feel good about the longer-term trajectory of what we could do with gross margin rates.
Okay. And then a follow-up, flipping it back to sales and SG&A leverage. Would you invest more for another incremental point of comp, meaning you think the business at its current run rate is taking an appropriate amount of share? Or would you if you could drive the gross profit dollars faster vis-à-vis more sales, would you let the business run back down to SG&A per-store at, call it, 3%? Would you keep it a little higher?
Hey, Simeon. Great question. That is what our team's focused on balancing every day — where our next best dollar spend is and the return on that dollar. I would just say that we feel really great with where we are at. We feel like we are making the right investments with the right ROI. We feel like our store staffing and store payroll teams are doing an unbelievable job walking that piano wire they walk every day, making sure that we are giving excellent customer service, taking market share, and also managing our largest controllable expenses for payroll. So we evaluate that ongoing, but we feel like we found the sweet spot in terms of what we are currently investing to get that top line return. Thanks, Simeon.
Thank you. We have reached our allotted time for questions. I will now turn the call back over to Mr. Brad W. Beckham for closing remarks.
Thank you, Matthew. We would like to conclude our call today by thanking the entire O'Reilly team for your continued dedication to our customers. I would like to thank everyone for joining our call today. I would also like to remind everyone that we will be webcasting our Analyst Day on Thursday, September 17, beginning at 8:00 AM Eastern Time. Details will be available on our website, and we hope you will be able to join us either virtually or in person. Thank you.
Thank you. This does conclude today's conference call. You may disconnect your phone lines at this time, and have a wonderful day. Thank you for your participation.