O'Reilly Automotive, Inc.

Thank you, John.

Good morning, everyone, and thank you for joining us. During today's conference call, we'll discuss our third quarter 2019 results and our outlook for the fourth quarter and full year of 2019. After our prepared comments, we'll host a question and answer period. Before we begin this morning, I'd 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 31st, 2018, and other recent SEC filings. The company assumes no obligation to update any forward-looking statements made during this call. At this time, I'd like to introduce Greg Johnson.

Thanks, Tom. Good morning, everyone, and welcome to the O'Reilly Auto Parts third quarter conference call. Participating on the call with me this morning are Jeff Shaw, our Chief Operating Officer and Co-President, and Tom McFall, our Chief Financial Officer. David O'Reilly, our Executive Chairman, and Greg Hensley, our Executive Vice Chairman, are also present. It's my pleasure to congratulate Team O'Reilly on our excellent performance in the third quarter and to thank every member of the team for their unwavering commitment to our company's culture of providing excellent customer service to each and every one of our valued customers. After seeing some weather-driven volatility in the first half of 2019, demand in our industry evened out in the third quarter, and our team did an excellent job of taking advantage of the solid industry backdrop to deliver a strong 5% comparable store sales growth in the quarter, which was at the top end of our guidance range. I'm pleased that our team was able to translate this top-line performance into an 11% increase in operating profit dollars and a 13% increase in earnings per share to $5.08 per share, which exceeded the top end of our guidance range by 25 cents. Our third quarter performance is the result of our team's relentless focus on excellent customer service and expense control. Year-to-date, our comparable store sales growth stands at 3.9%, which is consistent with prior year and in line with our full-year guidance we have maintained throughout the year at 3% to 5%. Now I'd like to provide some additional color on the composition of our third quarter comparable store sales results. Both the DIY and professional sides of our business contributed positively to our comp growth in the third quarter, with professional again being the stronger contributor. Part of the performance of the professional side of our business is the result of a calendar benefit from one less Sunday during the third quarter this year as compared to 2018. Sunday is our lowest volume day of the week on the professional side, and the impact of one less Sunday was a benefit of roughly 50 basis points to our total comp sales for the quarter. During the first quarter of 2019, we had one additional Sunday versus 2018, so through the first nine months, we're even on Sunday, and there's no impact to our year-to-date comps. Even adjusting for this benefit, we saw robust, comparable ticket growth, and our professional business during the quarter, driven by strong performance in key undercar hard parts categories, including brakes, ride control, and chassis, as well as more typical performance in hot weather related categories. Ticket counts in our DIY business continue to see pressure, consistent with our recent trends, as customers on this side of our business remain more susceptible to the rising price environment. In total, our comparable ticket counts were positive for the quarter. The long-term driver of increased parts complexity coupled with the current inflationary environment continues to drive increases in average ticket, which accounted for the majority of our comp increase in our third quarter. On a year-over-year basis, we have experienced product acquisition cost inflation driven by tariffs and other input cost increases passed on from our suppliers. As has been the historical experience in our industry, the non-discretionary nature and immediacy of need in the products sold in the aftermarket has allowed our industry to rationally pass through these acquisition cost increases. The impact of those top-line increases accelerated in the third quarter as the most recent round of tariffs went into effect and our industry began passing through these costs at the beginning of the quarter. We would expect to see a continued tailwind from the benefit of these price increases in the fourth quarter, though to a lesser extent as we begin to calendar price increases that occurred in the fourth quarter of 2018, driven by the first round of tariffs. Including the additional price changes, we began to see the beginning of the third quarter this year. We now expect to see a larger benefit from increasing average ticket with same skew pricing of 2.5% to 3% for the full year. As we have discussed on our last two calls, we continue to believe The pressure of rising prices to be a short-term constraint to DIY ticket count growth, as much as our more strapped consumers react to deferred maintenance when possible, trading down to the good, better, best value spectrum when necessary repairs can't be deferred. However, we believe that consumers will adjust to price pressures and that ticket count growth in our business will return to historical trends over time. As I previously mentioned, we saw more normal weather patterns in the third quarter than we saw in the first half of the year. We would describe sales of seasonal products as being as expected and did not significantly benefit from catch-up of pent-up demand on seasonal products. Adjusted for the Sunday shift, the cadence of the third quarter sales were also very steady as we saw very consistent results, especially in core hard parts categories throughout the quarter, and have seen a similar start to the fourth quarter thus far in October. Looking forward to the remainder of the year, we continue to have confidence in the strength of the broader aftermarket, characterized by stable employment and general macroeconomic conditions, low gas prices, modest increases in miles driven, and increasing age and complexity of vehicles. In line with these market conditions and based on our performance so far in 2019, we're establishing our fourth quarter comparable store sales guidance at 3% to 5% and reiterating our full-year comparable store sales guidance of 3% to 5%. As always, our team remains focused on providing the best possible service to our customers, and we remain very confident in our ability to gain share and generate results which outperform the market. For the quarter, our gross margin of 53.3% was a 35 basis point improvement over the third quarter of 2018 margin, and was at the high end of our expectations for the quarter. We continue to see stability in gross margin, even in light of pressure from tariffs and other input cost increases, as pricing remains rational in our industry. We're leaving our gross margin guidance for the full year unchanged at 52.7% to 53.2% of sales, though as Tom will discuss in his prepared comments, we would now expect to come in near the top end of that range. Our operating profit dollar growth was 11% for the third quarter. which represents our strongest quarter growth since 2016. We also expect our operating profit as a percentage of sales to come in at the top end of our previously guided range of 18.7 to 19.2%. Moving on to earnings per share, our third quarter EPS of $5.08 was an increase of 13% over last year, and on a year-to-date basis for the first three quarters, our EPS of $13.63 with an increase of 10% over 2018. We're establishing our fourth quarter guidance at $4.12 to $4.22. Based on our strong sales and profit results for the quarter, our expectations for the fourth quarter profit, and EPS tailwinds from shares repurchased, we're raising our full year EPS guidance to $17.75 to $17.85. Our full year guidance includes the impact of shares repurchased through this call, but does not include any additional share repurchases. Again, I would like to thank our team of over 82,000 dedicated team members for the outstanding third quarter performance. I'll now turn the call over to Jeff Shaw. Jeff.