O'Reilly Automotive, Inc.

Welcome to the O'Reilly Automotive Inc. 3rd Quarter 2025 Earnings Call. My name is Matthew, and I'll be your operator for today's call. At this time, all participants are on a listen-only mode. Later, we'll conduct a question-and-answer session. During the question-and-answer session, if you have a question, please press star 1 on your touchtone phone. I will now turn the call over to Jeremy 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 third quarter 2025 results and our outlook for the remainder of the year. 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 works. 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, 2024, 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 third quarter conference call. Participating on the call with me this morning are Brent Kirby, our president, and Jeremy Fletcher, our chief financial officer. Greg Hensley, our executive chairman, and David O'Reilly, our executive vice chairman, are also present on the call. I'll begin our call today by expressing my appreciation to more than 93,000 team members across all of North America for the hard work they put in to deliver the third quarter results we released yesterday. Team O'Reilly continues to win in each of our markets, and our team's dedication to excellent customer service drove the solid comparable store sales increase of 5.6% we generated in the third quarter. This performance was at the high end of our expectations, and we are pleased with the momentum our teams have been able to sustain on both sides of our business. The combination of our strong sales results with a 9% increase in operating income and a 12% increase in diluted earnings per share demonstrate our team's focus on driving profitable growth. Thank you, Team O'Reilly, for your commitment to our culture and absolute dedication to taking care of our customers. Now I'll walk through the details of our comparable store sales performance for the third quarter. Our professional business continues to be the more significant driver of our sales results with an increase in comparable store sales of just over 10%. We continue to be pleased with the strength in our pro ticket count growth, which was the primary driver of our professional comp increase and the biggest contributor to our outperformance relative to our expectations. We also saw increased benefit in the quarter from average ticket on both sides of our business that I will detail in a minute. We remain confident that the professional sales growth our teams are delivering is the result of share gains as we continue to be the supplier of choice for our professional customers. Our share gains have been broad-based with strong contributions from all of our market areas. The strength of our professional business is anchored in the valuable relationship we have developed with our customers who value the end-to-end partnership our team is able to provide to their business through service, availability, and business tools that help them be a service provider of choice to their customers. We were also pleased to deliver DIY comparable store sales growth with this side of our business finishing the quarter with a low single-digit comp driven by average ticket benefits partially offset by pressure to ticket counts. Our DIY business was in line with our expectations in July after having experienced pressure in June as we exited the second quarter. We began to encounter modest pressure to DIY transaction counts midway through the third quarter, which we believe reflects some degree of initial short-term reaction by DIY consumers in response to rising price levels. The contribution to same-skew inflation during the third quarter, which was felt evenly on both sides of the business, was just over 4%. As we've anticipated coming into the third quarter, we saw a significant ramp in tariff-driven acquisition cost increases and made appropriate adjustments to selling prices. On a category basis, the pressure to our DIY business as we moved through the quarter was primarily felt in some categories where we could be seeing some deferral in larger ticket jobs. However, we continue to see strength broadly in other DIY maintenance categories including oil, filters, and fluids that have continued the outperformance we have seen throughout the year. We want to emphasize that we are still in the early stages of the consumer response to the ramp up in price levels. It can be difficult to parse too finely the initial response from our DIY customers, but the pressure we have seen thus far is modest and in line with consumer reactions to economic shocks we have seen in the past. As we've noted the last several quarters, we remain cautious in our outlook on the consumer and expect that we could continue to see a conservative stance from consumers and how they manage spending in this environment. However, even in this environment, our DIY consumers are still showing a willingness to invest in and maintain their vehicles, and we believe any potential deferral pressure will be short-term. When looking at category dynamics on the professional side of our business, we are seeing very strong performance across both failure and maintenance related categories and are pleased with the resiliency of customer demand. The customers taking their vehicle to a professional shop for their repair and maintenance work tends to be less economically constrained than our average DIY customer and less reactive to inflationary pressures on spend in a largely non-discretionary category of their wallet. Looking at the cadence of our sales results in total for the quarter, we generated consistently strong comparable store sales growth as we moved through the quarter with positive comps on both sides of our business in each month. We would characterize weather as neutral on balance for the quarter as we experienced normalized summer weather across most of our market areas. Now I'd like to provide some color on our updated full year comparable store sales guidance. As noted in yesterday's press release, we updated our guidance from the previous range of 3 to 4.5% to a range of 4 to 5%. At the midpoint of our full-year range reflects our outlook on factoring in current sales volumes as we progress through September and thus far into October. We have incorporated into our guidance range the current pricing environment. While the broader tariff landscape has the potential to remain fluid, at this stage, we believe we have seen the lion's share of the cost impacts we are expecting as they relate to the tariffs currently in effect. As a result, we anticipate a mid-single-digit same-skew benefit in the fourth quarter, but have also factored into our guidance a continuation of the pressure to our DIY customers from the dynamics I mentioned earlier. Our industry has continued to behave rationally in response to the pressure tariffs have placed on product acquisition costs, and we continue to monitor industry pricing adjustments to ensure we are competitively priced for the value proposition we provide. Our industry backdrop remains or continues to be both stable and supportive. We believe the dynamics of the consumer uncertainty and continued pressure to the DIY business are being felt industry-wide. Most importantly, we believe our teams are winning share on both sides of the business against the current macroeconomic backdrop. In times when spending decisions become more difficult for our customers, having our excellent customer service, superior product availability, and professional parts people to guide them becomes an even more important piece of the value we deliver. Before I turn the call over to Brent, I would like to highlight our updated diluted earnings per share guidance. As noted in our press release, we have updated our EPS guidance to a range of $2.90 to $3. This incorporates our year-to-date performance, the revised sales outlook, and our expectations for gross margin and SG&A for the fourth quarter, which Brent will discuss next. At the midpoint, our current EPS guidance is an increase of approximately 2% from the midpoint of our previous guidance and a year-over-year increase of 9%. We are pleased that the team has been able to deliver both strong sales and earnings growth, even in a rapidly changing environment of economic uncertainty. As I wrap up my prepared comments, I would like to once again thank Team O'Reilly for their strong performance in the third quarter. Now, I'll turn the call over to Brent.