Welcome to the O'Reilly Automotive Incorporated First Quarter Earnings Release Conference Call. My name is Ellen, 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 30 minute question and answer session. Please note that this conference is being recorded.
I will now turn the call over to Mr. Tom McFall. Mr. McFall, you may begin.
Thank you, Ellen. Good morning, everyone, and thank you for joining us. During today's conference call, we will discuss our Q1 2015 results, our outlook for the Q2 and remainder of 2015. After our prepared comments, we will 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 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 ks for the year ended December 31, 2014 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 Hensley. Thanks, Tom. Good morning, everyone, and welcome to the O'Reilly Auto Parts First Quarter Conference Call. Participating on the call with me this morning is, of course, Tom McFall, our Chief Financial Officer and Jeff Shaw, our Executive Vice President of Store Operations and Sales. David O'Reilly, our Executive Chairman and Greg Johnson, our Executive Vice President of Supply Chain are also present.
It's my pleasure to begin our call today by congratulating team O'Reilly on another record breaking quarter and a very successful start to 2015. Once again, our team's relentless focus on providing consistently high levels of 69,000 dedicated team members for their hard work and unwavering commitment to providing excellent customer service each day in every store across the country. Your steadfast dedication to living the O'Reilly culture is the reason for our consistently strong performance and I cannot thank you enough for your continued contributions to our long term success. We established our comparable store sales guidance of 3% to 5% for the Q1 on the heels of the strong demand trends we experienced throughout 2014 tempered by the difficult comparisons represented by the high bar we set in the Q1 of last year. However, we continue to capitalize on the positive momentum throughout the Q1, generating a 7.2% increase in comparable store sales, in comparable store sales, easily exceeding the top end of our guidance range.
This strong performance is on top of an excellent 6.3% increase in the Q1 of 2014 and our commitment to profitable growth translated these impressive top line results into another record first quarter operating margin of 18.4%. Our ability to consistently grow our business profitably is the result of our team's commitment to providing exceptional customer service and our dedication to investing in the tools our team members need to build lasting relationships with our customers. Overall for the Q1, sales increased 10% to $1,900,000,000 And as we've seen over the past year, categories such as brakes, driveline, chassis, ride control and batteries were key contributors to our growth. We view the sustained growth in these categories as a good indicator of our customers' continued focus on maintaining and repairing their existing vehicles, which bodes well for long term demand in our business. Availability in these important SKU intensive maintenance and repair categories is critical And our proficiency in delivering parts to our customers faster than our competitors is a key advantage and an important driver in our ability to continue to profitably grow our market share.
These gains combined with prudent expense control drove our record 18.4 percent operating margin, which was 180 basis points improvement over Q1 of 2014. Last year's Q1 operating profit was negatively impacted by a $23,000,000 LIFO charge and by comparison, we saw a smaller but still meaningful $8,000,000 LIFO charge in the Q1 of this year. Tom will discuss these charges in more detail in a few minutes. But excluding the LIFO impact from both quarters, our operating profit improved by 92 basis points. This profitable growth yielded a 28% increase in diluted earnings per share, which represents our 25th consecutive quarter with earnings per share growth in excess of 15%.
I would now like to take a few minutes and add some color to our comparable store sales for the quarter. As I mentioned earlier, we generated a very robust 7.2% increase in comparable store sales on top of a strong 6.3% increase in the Q1 of 2014. Sales trends were strong throughout the quarter, although they were a little softer in February on a relative basis. Consistent with what we saw in 2014, both the DIY and Professional sides of our business were strong contributors to our comp store growth, with professional again slightly outpacing DIY. On both sides of our business, ticket average and traffic count both contributed to the comp growth.
As we've seen for the past 2 years, inflation has not been a driver of our comparable store sales with an inflation tailwind of less than 50 basis points over that period and we continue to expect that we will not see material benefit from inflation in the foreseeable future. As we've seen for some time now, the growth in average ticket has been driven by increasing parts complexity rather than inflation or pricing, which has remained very rational in the industry. As we build our book of professional business, especially in our less mature markets, traffic continues to be the main driver of our professional comps, where we have seen very strong ticket count increases over the last 2 years. On the DIY side of our business, we also saw solid increase in traffic as DIY consumers recover from the difficult macroeconomic headwinds they have faced in recent years and our internal initiatives focused on our DIY customers continue to gain traction. Unemployment in the and year over year gas prices being down 33% are definitely tailwinds for the business, especially for our DIY customers who have been under significant economic pressure for an extended period of time.
To the extent unemployment continues to improve and prices at the pump remain low, we expect our business to continue to benefit. In addition, the primary driver for demand in our business is miles driven. And as we saw at the end of 2014, in January miles driven strongly increased contributing to the continued strong demand for our products. Our Q2 is off to a strong start. However, we are just entering the critical spring selling season and we have experienced volatility in the months of May June at times in the past.
We also faced another quarter of strong results from the prior year with a 5 a 5.1% Q2 of 2014 comp comparison. Based on these factors, we are establishing our 2nd quarter comparable store earlier, the impact of LIFO accounting makes the comparisons to the prior year difficult. Excluding the LIFO charges in both years, our gross margin range of 51.8% to 52.2% of sales. However, we are raising our full year operating margin guidance from a range of 18 0.1% to 18.5 percent of sales to a range of 18.3% to 18.7% of sales. The increase in our operating margin guidance range for the full year is driven by our stronger than expected Q1 results flowed through to the full year.
We are also increasing our full year earnings per share guidance from a range of $8.20 to 8.30 dollars to a range of $8.42 to $8.52 This updated guidance includes the strong and shares repurchased through yesterday and excludes any additional potential share repurchases. Before I finish my prepared comments, I would like to thank our team for these record breaking Q1 results. We remain very confident in the long term drivers for demand in our industry and we believe our team is very well positioned to capitalize on this demand by consistently providing exceptional service to our customers every day. Again, congratulations to team O'Reilly for a very strong start to 2015. With that, I'll turn the call over to Jeff Shaw.
Jeff?
Thanks, Greg, and good morning, everyone. I'd like to begin today by echoing Greg's comments and congratulating team O'Reilly on another outstanding quarter. I couldn't be more proud of our team's execution and the level of consistent top notch service that we continue to provide to our customers day in and day out. 7.2% comparable store sales growth doesn't happen by accident, especially when it sits on top of a 6.3% increase the prior year. Our industry leading performance is the direct result of our team's commitment to out hustling and out servicing the competition each and every day.
Our team once again rolled up their sleeves and executed our proven business model, delivering another quarter of record breaking results.
For all of our
customers' auto parts needs. As Greg mentioned earlier, we're not just focused on top line growth, rather we are laser focused on building long term win win relationships with our customers, which results in sustainable profitable growth. During the Q1, our team did a great job of profitably gaining market share and at the same time kept a close eye on store and distribution center expenses. For the quarter, SG and A levered 71 basis points on extremely strong comparable store sales and excellent expense control. Average per store SG and A increased 2.7%, which was higher than we originally expected for the quarter and was driven by higher than planned store payroll, commissions and incentive compensation and exactly what we want to see when we have such strong sales and profitability results.
Our company wide compensation philosophy is focused on instilling within each of our team members the mentality that they should run the business like they own it, and they did exactly that during the Q1. When we generate strong top line results, we expect average SG and A per store to increase, while at the same time generating impressive expense leverage, than planned, when we flow these results into the full year, we don't anticipate a material impact. And as such, we still expect our full year increase in average SG and A per store to be approximately 1.5%. We successfully opened 67 new stores during the quarter, and we continue to be pleased with the performance from our new stores. As we discussed on our last call, we will open new stores across our footprint with more significant growth concentrated in Florida, supported by our new distribution center in Lakeland, Florida in California as we backfill attractive markets not previously penetrated by CSK in the upper Great Lakes as we freed up capacity across multiple new Chicago DC and in Texas.
Speaking of Texas, this has been a growth market for us for many years and we see we're butting up against our distribution capacity. As Greg mentioned earlier, we're extremely focused on investing in the tools that give our team the ability to provide consistent top notch service to our customers. To that end, we're excited to announce we've acquired property in Selma, Texas, where we plan to build our as our San Antonio DC, and it's about an hour away from Austin. Both San Antonio and Austin are metro areas with rapid growth and the new DC will allow us to open more stores and improve our parts availability in both of these substantial and Houston DCs, allowing those facilities to operate more efficiently, while also creating capacity for future growth. The San Antonio DC is planned to open in the Q2 of 2016 and will have the capacity to service approximately 2 25 stores.
As we have proven in the past, our distribution operations team is extremely effective at planning, building and opening new distribution centers and we're confident that this project will roll out with the same degree of efficiency that our past projects have delivered. I'd like to finish up today by thanking our store and distribution teams with their relentless focus on providing consistent top notch customer service each and every day. Your hard work and dedication continues to drive our success. Now I'll turn the call over to Tom.
Thanks, Jeff. I'd also like to thank all of team O'Reilly on another outstanding quarter. Now we'll take a closer look at our Q1 results and update our guidance for the remainder of 2015. For the quarter, sales increased $174,000,000 comprised of $122,000,000 increase in comp store sales, a $50,000,000 increase in non comp store sales, a $3,000,000 increase in non comp non store sales and $1,000,000 decrease from closed stores. For 2015, we continue to expect our total revenue to be in the range of 7 point $6,000,000,000 to $7,800,000,000 Our gross margin results of 51.9% for the quarter were in line with our expectations.
On a run rate basis, gross margin improved 20 basis points over the 4th quarter, primarily based on better distribution leverage on higher sales. On a year over year basis, gross margin improved 109 basis points. However, as Greg mentioned earlier, this comparison is skewed by the impact of our LIFO accounting. As we've discussed over the past year and a half, our success to reducing our acquisition costs over time has exhausted our LIFO reserve, with the result that additional cost decreases create one time non cash headwinds to gross margin as we adjust our existing inventory on hand to the lower cumulative acquisition cost. For the Q1 of 2015, we experienced a LIFO headwind of $8,000,000 compared to a headwind of 23 $1,000,000 in the Q1 of 2014.
Excluding both of these headwinds, year over year gross margin rates increased 21 basis points. As we look forward to the rest of the year, we expect to continue to see moderate LIFO headwinds as we incrementally approve acquisition costs. However, we remain comfortable with our gross margin guidance of 51.8% to 50 2.2% of sales. Our effective tax rate for the quarter was 37%, which was slightly better than our expectations of 37.3% and was driven by the realization of more job tax credits than originally expected. When we look at the full year of 2015, we still expect our tax rate to be approximately 37% of pre tax income.
On a quarter to quarter basis, we expect our quarterly tax rate to be around 37.3% for the 2nd and 4th quarters, with the 3rd quarter expectation of 36.2% as we adjust for the tolling of certain tax periods. These estimated rates are subject to the resolution of open tax periods under audit and our success in qualifying for existing job tax credit programs. Now we'll move on to free cash flow and the components that drove our results in the Q1 and our updated guidance expectations for the full year of 2015. Free cash flow for the quarter was $315,000,000 and we're revising our full year guidance for free cash flow to a range of $700,000,000 to $750,000,000 reflecting an increase from our previous range of $675,000,000 to 725,000,000 dollars as a result of the strong operating income results in the Q1. Inventory per store at the end of the quarter was 570,000 per store inventory at a slower rate than the comparable store sales growth we generate and we definitely accomplished that goal in the Q1.
However, this decrease is primarily timing as a result of the very strong sales during the quarter and we're actually a little lighter on inventory than we'd like to be. For the year, we continue to expect our per store inventory to increase a little less than 1% per store. Our AP to inventory ratio finished the Q1 at 97.7%. The spike in this ratio is also related to the extremely strong sales during the Q1. For 2015, we continue to expect the year end AP to inventory ratio to be around 97%.
Capital expenditures for the Q1 were $91,000,000 which is a little less than we planned, but we still expect our 2015 CapEx to be within the range of $400,000,000 to $430,000,000 inclusive of the San Antonio DC. Moving on to debt. We finished the Q1 with an adjusted debt to EBITDA ratio of 1.7 times, still well below our targeted ratio of 2 to 2.25. We continue to believe our stated range is the appropriate amount for our business and we will move into this range when the timing is appropriate. We continue to execute our share repurchase program and year to date we've repurchased 1,000,000 shares of our stock at an average cost of $210.74 per share for a total investment of $210,000,000 We continue to view our buyback program as effective means of returning available cash to our shareholders after we take advantage of opportunities to invest in our business at a high rate of return.
We will continue to prudently execute our program with an emphasis on maximizing long term
to
$2.21 Based on our above plan results in the Q1 and additional shares repurchased since our last call, for the full year, we're raising our guidance to $8.42 to 8 point $5.2 per share, representing an increase of $0.22 per share from our previously announced guidance. As a reminder, our diluted earnings per share guidance for both the Q2 and full year take into account the shares repurchased through yesterday, but do not reflect the impact of any potential future share repurchases. Finally, I'd like to once again thank the entire O'Reilly team for their continued dedication to the company's success. Congratulations on an outstanding start to 2015. This concludes our prepared comments.
At this time, I'd like to ask Ellen, the operator to return to the line and we'll be happy to answer your questions.
Thank you. We will now begin the question and answer session. Please limit your questions to 1 question and one follow-up question. Our first question is from Robert Higginbotham with SunTrust.
Thanks. Good morning, everyone. Good morning. My first question is really around trying to gain some clarity around your guidance. I'm a little confused about what's driving the incremental margin expectation given your sales range is unchanged, your gross margin is unchanged that would seem to imply that you're expecting better expense performance, yet your per store expense guidance is the same.
Could you help me connect those dots a little bit better?
Sure, Robert. This is Tom. The increase in our operating margin guidance for the year is based on the performance in the Q1 with the second, 3rd and 4th quarter expectations staying the same.
I guess, I'm still a little bit confused because all of your annual numbers are the same except for your EBIT margin and yet your SG and A per store for the year is the same as well. I might need to dig into this offline. Is there something else I'm missing about timing of store openings perhaps or something along those lines?
No. I would tell you that some of the ranges have there's varying degrees within the ranges. Q1 results, the only percentages that we felt triggered outside of our range was operating margin.
Got it. Okay. And then my second question is one of your big competitors this week talked about some supply chain issues they were having with one of their undercar vendors. You don't necessarily overlap with all your competitors in terms of vendors, but did you experience any of those same type disruptions?
There's really not there's seldom a time that we don't have some type of supply chain disruption. But and I don't know for sure the vendor that they were speaking to. I don't think they mentioned the name, but I suspect I know because we were supplied by the same vendor. And yes, we have a we're actually a couple of vendors that are having trouble. As a matter of fact, Greg Johnson who's here visited one of their distribution centers here recently just to kind of get a better bird's eye view and handle on what they're doing to fix this.
We mitigate that significantly with relationships with backup vendors, many of which supply us other products and then we have processes in place to divert orders to vendors who have product and can supply. So I'm sure they'll get through this in short order. They're a quality company and one that has supplied us for a long time. But they're in the process of integrating some business that they obtained into distribution facilities that don't appear to be as prepared for it as they could have been. And yes, we're experiencing some disruptions.
But again, this is not something that is unusual. We consistently have issues of one type or another with suppliers.
Got it. And let me think just one more quick one in there. You spoke to February being a little bit soft. Your footprint in the Northeast isn't particularly big at this point, but was it snowstorm inclement weather type issues that drove that February softness?
I think In the Northeast specifically?
Well, and again, we're not as exposed to the Northeast as some. Really what I was talking about was being more on a relative basis. Our 2 year stack was pretty consistent. We went up against some tougher comparison February, but our so our 2 year stack stayed consistent. But the comp number for this year was slightly lower than it was in January March.
Yes, I would say it was more related to kind of some late winter weather, which in the longer term is generally good for us. But in the short term, when people are iced in and not driving and those kinds of things that can create some softness in business for a short period of time. And I think that was probably the primary factor with this year in February. Again, we had a good February. It was just slightly less than what our January March was.
Got it. Thank you. Okay. Thanks.
The next question is from Alan Ryskin with Barclays.
Thank you very much. Greg, you mentioned that traffic was the main driver on the DIFM side of the business. I was wondering if you could maybe drill a little deeper into that. Is the traffic being driven by existing customers or new customers? And maybe if you will provide an update as to where you're seeing new customer acquisitions go in the future?
Well, Alan, it's both. We continue to do well with existing customers. We were doing a lot of work to do more business with some of our national customers. And I guess to speak to your question about our work with existing customers, we have a significant effort as do our competitors to do more business with national accounts and competitors that are chains of shops. And we continue to do well and expect to continue to do well in the future.
A big driver of our just transaction increase is the continued opportunity we have in some of our newer markets and specifically the West Coast markets as we continue to gain traction out there and become more of a first call status or maybe move ourselves from 3rd call to 2nd call with some existing customers and then also new customers as we continue to expand our professional programs in the stores that we acquired from CSK years ago. We still and I know we're years down the road now, but we still have a lot of runway in front of us as far as the amount of business that we can be doing out there per store on the professional side as well as the DIY side. And we've seen some really good results in the last several months out there on both the professional and the DIY side.
Okay. Thank you. And one follow-up if I will. Specific to Florida and South Florida, would you be able to provide some commentary on what you're seeing down in that region? How many stores do you have down there now?
What will it grow to? And given what I believe is the huge success in Florida, do you think that the Lakeland DC can ultimately support the 300 plus stores with the volumes that you're likely to get?
Yes. I think we can. Florida continues to be an incredibly good state for us and it's a big growth state for us in the Q1. We're up to 130 stores in Florida now. We've not really reached down into far south although we continue to look at property down there and work on our expansion down there.
But we're incredibly pleased with our performance down there. A lot of this is about the team that we have executing our plan down there and we just have a really strong team in that part of the country as we do many parts of the country. But down there, they've just proven that they're very successful at executing our business plan. And looking back, I wish we would expand it into Florida several years ago, because it's been a great market for us. But we continue to look to that growth in the Southern Florida as a big opportunity for us and have no reason to believe at this point that we won't be in good shape from a distribution standpoint out of our Lakeland facility.
Okay. Thank you very much. Okay. Thanks, Alan.
The next question is from Chris Horvers with JPMorgan.
Thanks. Good morning, guys. Good morning, Chris. I wanted to follow-up on that question. You know they push into these markets whether it's California or Florida and Northeast, you're really touching all of your competitors, some more than others.
But can you talk about what the competitive response is then on the pricing side? Is the share sort of equally being felt between your national public competitors versus, let's say, wholesale distributors? And finally, the competitions for the parts pros and the store managers, where are you as you add stores in these regions, where are you sourcing that talent from?
Okay. Well, from a competitor standpoint, we've got tough competitors all over. I would tell you that the competitive landscape from our perspective is at least as strong as it's sides of the business than did just 5 or 10 years ago. And probably stronger since more of our competitors compete on both sides of the business than did just 5 or 10 years ago. It's hard to know for sure where the business that we gain in market share gains come from.
But I would say it's a mix of both. We have good competitors that are publicly traded, good competitors that are private, good competitors that do business as a what we call 2 step distribution, which are just kind of off the beaten path type of undercar warehouses and they can be very strong a market and then over time every customer in a market and just working our way up the ladder improving our ability to provide service that exceeds our competitors in many cases having competitive prices. We really don't see a big price response as we come into a market. I think that most in our industry have realized that price is not the primary reason that a shop buys from a parts store. It's service and relationships and their ability to work with a parts supplier to make sure that they have the right to return products that they take off a car for warranty, the occasional labor claim, just all the relationship things that go into helping partner with those guys to be successful in their businesses.
From a people stand competitors who are doing a lot of business down there. Competitors who are doing a lot of business down there. Many times they're not our retail publicly traded competitors. They might be our wholesale competitors or under car type competitors. But as we expand into new markets, we of course look around and see who's selling the parts.
And if we have a chance to give someone an opportunity with a company that's going to grow in that market and put them in a position to improve their career and become part of our team here at O'Reilly. We do that, but in many cases, we're able to move people and promote people from within as we expand. And in Florida, it's been a mix of both. We've hired some people that have helped us and then we've developed and promoted some people from within. So it's a combination.
And then as a follow-up on the national account side, is that a relatively new push for you in sort of what was the genesis of it? And what capabilities perhaps now that have that you have now that you didn't have before allow you to do there? Or is it just a question of the priority?
Well, prior to us acquiring CSK and getting CSK to the point that they're as professionally capable as they are today. And I'm speaking of our West Coast stores, we really didn't have the national footprint to be a true national account provider. Today, we're in a better position than ever to do that with the exception of a few states up in the Northeast. Some of these accounts are not truly coast to coast national accounts. They're big regional accounts.
And over the past 3, 4, 5 years, we've put a lot more effort into developing relationships with those accounts and growing those accounts than we had in the past, partly just because of our geographic footprint, but then also because of the consolidation in the service provider industry and our desire to benefit from that consolidation and be a partner to these companies that are consolidating and growing their business.
Thanks very much.
All right. Thank you.
The next question is from Michael Lasser with UBS.
Good morning. Thanks a lot for taking my question. Greg, I was really just I was mostly curious about what caused the step function change in your performance relative to the industry seemingly in the last couple of quarters. For sure this quarter, Last year you had seen a little less SG and A leverage in your P and L. You investing a little bit more in the stores.
So are you now seeing the benefits of that through maybe accelerated market share gains? Or is this weather and gasoline phenomenon that you're seeing whereas your competitors aren't seeing? I think we all know that your you folks work very hard, but we also assume that everyone else works hard. So where is the delta?
Well, it's hard to know for sure, Michael, but we try awfully hard. We have a great team in the field and they're supported by a great team here at our headquarters. I can't help but feel like some of the things that we've done over the past few years, which have improved our availability to products. We've increased the number of times that we touch a store each day. And as you know, product availability is a huge factor in driving the success of an auto parts business simply because if you can get the part faster than your competitor can that's a big factor.
I think some of the retail things we've done as far as improving the services that we do, maybe helping a customer pull the meaning of a check engine light that's on or installing a wiper blade or the occasional battery stuff like that. I've mentioned before that there was a time that we were pretty reluctant to do those kinds of things simply because we didn't want to infringe on our professional customers' business and operations. But over time, we've realized that those kinds of things for most part, they were unable to charge a customer for anyway and they didn't mind us doing those things. So we've done that. And I think that's been a contributor to our DIY business.
As much as anything, we've just got a really, really strong management team in the field that is incredibly focused on making sure that we outhustle and provide a service level to our customers that's greater than what our competitors do. And while that's not something that the day you start doing that, it grows your business instantly. It's something that over time has a very positive effect. And I think that over the past 2 or 3 years, we've put a renewed emphasis on the importance of out servicing our competitors and making sure our customers experience a service level with us that's greater than they would experience with any of our competitors. And I think that that's probably the biggest factor driving our performance.
Okay. And like if you had to quantify where you are in availability in store service today versus where you were 2 years ago. Is there any way you could do that like X number of parts or percentage of stores that are being cut multiple times per day?
Well, it's right. Well, 2 years ago, we would have been just we're maybe slightly better than we were 2 years ago compared to 3 or 4 years ago, it's significantly better. We started touching our stores more on weekends back about 3 years ago. I don't really have the numbers with me, but we've turned it up a lot and we can turn it up more. As more and more of our competitors have came to the realization that being in the professional business requires that you'd be able to put the part in the professional customer's hand first if you want the business.
As they've augmented their distribution capabilities with hub stores and so forth, we further levered this very strong distribution network we have that's augmented by our hub stores. And we have the ability to deliver it further if we want to. Right now, we feel like that the service levels that we're able to provide are a notch above our best competitors. And we have the ability with the strong infrastructure that we have to continue to turn that up as we need to remain the preferred supplier and maintain this advantage that we feel like we have from an availability standpoint.
That makes sense. And then last one with all due respect, I guess the only part of your organization that may not be working to its full potential is the balance sheet. I respect Tom's comment that you'll take your leverage ratio up from 1.7 times to 2 to 2 above 2 when the time is right. But can you give us some factors that we can better understand on what's going to dictate that timing? Is it a gauge of the performance of the business?
Are you keeping that powder dry in the event that things slow and you'll be able to cushion your earnings with that? Or is it are you waiting for a stock price to get to before you take the leverage option? Because stocks going seem to be only going one way right now.
Hey, Michael, this is Tom. I guess you're asking me that question.
I'm going to have Tom answer that.
We are a long term focused company. So how much we repurchased during a quarter is a portion of our long term plan. When we talk about the quarter itself, we really look at our buyback as call to call. If we look back to the beginning of the year, we were in a dark period till we released earnings in February and we bought really not very many shares. So since the last call, we've repurchased $200,000,000 worth this year, so a pretty good amount.
What I would tell you is, we continue to be very effective in generating free cash flow, higher than our conservative projections. So we will continue to deploy the cash that we generate over a period of time to consistently buy back our shares with an eye that we want to maintain flexibility to pursue opportunistic acquisitions.
Could one of those acquisitions be akin to what you did with CSK where it was a sizable entity not operated to its true potential and you've been able to fully exercise every bit of value from it?
Well, we there is not a player in the U. S. That we don't have a significant overlap that's of that size. We continue to look at all opportunities to expand our brand. But to your point, our history has been we've been successful at identifying underperforming assets and bringing the things that we do to the table and improving their performance.
Matthew Fassler with Goldman Sachs.
Thanks a lot. Good morning and congratulations on your results. I want to dig into your history in the business and think about the way you've typically seen gas prices impact sales both in terms of magnitude, mix and also timing and what you see today and how that compares to your expectations and your prior experience?
Okay. Well, we've seen the impact from gas prices really more on the increasing side as they increased back some years ago. And we felt the effect of that to some degree, although it was tempered by the fact people were hanging on to their cars longer in the tougher economy and maybe doing more repairs and that benefited us. I guess what I would say is that right now with gas prices having come down as much as they have,
the feeling
of the business is very robust. And I it's hard to quantify that. I would say that the magnitude of the effect of that, I would reflect simply in the miles driven. And towards the end of last year, miles driven increased significantly. If I have my number right, I don't have it in front of me, but I think in January, miles driven were up 4.9%.
And that's pretty significant. So to me, the measurement of the effect of miles driven and gas prices is reflecting miles driven. And miles driven of course creates a very positive effect on us. Now one of the contributors to miles driven, of course, is the fact that unemployment rates have come down and commuter miles are up and we view that as a positive for us too. So both those things are significant contributors we feel like to our business as well as many retail businesses that might not do as well when consumers don't have cash and might defer some of the things that they would otherwise do.
I know you spoke about strength in some of the core auto parts businesses. To the extent that you have a discretionary element in your mix, have you seen that respond recently to what might be deeper pockets for your core customer?
What I would say is during the tougher times during the recession, we saw some of the appearance, accessory type categories that performed poorly. And this past quarter virtually every category performed well. So yes, I think our by category performance is reflective of a consumer that is willing to spend more money than they have in the past few years.
Great. And just one quick follow-up. I know you touched on a couple of different markets. If you think about regional differences across the business, anything significant other than say the strength in Florida that you discussed?
We had a lot of strength in Florida, had a lot of strength in on West Coast, we're doing real well. Really all parts of the country, we had a really good start to the year West Coast and Southeast for our best performing market.
Got it. Greg, thank you so much.
The next question is from Bret Jordan with BB and T.
Hey, good morning.
Good morning.
When you're talking about areas for geographic expansion, we didn't talk much about the East. And I guess if we look at the Devon's distribution center, what are we serving out of there? And are you focused elsewhere because there are just better opportunities there than what you're seeing in the Northeast? Or maybe a little more color on
No, we're working to expand it there now. Devon's is supplying somewhere in the area of 60 stores, just slightly over 60 stores, which include the 56 VIP stores that we acquired a few years ago. We were actively spending a lot of time up there to find expansion properties and we'll be expanding up there. We see a lot of opportunity in the Northeast, high population, a lot of traffic. We'll do well.
It's just a matter of us obtaining sites and growing which we're in the process of doing. So that's a there's a good opportunity for us there.
Brett, this is Tom. In last quarter's call, we commented on this that 2016 would be a big year for us up there. Typically for us to get comfortable with the markets and develop sites is and really get the process rolling is a 2 to 3 year process. So next year we'd expect to see more significant growth out of Devon's.
Great. Thank you. And then a quick follow-up. You commented that the second quarter is starting strong. Could you remind us the cadence last year?
I think my recollection was Q2 last year started stronger and ended weaker into sort of a softer June, July. Is that something that you see?
I mean, I guess, it's like
as you progress through the quarter?
Okay. Yes. The difference wasn't significant. Last year was April and May were pretty comparable. June was slightly softer, but they were it was pretty consistent month to month.
Okay, great. Thank you. Thank you.
The next question is from Dan Wewer with Raymond James.
Thanks. Greg, O'Reilly's success in the do it yourself channels seems to be overlooked. When we've been out visiting stores of late, we sensed that you've been adding payroll to the stores after 5 p. M. And on the weekends.
Is that having any benefit that you can tell on your do it yourself productivity?
We think it does. We think that there was a time not that many years back that we were probably guilty of not staffing as the way we should on nights and weekends just with respect to our focus on the professional side of the business and the fact that we wanted to have our best and most qualified team members present when the shops were open. And as we have tried to improve the service levels that we provide on the DIY side, one of the keys to that of course is to staff appropriately when a lot of the DIY business takes place, which is on nights and weekends. So we've had a concerted effort over the past couple of years, maybe a little more than that to staff more robustly on nights and weekends, not only from a headcount perspective, but with the quality of team members that can provide the service levels that will make us the preferred supplier to
And then also can you speak to the change in your private label penetration over the last 3 or 4 years? And then also if there is any payback on
that on the commercial sales channel because we do sense that some commercial customers are focusing a bit more on price than they have in the past.
Well, our private label business continues to grow. I actually didn't look at the number before I came here. I think we're around 35% private label something like that. We have grown that really through the recession with respect to the fact that more customers were choosing a driven to choose a low price product as opposed to a premium product. And where we had coverage disparities, maybe we had a our full line coverage in a brand and then we had short line coverage in a private label, we felt like it was putting us at a little bit of a disadvantage.
So we've expanded our private label product offerings in many hard parts categories. And as a result, that availability has shown us that a lot of customers simply prefer those products. Now in our business, we Tom was saying something, I'll get back to it. In many of our categories where we have put a private label product in place, it's actually a branded product. It's a product that we have set up as a brand, a national brand, but we consider to be a private label product.
We would expect that to continue to grow to some degree like our import parts offerings are for most part what we would consider private label, but they're really branded products. So yes, we expect that to continue to do well and grow.
Okay, great. Thanks,
Tom. What I would add to that is when we look at our professional business, we manage our product lineup on a category by category, segment by segment basis. And there have been certain categories that Professionals have been more receptive to moving off of traditional brands. But there are many more categories where brand and that traditional brand remains extremely important for the installer.
So you would say that the growth in your private label is primarily driving the
do it yourself business for O'Reilly not so much commercial?
I would say that what we're saying is it's really a category by
category basis for what's accepted
in the general marketplace. Okay. Simeon Gutman with Morgan Stanley.
Hey, good morning. From Simeon Gutman with Morgan Stanley.
Thanks. Good morning, guys. Greg, you got a couple of questions with market share in it. I wanted to focus on that for a second. Do you have a sense whether you're taking more share in DIY or DIFM at the moment?
Well, I would speculate. And again, we don't have all the details of the division of sales by our competitors. But based on what we know that we have at least in our publicly traded competitors, they appear to growing their DuPont business much faster than their DIY. Both ours are growing well. But considering the disparity that we seem to have between our DIY performance and some of our competitors' DIY performance, I would have to think that we're gaining more market share on the DIY side.
Okay. That's helpful. And then second, AAPD is going through a consolidation and I think there's some natural and expected fallout and I think you agree with that. Can you say whether you're positively surprised me and you're seeing more fallout than you'd expect or less? And is that something you can share with us?
Well, I think there's still have work to consolidate. Some markets they really haven't done much, but have work to consolidate. Some markets they really haven't done much consolidation work yet. So, but I would say that we're pleased and it's gone kind of as we would have expected from a benefit to our company standpoint. I think there's still a lot to be seen with their integration.
It's still in the early stages I would speculate. And that a year from now I could probably speak to the benefit we've seen and whether or not that met our expectations better than I can at this point simply because the integration is still very early.
Okay. Thanks for the color. You bet. Thank you.
We have reached our allotted time for questions. Will now turn the call over to Greg Hensley for closing remarks.
Okay. Thanks, Ellen. We would like to conclude our call today by thanking the entire O'Reilly team for the outstanding start to 2015. We remain extremely proud of our record breaking Q1 results and are extremely confident in our ability to continue to aggressively and profitably gain market share and are focused on continuing our momentum throughout 2015. I'd like to thank everyone for joining
our call today and we look forward to
reporting our 2015 Q2 results in July. Thanks.
Thank you, ladies and gentlemen. This concludes today's conference.