O’Reilly Automotive, Inc. (NASDAQ:ORLY) Q3 2023 Earnings Call Transcript

O’Reilly Automotive, Inc. (NASDAQ:ORLY) Q3 2023 Earnings Call Transcript October 26, 2023

Operator: Welcome to the O’Reilly Automotive Inc. Third Quarter 2023 Earnings Call. My name is Holly 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 our question-and-answer session. [Operator Instructions] I will now turn the call over to Jeremy Fletcher. Mr. Fletcher you may begin.

Jeremy Fletcher: Thank you, Holly. Good morning everyone and thank you for joining us. During today’s conference call, we will discuss our third quarter 2023 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 words.

A technician in a mechanic’s uniform replacing an A/C compressor, signifying the company’s automotive replacement parts business.

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, 2022 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 Greg Johnson.

Greg Johnson: 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 Co-President, Brad Beckham, and Brent Kirby as well as 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’d like to begin today’s call by congratulating Team O’Reilly on outstanding results in the third quarter and express my deep appreciation to our team of over 88,000 professional parts people for their steadfast dedication to our customers. This unwavering commitment to excellent customer service is the hallmark of O’Reilly Auto Parts and the key to earning our customers’ business every day.

Our team’s ability to deliver sustained profitable growth is evidenced by a robust 8.7% increase in comparable store sales, coupled with a 17% increase in diluted earnings per share for the third quarter. Our results have exceeded our expectations throughout the year, driven by the team’s high level of execution. Service and product availability are critical pieces of our value proposition, and our ability to remain intensely focused on these fundamentals has continued to derive growth on both the professional and DIY sides of our business. As we announced in July, upon my retirement in January, Brad Beckham will be promoted with the position of Chief Executive Officer, and Brent Kirby will be promoted to the role of Company President. Brad and Brent are tremendous leaders who bring world-class ability, experience, and passion to their new roles.

Even more importantly, Brad and Brent are incredible standard bearers of the O’Reilly culture, and I’m very excited about what our future holds under their leadership. Our transition to the operations of the company to Brad and Brent has progressed smoothly and seamlessly, and as a result, today’s earnings call represents my last call as CEO. As such, it is appropriate for me to leave the bulk of our discussion of the third quarter results to Brad, Brent, and Jeremy. But before I turn the call over, I would like to thank our shareholders for their continued confidence in and support of our company during my tenure as CEO. Finally, I’d like to again thank team O’Reilly for your hard-working commitment to our customers. It’s been my absolute honor and privilege to work alongside you for the last 41 years with a front-row seat to see you achieve so many incredible milestones along the road to success for O’Reilly auto parts.

Even though I won’t get to actively participate in the next chapter of our company’s success, I’m still very excited for the many opportunities ahead and look forward to watching our company’s continued growth and future success. I’ll now turn the call over to Brad Beckham. Brad?

Brad Beckham: Thanks, Greg, and good morning, everyone. I would like to begin by congratulating Team O’Reilly on another excellent performance in the third quarter. The ability of our team to deliver continued industry-leading sales performance requires a consistent and intense focus on our culture and the fundamentals of excellent customer service. I would like to thank all of our team members for their hard work, commitment, and dedication to our great company. Now I’d like to walk through the details of our sales performance for the quarter on both the professional and DIY sides of our business. We spoke on our last call to the strong start to the quarter in July, driven in part by extreme heat in many of our markets as we were pleased to see these very strong volumes carry on throughout the quarter.

From a cadence perspective, we saw a similar top-line outperformance in each month of the quarter as compared to both the expectations we built into our plan coming into 2023 and the updated guidance we provided on last quarter’s conference call. As we have discussed throughout 2023, our prior year comparisons get more challenging as we move throughout the back half of the year, and this dynamic was reflected in the cadence of our comparable store sales in the third quarter with our strongest comps for the quarter in July and August. However, on a two-year stacked basis, our performance was much more consistent through the quarter, with September only slightly below the full quarter performance due to a moderation of the hot weather benefit we realized earlier in the quarter.

While we did see outperformance during the quarter in categories impacted by heat, such as cooling and HVAC, we also experienced broad strength and application-specific hard part categories as well as maintenance categories such as oil and filters. These dynamics give us confidence that while we did benefit from weather, it was not the primary driver of our above-expectation results, and the sales we are generating in failure and maintenance categories indicate a healthy level of broad-based consumer demand. Our professional business continues to be the more significant outperformer, and our team was able to deliver another quarter of mid-teens comparable store sales growth in our professional business in the third quarter. This outstanding growth was in line with the professional sales increase we achieved in the second quarter while facing increasingly challenging prior-year comparisons.

We are extremely pleased with our team’s ability to gain share through consistently executing our business model and providing industry-leading value to our professional customers. Our expectation is to continue to grow our share in the professional business as we see plenty of opportunity in both new and existing markets to consolidate the overall DIFM market. Turning to our DIY business, we were pleased to generate solid comparable store sales growth with our top-line growth consistent with the first half of the year, even as we saw an expected moderation in the benefit from inflation. In line with the trends we have seen this year, our DIY comparable store sales growth has been driven primarily by increased average ticket values, however, we were pleased to see positive DIY ticket count comps in the third quarter.

Our teams continue to execute our dual market strategy driving market share growth in our DIY business alongside our robust growth in professional. However, our portion of the total DIY market share in the U.S. is still relatively low, and we see continued DIY growth as a tremendous area of opportunity for our company. Now I would like to provide some color on our average ticket and ticket count performance. Average ticket growth was again in the mid-single digits on a combined basis and was the slightly larger share of our comparable store sales increase. While we are seeing the expected reduced benefit from same-skill inflation as we move throughout the year, our moderation in total average ticket growth has not been as significant due to offsetting strength we have seen from parks complexity and product mix.

Moving forward, we expect a more normalized same-skill inflation benefit, but are confident that future average ticket growth will be supported by increased parks complexity, which has been the primary historical driver of our average ticket. Even though average ticket growth was the larger contributor to our comparable store sales growth, we are very pleased with our ticket count comps, which was the larger contributor to the outperformance versus expectations. Our team’s ability to out-hustle and out-service our competition for this increased traffic volume is paramount to ensuring these share gains translate into repeat business. It has never been more important to ensure that we have highly trained teams of professional parks people supported by superior product availability in every single one of our 6,000 plus stores.

As I finish up our remarks on sales performance in the quarter, I would like to highlight our updated four-year sales guidance. We have increased our four-year comparable store sales guidance to a range of 7%-8% from our previous range of 5%-7% and increased our total sales guidance to a range of $15.7 billion to $15.8 billion. This update is reflective of our year-to-date performance through today’s call, including a solid start to the quarter with October trends in line with how we exited the third quarter. As we finish out 2023, our fourth quarter reflects our most challenging comparisons of the year, as we lapped the 9% comparable store sales increase in the fourth quarter last year and expect to see a fully normalized same SKU benefit.

Our outlook for the remainder of the year is consistent with the guidance we have maintained throughout 2023. While we have been very pleased with the degree to which our performance has outpaced our expectations in the first nine months of 2023, we are always cautious as we approach the last few months of the year, which historically can be volatile due to variability in winter weather and pressures consumers can face during the holiday shopping season. As a reminder, our prior year comparisons are the most challenging in December as we benefited from broad-based strength in weather-related categories at the end of 2022. Against this backdrop, we maintain a positive outlook on the fundamentals of our industry. We are confident that the key demand drivers for the aftermarket, including steady recovery and miles driven and a very favorable U.S. vehicle fleet dynamics, are in place to support steady growth moving forward.

We also believe that our customers have remained resilient and are continuing to prioritize the maintenance of their existing vehicles in order to avoid taking on a payment for a higher priced, newer vehicle. As you have heard from me already today, we see lots of opportunities in our markets to grow faster than the industry. Our team is charged up by the results we are seeing from our solid execution of the basic fundamentals of our business that translate to success. Next, I would like to take some time to discuss our SG&A performance in the quarter. SG&A, as a percentage of sales, was 30.1 percent, a deleverage of 29 basis points from the third quarter of 2022, driven by an increase in SG&A per store of approximately 8.5% . Our SG&A growth in the third quarter was above our expectations, so I want to provide some additional color on what drove the results in the third quarter.

As we saw in the first half of 2023, the majority of our outside year-over-year SG&A growth as compared to our historical growth rates was the result of planned investments and initiatives targeted at enhancing our long-term operational strength. Our spend on these items was largely in line with our expectations coming into the quarter, and we remain pleased with the positive impact we are generating by reinvesting in our stores, technology, and most important, in Team O’Reilly. While these initiatives continue to play out as planned, our total SG&A dollar spend per store in the third quarter was higher than we expected coming into the quarter. This was driven by incremental costs necessary to support our significant comparable store sales outperformance, but which also resulted in better leverage of SG&A expenses than we saw in the second quarter.

Our focus remains on relentlessly pursuing the excellent customer service that strengthens the long-term relationship we have with our customers, and we will continue to be aggressive where we see opportunities to accelerate top-line growth and, in turn, create leverage over sales increase we achieved in the second quarter while facing increasingly challenging prior year comparisons. We are extremely pleased with our team’s ability to gain share through consistently executing our business model and providing industry-leading value to our professional customers. Our expectation is to continue to grow our share in the professional business as we see plenty of opportunity in both new and existing markets to consolidate the overall DIFM market.

Turning to our DIY business we were pleased to generate solid comparable store sales growth with our top-line growth consistent with the first half of the year even as we saw an expected moderation in the benefit from inflation. In line with the trends we have seen this year our DIY comparable store sales growth has been driven primarily by increased average ticket values however we were pleased to see positive DIY ticket count comps in the third quarter. Our teams continue to execute our dual market strategy driving market share growth in our DIY business alongside our robust growth in professional however our portion of the total DIY market share in the U.S. is still relatively low and we see continued DIY growth as a tremendous area of opportunity for our company.

Now I would like to provide some color on our average ticket and ticket count performance. Average ticket growth was again in the mid-single digits on a combined basis and was slightly larger was the slightly larger share of our comparable store sales increase. While we are seeing the expected reduced benefit from same-skill inflation as we move throughout the year our moderation in total average ticket growth has not been as significant due to offsetting strength we have seen from parks complexity and product mix. Moving forward we expect a more normalized same-skill inflation benefit but are confident that future average ticket growth will be supported by increased parks complexity which has been the primary historical driver of our average ticket.

Even though average ticket growth was the larger contributor to our comparable store sales growth we are very pleased with our ticket count comps which was the larger contributor to the outperformance versus expectations. Our team’s ability to out hustle and out service our competition for this increase traffic volume is paramount to ensuring these share gains translate into repeat business. It has never been more important to ensure that we have highly trained teams of professional parks people supported by superior product availability in every single one of our 6,000 plus stores. As I finish up our remarks on sales performance in the quarter I would like to highlight our updated four-year sales guidance. We have increased our full-year comparable store sales guidance to a range of 7% to 8% from our previous range of 5% to 7% and increased our total sales guidance to a range of $15.7 billion to $15.8 billion dollars.

This update is reflective of our year-to-date performance through today’s call including a solid start to the quarter with October trends in line with how we exited the third quarter. As we finish out 2023 our fourth quarter reflects our most challenging comparisons of the year as we lap the 9% comparable store sales increase in the fourth quarter last year and expect to see a fully normalized same skew benefit. Our outlook for the remainder of the year is consistent with the guidance we have maintained throughout 2023. While we’ve been very pleased with the degree to which our performance has outpaced our expectations in the first nine months of 2023 we are always cautious as we approach the last few months of the year which historically can be volatile due to variability in winter weather and pressures consumers can face during the holiday shopping season.

As a reminder our prior year comparisons are the most challenging in December as we benefited from broad base strength in weather related categories at the end of 2022. Against this backdrop we maintain a positive outlook on the fundamentals of our industry. We are confident that the key demand drivers for the aftermarket including steady recovery and miles driven and a very favorable U.S. vehicle fleet dynamics are in place to support steady growth moving forward. We also believe that our customers have remained resilient and are continuing to prioritize the maintenance of their existing vehicles in order to avoid taking on a payment for a higher priced newer vehicle. As you have heard from me already today we see lots of opportunities in our markets to grow faster than the industry.

Our team is charged up by the results we are seeing from our solid execution of the basic fundamentals of our business that translate to success. Next I would like to take some time to discuss our SG&A performance in the quarter. SG&A as a percentage of sales was 30.1% a deleverage of 29 basis points from the third quarter of 2022 driven by an increase in SG&A per store of approximately 8.5%. Our SG&A growth in the third quarter was above our expectations so I want to provide some additional color on what drove the results in the third quarter. As we saw in the first half of 2023 the majority of our outsize year over year SG&A growth as compared to our historical growth rates was the result of planned investments and initiatives targeted at enhancing our long-term operational strength.

Our spend on these items was largely in line with our expectations coming into the quarter and we remain pleased with the positive impact we are generating by reinvesting in our strength. Investing in our stores technology and most important in team O’Reilly. While these initiatives continue to play out as planned our total SG&A dollar spend per store in the third quarter was higher than we expected coming into the quarter. This was driven by incremental cost necessary to support our significant comparable store sales outperformance but which also resulted in better leverage of SG&A expenses than we saw in the second quarter. Our focus remains on relentlessly pursuing the excellent customer service that strengthens the long-term relationship we have with our customers and we will continue to be aggressive where we see opportunities to accelerate top-line growth and in turn create leverage over time driving long-term returns.

Based on our results in the third quarter and expectations for the remainder of the year we now expect to see SG&A per store increase 7% to 7.5% for the full year. With this increase from prior guidance we still expect our full-year operating margin to come in within the range of 19.8% to 20.3% of sales driven by leverage on our strong top-line results. Expense control remains as important to the O’Reilly culture as it always has and we will be judicious in how we manage our spend to ensure we are seeing long-term results from the investments we make in the business. This focus on profitable growth has drove our 17% increase in third quarter diluted earnings per share. We are updating our full year EPS guidance to $37.80 to $38.30 representing an increase of $0.75 at the midpoint reflecting the strong performance in the third quarter.

Before I turn the call over to Brent I would like to again thank Team O’Reilly for their hard work and dedication to the O’Reilly culture. Greg has been a tremendous leader for our company, an incredible mentor to me, and is a tough act to follow. But I am very excited for the future of our company and our entire team is committed to our company’s continued success. Now I’ll turn the call over to Brent.

Brent Kirby: Thanks Brad. I would like to echo Greg and Brad in congratulating Team O’Reilly on the outstanding performance in the third quarter. The continuation of our strong sales performance and proven ability to outperform the market is a testament to our team’s unwavering commitment to excellent customer service. I want to thank all of our team members for their dedication to our company and to our customers. Now I will cover our third quarter gross margin results, what we are seeing in the competitive environment, and provide some updates on our store and distribution growth, inventory investments, and capital expenditure plans. Starting with gross margin, our third quarter gross margin of 51.4% was 46 basis point increase from the third quarter of 2022 at just above our expected range.

We are pleased with the stability of our gross margin results as our third quarter continued the strong trend we saw in the second quarter. Our gross margin for the third quarter faced pressure from the sustained strong performance in our professional business, creating a customer mix headwind. But we have been able to offset these headwinds through improved acquisition costs and outstanding support from our supplier partners. Pricing to both DIY and professional customers has remained rational within the industry. We continue to see modest inflation in the third quarter and remained very successful in passing along increases in product acquisition costs and other inflationary pressures in selling price. While our quarter to quarter gross margin rate can see normal fluctuations from seasonality in product sales mix and leverage of distribution costs relative to overall volumes, the stability of our results in light of the share gains we are experiencing demonstrates our team’s ability to win share through service and product availability.

As a result of our solid year to date performance, we are maintaining our full year gross margin guidance of 50.8% to 51.3% but would now expect to come in within the top half of this range. Inventory per store finished the quarter at $758,000 which was up 4% compared to the beginning of the year. We would now expect our average inventory per store increase to finish the year in a range between our original guidance of 2% growth and the current levels driven by our continued opportunistic investments to support our sales momentum. Our AP-to-inventory ratio at the end of the third quarter was 134% in line with the beginning of the year and slightly better than expectations driven by strong sales volumes and inventory turns. We now expect to finish 2023 at a similar level.

The health of our supply chain and resulting store in stock positioning continues to be a competitive strength, optimizing our assortments across our DC hub and store network while simultaneously partnering with our supplier community to achieve industry leading fill rates is absolutely playing a key role in our exceptional sales results and we continue to regard inventory availability as a critical priority for our business. Alongside the investments we are making in inventory, we also remain focused on leveraging the benefits of the tiered nature of our distribution model. This strategy has been an important aspect of our supply chain for many years and begins with placing distribution centers in large metro areas to provide same-day availability to a wide range of SKUs for our customers.

Strategically located hub stores augment our SKU availability on a more localized basis and represent the very important second tier within our distribution supply chain. We continually evaluate this network including the number location and size of our hub stores to ensure that all our stores have the best access to inventory in their respective markets. Next I would like to discuss our capital investments and expansion opportunities beginning with the investments we are making in our distribution network. As we discussed on last quarter’s call we are very pleased with the successful opening of our Guadalajara Mexico DC in July but are also excited on today’s call to announce two additional expansion projects that we currently have underway.

First our distribution teams are actively working on a relocation of our Atlanta DC which is a large project that will enable expanded more efficient store servicing capabilities within that market as well as providing direct import processing capability within this new facility. This new 690,000 square foot building is expected to be complete by the end of 2024 and will increase the number of stores we can support in this critical market by 100 stores. Next we have an exciting distribution expansion project that is in progress in Stafford Virginia where we have purchased a site and began construction on a large new distribution facility that will service the Washington DC, Maryland and Virginia corridor. The new DC will be approximately 530,000 square feet and our initial plan is to build that capacity to service 350 stores.

We anticipate this distribution center will be open and operational by the middle of 2025 and we could not be more excited about the store development opportunity this provides us in what is largely an untapped market area for O’Reilly today. Our distribution center teams are diligently executing on these projects and are enthusiastically looking forward to further expanding our DC footprint and our industry leading parts availability. Turning to store growth and expansion, we successfully opened 40 stores during the third quarter bringing our year-to-date total to 140 net new store openings for 2023. Our team is confident we will achieve the goal of 180 to 190 net new store openings for 2023. As we noted in our press release yesterday we announced our 2024 new store opening target of 190 to 200 net new store openings.

Our strong new store performance continues to prove that our investments in both new stores and the necessary distribution infrastructure to support those stores is an attractive use of capital. Total capital expenditures for the first nine months of 2023 were $754 million, a considerable increase over prior year but reflective of the attractive opportunities we see to deploy capital against projects and initiatives to drive long-term growth and enhance our competitive positioning. Included within our press release yesterday was an update to our full-year capital expenditure guidance to a range of $900 million to $950 million from the previous range of $750 million to $800 million. The primary driver of this increase was the progress that we have made on the new Virginia Distribution Expansion Project as well as a higher mix of owned new stores and the pace of investment in technology and store infrastructure initiatives.

To close my comments I want to once again thank Team O’Reilly for their hard work and continued dedication to our customers. Now I will turn the call over to Jeremy.

Jeremy Fletcher: Thanks Brent. I would also like to thank Team O’Reilly for their continued hard work and outstanding performance in the third quarter. Now we will cover some additional details on our third quarter results and guidance for the remainder of 2023. For the quarter sales increased $405 million driven by an 8.7% increase in comparable store sales and a $78 million non-comp contribution from stores opened in 2022 and 2023 that have not yet entered the comp base. Our third quarter effective tax rate was 23.2% of pre-tax income comprised of a base rate of 24.3% reduced by a 1.1% benefit from share-based compensation with both of the components of our rate in line with the third quarter of 2022. Our third quarter base tax rate was in line with our expectations with the total effective tax rate below our expectations due to higher than planned benefits from share-based compensation.

For the full year of 2023 we continue to expect an effective tax rate of 22.5% comprised of a base rate of 23.4% reduced by a benefit of 0.9% from share-based compensation. Our fourth quarter effective tax rate is expected to be lower than the other three quarters due to the tolling of certain tax periods. Variations in the tax benefit from share-based compensation can create fluctuations in our quarterly tax rate. Now we will move on to free cash flow and the components that drove our results. Free cash flow for the first nine months of 2023 was $1.7 billion versus $1.9 billion in the same period in 2022. The reduction was the result of the increase in capital expenditures Brent discussed in his remarks as well as a lower working capital benefit from reduction in net inventory this year versus 2022.

These headwinds were partially offset by growth in income and a benefit from favorable timing of tax payments and disbursements for renewable energy tax credits. For 2023 we continue to expect free cash flow at a range of $1.9 billion to $2.2 billion with an increase in expected cash flow from operations offsetting the increase to our CAPEX guidance. Moving on to that we finished the third quarter with an adjusted debt to EBITDA ratio of 1.93 times which is up compared to our end of 2022 ratio of 1.84 times. The increase in total indebtedness was comprised of borrowings under our commercial paper program which we successfully launched in the third quarter. We continue to be below our leverage target at 2.5 times in plan to prudently approach that number over time.

We continue to be pleased with the execution of our share repurchase program and during the third quarter we repurchased 852,000 shares at an average share price of $938.11 for total investment of $800 million. Year-to-date through our press release yesterday we repurchased 3.4 million shares at an average share price of $879.74 for a total investment of $3 billion. We remain very confident that the average repurchase price inclusive of the current excess tax cost is supported by the discounted expected future cash flows of our business and we continue to view our buyback program as an effective means of returning capital excess capital to our shareholders. As a reminder the updated EPS guidance outlined by Brad earlier includes the impact of shares repurchased through this call but does not include any additional share repurchases.

Finally before I open up our call to your questions I would like to again thank the O’Reilly, the entire O’Reilly team for their continued dedication to the company’s long-term success. This concludes our prepared comments. At this time, I would like to ask Collie, the operator, to return to the line and we will be happy to answer your questions.

See also 15 Easiest Smartphones to Use for Seniors and the Elderly and 20 States with the Highest Alcohol and Beer Tax.

Q&A Session

Operator: Thank you. We will now begin the question and answer session. [Operator Instructions] Our first question for today is coming from Michael Lasser at UBS.

Michael Lasser: Good morning. Thanks a lot for taking my question. Your guidance, implied guidance for the fourth quarter implies a significant slowdown in the business. Outside of the uncertainty associated with the weather and the holidays, is there anything that you would point to that would have influenced such a slowdown or deceleration in the performance of the comp?

Brad Beckham: Good morning, Michael. It’s Brad. I’ll take a stab at that and see what the other guys want to follow up with. Great question. As you know, Michael, I think generally speaking directly to your question, the answer is not really. As you know, as we always say, the fourth quarter can be the most volatile from the weather standpoint, from the holidays. I think the key is just to remind you what I said earlier that we feel really good about how October is going so far. Generally the first few weeks of the quarter have been very consistent with what we saw with the exit rate, especially from a two- and three-year stack basis. But we still have almost half the quarter to go. December is a huge comparison. And we just want to make sure that we’re just being cautious overall. But generally speaking, we’re really happy with the way volumes are holding up and really excited to do everything we can to finish the quarter strong here.

Jeremy Fletcher: Yes. Maybe, Michael, the only thing I would add is just the characterization of a significant slowdown in our business. We’ve really spoken all year to just the timing of how that one-year comp is going to look as comparisons just naturally get more challenging as we move through the year. While there is some time left in the quarter and we’ve been pleased with our performance all year long, what we’re anticipating as we finish out the year is pretty consistent with where we’ve been. It’s not reflective of anything that we’re seeing when we think about our sales from a week-to-week volume, understanding the seasonality of the business as we move into the fourth quarter. Unfortunately, we’re going to have to begin some really tough compares, but that’s also a good spot to be in, and really nothing has changed in how we think about the current pace of the business.

Michael Lasser: I got you. For O’Reilly, tough compares is a way of life, but that’s okay. My second question is on the outlook for SG&A spending. It’s obvious that the returns on the investments that you’re making have been quite productive in light of the market share that O’Reilly has been achieving. Would you expect a similar rate of SG&A dollar growth on a per-store basis moving through 2024? Are there opportunities to invest such significant amounts that would generate similar returns? Thank you.

Jeremy Fletcher: Thanks, Michael. Another good question there. As we’ve said, we’re extremely pleased with the returns we’ve seen from investing back in the business. As you know, there’s a big difference for us at O’Reilly between investments and judiciously managing our expenses. Like I said earlier, expense control is a huge part of what we do. We never like to delever, except in the case of this year, when we know that we were playing from a position of strength and we knew there were some areas that are really just paying off. We’re very happy with the ROI we’ve seen on all our initiatives where we re-invested back in the business this year. As you know, a lot of that is some catch up from COVID, the years of COVID, and everything that we wanted to spend that we didn’t quite get to.

Michael, honestly, we’re in the middle of working on our plan for 2024. That always starts with the top line number, and then we back into what we feel like is the right thing to do for short, mid, and long-term, especially when it comes to those mid and long-term returns. We look forward to talking about our plan in February ’24, but we just want to be careful talking about ’24 just yet.

Michael Lasser: I understood. Good luck to Greg Johnson. Thank you so much.

Jeremy Fletcher: Thanks, Michael.

Operator: Your next question is coming from Brett Jordan from Jeffries.

Brett Jordan: Hey, good morning, guys.

Jeremy Fletcher: Good morning, Brett.

Brad Beckham: Good morning Brett.

Brett Jordan: As you guys continue to gain market share in the space, could you talk a little bit about where you’re seeing both that coming from smaller DIFM independence or national accounts, and then, I guess, obviously, it’s got to be a shared donor as well, so is that also the smaller WDs that you’re picking up from, or are things changing in market share relative to larger peers?

Jeremy Fletcher: Hey, thanks, Brett. Another good question. Honestly, Brett, you’ve heard us say for a long time, it’s always hard to tell all the moving pieces. We have extreme respect. We take all our competitors extremely seriously, the big four, the independence. We have tough, tough competitors on both the DIY and the professional side of the business. We spend our time focusing on we’re our own worst competitor, meaning that we always have execution opportunities. We always have areas to get better. Honestly, to try to answer your question the best I can, we feel like it’s a little bit of all the above. We feel like that everything from store operations, execution, service levels, continuing to work on our retention and turnover, got a brag on our supply chain team, continued improvements with our product availability, our assortments, and just really getting away from the COVID hangover, so to speak, when it comes to our supply chain, Brent and the entire supply chain team have done just an incredible job.

But generally speaking, I think it’s a little bit of everything you mentioned. I think pretty broad based from a customer standpoint, and we think it’s probably fairly broad based from where it could be potentially coming from from a competitor aspect as well.

Brett Jordan: Okay. I guess sort of a follow up to that. Now you’re saying there’s such big dispersion between execution on the distribution side. Are there any increased M&A opportunities, either large regional distributors that are private that you sort of see to maybe fill in some of that geographic white space you have out there around sort of between the Midwest and those Virginia DC?

Jeremy Fletcher: Yes. Sure. I’ll lead that off and then let Brent hit on kind of the first part of your question there. I’ll just speak maybe to the M&A opportunities, as you know, we’re always looking for opportunities when it comes to Greenfield expansion, but also strategic acquisitions that make a lot of sense from acquiring not only real estate and locations, but great teams of parts people that understand the professional side of the business and teaching those type companies how to be a dual market company. And so we’re hopeful that maybe as things evolve the next year or two, valuations and things like that could look a little bit more attractive than they have the last couple of years, but still a bit hard to say, but absolutely, we’re always looking at the one store deals, the our job or customers that we still have that potentially don’t have an exit plan, one store deals, two store deals all the way up to some of the regional things.