Brad Beckham: Hi. Good morning Mike, it’s Brad. I will take a stab at that. So, maybe just to answer your question directly on the NAICS data, we, in our business, at least at O’Reilly, have never been able to tie that out exactly to correlate the way that some do. Not to say directionally, there is not something there. But we haven’t seen anything change in the competitive dynamic as we look at our performance in Q4 by month. I – Mike, I spent a lot of time just looking at the outputs from our CRM tool that our sales team has out in the field. And listen, those independent competitors that you know very well, I mean they are incredibly well run. We have a tremendous amount of respect for those WDs, the independents, the two steppers.
They do an incredible job. And they are honestly our toughest competitor and they hold the most market share when we look at the total addressable market on the professional side of our business, that they are great competitors. That said, there has been nothing that we see that has pointed to anything that has been a step change or anything different, but they were tough all year last year, and they continue to be tough in Q4. And so I wouldn’t tie that directly to what you are seeing in that data, we just really aren’t seeing that.
Brent Kirby: Mike, this is Brent. I would add to everything Brad said. I would also add that we continue to see a very rational pricing environment out there amongst the competition and as it relates to our ability to continue to win when it comes down to professional parts people and parts availability and service, we feel very good with our proposition going forward.
Mike Baker: Okay. That makes sense. One – another follow-up to something you said. You talked about the operating profit pressure to be a little bit greater in the first half, but gross margin is relatively consistent and comps relatively consistent. So, presumably, the SG&A is a little bit higher in the first half. Is that just timing of when you are adding some investments or more store labor in the first half of the year versus second half? Just curious what would cause that to occur?
Jeremy Fletcher: No, Mike, it’s really a little bit more of the impact of the investments we made throughout 2023, and especially as those – some of those capital investments, thinking about things like the rollout of our store fleet or our ability to get all the way through all of our stores with our LED lighting upgrade. The timing of how those investments flowed in, in the prior year and the depreciation impact of that means that we have got some compare noise that would hit us a little bit heavier in the first part of our year. There is also some degree of timing of some of the technology investments that Brent spoke to, that is the cadence of what that looks like. So, that’s the reason for that, I guess commentary around how we would expect cadence to look.
Mike Baker: Yes. It makes perfect sense. Alright. I appreciate the color. Thank you.
Brad Beckham: Thanks Mike.
Operator: Thank you. Your next question is coming from Michael Lasser from UBS. Your line is live.
Michael Lasser: Good morning. Thank you so much for taking my question. As you set your guidance…
Brad Beckham: Good morning Michael.
Michael Lasser: Good morning. As you set your guidance for 3% to 5% comp growth for the year, what have you assumed about the industry growth rate and your ability to take share within the industry? Have you assumed that essentially you will grow your share at the same rate that you did in 2023?
Brad Beckham: Hi. Good morning Michael, great question. We appreciate it. So, kind of – obviously, we want to balance our confidence in our ability to continue to take share, to continue to out-comp the market in all both sides of the business, not just professional. As I have said earlier, I think maybe Brent and I both did, we see 2024 generally as an overall market as more of a “normal year”. Now, what’s the definition of normal, you look back at the last many years and how much volatility, how much opportunity, how many things have happened, kind of previous to COVID, we generally think that a normal year based upon all our history, all our decades of doing this, that a normal year for the industry is probably more in that 2% to 3% range.
And so I think that ties into kind of what we are saying with our guide. Again, like you know, Michael, we always say we are not very good at predicting the future, and it’s hard to say exactly what the future holds for the industry in 2024. But I think I would generally point you to that kind of 2% to 3% range.
Jeremy Fletcher: Michael, the only thing I would add to that is, if you have to ask the question, do we think our market share gains will be as strong in 2024 as they were in 2023? The answer obviously is no. I mean we comped to 7.9% last year, and we are clearly not guiding to that range this year. We feel like that we still have the same competitive advantages. We really feel like our teams are energized and enthusiastic about the momentum we have created to move forward. But we are continuing to calendar is increasingly hard comps, especially on the professional traffic side of our business. So, that, I think implicit within how we think about the way this year will play out. It’s just our knowledge that we are going to continue to make gains, but we are doing that on a bigger base.
Michael Lasser: Okay. My follow-up question is, Brad, as you begin the tenure of being the CEO of O’Reilly, do you think that the company is at a peak operating margin rate level? And how much within your focus is on continuing to improve the percentage rate of this organization over time, given that there has been a lot of investment spend made over the last few years? Thank you very much.
Brad Beckham: Yes. Thank you so much, Michael. So, as you know, our primary focus, I have been here for 27 years, grew up with the company and our – everything that we do has always started as a company with our mission statement that we are going to be the dominant auto parts supplier in all our market areas. And we always focus on not just the business we have, but what’s out there in the market, total addressable not only for the U.S., but now Mexico and Canada. And so every – we start with that. And then we always have done that profitably, and our goal has always been to drive operating profit dollar growth. And that has not changed. When I think back, Michael, over the last 5 years, I absolutely don’t want to live in the past.
But when you think about the fact that we ended 2019 with an operating profit percentage of 18.9%, ended the year with a 20.3% at 2023, I think that kind of to your question, kind of points to where we are thinking about the future in terms of what I want to make sure we do and what we want to make sure we do is we want to set up for a similar trajectory going forward in the years to come. Not meaning that we are assuring anybody of what our rate is going to be, but we know we can do it through share gains and driving operating profit dollar growth. That’s where our head is at. It’s where it’s always been at. Now, do we have pride in where we have gotten our rate, absolutely, especially since going all the way back to when we bought CSK in 2008, we are extremely prideful of where we have gotten our rate.
And question has always been, hey, what is the right operating profit percentage, and our answer has always been as high as we can possibly get. So, we are going to continue to have that focus. We are going to focus on share gains, doing it profitably and driving that operating profit dollar growth, and we will continue to make sure that we drive that rate as much as we possibly can.
Michael Lasser: Thank you very much.
Brad Beckham: Thanks Michael.
Operator: Thank you. Your next question is coming from Simeon Gutman from Morgan Stanley. Your line is live.
Simeon Gutman: Good afternoon everyone. Brad, we were talking about SG&A earlier. And last year, you spent a little more, and you did get a return. I know it’s not perfectly linked, but it looks like you got to pay off last year. How much debate did you have around maintaining an even higher level of spend? I know there is some tapering, but why not continue to lean in, while there is, call it, displacement going on in the industry behind you?
Brad Beckham: Yes. Hi. Thanks Simeon. I will start that off and see if the guys have anything else. So, yes, I think that’s right. We feel really good. There has been a lot of talk about kind of – we have been asked about catch-up with what we spent this last year. And I think we want to more reframe that to timing because anything that we were “catching up on”, to Brent’s point earlier to one of the other questions, we have a very solid discipline internally here on a return on every amount of spend that we make, whether it would be SG&A, whether it would be CapEx and how those play together between CapEx and OpEx with depreciation. And so we feel really good about the money we spend. We feel really good about the returns.
