Brad Beckham
Co-President at O'Reilly Automotive
Thanks, Greg, and good morning, everyone.
I would like to begin by congratulating Team O'Reilly on another excellent performance in the second quarter. Our continued industry-leading sales performance is the direct result of our team's unwavering commitment to our company's culture of providing excellent customer service, and I would like to thank all of our team members for their hard work and dedication.
Over the last several quarters, our team has generated tremendous momentum in our business, and that strength carried into the second quarter, driving our outstanding top line sales performance. As we've discussed on our last quarter's conference call, we faced some pressure from the timing of spring weather at the end of the first quarter, but our business rebounded with the onset of normal spring weather in April. Those strong sales trends continued throughout the quarter, resulting in our outperformance versus our expectations in each month of the quarter. From a cadence perspective, our results were very steady in each month of the quarter both in absolute terms and as compared to our expectations.
The ability of our team to drive high levels of sustained sales growth month after month is the product of consistent daily execution of our key business fundamentals. And I couldn't be more pleased with how consistently Team O'Reilly has performed in the first half of 2023.
Now I would like to provide additional details on our sales performance in professional and DIY. Our professional business was again the outperformer in the second quarter. Our team delivered a mid-teens comparable store sales increase in our professional business in the quarter with incredibly strong growth coming on top of double-digit professional comps in the second quarter of 2022.
The compounded gains we are seeing on this side of our business reflect a sustained high level of customer service and execution that has allowed us to translate increased sales gains into future business opportunities. Every chance we have with a professional customer to prove our exceptional value gives us the ability to earn the next call and capture even more of that customer's business. As we have seen our business grow over the last few years, our store teams have made the most of these incremental opportunities, and we continue to see runway to leverage our proven business model and execution to gain market share.
Turning to DIY. We continue to be reasonably pleased with this side of our business with our teams delivering steady comparable store sales growth, consistent with our overall trends in the first quarter. As we move past the spring weather volatility we experienced at the end of the first quarter and beginning of the second quarter, our DIY business has been very steady with consistently positive performance in each month of the quarter.
Our comparable store sales increase in our DIY business was driven by increased average ticket values aided by same SKU inflation, but we were also pleased to see flat DIY ticket count comps in the second quarter. Average ticket growth was in the mid-single-digits on a combined basis for both sides of our business and drove the larger share of our comparable store sales increase. However, strength in ticket count comps, especially in our professional business, was the larger contributor to our outperformance versus our expectations. Our average ticket growth was driven primarily by same-SKU inflation, which was in line with our expectations, coupled with a modest benefit from product mix and complexity in our professional business.
As anticipated, same-SKU inflation we realized in the second quarter ticked down from the tailwind we saw in the first quarter. We continue to expect to see this benefit moderate in the back half of 2023 as we lap impact of 2022 price increases. This dynamic was built into our initial guidance expectations and remains unchanged.
To wrap up my comments on sales, I would like to highlight our updated sales guidance and full year outlook. From a macro perspective, we continue to remain bullish on the strength of our industry and prospects for the remainder of 2023. Our customer base has continued to be very resilient and willing to prioritize the maintenance and repair of their existing vehicles in order to avoid taking on a payment for newer, more costly vehicles. While we still maintain an element of caution with regard to the outlook for the overall U.S. economy and the potential for heightened economic pressures, we believe that current market dynamics combine to provide a strong backdrop for demand in our industry.
In light of this backdrop, we are increasing our full year comparable store sales guidance to a range of 5% to 7% from our previous range of 4% to 6% with a corresponding increase in total sales guidance to $15.4 billion to $15.7 billion. This increase reflects our year-to-date performance through today's call. As I've already discussed, we anticipate moderation in our comparable store sales expectations in the back half of the year as we realize less built-in benefit from same SKU increases.
Our expectations also incorporate more challenging ticket count comparisons as we move through the back half of the year. The combined impact of both of these factors is driving the anticipated deceleration in our comparable store sales guidance in the second half of 2023 versus the 9.8% increase we generated in the first six months of 2023. However, our teams remain highly motivated to take share in every market, and we remain diligent in delivering a high level of customer service to accelerate our sales momentum.
Before I move on from sales, I will add that we are pleased to be off to a strong start in the third quarter as we have seen the robust sales trends in the first half of the year continue with incremental strength from the extreme heat in many of our markets in the first few weeks of July.
Now I would like to discuss our second quarter SG&A results, which came in higher than our original expectations for the quarter and were above the long-term growth rate necessary to operate our business model. SG&A as a percentage of sales was 30.3%, a deleverage of 71 basis points from the second quarter of 2022. This deleverage was driven by an increase in SG&A per store of approximately 10%. This heightened level of SG&A was incorporated in part into our initial expectations for 2023 but ultimately came in higher than anticipated driven by a few key factors I will briefly recap.
Coming into 2023, we identified several key initiatives targeted to enhance our long-term operational strength with an intent to capitalize on the considerable momentum we have generated in our business to further separate ourselves from the competition and consolidate the market. We have been pleased with the progress of these initiatives and in a few instances, realized an opportunity to accelerate these investments in the second quarter.
A good example relates to our plans this year to increase our spend on refreshing the image and appearance of our stores, which is targeted at both strategic projects as well as improved general maintenance of our existing facilities. We have sought to return to a new normal post pandemic. We have been -- excuse me, as we have sought to return to a new normal post pandemic, we have been working hard to catch up on deferred maintenance needs of our stores that have unfortunately accumulated over the last couple of years.
As a result, part of our SG&A pressure in the second quarter was driven by going faster than originally planned to address this issue. The image, appearance and shoppability of our stores is incredibly important to our ability to drive DIY traffic, customer satisfaction and in turn share gains over time. We have also seen good traction in our efforts to enhance our team member experience and benefits. Our initiatives here have reaped better-than-expected team member retention but have also contributed to the overall cost of these enhancements, which coupled with the deferred compensation SG&A headwind Jeremy will discuss in a moment, added to our SG&A growth in the quarter.
Outside of these deliberate decisions to enhance our business, we unfortunately also faced pressure during the quarter from a higher-than-expected self-insured auto liability exposure driven by inflation and claim costs. Ultimately, we remain -- we retain control of our most significant driver of our total SG&A spend and the decisions we make around store payroll and appropriate staffing levels within our stores. Ensuring we have the strongest possible team delivering the best customer service in the industry is one of the most important, if not the most important driver of our long-term success.
Our total payroll spend in the second quarter was another contributor to the higher-than-normal SG&A per store increase driven by total head count and staffing levels, coupled with higher incentive compensation with wage rates largely in line with our expectations. As we have discussed often in the past, we manage this key component of our SG&A spend with a long-term focus. As we have continued to see our business accelerate over the last year-plus since exiting the pandemic, we have prioritized ensuring that our stores are delivering a high level of service on both sides of our business.
When we gain share with new and existing customers as we have seen over the last two years, we create an opportunity to prove our industry-leading value proposition as a trusted supplier and in turn earn repeat expanded business. In these situations, we are judicious about how we manage staffing levels to ensure we are delivering the excellent customer service that develops and maintains long-term relationships.
As we look forward to the balance of the year, we now expect to see an SG&A per store increase of approximately 6%, which reflects our first half results and our outlook for the remainder of the year. Implicit in this guidance is our expectation that per store SG&A growth will moderate versus what we have seen in the first half of 2023 even as we continue to pursue strategic initiatives in our business.
We remain highly committed to expense control as a culture value and have set high expectations for the long-term productivity of the investments we're making today. We have a long track record of diligently managing our expenses to match the business conditions we are seeing in our markets, and we will continue to prudently adjust our operating cost structure to drive long-term value in our business. Finally, we still continue to expect our full year operating profit margin to come in within the range of 19.8% to 20.3% of sales.
Before I turn the call over to Brent, I would like to thank our entire team for their unwavering hard work and commitment so far in 2023. I am extremely humbled to have the opportunity to service our next -- our company's next Chief Executive Officer. And I couldn't be more excited to work side by side with our over 88,000 dedicated parts -- professional parts people to provide the best service possible to our customers and in turn drive outstanding performance for years to come.
Now I'll turn the call over to Brent.
