Greg Johnson
Chief Executive Officer and Co-President at O'Reilly Automotive
Thanks, Tom. Good morning, everyone, and welcome to the O'Reilly Auto Parts Second Quarter Conference Call. Participating on the call with me this morning are Jeff Shaw, our Chief Operating Officer and Co-President; and Tom McFall, our Chief Financial Officer. Greg Henslee, our Executive Chairman; and David O'Reilly, our Executive Vice Chairman, are also present on the call. I would also like to welcome Brad Beckham, our Executive Vice President of Store Operations and Sales, who is joining us for his first call. I'd like to begin our call today by expressing my gratitude to Team O'Reilly for the hard work you've put into delivering yet another outstanding performance this quarter. We don't take for granted the exceptional results you generated in the second quarter nor the high level of execution required every day to produce these results. So thank you, Team O'Reilly for continuing to demonstrate why you are the best in the business. Our second quarter results were headlined by a robust 9.9% increase in comparable store sales and a 17% increase in diluted earnings per share. These results are especially impressive as they were achieved on top of a 16.2% comparable store sales growth and 57% increase in diluted earnings per share we delivered in the second quarter of last year. Over the past five quarters, since the onset of the pandemic, we have grown earnings per share an average of 44% per quarter, and this is truly remarkable performance. And this truly remarkable performance was achieved through our team's selfless dedication and focus on safety while at the same time providing excellent customer service. Congratulations Team O'Reilly on another exceptional quarter.
Before we dive into our results, I'd like to take a moment to extend my congratulations to Jeff Shaw, our Chief Operating Officer and Co-President, on his upcoming retirement. As we noted in yesterday's press release, Jeff has decided to retire in early 2022 after more than 33 years of dedicated service to the company and his fellow team members. Jeff is an incredible leader and mentor and passionate about providing consistent, excellent customer service. His career track is a prime example of our company's promote from within philosophy. Having begun his O'Reilly tenure as a parts specialist on the counter, he has grown his career by being a key contributor to our company's tremendous growth. Throughout his career progression to Chief Operating Officer and Co-President, he has consistently championed our promote from within philosophy and has served as a mentor to many of O'Reilly's current senior leadership team. Jeff has earned the gratitude of all of Team O'Reilly for his incredible contributions to our company's success, and we wish him a very happy and well-deserved retirement. Thanks to Jeff's keen focus on succession planning, we're very pleased to announce Brad Beckham, O'Reilly's Executive Vice President of Operation -- Store Operations and Sales, will step into the Executive Vice President and Chief Operating Officer role upon Jeff's retirement. Brad has been an O'Reilly team member for over 24 years, and his career progression mirrors much of Jeff's having also started his O'Reilly career as a part specialist. Brad is an exceptional leader who shares Jeff's passion for providing excellent customer service and investing in our team members, and I'm confident he will continue to lead our company to success well into the future.
Now I'd like to address the quarter's results and start by providing some color on our exceptional sales performance. Our second quarter comparable store sales growth of 9.9% and our second quarter 2-year comparable store sales stack of 26.1% greatly surpassed our expectations for the quarter as we continue to maximize the benefits from the robust broad-based industry trends we've experienced over the last several quarters, coupled with a favorable weather environment and the benefit of government stimulus. As noted on our first quarter call, the last round of government stimulus payments started to be distributed in mid-March, at which point the sales volumes accelerated meaningfully. This growth continued in April before moderating at the end of April to a level of consistently strong sales volumes that carried through May and June, which was well above our expectations. These volumes translated into positive comps every month of the quarter, which was impressive in light of the extremely strong compares we faced in May and June of 2020. These better-than-expected sales volumes have continued thus far in July, and we have been pleased with the durable nature of strong sales volumes we have been able to achieve. Robust comparable store sales results we generated have been underpinned by significant contributions from both the DIY and professional business. We posted positive comps for DIY and professional in the quarter comprised of both ticket count comp and average ticket comp growth. The professional business was the larger contributor to the comparable store sales increase for the quarter, having faced softer comparisons on this side of the business resulting from a more gradual recovery last year from the initial pandemic impact.
We faced tougher comparisons on the DIY side, but we're very pleased with the performance in our DIY business as we calendar the exceptional sales volumes from last year. While both sides of our business exceeded our expectations for the quarter, our DIY business was responsible for producing the greater outperformance as compared to our expectations. Same SKU inflation increased to slightly over 2% for the quarter, up from the 1.5% we experienced last quarter. We now anticipate we'll see additional larger increases in same SKU inflation as we progress through the year. But the ultimate extent of the impact will be determined by the duration of pressures to pricing levels from cost increases in wage rates, freight and raw materials. We anticipate the benefit to our top line sales results we partially offset as rising prices will likely cause some economically challenged customers to defer noncritical maintenance or trade down on the product value spectrum. Finally, on a category basis, we saw broad-based robust sales trends across all categories with especially strong performance in undercar hard part categories and weather-related categories. As we disclosed in our earnings release yesterday, we are increasing our full year comparable store sales guidance to a range of 5% to 7% from our previous range of 1% to 3%. Included in this upward revision is our year-to-date performance as well as our continued strong performance to date in July.
As we move into the back half of the year, we continue to face strong compares to the prior year. And while we have a constructive view of the demand -- sorry, a constructive view of the demand backdrop for our industry, we remain cautious as significant uncertainty remains surrounding the continued progression of the pandemic recovery as well as the expected end of additional federal unemployment benefits in all states. Regardless of the uncertainties we face, we will continue to execute our proven business model and are extremely confident in our team's ability to drive further share gains moving forward. The tremendous rapid growth in our business has given us the opportunity to earn many new O'Reilly customers and the outstanding customer service they've received will be the key to earning the repeat business. Turning to gross margin. For the second quarter, our gross margin of 52.7% was a 26 basis point decrease from the second quarter 2020 gross margin. This was in line with our expectations as we anticipated headwinds from DIY versus professional total sales mix and higher distribution costs compared to the second quarter of last year. For the full year 2021, we are maintaining our gross margin guidance of 52.2% to 52.7%. While we are above the midpoint of our full year guidance through the first half, we expect to see pressure from certain transitory distribution costs in the back half of the year. Our distribution infrastructure is facing inefficiencies due to the massive sales spike over the last five quarters, the difficult labor environment and global logistics challenges. We continue to view our distribution network as a key competitive advantage that supports our industry-leading parts availability, and are steadfastly committed to protecting and enhancing this advantage.
To this end, we have adjusted our near-term cost expectations to match the deliberate steps we are taking to ensure the highest possible distribution service levels and further deliver on our strategic inventory initiatives. Simply put, our dedicated supplier partners and extraordinarily hard-working distribution center team members have done an amazing job to support the surge in our sales volume and we remain committed to deliver excellent customer service as we navigate these transitory pressures. Before handing the call off to Jeff, I'd like to highlight our second quarter earnings per share of 17% to $8.33 with a year-to-date increase of 39% to $15.39. Our second quarter earnings per share results represents a 36% two-year compounded quarterly growth rate, and I'd once again like to congratulate and thank Team O'Reilly for delivering another quarter of exceptional performance. We are raising our full year earnings per share guidance to $26.80 to $27.00 an increase of $2.05, which at the midpoint now represents an increase of over 14% compared to 2020 and a 2-year compounded annual growth rate of 23%. This increase in full year guidance, driven by our strong year-to-date sales results combined with excellent operating profit flow-through, which Jeff will provide more details on here shortly. As a reminder, our EPS guidance includes the impact of shares repurchased through the call but does not include any additional share repurchases. To conclude my comments, I want to express my confidence in the long-term strength of our industry as consumers continue to value investments in the care and maintenance of their vehicles and O'Reilly will be well positioned to meet those needs in the future. I also want to again extend my deepest thanks to our team for their commitment to our culture, fellow team members and our customers. Team O'Reilly, I'm proud of your continued outstanding performance, and I look forward to what we will accomplish on the road ahead.
I'll now turn the call over to Jeff Shaw. Jeff?