Greg Johnson
President & Chief Executive Officer at O'Reilly Automotive
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 Brad Beckham, our Chief Operating Officer; and Jeremy Fletcher, our Chief Financial Officer. Brent Kirby, our Chief Supply Chain 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 our call today by thanking Team O'Reilly for your hard work and commitment to providing excellent customer service which drove our strong results in the third quarter. Our quarterly results were highlighted by a 7.6% increase in comparable store sales resulting in an impressive two and three-year comp sales stack of 14.3% and 31.2% respectively.
Before we walk through the details of our performance and our prepared comments I want to begin the call today by acknowledging all of those affected by Hurricane Ian. On behalf of all of Team O'Reilly, I wanted to express our greatest sympathies for the devastation and loss being felt by so many families in the regions impacted by the hurricane.
As a company, we were very fortunate to have incurred only limited damage and our teams were simply incredible in their rapid response to the recovery from the storm. I am always extremely proud of the way Team O'Reilly shines during these challenging times and we are all incredibly appreciative of how our team members once again stepped up in the aftermath of Hurricane Ian to serve their communities with critical supplies necessary in the recovery efforts. Thank you to each of our over 84,000 team members for living our culture of excellent customer service so well, for truly being the friendliest parts store in town and producing the outstanding results we will discuss today.
Now, I'd like to turn to our comparable store sales performance and provide some color on what we saw on both sides of our business as we move through the quarter. We started the quarter in July with improving volume trends, driven in part by warm weather across many of our markets and we're pleased to see these trends continue through the quarter with positive comparable store sales growth on both the DIY and professional side of the business, each month of the quarter.
Our sales volumes accelerated, as we moved through the quarter and exceeded the guidance we communicated on our second quarter call. On a three-year stack basis, our comparable store sales were strong each month, with September finishing as the strongest month of the quarter. Our professional business again outperformed in the third quarter, producing double-digit comparable store sales growth on robust growth in both ticket counts and average ticket size.
Our third quarter professional comparable store sales growth was a continuation of the strength we saw in the second quarter, with the continued benefit from average ticket growth supplemented by accelerating ticket count gains and we're very pleased to see the strong durable nature of our professional sales volume. We're very excited about the momentum we've seen in our professional business and remain highly confident in our competitive advantages in customer service and inventory availability on this side of our business. We expect to continue to consolidate the industry and grow our professional share and our team is highly motivated to outperform the competition in all of our market areas.
Shifting to the DIY business; we were pleased to generate positive results in the third quarter against extremely difficult two and three-year comparisons, reversing the trend of pressure to DIY sales in the first half of the year and outperforming our guidance forecast. As I previously noted, our DIY business was positive each month of the quarter, with comparable store sales increases, driven by growth in average ticket, being partially offset by anticipated traffic pressures, with both metrics outperforming our expectations for the quarter. We saw improvement in ticket counts on the DIY side, as we progress through the quarter, while calendaring very challenging prior year comparisons and we are pleased to see the resilience in our DIY customer base, in spite of continued pressure from broad-based inflation.
Although the professional side of our business continues to be the stronger performer, the improvement in our DIY business was the larger driver in surpassing our expectations for the third quarter. In total, our combined DIY and professional comparable store sales growth was again driven by strength in average ticket which was approximately 10% on both sides of the business and consistent with what we saw in the second quarter.
Same-SKU inflation benefit in the third quarter, were also consistent with the second quarter levels, coming in at similar levels to our average ticket increases which was above our expectations. In the third quarter, we began to anniversary the acceleration of higher inflation in 2021. However, we did not see as much moderation as originally expected in this benefit on a year-over-year basis. We have continued to experience increases in product acquisition and operating costs that we are passing through in selling price increases. Pricing in our industry remains rational and we continue to be pleased with our ability to pass through cost increases but also maintain an element of caution, as our consumers face persistent inflation across the economy, that could result in traffic headwinds for our business.
From a category standpoint, we saw broad-based support across our business including strength in the categories that normally benefit from summer heat, as we experienced warm temperatures at the beginning of the quarter. However, the benefit in weather-related categories was modest in relationship to our total business and as such, we do not view weather as a significant contributor to our outperformance in the quarter. From a regional perspective, our performance was fairly consistent across our market areas, with widespread outperformance versus our expectations as we move through the quarter.
Now, I'd like to turn to our updated sales guidance and industry outlook. As noted in our press release yesterday, we have updated our full year comparable store sales guidance to a range to 4.5% to 5.5%. This increase in our expectations for the full year is primarily a result of updating for third quarter performance.
Looking ahead to the fourth quarter, we are pleased to see the volume trends we have experienced thus far in October which have been in line with our third quarter results. We have seen sustained resilience in consumer demand but remain cautious as we face continued broad-based inflation, the upcoming holiday season and spending pressures that places on consumers and weather dynamics that can vary significantly for the remainder of the year. While gas prices have retreated from the peaks we experienced in June, providing some level of relief to many consumers, we recognize that current fuel prices remain very volatile and well-above where we started the year as well as this time last year.
It is important to note that the fact these factors can influence demand in the short-term such as fuel price spikes, weather and economic uncertainty can be distinguished from the long-term fundamental drivers of demand in our industry. We continue to be confident in the health of the automotive aftermarket, supported by steady recovery in miles driven and very favorable US vehicle fleet dynamics. We still view our customer base as healthy and believe consumers are in a stronger position now than in recent periods of economic uncertainty with continued support from strong employment and wage growth.
Consumers continue to be able to capitalize on the strong value proposition of investing in their existing vehicles at higher and higher mileages as a result of the increasing quality of manufacturing and engineering vehicles on the road. We expect for demand in our industry to remain resilient as consumers who are facing high inflation and economic uncertainty, prioritize the maintenance of their existing vehicles in order to avoid taking on a payment for a higher price than newer vehicle.
Now, turning to gross margin. For the third quarter, our gross margin of 50.9% was 132 basis point decrease from the third quarter 2021 gross margin but in line with our guidance expectations. Our year-over-year margin continues to be primarily impacted by the rollout of our professional price initiative, combined with pressures from a reduced LIFO benefit which Jeremy will discuss in more details in his prepared comments and a faster growth of our professional business. After incorporating our third quarter results, we continue to expect full year gross margin to be in the range of 50.8% to 51.3%.
Our team worked relentlessly to translate to strong top line results into outstanding earnings per share growth with third quarter diluted EPS increasing to $9.17, a 14% increase over a strong comparison in 2021. While the year-over-year increase is impressive alone on a three-year compounded basis compared to 2019, our third quarter EPS increased 22% per year, highlighting our team's ability to deliver consistent profitable growth through executing our business model regardless of the tough comparisons we have faced. We are increasing our full year 2022 EPS guidance to $32.35 to $32.85, reflecting our year-to-date results and fourth quarter expectations. As a reminder, our EPS guidance includes the impact of shares repurchased through this call but does not include any additional shares.
To wrap up my comments, I want to again thank Team O'Reilly for never backing down from a challenge and providing consistent excellent customer service to our customers each and every day. It is your commitment to our culture, your fellow team members and our customers that drives our success and makes you the best team in the business.
I'll now turn the call over to Brad Beckham. Brad?