Welcome to the O’Reilly Automotive, Inc. Fourth Quarter and Full Year 2013 Earnings Release Conference Call. My name is Hilda, and I will be your operator for today. [Operator Instructions] . I will now turn the call over to Mr. Tom McFall. Mr. McFall, you may begin.

Thank you, Hilda. Good morning, everyone, and welcome to our conference call. Before I introduce Greg Henslee, our CEO, we have a brief statement. The company claims the protection of the Safe Harbor for forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. You can identify these statements by forward-looking words such as expect, believe, anticipate, should, plan, intend, estimate, project, will or similar words. In addition, statements contained within the earnings release and on this conference call that are not historical facts are forward-looking statements, such as statements discussing, among other things, expected growth, store development, integration and expansion strategy, business strategies, future revenues and future performance. These forward-looking statements are based on estimates, projections, beliefs and assumptions and are not guarantees of future events and results. Such statements are subject to risks, uncertainties and assumptions, including, but not limited to, competition, product demand, the market for auto parts, the economy in general, inflation, consumer debt levels, governmental regulations, the company's increased debt levels, credit ratings on public debt, the company's ability to hire and retain qualified employees, risks associated with the performance of acquired businesses, weather, terrorist activities, war and the threat of war. Actual results may materially differ from anticipated results described or implied in these forward-looking statements. Please refer to the Risk Factors section of the Annual Report on Form 10-K for the year ended December 31, 2012, for additional factors that could materially affect the company's financial performance. These forward-looking statements speak only as of the date they were made, and the company undertakes no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by applicable law. At this time, I'd like to introduce Greg Henslee.

Thanks, Tom. Good morning, everyone, and welcome to the O'Reilly Auto Parts Fourth Quarter Conference Call. Participating on the call with me this morning is, of course, Tom McFall, our Chief Financial Officer; and Jeff Shaw, our Executive Vice President in the Store Operations and Sales. David O'Reilly, our Executive Chairman; and Ted Wise, our Executive Vice President of Expansion are also present. It's my pleasure to report another quarter of industry-leading comparable store sales results, and once again congratulate Team O'Reilly on an outstanding performance, as we finish up a solid 2013 with a very strong fourth quarter. Our team's relentless focused on serving our customers and their proven ability to provide superior value and service drove our fourth quarter comparable store sales increase of 5.4%. These strong results were on top of last year's fourth quarter comparable store sales increase of 4.2%, and exceeded our guidance of 3% to 5%. For the full year of 2013, our team delivered a solid 4.3% increase in comparable store sales, which was higher than the midpoint of our guidance of 3% to 5%. This was the same guidance range we said at the beginning of 2013 and maintained throughout the year, and it says a great deal about the consistent performance Team O'Reilly is able to deliver. Driven by the solid comparable store sales performance, combined with the strong opening of 190 new stores, total sales in 2013 increased 7.6% to $6.6 billion. We are extremely focused on growing sales profitably, and we are especially proud of our team's ability to deliver robust top-line growth, while also improving our operating profit by 79 basis points to a record 16.6% for the year. Our team's long-term commitment to providing consistent, excellent customer service fueled EPS growth of 23% for the fourth quarter,…

Thanks, Greg, and good morning, everyone. I'd like to echo Greg's comments and thank our team members for their hard work and dedication to providing top-notch customer service. Your commitment to building and strengthening relationships with our professional customers allowed us to continue to win share in our core hard parts business, while we were also able to capitalize on the DIY opportunity presented by the early severe winter weather across much of the country to generate a robust 5.4% increase in our comparable store sales. Winter weather that is a favorable for selling parts isn't enough by itself to generate these sales. Our strong performance was a direct result of our store teams' dedication to having our stores open and ready to provide great customer service, no matter how cold it got, how much snow fell, or even if they had power to the store. The positive sales results from the extreme weather also wouldn't be possible without our distribution team's dedication to ship every store nightly to replenish those high-demand winter items. Our strong fourth quarter sales performance, combined with solid expense control, drove 68 basis points of leverage on SG&A. For the quarter, our average per-store SG&A expense increased 1%, which was in line with our expectations and reflected diligent expense control, while still supporting our ability to grow market share with excellent customer service. For the full year, we levered our SG&A by 22 basis points with an average SG&A per store increase of 68 basis points versus the prior year. The average SG&A growth was slightly above our expectations at the beginning of the year of an increase of 0.5% per store. However, we feel we prudently managed our expenses in 2013, and in particular, we're very pleased with the quality of our store teams…

Thanks, Jeff. I'd like to start today by thanking Team O'Reilly for the a great finish to a very successful year. Your continued dedication to providing excellent customer service drives O'Reilly's long-term success. Now we'll take a closer look at our results and add some color to our guidance for 2014. Comparable store sales for the fourth quarter increased 5.4%, which exceeded our guidance of 3% to 5%, and was driven by our continued solid business trends augmented by the early onset of cold winter weather across much of the country, as Greg discussed earlier. For the quarter, sales increased to $133 million, comprised of a $79 million increase in comp store sales, a $54 million increase in non-comp store sales, $1 million increase non-comp, non-store sales, and $1 million decrease from closed doors. This strong sales performance, combined with our relentless focus on expense control, resulted in a 23% increase in diluted earnings per share to $1.40, which exceeded the top end of our fourth quarter guidance range by $0.09. For the year, sales increased $467 million to $6.6 billion, which was a 7.6% increase over the prior year. The increase in sales was driven by our 4.3% full year comparable store sales growth, the addition of 190 new stores and the 56 VIP stores acquired at the end of 2012. As Greg previously stated, we're setting our 2014 full year comparable store sales guidance of 3% to 5%, with total revenue expected in the range of $7 billion to $7.2 billion. For the first quarter, our comparable store sales guidance is 4% to 6%. For the fourth quarter, operating profit as a percent of sales increased to 15.8%, which was an 80 basis point improvement over the prior year. The key contributor to our record of fourth quarter…

[Operator Instructions] Our first question comes from Michael Lasser from UBS.

First, on the industry consolidation. Greg, how are you positioning the organization to best take advantage of any business that you might be able to capitalize on?

Well, really, Michael, we're executing the same business plan that we've always executed. We have adapted to focus on the changing vehicle population in the U.S., which most of the strong players in our business have, that we feel like we've made some solid incremental gains in that area as time has moved along, and we feel like we are in a really good shape right now. We also continue to look at some of the independent jobber business and have taken on some additional independent jobbers as we've moved through the last couple of quarters. And we'll plan to continue to do that. And then as the consolidation that is expected to happen happens, we'll do what we always do to try and drive market share gains in those markets where new 2 stores are turned into 1 or whatever the case maybe. So really, it's just kind of the same thing that we've always done, and that is just try to gain as much market share in each market as we possibly can. And we're looking at this as a potential opportunity for us to maybe accelerate some of those market share gains, as the consolidation happens.

So there hasn't been any proactive reach-out to some of the independents that could be up for grabs to the extent that there is disruption within the industry?

Yes, Mike. What I would say, Michael, is that anyone that sells independent jobbers in the markets where those independent jobbers that are being consolidated exists, they've been touched and talked to by everyone that distributes parts to IJs.

Okay, it sounds a little bit like the sell side and then the buy side, but that's something we can all relate to, I'm sure.

Yes.

The other question I had was on the extreme weather. And how long do you expect the extreme weather that we've seen to have an influence on the industry? And in the past, has there been a case where originally it's more of a DIY benefit and then it moves to more of a DIFM impact as cars need new repairs from all the damage that's taking place?

Here is what I'd say about weather. I think that we're -- one, happy that we've had more normalized, maybe more extreme winter after having a couple of winters of not having very extreme weather. It certainly drives earlier demand with batteries that won't crank the car in cold-weather, antifreeze where people didn't have enough coolant in their -- that cars, and then wiper blades, things like that. And then as roads get damaged, as you know, especially up in the Northeast and some of the real cold weather markets, that's good for us as chassis parts take a beating and then you have the corrosion impacting hub bearings and brakes and things like that. So that's all good longer term. It really applies to both the DIY and the do-it-for-me side, although the DIY is typically not a business that you get benefit from as quickly as you with the do-it-for-me side because people, in many cases, can't work in their cars outside the inclement weather. One thing I want to say about this is that as we have these extreme temperatures, it generally is good for our business. But these winter storms and the impact of some of storms -- you watch the news and you see Atlanta shut down for 2 days where people just kind of hunker down and get insight because it's 0 degrees and below on these markets. That's tough on cars for sure, but it sure doesn't drive short-term demand when people are unable to get out and work in their cars and unwilling to get out and drive to repair shops and things like that. So I think you get some benefit from that later on in the year as people start recovering from the damage that has done to their cars during the winter weather.

Just on that point, the 4% to 6% comp guidance for the first quarter, that includes any disruption that you've seen from the extreme weather as well?

Well, that includes everything has happened to this point. When we give guidance, it's always an estimate as to what -- where we think we'll end up based on kind of what we've experienced so far during the period, and what our comparisons are for the remainder of the period, and then what our estimate is as to what the business will do during that time, then it's an estimate.

Our next question comes from Alan Rifkin from Barclays.

A couple of questions, Greg. With respect to the expansion in South Florida supported by the Lakeland DC, how many of the 200 stores for 2014 will be in South Florida? And how many ultimately do you think you can have in the South Florida market?

Well, Ted, do you have the answer to how many of those will be in Florida?

We got 35 for sure going to be open, and then whatever comes up on the short term this year. So 35-plus this year for sure.

Yes. And we would estimate some more in the 300 area probably for a total in Florida, something like that. And that's somewhat early because we still have a lot of market evaluations to do, especially in the southern part of the state. But that will be an early estimate.

So Greg, it's now been more than 5 years since you've, obviously, very successfully acquired CSK and have grown that business. Is that still contributing more so to the comp? Are those former CSK stores, in other words, still comping above the corporate average? And what would be a good run rate on a per-store basis to assume for revenues?

Well, I'll answer the first part. And I'll let you answer the second part of that. For the year, of course, CSK continues to be a positive contributor to our comp and has been -- is our comp to remainder of the company. During the fourth quarter, the extreme weather in [ph] the central part of the company helped bring that back closer to even with the core O'Reilly -- what we would call core O'Reilly stores, but really it's all of our new stores and the center in the eastern part of the country. Those stores have done well. And then we have a little bit of weather pressure out west with the extreme dry conditions, which affect wiper blades sales, which are a big business out there, as well as the agriculture business there in California, which has really slowed down some with the lack of moisture. So what we saw for the year was that CSK continues to out-comp everything else that we would expect that as we continue to grow our commercial business out in that area, which we've come a long way, that we still have a long way to go. There's still a lot of competitors doing a lot of business that we would like to be doing and we're working to gain market share, we would expect that part of the country to continue to do a little better than the rest. And then Tom, you can answer.

And one last one, if I may. What was the delta with respect to comps between markets that you would classify in the quarter as being impacted by the cold weather?

Well, what we would tell you is that we saw better traffic in the extreme cold weather markets on the DIY side of the business driven by the must-have items: batteries and electrical-type equipment. But that's about as much color as we're going to give on the difference in regions.

The next question comes from Matthew Fassler from Goldman Sachs.

My first question relates to, thinking about 2014, generally speaking. The ticket and margin implications of weather-driven business, to the extent that there is the nice flow-through from the recent weather that lasts into the spring. What does that do to your mix? And does that tend to show up slowly in transactions, that is [ph] , or does the ticket also tend to move with those kinds of transactions?

With the type of repairs that we're talking about where under-car pieces that damage, ride control breaks, we expect to see a higher average ticket on those. Margins on hard parts tend to be pretty good. So we would expect to continue to see an increase in the average ticket and solid gross margins.

And then also batteries, of course, early in the winter where the batteries fail in the extreme cold, those are a big-ticket items, and that positively affects our ticket average.

And then just by way of follow-up, you have, I think, over the past year or more been sort of raising your game in terms of DIY and the level of service and visible service you provide to your customers. I know that that's been an ongoing effort, and perhaps, it's tough to isolate its impact. But any insight on how you think that might be impacting the business would be very helpful.

Well, I think it has been very positive. We've allowed our store operations leaders to increase our mix of part-time team members to better service our customers on nights and weekends. And we really kind of recognize an opportunity on the professional side to better manage the spikes we have and delivery demand out to our professional customers by increasing our part-time workforce a little bit. And even our distribution centers, where we have occasional spikes, we've been able to use part-time people to better support things. So that has been a help. But then also just some of the services that we now provide that we were a little reluctant to a couple of years ago, I think, had been a positive contributor. I think most customers that know us look to us a suppliers that maybe has a little higher level of parts specialists in the store from a professionalism and a parts knowledge perspective, and I think we've really shown them the capabilities we have now as we started agreeing to pull [ph] check engine, write [ph] codes and do the diagnostic analysis in our stores and just do some things to help them. In many cases, those kinds of things end up with us sending a customer to one of our professional service providers to do business with us. But in either case, they appreciate to help in solving the problem.

The next question comes from Scot Ciccarelli from RBC Capital Markets.

As you guys build out your presence in the Northeast and in Florida, does that change your ability to penetrate national commercial accounts, or has that not really been an impediment in the past?

I think we do a really good job on the national accounts. I think that having a presence in every state in the country where some national accounts may have a presence improves our ability, and I think we're more focused on that now than we've ever been. And I think that'll be an opportunity for growth for us as we continue to build out our presence in the Northeast and in South Florida.

And then when you look at the Carquest-Advance combination, Carquest had some existing relationships, Advance maybe has more store coverage than what Carquest had. Does that impact your relationship at all for some of those bigger commercial accounts where Advance maybe wasn't a player beforehand [ph] ?

All these national accounts, there is none of them that are new to any of us. We all call on them and we're -- most of us are on their purchase list. We have --we all have different types of relationships with them relative to rebates and where we may be on the list. But I don't think it has a big impact. I think Carquest was pretty involved with national accounts at the point that the Advance-Carquest thing took place. I think Advance has worked hard to do well on national accounts and they both had a national footprint. So while it could have a minor impact maybe where one or the other didn't have exposure in a certain town to a national account, I wouldn't expect it to really change the game when it comes to national accounts.

Our next question comes from Christopher Horvers from JPMorgan. Christopher Horvers - JP Morgan Chase & Co, Research Division: Want to delve into LIFO. So basically, Tom, the math is, you had roughly, was it 90 basis points of gross margin pressure, and that was roughly, or actually, slightly more than offset by inventory that you actually sold through that you had received better volumes and better pricing on during the quarter?

Correct. Christopher Horvers - JP Morgan Chase & Co, Research Division: And so, as you go forward to next year, is the math as simple as like that 90 basis points of pressure that you had in the fourth quarter ends up being sort of baseline gross margin expansion for next year in the fourth quarter?

Yes, you should be able to calculate the first quarter expected margin and the last 3 quarters of the year to come up with a similar number. On a quarter by quarter basis, there is some minor variations in our POS margin based on mix and advertising and DC leverage, but it's pretty consistent. It should be pretty consistent this year, excluding the first quarter. Christopher Horvers - JP Morgan Chase & Co, Research Division: I got you. I understand. And that's basically that this is comp -- or volume-driven discounts as you'd be -- get larger in spite of mixing towards the commercial side, the volume discounts that you're getting from the vendor base is overwhelming all the pressures, or is it also supply chain as well?

This year when we look at is primarily -- if we look at 2013, primarily acquisition costs and DCs, but primarily acquisition; when we look at '14, our expectation is that the year-over-year increase will be from deals we've already done. So we'll have a little bit of pressure on our distribution cost as we open 3 DCs. Christopher Horvers - JP Morgan Chase & Co, Research Division: And then one last one, as you think about the shift from Easter. Is that basically a 100 basis points in terms of shifting into 1Q from 2Q, and this store closure days that perhaps you had so far quarter to-date offset any of that?

The Easter shift is less than that, I'd say, probably 40 basis points. When we look back to last year's comps at 0.6, the bigger impact was combination of that and twice as much of an impact from leap day in the previous year. I would expect that store closures will not be a meaningful number for us. As Jeff talked about in his call that we do everything we can to get our store open, whether it has power or whether it's running on a generator, we'll transfer phones, but our job is to get those stores open to be there for customers.

The next question comes from Bret Jordan from BB&T Capital Markets. Bret David Jordan - BB&T Capital Markets, Research Division: A couple of quick questions. And one of them, I guess, if you look at direct mix and where we ended 2013, where do you see direct mix in 2014 and sort of what is the impact on gross margin expectations is there?

We're probably around 35% for more private label-imported products, including commodities. That has a positive impact on our gross margin percentage. But from a dollar standpoint, we'd rather sell branded parts. But we feel like we are in a pretty good competitive position on entry-level products.

And you see that changing much in 2014, or is that sort of flatlining?

I think we'd expect to see incremental changes. Every time we do a line review, we look at where we want to be positioned, what customer demand is, but we'd expect to see a pretty consistent mix. Bret David Jordan - BB&T Capital Markets, Research Division: And then if you look at the Devens, Mass DC in Q4, that is 3,000 -- 700,000 (sic) [370,000] square feet. How many stores could that serve in the Northeastern market?

Around 300. Bret David Jordan - BB&T Capital Markets, Research Division: And then one last question. If you could pick up independent jobbers, do those revenues go into comp because they're shipped out of the local store, or are those shipped from DC and don't count in-comp?

Independent are non-comp sales. They ship out of the DC, not out of the store. They would be included on our non-comp non-store sales.

The next question comes from Daniel Hofkin with William Blair & Company. Daniel Hofkin - William Blair & Company L.L.C., Research Division: Just a couple of questions. First of all, as it relates to traffic overall, can you characterize that -- maybe you said this earlier, but can you characterize that between DIY and DIFM in the quarter?

We would say we had a couple of quarters of positive DIY and the couple of quarters that are slightly negative, ended the year slightly negative. DIFM traffic counts have been strong all year. Daniel Hofkin - William Blair & Company L.L.C., Research Division: And thinking about guidance beyond the first quarter, your full year guidance, are you assuming in, let's say, second and third quarter in particular any benefit related to the cold winter?

Well, I think the cold winter has been a contributor to our comps in the fourth quarter, and I think that the damage that's being done to cars to some degree now should be a contributor and spring sets in and people start to tune up their cars and maintaining their cars to just take care of the repairs that need to be made to recover. So yeah, we would view it as a contributor. What would be really good as if we were having really, really cold weather for 2 weeks in a row across the country, then 1 week of warm weather, and then hope this summer, of course, that turns out to be an incredibly hot summer, because these extremes do drive short-term demand in our business and longer-term damage to cars. So generally, we see it as a positive. Daniel Hofkin - William Blair & Company L.L.C., Research Division: So I mean, are you -- it's fair to say you are factoring in already some assumed future benefit related to the weather you've already seen?

As best we can. Again, our comp guidance is estimates, and we -- I know we see a lot of and we know the business better than anyone else. But all factors at our disposal are included in our guidance. Daniel Hofkin - William Blair & Company L.L.C., Research Division: And then lastly, on expansion. Can you talk about kind of what's your latest thinking on western -- former CSK markets in terms of greenfields?

Well, we continue to expand out there and we continue to look for sites. And we plan to continue to expand out that where it makes sense. A lot of our work over the next couple of years will be to evaluate potential relocations where leases come out, and we may not be pleased with a site and we may want to relocate it, but at the same time, we continue to look for greenfield growth. And, of course, California was a pretty big contributor last year to our new stores, and we would expect this to continue to expand out there this year.

The next question comes from Greg Melich from ISI Group.

Really two question. One, starting in terms of DIY. I know you have the loyalty program. Do you have any updates to sort of how that's doing and whether you're seeing traction with it and where do you think you can use it more?

Well, we're really happy with it, Greg. We signed up over 4 million customers and we continue to, we think, benefit from the fact that we have a loyalty program and it gives us a means by which to market directly to loyal customers. So we see it as a positive. We're going to continue to build on it and we'll see where it takes us. It's kind of hard to quantify the positive effect of it because a lot of the business that we're doing with these loyalty customers are customers that we have before. But we feel like, long term, it'll be good for us and certainly gives us the ability to market directly to these customers and offer them specials and incentives that we weren't able to as easily as before.

Great. And then now that it's the year-end, I know this inflation is something you guys have talked about the last few quarters and how it has changed over the years. How 2% used to be kind of the normal number and it come down. Where do you think we are now on that? And just given the demand environment now in the mix, do you think that we're going to actually start to have a little bit of re-acceleration of inflation, or is it still sort of a 0 number in this year's guidance?

Well, when we look at the full year, it was marginally positive for 2013. We're not seeing anything right now in commodity prices or any impetus in the market to have dramatic changes in retail prices, so we're expecting a pretty muted year-end for a third year in a row.

We have reached our allotted time for questions. I would like to turn the call over to Mr. Henslee for any closing remarks.

Okay. Thank you, Hilda. Well, we would like to conclude our call today by, again, thanking the entire O'Reilly team. We are extremely proud of your hard work, your dedication and your commitment. Your relentless focus on providing the highest level of customer service each day resulted in another very successful and profitable year in 2013. Each of you should be extremely proud of our record-breaking results we generated during the year. As we look ahead into 2014, we're confident in our ability to enhance our customer service with the addition of new distribution capacity and to successfully grow our market share in both new and existing markets. I would like to thank everyone for joining our call today. We're extremely proud of our record-breaking performance in 2013. And we'll look forward to reporting our first quarter 2014 results in April. Thank you.

Thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating. You may now disconnect.