Welcome to the O'Reilly Automotive Inc First Quarter 2025 Earnings Call. My name is Matthew, and I'll be your operator for today's call. At this time, all participants are on a listen-only mode. Later, we'll conduct a question-and-answer session. During the question-and-answer session, if you have a question, please press star one on your touch-tone phone. I'll now turn the call over to Jeremy Fletcher. Mr. Fletcher, you may begin. Thank you, Matthew. Good morning, everyone, and thank you for joining us. During today's conference call, we will discuss our first quarter 2025 results and our outlook for the remainder of the year. After our prepared comments, we will host a question-and-answer period. Before we begin this morning, I would like to remind everyone that our comments today contain forward-looking statements, and we intend to be covered by, and we claim the protection under, the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. You can identify these statements by forward-looking words such as estimate, may, could, will, believe, expect, would, consider, should, anticipate, project, plan, intend, or similar words. The company's actual results could differ materially from any forward-looking statements due to several important factors described in the company's latest annual report on Form 10-K for the year ended December 31, 2024, and other recent SEC filings. The company assumes no obligation to update any forward-looking statements made during this call. At this time, I would like to introduce Brad Beckham. Thanks, Jeremy. Good morning, everyone, and welcome to the O'Reilly Auto Parts First Quarter Conference Call. Participating on the call with me this morning are Brent Kirby, our President, and Jeremy Fletcher, our Chief Financial Officer. Greg Henslee, our Executive Chairman, and David O'Reilly, our Executive Vice Chairman, are also present on the call. I'd like to begin today by thanking our over 93,000 team members for the hard work they put in during the first quarter to continue our track record of profitable growth, delivering a solid start to 2025. We held our annual leadership conference in January, and our theme and rally cry for this year is Next Level. Every single one of our leaders in every facet of our business are focused daily on how they can take their leadership, their ownership, and in turn, our customer service and performance to the next level. It's incredible that O'Reilly has been in business for almost 70 years, and the same fundamentals and next-level mindset that made our company successful in the early years are still what makes us great today. While I believe our people and our culture are truly world-class today, our team absolutely never settles for the status quo. I could not be more grateful to work with a team that is always on the hunt for ways to improve, get better, and take our company to the next level. Delivering excellent customer service and building top-notch teams to continue our company growing is not easy work, and I want to commend our team members for the pride they take in our company and the commitment they hold to being the best team in the business. Now, I'd like to start our discussion on the first quarter by walking through the details of our comparable store sales results. Our comp growth of 3.6% in the quarter was at the high end of our expectations, and we are pleased with the solid start to the year. Both sides of our business performed well relative to our expectations, and our professional business was the larger driver of our total comp results with a mid-single-digit comp, consistent with our expectations and ongoing trends. DIY was positive for the quarter with a low single-digit comp, and we were pleased to see our comp outperformance being driven by strong ticket counts relative to our expectations on both sides of the business. Next, I want to give some color on the cadence of our sales results as we move through the quarter. We've noted many times that our first quarter can be our most volatile, with variability in our business resulting from the type and severity of winter weather and from the timing of the onset of spring. The timing and magnitude of individual income tax refunds can also be a factor impacting our results through much of February and into March. While our results for the quarter as a whole were strong, we did see the choppiness in our business that is characteristic of first quarter from these impacts. Winter weather in January was largely as expected, but moving into February, we experienced more mixed weather patterns and some delays in the distribution of tax refunds. As we entered the last week of February, tax refunds caught up and coincided with favorable spring weather moving into March that supported strong volumes on both sides of the business through the end of the quarter. March was our strongest month of the quarter, and we've produced solid results thus far into April. On balance, we believe our underlying business and customer demand was steady throughout the quarter, and the month-to-month cadence is very much in line with what we would have expected given the weather we experienced and the timing of tax refunds. Although ticket count was the primary driver of our comp sales growth and outperformance in the quarter, average ticket was also a contributor to comps on both sides of the business. The dynamic of increasing complexity continues to be a stable driver of average ticket within our industry as better engineered and more complex parts continue to drive both higher product costs and resulting selling prices. Same SKU inflation was a minimal benefit on the quarter at less than half a percent. This was slightly below our expectations on both sides of our business, primarily due to the normal puts and takes we see in rational competitive pricing in our industry. I will discuss our thoughts on tariff developments in a moment, but I will note that tariff-related price changes had a very minimal impact to same SKU inflation in the first quarter. Looking to the remainder of the year, we are maintaining our full-year comparable store sales guidance of 2%-4%. Now, I'd like to spend a minute discussing what is driving our sales results and how we're thinking about what is ahead of us this year. During the first quarter, weather-related categories performed well, and we continue to see strength in maintenance categories such as oil and filters as consumers are prioritizing the maintenance of their existing vehicles. We also continue to see pressure in discretionary categories in line with trends over the last few quarters, and it continued to indicate to us that consumers are being cautious in a period of economic uncertainty. We saw solid results in failure-related hard part categories, and our customers continue to prioritize products that are higher quality on the value spectrum. We believe we're in a market where consumers are placing a high value on investments in their existing vehicles and will continue to be motivated to avoid the significant cost and monthly payment burden that comes with a new or replacement vehicle. The combination of these factors puts us in a backdrop that we would characterize as favorable for the industry and for O'Reilly, yet carries a high degree of uncertainty. There are several factors, namely tariffs and the ongoing international trade deliberations that have the potential to impose significant challenges on the consumer. Within the first quarter, most of this uncertainty was in the headlines and had yet to make its way to anything we would characterize as notable impact to our day-to-day business. As such, we have not made changes to the key assumptions behind our original comparable store sales guidance range of 2%-4% that we discussed on our call in February. Tariffs certainly have the potential to impact the same SKU inflation assumptions we have inherent within our guide. However, the high degree of uncertainty surrounding the duration, magnitude, and timing of potential tariffs, coupled with the changes we have already seen to previously announced tariffs, prevent us from prudently forecasting the inflationary impacts. Additionally, we have not seen adverse impacts to consumers that could also come with rapid and sustained changes to the pricing environment, but we are cautious in our outlook given the broader uncertainties in the macroeconomic environment. Based on these considerations, we have maintained an unchanged sales guidance range that is supported by current business trends and volumes. Brent will cover the gross margin outlook during his prepared comments, but I will note that our margin outlook was developed under the same thought process. Over the long- term, regardless of any potential for short-term disruptions in the broader macro environment, we stand by the fundamental drivers of our business. Increasing miles driven on a growing and aging vehicle fleet by consumers that view transportation needs as critical to their day-to-day lives provides a stable and supportive backdrop for our industry. While tariffs may take up a significant bandwidth in the news, our teams are focused on what they do best, and that is getting incrementally better and executing our business model every single day in every single store. We have the absolute expectation that our industry-leading service and availability will take market share against any market backdrop, and internally, we certainly do not allow for excuses if results do not meet expectations. We have confidence in our industry, and we know that even after years of sustained profitable growth as a company, we still own a small fraction of the total addressable share. We believe we still have a ton of opportunity, and we intend to take market share both aggressively and profitably. Before I wrap up, I wanted to also note that we are increasing our diluted Earnings Per Share guidance to a range of $42.90-$43.40. Our increase in EPS guidance is driven by our first quarter sales performance as well as a reduction in our expected tax rate and the impact of shares repurchased to the date of our earnings release yesterday. You might have also seen that we announced that our board of directors approved a 15/1 split of our common stock, subject to shareholder approval at our annual meeting this May. This would mark our fourth stock split in our company history since going public in April of 1993, with our last split 20 years ago in 2005. Our primary motivation for a split is to make our stock more accessible to our team members and enable them to acquire whole shares rather than fractions more readily through our employee stock purchase program. Our stock purchase plan has been an excellent way for our team members to share in the success of O'Reilly, allowing full-time team members to begin purchasing stock at a discount right at the beginning of their career with the company. With the outstanding results our team has been able to achieve over the years and the corresponding growth in share price, we believe this is the right time to split our stock and encourage our team members to join in the next chapter of growth for O'Reilly. As I wrap up my prepared comments, I would like to once again thank Team O'Reilly for your hard work and commitment to excellent customer service with a solid start to 2025. Now, I'll turn the call over to Brent. Thanks, Brad. I would also like to begin my comments this morning by congratulating Team O'Reilly on a solid start to 2025. Today, I will further discuss our first quarter gross margin and SG&A results and provide a quick update on our expansion and capital investments thus far in 2025. Starting with gross margin, our first quarter gross margin of 51.3% was a 12 basis point increase from the first quarter of 2024, which was in line with our expectations for the quarter. The acquisition cost environment remains stable, and as Brad noted, this is coupled with a rational pricing environment within the industry. Our first quarter gross margins were not materially impacted by the changing tariff environment. At this point in time, we have begun to see some cost flow through from the initial round of incremental tariffs on product from China, but there is still a very high degree of ambiguity as it pertains to the subsequently announced tariffs. We are still working through negotiations with our suppliers, and our team is working diligently to rapidly digest new information as it becomes available and respond accordingly. As Brad mentioned earlier, and similar to what we noted on our last call, at this stage, it is difficult to assess the exact timing, duration, and magnitude of any tariff revisions that will occur and the way that suppliers, competitors, and customers will respond to these changes. It is still our expectation that we will be able to work with our supplier partners to actively negotiate the level of any tariff-driven cost pressure they pass through to us in order to mitigate the impact to our customers in a similar fashion to how our industry and company has responded to previous tariff and other cost changes. We also continue to believe the demand in our industry is resilient because of the non-discretionary needs-based nature of the products that we sell. As such, we believe we will still be able to profitably earn our customers' business by delivering a strong value proposition driven by our professional parts people and our industry-leading parts availability, even in an environment of rising prices. Ultimately, we are confident in our ability to manage effectively through this period of uncertainty and believe that rational pricing will persist within our industry. We also have more flexibility than ever in our company's history in how we manage our supply chain and where we source our products. As we have previously stated, approximately one quarter of our products are sourced from China, and we have continued to reduce this percentage over the last several years. Given the uncertainties surrounding current trade deliberations, we would not anticipate significant country of origin changes in our sourcing in the near- term. However, we will continue to work closely with our supply chain partners to evaluate the most optimal strategic path forward. We have always been active managers of our supply chain in partnership with our supplier community, and we will work diligently to ensure that there is no barrier to us maintaining our inventory advantage that continues to position us as the industry leader in parts availability. Factoring in these considerations, we are maintaining our 2025 full-year gross margin guidance range of 51.2%-51.7%. In line with Brad's discussion on our comp sales guidance, this reiterated guidance does not forecast any discrete impacts for varying tariff scenarios that may yet play out. Turning to SG&A, our first quarter average SG&A per store growth of 4.1% was above our expectations. As compared to those expectations, the pressure to SG&A was driven in part by team member payroll and benefit costs, reflecting variable spend on the sales results in the quarter and enhancements to store-level pay plans, as well as some pressure in the quarter from medical plan costs. We also saw some cost pressure driven by maintenance and occupancy expenses resulting from normal wear and tear to our stores during the winter months that outran our forecasts. Our spend in the first quarter puts us on track to finish at the high end of our 2%-2.5% full-year guidance range for average SG&A per store growth. On a quarterly basis, for the remainder of the year, we are leaving our SG&A expectations unchanged, and we continue to expect to run approximately 2.5%-3% in the second and third quarter, but will be below the full-year rate in the fourth quarter as we compare against the charge that we recognized for self-insured auto liability in the fourth quarter of 2024. While we view some of the SG&A pressure in the first quarter to be temporary and aren't changing our outlook for the remainder of the year, we are cognizant of the potential for incremental impacts to our cost structure should we see an accelerated inflationary environment more broadly in the economy. As always, we will diligently manage our SG&A spend to match business trends and the market share growth that we are driving in our stores and will not overcorrect in the short- term in any way that would impact our high standard for providing excellent customer service. Based on our SG&A expectations and projected gross margin range, we continue to expect our full-year operating profit to come within our guidance range of 19.2%-19.7%. Inventory- per- store finished the quarter at $806,000, which was up 4.3% from this time last year and up just under 1% from the end of 2024. Inventory turns remain strong at 1.6x as our teams work to continually enhance assortments by market. The tiered nature of our distribution network with regional DCs and hub stores allows us to hold broad coverage in every market that we serve to provide the time-definite promise that is so critical when immediacy of need drives our delivery times to be measured in minutes, not hours. We are still projecting to increase our average inventory- per- store by 5% in 2025, and we are pleased with the inventory investments that we have made thus far. Lastly, to touch on our store growth and capital investments in the first quarter, we opened a total of 38 net new stores across the U.S. and Mexico. Our new store performance continues to meet our high expectations driven by the teams of professional parts people that we have behind the counter in every new store and the distribution capability to deliver the inventory availability that our customers expect from us. Capital expenditures in the first quarter were $287 million, and we still expect a total capital expenditure investment for 2025 of $1.2 billion-$1.3 billion. The major projects behind this spend are on track, and we are excited about the growth opportunities ahead of us in all of our market areas. As I conclude my comments, I would like to thank the entire O'Reilly team for their hard work and dedication to starting the year right in 2025. I look forward to the opportunities we have ahead of us this year, and I have full confidence in our team to take on any challenge that presents itself. Now, I will turn the call over to Jeremy. Thanks, Brad. I would also like to thank all of Team O'Reilly for their continued commitment to our company and our customers. Now, we will fill in some additional details on our first quarter results and outlook for the remainder of 2025. For the first quarter, sales increased $161 million, driven by a 3.6% increase in comparable store sales and a $73 million non-comp contribution from stores opened in 2024 and 2025 that have not yet entered the comp base, partially offset by a 125 basis point headwind to our total sales increase from one less selling day as a result of leap day in the first quarter of 2024. As a reminder, the impact from leap day is excluded from our comparable store sales. For 2025, we continue to expect our total revenues to be between $17.4 billion and $17.7 billion. Our first quarter effective tax rate was 21.3% of pre-tax income, comprised of a base rate of 23.2%, reduced by a 1.9% benefit for share-based compensation. This compares to the first quarter of 2024 rate of 21.9% of pre-tax income, which was comprised of a base tax rate of 24.2%, reduced by a 2.3% benefit for share-based compensation. Our first quarter effective tax rate was below our expectations as a result of the benefit we realized from share-based compensation. For the full year of 2025, we now expect an effective tax rate of 22.4%, comprised of a base rate of 23%, reduced by a benefit of 0.6% for share-based compensation. We expect the fourth quarter rate to be lower than the other three quarters due to the tolling of certain open tax periods. Also, variations in the tax benefit from share-based compensation can create fluctuations in our quarterly tax rate as we saw in the first quarter. Now, we will move on to free cash flow and the components that drove our results. Free cash flow for the first quarter of 2025 was $455 million vs $439 million in 2024. The increase of $16 million was the result of modest working capital improvements, partially offset by higher capital expenditures. For 2025, our expected free cash flow guidance remains unchanged at a range of $1.6 billion-$1.9 billion. I also want to touch briefly on our AP to inventory ratio. We finished the first quarter at 126%, which was down from 128% at the end of 2024, but slightly above our expectations. For 2025, we expect to see continued moderation resulting from our planned incremental inventory investment across our store and distribution network and currently expect to finish the year at a ratio of approximately 125%. Moving on to debt, we finished the fourth quarter with an adjusted debt to EBITDA ratio of 2.03x as compared to our end of 2024 ratio of 1.99x, with a modest increase in adjusted debt partially offset by EBITDA growth. We continue to be below our leverage target of 2.5 times and plan to prudently approach that number over time. We also completed the renewal of our revolving credit facility at the end of the first quarter, which extended the maturity for an additional five years and upsized the facility to $2.25 billion. We appreciate the support of our bank partners and believe this sizing provides the appropriate amount of liquidity for our business. We continue to be pleased with the execution of our share repurchase program, and during the first quarter, we repurchased 431,000 shares at an average share price of $1,297 for a total investment of $559 million. We remain very confident that the average repurchase price is supported by the expected discounted future cash flows of our business, and we continue to view our buyback program as an effective means of returning excess capital to our shareholders. As a reminder, our EPS guidance, Brad outlined earlier, includes the impact of shares repurchased through this call but does not include any additional share repurchases. Before I open up our call for your questions, I would like to thank our team for their hard work and dedication to start 2025. This concludes our prepared comments. At this time, I would like to ask Matthew, the operator, to return to the line, and we will be happy to answer your questions. Thank you. We will now begin the question and answer session. If you have a question, please press Star one on your phone. If you wish to be removed from the queue, please press Star two. We ask that while posing your question, please pick up your handset if you're listening on speakerphone to provide optimum sound quality. Please limit your questions to one question and one follow-up question. Once again, if you have a question, please press Star one on your phone. Your first question is coming from Michael Lasser from UBS. Your line is live. Good morning. Thank you so much for taking my question, understanding that it's a very fluid situation. If you simply ran the tariffs that are in existence today through the rest of the year, what would the potential impact on your sales and earnings be as it stands? How much price do you think you would be able to pass along in a scenario where tariffs even close to this level persist for the foreseeable future? Hey, good morning, Michael. Thanks for the question. This is Brad. I'll start off and then kick it over to Brent to talk about some of the pieces as it relates to tariff, gross margins, and top line, and all the things you covered there. First and foremost, we're extremely proud of our merchandise team, and they put a really great playbook in place back in 2016 that we've ran to date through the pandemic. A lot of inflation flowing through, and we could not have more confidence in our industry and our ability to play from a position of strength, non-discretionary, needs-based business, and our such amazing supply chain, and obviously our professional parts people. Fluid is the right word, Michael. I like that a lot. That is kind of how we are thinking about it. This is day to day, week to week, month to month. The challenge a little bit with the way you framed it up is that extrapolating out what that would mean today has been different last week. It could be different next week. That is a little bit of a challenge. I will kick it over to Brent to talk about some of the detail of how we are thinking about that. Yeah. Michael, thanks for the question. It is a logical question. I think the challenge with answering it explicitly is really some of the moving pieces that still exist. If you think about the fact that we've got this 90-day pause on reciprocal tariffs that's out there, you think about there's a layer in between there where there's an exemption for automotive parts that's been given. Our team, to Brad's point, our merchandise team is working diligently with our supplier base as well to really understand the codes with the products that are exempt under that automotive exemption versus those that aren't. There's not been a lot of scrutiny on some of those harmonized tariff schedule codes until this point. Now there's obviously a lot within the industry for all those reasons. There is a level and a layer of automotive parts, especially from China, that is going to have some exclusion and have a 25% additional rate versus that reciprocal tariff rate. There is still some debate there on what is going to be in that layer and what is not going to be in that layer. Our team's working with our industry association. Our industry association is working with the administration to help them better understand it because in some cases, as with things government sometimes, there is a lack of understanding of the details of something like this. Once the industry gets involved, there becomes a better understanding working with government. All of that is playing out right now. It really would not be prudent to share a number right now because that number, whatever that number would be today, is going to change when it is all said and done. What I can tell you, though, I have extreme confidence in our team, the work that they are doing. I have extreme confidence in our industry and the resiliency of it in times like this. I just feel like we are well positioned, no matter where we end up with this, to be in a good place with our supplier base, with our customers, and the resiliency of our industry. Michael, just lastly, maybe on that, as always, our goal is going to be to do everything we can to maintain rate. It is yet to be seen totally where the true health of the consumer is. I think that, again, is yet to be seen. We're still positive, but we're going to continue to work hard to make sure that we're taking great market share, doing it effectively, holding our suppliers accountable. We got a lot of great partners. We're still negotiating through a lot of that. We feel like we're going to be in a good position. We feel like our industry is going to be in a good position, but we also like how we're positioned as well. My quick follow-up is that O'Reilly historically has been the premium service player and not the low-cost provider. Does that put O'Reilly at a disadvantage in an era of what could be hyperinflation within the category? Would there be any consideration to evolving that strategy given what is possible? Hey, Michael, this is Brent. I can start on that. I think it's a good question, fair question. What I would tell you, though, when you think about the landscape of everything you're talking about, is we see ourselves in this industry as a share gainer. And we feel like a lot of our supplier partners see us as a share gainer as well, and they want to partner with us because they see us that way. Now, listen, we got to earn that every day with our customers, our team members, every transaction. We don't ever take that for granted. We are absolutely focused on continuing to grow, continuing to gain share with the backdrop of a very rational and a very resilient industry. I would tell you that I feel like where we're positioned with our high service, high touch, high availability puts us probably in a better negotiating position as it relates to the things you're talking about than a lesser negotiating position. Yeah. Michael, this is Brad. The other thing I'd say directly to the way you framed that up is our pricing profiles today on both sides of the business are extremely competitive. When I started this business back in the 1990s, when we were less of a DIY supplier and still really better at the professional side, IFM side of the business, the way you framed it up would have been more the case. As we became a national player and operate in all the markets we do, we are extremely competitive on the DIY side, the retail side. That business is more transparent. We have and need to be competitive, especially with all our brick-and-mortar retailers. On the professional side, we could not feel better about the way we are positioned from a pricing standpoint. We are always going to do everything we can to have a premium there because, frankly, our professional parts people and our industry-leading supply chain allow us to do so. That said, everything we have been through the last many years with our professional pricing initiative and the way that we use data and science along with the street view of how we need to be from a competitive pricing standpoint, the way you framed that up, I do not think that is the case. I think we are going to be playing from a position of strength. I feel good about our pricing. I feel like even if that was the case to some degree, the offsets are going to come in weaker players in the industry, the complexity of things coming down the pike for some of the independent side of things. We feel really good about that. Thank you very much, and good luck. Thanks, Michael. T hank you, Michael. Thank you. Your next question is coming from Simeon Gutman from Morgan Stanley. Your line is live. Good morning, everyone. Brad, the last couple of years, O'Reilly has invested a lot into SG&A. You presented again with this unique moment. Your share gains have been solid. Balance sheet's good. Your buying leverage has got to be among the best in the industry. I wanted to take your temperature on the debate, if you're having any, about ramping up SG&A spend and then even handling tariffs to lean in a little bit on price to push the market share. Is that even a thought, or are you just trying to manage the environment as best as you can right now? Yeah. Hey, thanks, Simeon. It's more of the latter. Maybe to take the SG&A piece first, listen, we are somewhat disappointed with our SG&A performance in the first quarter. We were just out with our guidance a couple of months ago. Sometimes models don't get exactly right from quarter to quarter based upon how we see it internally. There's a little bit of that. We were somewhat disappointed with our SG&A performance in the quarter. Our team takes great pride in managing every detail of SG&A. We still feel good, as we mentioned in our prepared comments, Simeon, about the way that we laid out our cadence of SG&A. We wanted to be transparent that the way we're thinking about it is the high end of our SG&A guidance range for the full year. As Brent pointed out earlier, basically for Q2 and Q3, we're going to be at that 2.5%-3% range and then less than that in the fourth quarter, part of that being the self-insurance charge comparison. We do not want anybody to see this as yet an additional cycle from an SG&A spend standpoint. We feel really good about our guidance. We feel good about our plan. We are going to make sure we manage diligently the remainder of the year and make sure that we come into expectations. Our team did a good job in the first quarter. We had a couple of things that popped up, nothing alarming, nothing that our team necessarily mismanaged. Brent called out that we had a minor change in the way that we compensate our store managers. We had an enhancement to that pay plan that resulted in just a timing issue that is not a big deal that will flush out in the remainder of the year. To Brent's point earlier, had a little bit of maintenance and occupancy cost things that, again, just a little bit of timing, but also some things we can always manage better. On the tariff side, in terms of pricing, really for what we have seen so far this year, Simeon, continue to see a very rational environment. As kind of the Q1 wrapped up and we get into Q2, continue to see what you would expect. It's still a little bit early to tell what's being pushed through, but there's no pla ns to invest in price in terms of the way you asked that. Okay. The follow-up on inventory, I remember in the COVID period, you got ahead of inventory. You had a better position, and you were able to take share. In light of industry conditions, which could get better because of the price of a new vehicle and the demand will go up to keep a nuke on the road, anything you're changing with inventory and anything related to expectations for industry growth for the year? No. Simeon, this is Brent. I would tell you, no. In terms of inventory, our goal is to have the best parts availability in every market that we operate in. Our teams have been committed to that through COVID and ever since. I would tell you, when you look at our fill rates and in-stock performance, it's the highest it's been since pre-COVID in Q1. We do not have any anticipation of changing the focus there. Yeah. I think maybe just to wrap that up, Simeon, with disruption or without disruption, we could not feel better about our investments in inventory. We have been pouring into this for a long time. It's a competitive strength of ours. We are going to continue to make sure it's a competitive strength to Brent's point in every single market. We're going to continue to run our playbook when it comes to new DCs, upgrading our distribution centers, hub stores, and really, most importantly, every spoke store having the right inventory deployed exactly where it needs to be. Our teams are doing a really great job doing that in a disciplined way. We're going to continue to invest in inventory, obviously do it in a disciplined way. Okay. Thanks, guys. Good luck. Thanks, Simeon. Thanks, Simeon. Thank you. Your next question is coming from Greg Melich from Evercore. Your line is live. Hi, thanks. I wanted to dig a little deeper into the competitive environment and particularly the foreclosures and just disruption with independence. Do you see the M&A opportunities shifting, or is this a good time to ramp investments that you have planned in the pipeline? Hey, good morning, Greg. You cut out a couple of times, but I think we picked everything up. Yeah, competitive landscape, Greg, not a lot has changed. It's a competitive market out there. We have a lot of big competitors that continue to do an amazing job from an execution standpoint. We have some struggling competitors. Landscape really continues to be pretty much how we've talked about it in terms of the other big three, as well as the strong independents. There are some mediocre independents and then some independents that are struggling, but it's always an opportunity. I think from a disruption in terms of what you asked about in terms of one competitor, really, it's still a little bit early to tell in terms of store closures. I know we've said that for a couple of quarters here, but the reality is the way we understand it, a lot of those wrapped up kind of toward the tail end of Q1. We know there's going to be something there, but we just want to continue to temper that knowing that those volumes were really low. Some of that may not be addressable or things that we want at our margin profile. That said, Jason Tarrant's teams, our store operations teams, and all our support teams from the distribution centers and the corporate office are doing everything in our power to make sure in a jump ball that we're out there calling on those customers, understanding who they are, DIY and DIFM. Obviously, we're going to work very hard to turn any of that share into O'Reilly share, again, just tempered with we don't know how material that's going to be. It's going to probably take another quarter or two to really see how that plays out. We don't want to misspeak to that. On the M&A front, Greg, yeah, I mean, M&A continues to be an opportunity for us when I think about it, especially as we start to really fill in kind of the upper Mid-Atlantic and getting into New York City and all those type markets. We feel there's going to continue to be solid opportunities from an M&A standpoint. It's probably going to be more in the context of kind of onesies and twosies and then maybe some smaller chains that have five, six, seven stores. Don't know that there's anything large and material in those markets, but kind of yet to be seen. Yeah, we're staying opportunistic in terms of kind of the last two subjects put together. There's been some opportunities to change some jobbers over to our Park City program. It's been pretty small. Been a couple of onesies and twosies type opportunities to tuck in kind of spread across the country from that disruption. We're going to continue to look for those opportunities. That's great. On gross margins, I just wanted to follow up. Given how EBIT margin did fall in one Q, as we look forward to get EBIT margins up for the year, how much do we expect gross margins to expand in Q2 and in the rest of the year? Yeah, Greg, this is Jeremy. Good question. We would still view our gross margin performance as we move through the year to be relatively consistent. For sure, probably most likely on a cadence that's going to look a lot like what it did last year. Just keeping in mind last year's second quarter was a softer gross margin quarter for us, but still kind of relatively within an entire band. There are just some mixed things that happened in second quarter. As we move through the balance of the year, our expectation is that that performs a little bit better in the back half and puts us kind of solidly within that range that we provided. I can tell you that just versus our expectations, Q1 gross margins were exactly where we would have expected that they would have been. Got it. Thanks. Good luck, guys. Thanks, Greg. Thanks, Greg. Thank you. Your next question is coming from Chris Bottiglieri from BNP. Your line is live. Hey, guys. Thanks for taking the question. Can you elaborate more about your experience? Hey, good morning. Can you elaborate more about your experience moving product from China since the last batch of tariffs? How long does it take to move sourcing? Is there anything about the first five points of sourcing that you move to make it easier? How feasible to move the next five to 10 if it comes to that? It sounds like right now you're staying put, but just kind of curious how to pick the timeline of moving. Yeah, Chris, this is Brent. I can start on that. It's a great question. Honestly, as I mentioned in my prepared remarks, we've continued to reduce our dependency on sourcing from China. Really started back during COVID. The teams have done a good job of continuing to move some of our sourcing out of that country. Where we've moved it, we're actually standing up capability in places like India, Vietnam, Thailand, other places where we're building muscle, if you will, and have options to further move production there over time. I mean, as I mentioned in the comments, we're going to take a strategic look when we feel like there's some true settling of where the true direction is on tariffs. Hopefully, we'll get that over the next couple of quarters at least. Long- term, we're going to make the best strategic decisions for our sourcing options globally. The great thing is, and we've talked about this as well, our proprietary brand portfolio gives us a great umbrella to do that under. The teams have done a great job. Our purchasing team, as well as our merchandise team, have done a great job using those brands for multiple suppliers for those brands that meet our spec and really have had a lot of success with that. We feel like that's going to be a good enabler for us to make the best long-term sourcing decisions once we get through the near-term disruption we have right now. Yeah, Chris, maybe the only, oh, Chris, just maybe the only thing I would add to that is, as Brent mentioned, we're in a better position, I think, based upon the work we've done over the last several years and the close work we've done with our supply partners to be able to work through the process to stand up in other places. Obviously, there's some time, there's an investment cycle to do that. I think the big question that we all have, Brent pointed to it, is exactly how do you plan for what that outlook is going to be? Because really, candidly, the piece that takes more deliberation is just understanding how to best think about what the long- range looks like and knowing that that can cause that strategic path to take a few different directions just as the magnitude of things play out. Interestingly, as we looked at the process over the course of the last really kind of seven years or so, that really started to gain even more traction for us and a lot of our supply partners as some of the previous changes in the tariff regime sustained themselves through another administration where there was some permanence around how that first round went from the earlier time period. There may be some degree to which we do not go as fast as we possibly could as we just want to be appropriately deliberate about how we think about the right long-range approach. Gotcha. Okay. That makes sense. A follow-up. Do you have a sense for, I would think you always want to own a company of the most scale, which is O'Reilly in this type of environment. Do you have a sense for how your competitors, particularly the private side, are they sourcing generally from the same suppliers and countries of origin as the publics are like O'Reilly? Are they still over next to the U.S.? Or they did not leave China as quickly as you had in the last five years? Just have a sense of your competitive position on sourcing. I mean, moving forward, it sounds like you'll be the most dynamic and nimble, but just curious where you think the private sits today. Yeah, Chris. I think what I will tell you is there are a lot of factories producing auto parts in various parts of the world. I would say we share some of those suppliers with some of our competitors. In many cases, we do not share them with our competitors. It's a bit of a mixed bag. As it relates to national brands, I talked about proprietary brands. We also go to market with a mix of proven national brands as well. Those national brand partners, again, some of them do business with some of our competitors. Some do not exclusively. There is a mixed bag there as well. I would tell you probably the answer to your question is it's a bit mixed. Again, we feel very confident in our supply chain's ability to be nimble in the environment that we're operating in and feel good long-term strategically that we'll be able to source as good or better than anyone in our industry based on how we're positioned. That makes sense. Thank you very much. Thanks, Chris. Thank you. Your next question is coming from Robbie Ohmes from Bank of America. Your line is live. Oh, hi. It's Robbie Ohmes. Thanks for taking my question. Actually, sorry to keep asking about tariffs, but I wanted some help with a clarification on what's happening right now. Are you guys, are you receiving higher tariffed goods right now? And when or when would you be receiving them? When would stuff that would already be at the very high tariff out of China be sort of flowing through your income statement and pressuring gross margin? My other question is, are you seeing any signs of pull forward from your customers either on the pro or DIY side that are concerned that tariffs will remain elevated and will not be excluded potentially? They are actually ordering excesses from you guys themselves right now. Yeah. Hey, Robbie, this is Brent. I can start, and the other guys can chip in. I think really the first part of your question, what are we experiencing now? When you think about some of the stay that has been given on the reciprocal tariffs down to 10% for the 90 days, some of that is starting to begin to impact being cost of goods. I will tell you, though, as we said in our prepared remarks, there was virtually very little, I would call it, immaterial impact of that in Q1 results. Q2 results, we'll start to see some of that flow through, but we're working very closely with our suppliers on that. I also mentioned in the previous question around some of the automotive exemptions that are out there specifically from China that are still being worked through by our suppliers and our teams diligently right now. You have this stay on the reciprocal tariffs for other countries. I would tell you, yes, there is some that's starting to begin to flow through as we begin Q2 into cost of goods. I would tell you that 90-day stay that's been given on the reciprocal tariffs gets you into the beginning of our Q3. Even Q2 will be somewhat of a transitionary quarter to see how much of this really sticks versus it does not in terms of true long-term impact to cost of goods. That is really kind of where we are at this point on that piece of it. Hey, Robbie, real quick on the, sorry, Robbie, this is Brad. I was just going to follow up on the customer side. Good question there. No pull forward that we are seeing. That is pretty difficult in our business with the application complexity of the hard-to-find parts, all the hard parts that are in the back room. There could be minor things like a professional customer maybe wanting to pick up some stocking items, things like that. Really, for sure, our retail customers, they do not behave that way. Then really on the DIFM side, it is really the same. There is not a lot of that. We really have not seen any of that, but just generally in our history, it is just not really how they operate. Our shops are not set up to keep a lot of big stocking levels in their locations and do not really have necessarily the financial flexibility to do that. That is a good thing. The way it works in our industry, we rely on each other. I would not expect to see any of that. That is really helpful. Thank you. Robbie, this is Brent. Just one other item to talk about because we have kind of a lot of these conversations on tariffs have leaned toward China, but there has also been conversation around Mexico and Canada. I'll just tell you again, at this point, back to your question in time, pretty much everything we're bringing in, which again, we bring in some product from Mexico, very little from Canada, but that is all. As long as it's still USMCA compliant, there's been no additional tariffs applied there at this point in time too. That's worth noting also. That's great. Thank you. Thank you for the question. Thanks. Thank you. Your next question is coming from Kate McShane from Goldman Sachs. Your line is live. Hi, good morning. Thanks for taking our question. We had a question more around price increases if it were to come to that. Obviously, there's been success in passing through inflation in this industry for a very long time. What do you think ultimately there will be maybe some elasticity impact, maybe in more of the maintenance and certainly the discretionary categories if those prices were to go beyond a certain level? Hey, Kate, this is Jeremy. It's a great question and one that at different cycles within the course of time in our industry is always the question that gets asked, and it's one that we're pretty cognizant of. Some of that's going to depend for sure on where we really do settle from the cost pressure side. Our industry has always been one that has had a very substantial amount of pricing power. Just principally, as you know, as we've talked about for a long period of time, the primary drivers of value that supports demand in our industry are not price-related. They're great service to great availability. They help solve problems for DIY customers. They help allow our professional customers to run a very effective business. The parts that we sell are very non-discretionary in nature. They are a key component of what you got to do to support all the other areas of your life. Over the course of time, what that has historically meant is that the industry has been very rational, and prices have not had to adjust off of, or you have not seen a lot of elasticity that would cause people to go to market in some different way. The only exceptions to that, and it has not necessarily been always as price-driven as you see, but when that consumer is under more significant pressure, you can see instances where they will defer over a short period of time or where they may try to trade down on the value spectrum. Typically, that's not always driven by factors within our industry from a price-level perspective. That's more of broader pressures on the consumer. Probably the more significant time frame that we saw that was back in the 2008, 2009 period where unemployment was a little bit higher and there was a little bit more pressure. What was interesting is we didn't see a substantial amount of that during the course of the pandemic when inflation was as elevated as it was. I think the thing that supports the very resilient demand in our industry is it's also a way for our customers to be able to be more efficient in how they manage their household budgets, to keep cars on the road, to avoid car payments, and things like that. Over the course of time, that's what we've seen. It's been our experience. We would think that would be true. Some of the very high end of the potential discussed tariffs, those are all clearly unprecedented, even unprecedented for the inflation that we would have seen during the course of the pandemic. I think that's a different dynamic. We would still feel like most of the same factors that I discussed would be in play there as well. Clearly, it's hard to address things that would be unlike anything we've ever seen in the industry. Thank you. Thanks, Kate. Thanks, Kate. Thank you. Your next question is coming from Christopher Horvers from JPMorgan. Your line is live. Thanks, guys. I wanted to talk about tariffs as well. I guess the first question is, historically, the industry would take price at a cost in many situations, and you sort of have this front-end clip of the gross margin given how inelastic demand is. How do you think about that opportunity in this environment? Is it like, well, given what's going on with the consumer and the potential level of inflation across the wallet, do you do a wait-and-see approach and wait for the actual inventory to turn? And then related to that, one of the questions we're getting is, given sort of LIFO accounting, which is a bit of a mystery for most people, is there any potential headwind or tailwind related to this potential tariff inflation? Yeah, Chris, I can probably start there, and Brad or Brent can jump in. Our approach has historically been to try as best we can to sync up how we think about the changes that we make in market pricing to when we see the cost impacts flow through our financial statements, which to your point, as a LIFO shop, means that you're going to see that on the front end as you start to receive that higher product. Obviously, there is still some impact in terms of when tariffs are implemented, how you negotiate through that time frame, working with the suppliers to identify what we will take on and the timing impact of where those higher POs are going to hit. Typically, as they start to come in, we're wanting to be synced up so that we don't have this impact from a LIFO perspective where we've got charges that flow through that aren't matched up. That's typically been our approach. From an industry-wide perspective, there are always kind of puts and takes in how that timing works out because not everybody's schedules line up in the same way in terms of when particular impacts show up. Generally speaking, that all, even within an industry perspective, happens in a relatively condensed time frame. At different points in time, we've been out ahead of cost changes with price increases. Sometimes they lag a little bit just depending upon where the rest of the market is at. They can cause, and I just said maybe quarter-to-quarter fluctuations at some point. Generally speaking, those things align fairly closely in how we think about managing through these periods of time. Hey, Chris, this is Brad. One other thing I thought about while Jeremy was speaking there is I don't think we've said this on the call yet, but it's probably an obvious statement, but I want to make sure I say it along the lines of the question you asked is that every consideration with each supplier, it's a negotiation. We have a lot of amazing suppliers, a lot of great partnerships, but we partner with our suppliers to figure out kind of who burdens what part of the cost depending on the maturity of the supplier, depending on how proactive they've been at mitigating costs, getting more productive in their environment, pulling costs out the way we've done that the same. Obviously, don't think just through how we're going to go with a full pass-through as much as every one of those, generally speaking, is shared between us and the supplier. My follow-up is, can you put yourself in the position of if you're a WD or an independent? In other times of sort of stress in the industry, it's created a market share opportunity in the global supply chain situation where obviously your sourcing capabilities are vastly better than most of your competition. Is this a stress moment where, I don't know, the independents have working capital considerations, or maybe are they going to be put under stress from an availability perspective? Does it create a market share opportunity, or is this a sort of a "rising tide" for the entire industry? Thank you. Yeah. Hey, Chris, I don't want to give you a non-answer. This is Brad, but it is a little bit of both. Only because the way that we view the WDs, independents, two-steppers, there are amazing operators that will operate very well in this environment. There are some that are probably middle of the road and some that may be struggling. I think really to the root of your question, I think there could be some disruption. We want to be careful getting too far out there on that. We're going to work to capitalize on every opportunity. I think, generally speaking, Brent had a question earlier about, do we share similar suppliers with a lot of the private companies, independents? Brent kind of talked about how that was a little bit of both. A lot of similar suppliers. There are some unique suppliers. Generally speaking, there is a lot of similar suppliers. To your point, I think there can be disruption in just the general management of that for a smaller company. The other thing that I think comes up is the smaller players really don't have the private label portfolio that we do. That is something that we've built up to be in roughly 50% of our sales and even bigger in the back room. The smaller companies have to rely more on the national brands. Even though they could be a similar supplier in the box, they have to rely more on the national brands, and that gives us flexibility in itself. I do not want to take anything those folks do for granted. They're amazing competitors, but we do feel like there can be some opportunity. Thanks, guys. Have a great spring. Thanks, Chris. Thanks, Chris. Thank you. We have reached our allotted time for questions. I'll now turn the call back over to Mr. Brad Beckham for closing remarks. Thank you, Matthew. We would like to conclude our call today by thanking the entire O'Reilly team for your continued dedication to our customers. I would like to thank everyone for joining our call today, and we look forward to reporting our second quarter results in July. Thankyou. Thank you. This does conclude today's conference call. You may disconnect your phone lines at this time and have a wonderful day. Thank you for your participation.