O`Reilly Automotive Inc (ORLY) — Q4 2018 Earnings Call Transcript

Thank you, Vanessa. Good morning, everyone, and thank you for joining us. During today's conference call, we'll discuss our fourth quarter 2018 results and our outlook for the first quarter and full year of 2019. After our prepared comments, we'll host a question-and-answer period. Before we begin this morning, I'd 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 estimates, 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, 2017, and other recent SEC filings. The company assumes no obligation to update any forward-looking statements made during this call. At this time, I'd like to introduce Greg Johnson.

Thanks, Tom. Good morning, everyone, and welcome to O'Reilly Auto Parts fourth quarter conference call. Participating on the call with me this morning are Jeff Shaw, our Chief Operating Officer and Co-President; and Tom McFall, our Chief Financial Officer. David O'Reilly, our Executive Chairman; and Greg Henslee, our Executive Vice Chairman are also present. To begin today's call, I would like to recognize the hard work and commitment of all of our team members throughout 2018. Your commitment to our dual market strategy and the O'Reilly culture values drove a 3.8% comparable store sales growth which was at the top end of our annual guidance range of 2% to 4% which we set at the beginning of the year. Your dedication to exceptional customer service and the expense control yielded a total sales increase of 6.2% over the prior year, and an operating profit of 19% which was also at the top end of our annual guidance range. For the year we generated our 26th consecutive year of comparable sales growth, record revenue and operating income every year since becoming a public company in 1993; and I would like to thank Team O'Reilly for many contributions to support our growth and success in 2018. Now we'll cover our fourth quarter results and key expectations supporting our 2019 guidance. Our comparable sales for the fourth quarter grew 3.3% which is in line with our expectations. From a comp store sales progression standpoint, October and November were strong with December being weaker and slightly negative. The December results fell short of our expectations due in part to seasonal business that was put forward into November as we experienced cold weather earlier in the quarter in 2018 than the prior year coupled with a lack of harsh weather in December which we were facing difficult compares from the past two Decembers. We also face stronger than expected headwinds from Christmas and New Year's Eve falling on Monday as opposed to Sunday in 2017. For the quarter, both DIY and professional were contributors to our comparable store sales growth with professional continuing to outperform DIY. Average ticket value drove comparable store sales growth due to increasing parts complexity, same SKU inflation of approximately 2%, and a higher mix of hard parts on the DIY side as customers attempt to defer non-critical repairs and maintenance as pricing increases across the economy put pressure on many of our DIY customers' wallets. For the full year 2019, we're establishing our comparable store sales guidance at 3% to 5%. We anticipate that the demand drivers for the automotive aftermarket industry will remain solid as miles driven grows at a modest pace supported by continued record high levels of employment with gas prices remaining in a reasonably positive range. We expect a continuation of the trend we have seen for several years where average ticket growth is driven by increasing complexity of parts on your model of your vehicles, and also expect additional topline growth from same SKU inflation similar to what we saw in the fourth quarter. This level of inflation is based on known input cost pressures and does not take into account additional tariffs or other unknown factors. We expect DIY ticket counts to continue to be under pressure as our more economically constrained customers feel the pinch of rising prices across the economy and react by attempting to defer repairs and maintenance when possible. We expect continued solid growth on the professional customer ticket count as we continue to consolidate the market and these end-user consumers tend to be better able to cope with increasing prices. As normal, we expect pricing in the industry to be rational and weather patterns to be average. For the first quarter, we're establishing a comparable store sales guidance range of 3% to 5% which is in line with our expectation for the full year. We remain extremely confident in our team's ability to provide industry-leading customer service and gain market share, and are pleased with the solid start to 2019 we have seen thus far in the first quarter. For the fourth quarter and the full year, gross margin as a percent of sales was 53.3% and 52.8% respectively. The fourth quarter gross margin is higher than the full year due to normal seasonality and sales mix related to winter weather. For your gross margin was in line with our guidance throughout the year. For 2019 we're setting our guidance range for gross margin at 52.7% to 53.2% of sales which is a 20 basis point increase from a 2018 guidance range. Assumed in our guidance our continued incremental improvements and supplier agreements, our continued ability to pass along acquisition cost increases to the end consumer, and leverage on our fixed distribution cost of higher sales volumes. These gains will be partially offset by continued pressure from distribution wages and freight costs. Tom will provide more additional gross margin details in his comments. Fourth quarter operating profit as a percent of sales came in at 18.5% and the full year was 19%, both are at the top end of our expectations. On a year-over-year comparison, operating profit declined by 19 basis points as we directed approximately 30% of our tax savings from the Tax Cuts and Jobs Acts of 2017 back into the business with a focus on our in-store and omnichannel efforts. For 2019, we anticipate our operating profit will be in the range of 18.7% to 19.2% of sales. Jeff will discuss our SG&A expectations in more detail. However, we expect to see leverage on our fixed costs on higher sales offset by a more inflationary cost environment and continued focus on strengthening our in-store customer service and omnichannel experience. For the fourth quarter, earnings per share of $3.72 represented an increase of 5.7% and for the full year 2018 earnings per share of $16.10 was an increase of 27.1%. Excluding the impact of the excess tax benefit from stock options on our tax rate and the revaluation of our deferred tax liability in the fourth quarter of 2017, our quarterly and annual earnings per share increased 34.5% and 35.8% respectively. Tom will provide more information on our tax rate in his prepared comments. For the first quarter of 2019, we are establishing our earnings per share guidance at a range of $3.92 to $4.02. And for the year, our guidance is $17.37 to $17.47. Our quarterly and full-year guidance includes an estimate for the excess tax benefit from stock options and the impact of shares repurchased through this call but does not include any additional share repurchases. Before I turn the call over to Jeff, I would like to again acknowledge the outstanding contributions of our entire team. Our track record of 26 consecutive years of record comparable store sales growth, record revenue and operating income is the direct result of your hard work and commitment and I have every confidence we will extend that streak in 2019. I'll now turn the call over to Jeff Shaw. Jeff?

Thanks Greg, and good morning, everyone. I'd also like to thank team O'Reilly for delivering another record-breaking year. Your commitment to consistent, excellent customer service has always been the strength of our company and will continue to be our strength in the future. At the beginning of the year, we planned to reinvest a portion of our savings from the Tax Cuts and Jobs Act back into the business with a target of 70 basis points of additional SG&A spend. We successfully executed on that plan and through solid expense control and better leverage from a solid 6.2% increase in sales, our SG&A only deleveraged 46 basis points coming in at 33.8% of sales for the year. For the full year, SG&A per store increased 3.4%, which was near the top end of our beginning of the year guidance of 3% to 3.5% of sales and is consistent with what we would expect with comparable sales at the higher end of our guidance range. The increase is primarily attributable to variable expenses and variable compensation at virtually every level of the company, as we structure our pay plans for our team members to run it like they own it. For 2019, we're expecting SG&A to continue to grow at a rate higher than our historical norms of 1.5% to 2%. Looking at our 2019 SG&A spend, we expect to continue to aggressively pursue our in-store and omnichannel goals and anticipate continued pressure to variable costs, especially payroll from the current inflationary environment and record low unemployment rates, which we expect to partially offset by better leverage on our fixed costs. As a result, we are establishing our initial SG&A guidance at a 2.5% to 3% increase per store. For the year, we successfully achieved our goal of opening 200 net new stores. We set our 2019 new store goal to open between 200 and 210 net new stores on our third-quarter call. Since that time, we purchased Bennett Auto Supply in South Florida, and because of the additional work it will take to convert those stores, we will end up in the lower portion of the new store opening range, excluding the Bennett stores. For the acquired Bennett stores, our plan is to merge 13 of these stores into existing O'Reilly stores and convert the remaining 20 into O'Reilly stores in the first half of the year. Due to the impact from transitioning business during the merger process, the remaining 20 stores will not enter our comparable store sales base until January of 2020. We expect to incur between $4 million and $5 million related to closing down the 13 stores, the Bennett DC and the offices, and these costs are an additional headwind built into our SG&A growth per store assumptions. Our capital expenditures for the year were $504 million, which was squarely in the middle of our beginning of the year CapEx guidance of $490 million to $520 million. For 2019, we have a number of large projects and we expect CapEx to increase to a range of $625 million to $675 million. This is a big step-up from 2018 and would represent our largest CapEx investment in company history. So, I'll provide a little color around the additional projects that are creating the sizable increase. First, we have our two announced ongoing distribution projects, a new location in Twinsburg, Ohio, just south of Cleveland and an upgrade in Lebanon in Tennessee, just east of Nashville. The new larger Nashville DC will allow us to convert the current Knoxville DC into a super hub and then consolidate both existing Nashville and Knoxville DCs. Our CapEx plan also includes an additional DC project starting during the year and we'll provide you the details when we close on that property later in the year. Second, with the conversion of the Bennett stores, we'll have new store CapEx for between 220 and 230 new stores this year. Next, we continue to invest heavily in our omnichannel experience. This includes, but is not limited to, our online functionality, our in-store experience, and distribution systems to facilitate multiple delivery options to meet customers' desires. And finally, as both our installed store base and distribution network grow, we're committed to spending the CapEx required to keep these assets operating at peak performance and investing in new tools and technology to continue to take market share. We have always geared our business model to generate long-term sustainable growth that is solidly profitable. We're very confident our SG&A spend and our capital investments in 2019 will put us in a great position to continue our history of success. However, we're an extremely proactive and detail-oriented company, and should situations change or additional opportunities arise, we will make changes to our investment strategy on a store-by-store, project-by-project basis. As I conclude my comments, I'd like to again thank the entire O'Reilly team for a solid year in 2018. We're well positioned in 2019 to capitalize on the solid macroeconomic factors that underpin our business and we look forward to continuing to deliver strong results in 2019, by rolling up our sleeves and earning our customers' business by providing excellent customer service each and every day, at all of our stores across the country. Now, I'll turn the call over to Tom.

Thanks, Jeff. Now, we'll take a closer look at our quarterly results and our guidance for 2019. For the quarter, sales increased to $124 million, comprised of a $71 million increase in comp store sales, a $50 million increase in non-comp store sales, a $6 million increase in non-comp non-store sales and a $3 million decrease from closed stores. For 2019, we expect our total revenues to be between $10 billion and $10.3 billion. Our gross margin was up 41 basis points for the quarter, as we experienced stable merchandise margins and benefited from the LIFO comparison to the prior year. We did not see a LIFO charge during the quarter versus a $3 million charge last year. For the full year, we did not experience a LIFO charge versus a $22 million charge in the prior year. For 2019, we do not anticipate a LIFO charge, as we expect inflation will continue to put upward pressure on aggregate acquisition costs. On a year-over-year basis, we expect gross margins for the first two quarters of the year to see the largest improvement, as we receive a benefit from selling through the on-hand inventory that was purchased prior to the recent tariffs and corresponding retail and wholesale price increases. Our fourth quarter effective tax rate was 23.6% of pre-tax income and was comprised of a base rate of 24%, reduced by a 0.4% benefit from share-based compensation. This compares to the fourth quarter of 2017 rate of 19.8% of pre-tax income, which was comprised of the base tax rate of 37.4%, reduced by a 3.5% benefit for share-based compensation, and a benefit of 14.1% or $53 million related to the initial measurement of our federal deferred tax liability, from a tax rate of 35%, down to the new 21% rate, in accordance with the Tax Cuts and Jobs Act of 2017. For the full year, our effective tax rate was 21.8% of pre-tax income, comprised of a base rate of 23.9%, reduced by 2.1% for share-based compensation. For the full year of 2019 , we expect an effective tax rate of 23.5%, comprised of a base rate of 24.1%, reduced by a benefit of 0.6% for share-based compensation. We expect our base rate to be relatively consistent with the exception of the third quarter, which may be lower due to the tolling of certain open tax periods. Also, variations in the tax benefit from share-based compensation will create fluctuations in our quarterly tax rate. Now we move on to free cash flow and the components that drove our results for the year and our expectations for 2019. Free cash flow for 2018 was $1.2 billion, which was a $300 million increase from the prior year. The increase was driven by higher operating profit and lower cash taxes, offset in part by higher capital expenditures and cash interest. In 2019, we expect free cash flow to be in the range of $1 billion to $1.1 billion with the year-over-year decrease due to higher CapEx and higher cash taxes, offset by increased operating profit. Inventory per store at the end of the quarter was $612,000, which was a 2% increase from the end of 2017. The increase was at the top end of our guidance, as cost increases in the year-end acquisition of Bennett, pushed the metric to the top end of the range. That said, our gross inventory levels were well-managed throughout the year, as our ongoing goal is to ensure we grow per store inventory at a lower rate than the comparable store sales growth we generate. For 2019, we expect per store inventory to grow between 2% and 2.5% with the acquisition cost increases and the fourth quarter opening of the Cleveland DC putting pressure on the growth percentage. Our AP to inventory ratio at the end of the quarter was 106%, which is where we ended 2017. We were slightly below the anticipated level of 107%, as the acquisition of Bennett and slower December sales pressured the ratio. For 2019, we expect to remain flat at a 106% of inventory. Moving on to debt; We finished the fourth quarter with an adjusted debt to EBITDA ratio of 2.23 times, as compared to our ratio of 2.12 times at the end of 2017. The increase in our leverage ratio reflects the $750 million, 10-year bonds we issued in May and incremental borrowings on our $1.2 billion unsecured revolving credit facility. We are below our stated leverage target of 2.5 times and we will approach this number when appropriate. We continue to execute our share repurchase program, and for 2018, we repurchased 6.1 million shares at an average share price of $282.80, for a total investment of $1.71 billion. Subsequent to the end of the year, through the date of our press release, we repurchased 0.7 million shares at an average price of $341.20. We remain very confident that the average repurchase price is supported by 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. Finally, before I open up the call to your questions, I'd like to thank the O'Reilly team for their dedication to the company and our customers. This concludes our prepared comments. And at this time, I'd like to ask Vanessa, the operator to turn the line, and we'll be happy to answer your question.

Can you talk a little bit about the regional performance that you saw during the quarter? How does that compare to earlier in the year? And related to that, can you expand upon your quarter-to-date comments? Obviously, a lot of variability around the winter, some tough compares, but overall, what are you seeing quarter-to-date, and how would you assess the winter so far compared to sort of history in last year?

Yes, this is Jeff, and I'll take the first half of that and then flip it over to Tom and Greg. As far as regional performance, really our regional performance was in line with our expectations and pretty solid across the majority of the country that the central part of the country was a little bit softer than the rest, really due to just lack of winter weather in a lot of those markets. And also we had a little bit of headwind down south from the post hurricane numbers we compare against.

So Chris, from a cadence standpoint, although we don't disclose what our actual comp numbers or trends are on a month-by-month basis, what I would tell you is, we feel good about our three to five guide. We've talked about December being the softest month of the quarter and as we moved into 2019, we've seen a more typical weather pattern. We would view this winter as a more normal winter. We've had ups and downs. We've had spikes along the way in different areas of the country and as normal, where we have those spikes, we have improved sales related to the winter weather spikes. But, overall we feel, we continue to feel good about our three to five guide for the quarter.

And then as my follow-up, can you remind us of what the inflation rate was in total for 2018? I believe you mentioned 2% in the fourth quarter, but what was it for the entire year and how are you considering the overall inflation environment in 2019? Thank you.

It ramped up through 2018. No significant numbers in the first and second quarter. So, we ramped up to 1% and 1.5% in the third quarter and 2%. So, I'd say a little above 1% in total. When we look at 2019 and Greg's prepared comments, our expectation is we're going to see a similar number that we saw in the fourth quarter, which was 2%.

I wanted to follow-up on that inflation point. So, the 200 basis points of same SKU inflation that you're expecting in '19. Just to clarify, is that, that's the net impact on comps, or in other words, are you considering the volume offsets within that as well?

So, that would be our expectation for what's going to drive our total inflation number that goes into our average ticket, as we've seen over the last 10 or 15 years of the new model years roll on. They have more expensive parts primarily based on technology that's in those parts and that's been a tailwind to average ticket over the last decade. We think that's going to be augmented by 2% in totality in 2019.

Yes, I believe a significant factor is that last year we discussed how fuel prices might affect discretionary spending. This year, we are cautious that inflation might once again impact discretionary spending for lower-income DIY customers. These customers need to make essential repairs to keep their cars operational for work and grocery shopping. However, when it comes to discretionary expenses, such as routine maintenance, they may choose to delay oil changes and extend the intervals between them. These are repairs that can be postponed without affecting car performance. I think DIY customers who are economically challenged will prioritize necessary repairs but will likely defer more discretionary maintenance tasks.

Throughout 2018, you guys have guided to comps 2% to 4%, now you're looking for '19 at 3% to 5%. Given that we still have a fair amount of winter left, which could either end up being favorable or unfavorable versus last year's normal winter, and you mentioned that you think this year is looking fairly normal as well. What are the other factors that are really driving the outlook for an acceleration in comps?

Yes, a lot of the things we talked about Liz, fuel costs have come down over the past several weeks. And I think the expectation is that fuel prices will continue to be lower this year than prior year and that will be supportive of increasing miles driven. Just as we look at the whole industry backdrop, the fact that employment rates are higher, the economy is more stable. Those things have created an industry backdrop that's more favorable and you add that to Tom's point about average ticket growing because of a combination of parts complexity, the cost of the more technology-related parts on newer cars and the inflation tailwind we had. We felt good about the three to five guide. One of the things I would add to that, and it's not really related to the guide, but it sure makes us feel a lot better about where we are. We had our annual Leadership Conference in Dallas back in mid-January and in that conference, we had about 6,900 O'Reilly team members, all of our store managers, district managers, regional managers were there. And we do that every year, but it sure felt different going into conference this year than it has the past year or two because there was just a lot of excitement, a lot of positive attitudes coming from our store managers when they got there and we really focused that week on ownership, running the business like you own it. We talked about commitment to running and driving a profitable business. We talked about customer service. And our team left that conference really motivated and we feel like that they're out there on the streets, driving sales and providing even a higher level of customer service than they may have done last year.

Yes, we do. I mean that again to Greg's point, I mean, our philosophy, our business model, our strategic distribution network, I mean, our programs, I mean, we are our teams with a lot of tools, what happens one customer and one store at a time and we're focused on fundamental execution on both the do-it-for-me and the DIY side each and every day in each one of our markets.

Tom, I wanted to ask you first about the flow through. And so in the past, when you guided you typically allowed sales to drive the upside or downside to your forecast. And I want to ask you about 2019, if there's any greater likelihood that margins could surprise, or it's really dictated by where you end up with net sales guidance?

As a multi-unit retailer relatively high fixed cost because of the service component of our business, sales will be the key to leveraging operating profit performance. To the extent those sales don't come in as high as we'd like. We have levers to pull. Although we won't do anything in the short term that will impact long-term relationships. And on the upside, we'll continue to see leverage, but we want to make sure that if the demand is there, we're providing the level of customer service that builds those long-term relationships.

Yes, I mean, one of our suppliers, half bunch of suppliers for a couple of years now has been for them to protect their brand and control their pricing online. And there were a couple of suppliers, a couple of years ago in 2017, that they really pioneered this for the industry and we really had a slow start to get other suppliers to come onboard. So, late 2018, we had two or three major suppliers come onboard and so far in 2019, we've had several additional suppliers to commit. So, whether it's an eMRP pricing program or a MAP pricing program, or unilateral pricing program, different suppliers have taken different approaches based on recommendations from their legal department or counsel. We are gaining some traction in that respect and I think we'll see more tighter controls across the industry for online sales going forward.

On pricing, I guess as you get other brick-and-mortar shops, are you seeing any increased competition? I guess, are any of them rather than passing through some of the inflation holding it and trying to reduce pricing to get more commercial volume?

Well, I mean that's ongoing. I mean that's happened forever. I mean there's always been suppliers out there, when times get tough, they cut their prices a little, offer rebates, try to buy the business. That's normally a short-term strategy. I mean it's really, probably I've been in the business, it's been a service and relationship business. And you really build the business and keep the business through solid service, availability and then solid relationships, partnering with that shop to help them grow their business. But pricing comes and goes depending on how tough business is.

Overall, it has increased significantly. From a breakout standpoint, ship-to-home and buy online, pickup in store fluctuates slightly. However, we are maintaining around two-thirds of our online sales through in-store pickups, which is our goal. We want to bring the customer into our store to ensure that we provide the highest level of service and have everything they need to complete their tasks.

So, as we think about modeling the course of your year, you're guiding 3 to 5, it sounds like the start of the year has been good, in part because of inflation, progressively over the course of the year. The inflation repairs are getting more difficult and you're going to no longer likely see the benefit of some of the tariff-related price increases and probably have less visibility into the second half of the year. So, as we model the year, should we take a more cautious view on the second half of the year, and along those lines, what happens if a 25% tariff goes through?

Okay, Michael, this is Tom. What we would tell you that our comps will be relatively consistent on a quarter-by-quarter basis. On a year-over-year basis, as you pointed out, the first quarter will have the most inflationary benefit. We also have an extra Sunday here in the first quarter, which is a 50 basis point headwind. When we look at the rest of the year, it should be relatively consistent, we pick up a Sunday in the third quarter and it was the fourth quarter, the ease going from a weekend to Monday really were a big headwind for our business and that from a calendar standpoint will help the fourth quarter. So, we look a pretty consistent comps throughout the quarter. I'm sorry. Regarding your second question, Michael was.

On the 25% tariff?

Yes, as Greg pointed out, our expectations are, we're going to be in the same state we are now for the year and obviously things have changed a lot. To the extent that we saw those additional tariffs go in March, we'll have to see how the market reacts. But our expectation is that we'll see a larger increase in average ticket driven by those cost increases. And then offsetting pressure because of those rising prices on ticket count. Well, I would point you back to our call this year, last year this time and we talked about a rise in SG&A cost, as people reinvested part of their savings from the new tax laws and that we would see those costs go up, but we wouldn't see a proportional increase in average ticket from inflation, on the top line. And at that time, we said when we look at next year, if we continue to see cost inflation and the expenses to run the business, we'd expect to feel that tailwind in our top line same SKU inflation and that's what we're seeing this year. Given that unemployment is very low, wages are growing quickly, costs are going up, interest rates are going up, we're seeing that inflation run through all our expenses and getting the top-line tailwinds. So, we don't think the business itself has changed, we think that we're just more in an inflationary environment than we've seen in the last five to eight years.

One quick follow-up and I got one bigger picture question. So, is there a way to walk us on the 10 point tariff to a 2 price increase. What percentage of SKUs were impacted, product costs, percentage of COGS or were the offsets are, maybe I just want to bridge there?

So, all of our products are produced overseas. It's a portion of them and even for some lines, some are here in the States and some are not. We're not going to get into breaking down the individual numbers. We push back on all the price increases we get, whether they're tariff-related, interest rate-related, healthcare-related, raw commodity-related, but that ends up being the blended number. And we didn't take full 10% increases on most of our products.

I mean, we basically have our spoke store, and then we have a hub store, that would be in the 45,000 SKU range and then we have super hubs, but we don't have DCs in a large metro market that would be in that 80,000, 90,000 SKU range and then our DCs would obviously have in that 160,000, 170,000 SKU range.

Yes, Chris, if I could, could add to that a little bit about why we're making that change. We are facing some pretty significant capacity issues in both Middle Tennessee or Nashville DCs located and our East Tennessee market in Knoxville. And we had to make a move and we decided to consolidate those two facilities into a much larger facility. That will allow DC to have a larger breadth of SKUs for the some of that customer base, but because that market in Knoxville is a market that's had a DC inventory presence for a number of years now, we wanted to supplement that markets for same-day service by converting that DC into a super hub and making sure that we maintain that same day parts availability in the Knoxville market.

Lastly, this is a one-off just specific to that market? Or do you foresee or envision creating more of these super hubs throughout the country? Thank you.

We've always employed the super hub strategy, but in the case of Knoxville, it lacked the necessary capacity of a mid-stage distribution center to adequately serve that market.

Jeff, we've got 340-ish hub stores and how many super hubs of those super hubs?

40 give or take.

We've got several on the markets right now.

Thanks a lot, and good morning. My questions are around the gap between DIY and pro comps. Could you provide some color as to how that trended for each quarter through 2018 and how you're looking at that through 2019?

We have discussed this in each quarter and that information is available. We do not disclose the actual number. However, we can say that in 2018, we faced challenges with the count of DIY customers, while the Pro segment has shown growth every year and every quarter. The average ticket has increased for both segments, and we anticipate this trend will continue into 2019.

But you don't expect that sales gap to widen between DIY and commercial in 2019?

We're anticipating a similar difference with professional business continuing to grow faster based on our ability to consolidate the market, based on that consumer being less impacted by general rising prices and based on other macro factors our business slightly aging population and more expensive repairs that are more technical in nature on late model vehicles being expensive. The biggest changes are, number one is DCs and DC projects. Number two is in-store technology.

Yes, good morning everyone. In 26 years, it's just amazing. Congrats. I'd like to follow up on Michael's question a little bit maybe parse it out in a different way. Just the in-store and omnichannel investments in 2018 that you're continuing to do in 2019. I know you invest for long-term sustainable growth, but can you give us some sense of when the payback is on those investments are? When we should expect the payback on those investments, whether that be through increased sales, accelerating sales or margin or whatever the payback is? Thanks.

What we would tell you is that most of these changes are just consumer expectations. Consumers shop outside of auto parts that many retailers and their expectation of what great services changes over time. And our job is to continue to make sure that our customer service levels are up there, to maintain our business. It's hard to parse out what that is from a sustaining standpoint versus additional business. It's part of the factors that go into customer service that drive our comps to be higher than the industry growth rates.

Yes, Matt, to add on to that, I'm not going to go into any details about what the initiatives are for competitive reasons. But from an omnichannel perspective, we're primarily focused on improving content, improving online search, improving customers' buying decisions, whether they buy online, ship to home, buy online pickup in store, or research online buy in store, a lot of those transactions and buying decisions are made based on research online. So, we're just focused on making sure that we are providing the highest level of searchability for our products for our customers and we think that's going to pay dividends long-term from a sales perspective. How we quantify that, it's very difficult to do.

No, there wouldn't be.

Thank you, Vanessa. We'd like to conclude our call today by thanking the entire O'Reilly team for our solid fourth quarter and full year 2018 results. We look forward to a strong year in 2019. I would like to thank everyone for joining our call today and we look forward to reporting our 2019 first quarter results in April. Thank you.