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On Thursday, O’Reilly Automotive Inc (NASDAQ:ORLY) reported its second quarter earnings and discussed the following topics in its earnings conference call. Take a look.
Michael Lasser – UBS: Greg, so there seems to a lot of debate on the industry right now. I wanted to get your view on what you think is driving the more — the greater variability in demand trends, is there really weather a hangover from some of the warm conditions we saw in the winter or is this more reflective of just getting towards the end of what’s been a pretty good cycle for the industry?
Gregory L. Henslee – Co-President and CEO: Well, I don’t think it’s the end of a pretty good cycle for the industry. I think that the dynamics that drive demand in our industry with Miles Driven, the age of vehicles and all those things continue to bode well for the industry. It really remains unchanged to some degree. I think the factors that are affecting us right now, early in last quarter it was of course the pull forward of some business into the first quarter, due to the mild winter. And I would suspect that that has some affect on business this summer, just related to parts that didn’t – were caused to sale by the lack of winter weather. But, as much as anything we would speculate that it is simply the consumers that are reluctant to spend money in an uncertain economic environment. We see that in a lot of different ways. When we look at our category reports we see things that can be deferred, it appears as though, so they’re being deferred and talking with the mini shops that we do business with, you hear them tell stories of their reduction in the ability to sell jobs, someone comes in for a, because their air conditioning (indiscernible) cold, hoping that they just needs Freon and when they find out it needs a compressor and its going to be at the $800 job or something, they say what I’ll take care of it later and they drive with their windows down. Again, we see that in our by category reports and while, we don’t go into lot of detail in our by category sales, it’s easy to see that some of these categories that are more subject to deferral are being deferred. Another headwind or industry has to some degree is just some commodity pricing. When it comes to seasonal items like Freon, 30 pound cylinders are Freon are selling for substantially less than they were this time last year and that that creates a bit of a headwind for all of us.
Michael Lasser – UBS: And to the extent that some of the soft is being caused by the lack of (duress) from the warm winter. How long do you think that persist, is it that once the fall arrives than anything that would have been done is no longer an issue?
Gregory L. Henslee – Co-President and CEO: I think so – I think what, I hope what we’ll see is that, we’ve had an incredibly – we’re in the middle of incredibly hot summer and drought in the Central U.S., a lot of things that are hard on cars, and we see the effect of that heat up in some of the categories that would be subject to immediate failure as a result. Some of the failure that is caused by heat is deferred the winter, for instance on batteries, sometimes the battery will fail under heat, but many times the damage is done to a battery during heat, but it’s not really stressed until cold weather when the engine demands the most from a cranking perspective. So our hope is and what our past experience has been is that when we have a really, really hot winter like this, that we would benefit from that or a hot summer like this we benefit from that in the winter. Another factor for us is, a substantial amount of our businesses, at least in the historical O’Reilly stores are in rural areas that are subject to customers who are in the agricultural business and this drought is just terrible for their business and we see that, for instance our filter sales. So, we do a lot of business in farm and ag filters. Our filter business isn’t doing as good simply because the farmers are doing as much because their crops aren’t going and there’s no water. So, there’s no question that there are some weather issues but that coupled with just the economic uncertainty would be the things that we would speculate are causing the sequential reduction in comp store sales.
Michael Lasser – UBS: My final question, is there any evidence to suggest that greater competitive factors are beginning to weigh on the DIFM side of the business? Perhaps, it’s a case where a commercial customer has a certain propensity to switch to a new supplier and so that they’re more likely to go with one of the dual focused auto part retailers and so that segment of the market is just going to be trading share from here on out?
Thomas G. McFall – EVP of Finance and CFO: Well, I think there’s no question that the, do it for me side of the business is a very competitive business. It always has been, and the more players there are in that side of the business, the more competitive it can be. I have to look to our sales results, and while we would like for our historic O’Reilly stores to have performed better on the do-it-for-me side, the sequential reduction we saw is pretty similar to what we saw on the DIY side. So it’s hard for me to think that it’s related to competition in the CSK stores where we continue to – we feel like robustly gain market share on the do-it-for-me side. We continue to see really good sales results there. So, it’s a factor to some degree. We of course have been in this business a long time and are very sensitive to what our competitors do and are very defensive when it comes to losing business to a competitor. So, it’s something we work on every day that, it’s always a challenge.
Simeon Gutman – Credit Suisse: It’s Simeon for Gary. I guess he’s running around an airport somewhere. Can you talk – and this is following on Michael’s question a little bit, can you talk about your sense of market share, I guess, the slowdown. Was that purely market-driven or could it be some market share shifts? And then, breaking out of the 1 to 3 range, will that be a function of the market getting better or do you think, something competitive also on your end?
Gregory L. Henslee – Co-President and CEO: Well, speaking of market share, I sure don’t think we’ve lost market share by any means and the information that we get indicates that we continue to gain market share. I think our ability to grow comparable store sales more robust than we did in the second quarter depends to some degree on both. We feel very confident in our ability to incrementally take market share, and I think it is exemplified with what we’ve done with the CSK stores. We have that ability and execute that ability every day and I think we’ll continue to be able to do that. In the historical O’Reilly stores, I think we have a very solid market share that we continue to incrementally gain maybe at a slower rate than we are in the CSK stores, but I don’t think we are losing market share. I think the contributor to our comparable store sales comes from just industry dynamics, having a good demand for auto parts which, I think has slowed to some degree related to just the position that consumers are in and then, of course, our ability to take market share which we work every day to come up with better ways to do that, and I think we are as good as anyone the industry at accomplishing that.
Gary Balter – Credit Suisse: Then, following on some color that you mentioned that, I think, there was equal slowdown to both businesses, but that both contributed positively. If you break it down a little further, and it sounds like CSK is still a positive driver. Was there any disproportionate slowing on a relative basis? The contribution from CSK slowing more than other pieces or retail in historic markets slowing, I’m just curious for a little bit more texture there?
Gregory L. Henslee – Co-President and CEO: In historic markets, both retail and our professional business decreased of course. They both decreased in the equal proportions. On the CSK side, they were very, very close again. Our do-it-for-me business being significantly stronger from a comp store sales percentage standpoint than what our DIY business is.
Gary Balter – Credit Suisse: Greg is there any – if you looked at pricing, have you tried any different pricing initiatives to see if that could be one of the issues holding back sales right here?
Gregory L. Henslee – Co-President and CEO: Well, on the DIY side for instance, Gary, we shop our competitors intently as I’m sure they shop us, and we can feel extremely confident that our prices are set competitive on the retail side. On the professional side, it’s a little more difficult. You don’t, our competitors, if we call them, aren’t willing to tell us what price they sell us or can customer ask, so, you have to do a little digging to do that. So yes we do experiment with that, and we have complete flexibility in the way we price our professional customers. Our experience has been that while price is very, very important on the do-it-for-me side, its second, third, or fourth on a list of things that are more important, including availability, the amount of time it takes to get the product to them. The abilities of the person that they contact to get the part, their professional, their technicians don’t want to deal with someone they doesn’t know what they’re talking about, they want to phone call to be very brief, and as little information given is, can possibly be given to make the transaction. So, it’s important, but I don’t think that’s the primary factor. But to answer your question, yes we do experiment, and we feel good about, where we are at from our pricing standpoint.
Gary Balter – Credit Suisse: Just one last thing, just following up on Michael’s question, maybe it’s the same question. You found pretty comfortable that we don’t have a sea change, like, we haven’t done the deferred maintenance and then we have a step down on the business, so a lot of this is related to related to just the weather that we had and by the fall, we should get back to more of the normal maybe 3 to 4 or maybe 3 to 5 comp, is that reading too much into your commentary, or is that what you’re seeing?
Gregory L. Henslee – Co-President and CEO: Well, Gary, of course it’s my speculation. But that’s the way I feel. I just don’t see anything that drives our business that has changed enough that it would cause a deceleration outside of these other factors that could be affecting either demand or deferred maintenance?
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