O'Reilly Automotive Q3 2026: comps +7.2%, EPS +14% to $0.97, with $39M of tariff refunds doing part of it

O'Reilly Automotive's third quarter of 2026 (July 1 – September 30) brought sales of $5,121 million, up 8.8% from $4,706 million a year earlier, on comparable store sales growth of 7.2%, a pickup from 6.0% in the second quarter. Operating income rose 12.5% to $1,098 million and diluted earnings per share (EPS, profit divided by the number of shares) rose 14% to $0.97. Two things did a lot of that work: a $39 million tariff refund received in the quarter, which the company itself names as a driver of EPS growth, and a share count 4.7% smaller than a year ago after heavy, partly debt-funded buybacks. Management raised its full-year guidance for comparable sales, margins and EPS.

This analysis is written from the October 28, 2026 earnings release (Exhibit 99.1 to the 8-K). The full Form 10-Q, which carries the management discussion of ticket size, transaction counts and the margin drivers, had not been filed when this was written, so those details are not covered here yet.

Key figures

Gross margin is the share of sales left after paying for the parts sold (O'Reilly counts warehouse and distribution costs in that cost). Operating margin is the share of sales left after also paying for stores, staff and head office, before interest and tax.

Where the sales growth came from

Sales rose $416 million. Existing stores did most of it: comparable sales grew 7.2%, the fastest pace since Q1's 8.1%, and the first nine months came to 7.1%. The rest came from new stores: O'Reilly opened 63 stores in the quarter (54 in the U.S., 8 in Mexico, 1 in Canada) and 173 so far this year, and it reiterated a full-year target of 225 to 235. Sales per U.S. store rose 6.1% to $764,000 for the quarter.

Repair shops remain the engine. Professional sales grew 12.7% to $2,601 million against 6.2% for DIY, and shops now account for 51.5% of combined professional and DIY sales, up from 50.0% a year ago. CEO Brad Beckham credits "share gains on both sides of our business." DIY growth of 6.2% is a step up from 4.9% in Q2. The release does not split the growth into more customer visits versus higher spending per visit; the 10-Q is where that breakdown appears, and in Q2 it showed DIY visits falling while tickets rose.

Margins: better, but mostly because of the refund

Gross profit rose 10% to $2,683 million, and gross margin widened to 52.4% from 51.9%. Selling, general and administrative costs (SG&A: store wages, rent, insurance and head office) rose 8.3%, a little slower than sales, which brought them down to 30.9% of sales from 31.1%. Together that lifted operating margin to 21.4% from 20.7%.

The $39 million tariff refund is the catch. The release does not say which line it was booked in, but it has to be inside operating income: "other, net" income was only $3.7 million. Taking it out leaves operating income of about $1,059 million, up about 8.5%, and an operating margin of about 20.7%, the same as last year. If the refund went through cost of goods (tariffs are a cost of the parts themselves), gross margin without it would have been about 51.6%, slightly below last year's 51.9%, which is consistent with the Q2 pattern of faster-growing, lower-margin professional sales pulling the mix down. The genuine improvement this quarter is SG&A spreading over strong sales, not product margins.

What the headline numbers hide

Below operating income, the gains shrink. Interest expense rose 37% to $82 million from $60 million as debt grew, and the tax rate rose to 23.1% from 21.4%. So pretax income grew 10.7% and net income 8.2%, less than operating income's 12.5%.

The refund is about a third of EPS growth; buybacks are most of the rest. At this quarter's tax rate, $39 million pretax is about $30 million after tax, or roughly $0.04 a share. Without it, net income would have been about $756 million, up about 4%, and EPS about $0.93, up about 10%. Most of the gap between 4% and 10% is the share count: diluted shares fell 4.7% to 812 million. A higher tax rate worked the other way, costing roughly $18 million against last year's rate. O'Reilly reports only GAAP earnings, with no "adjusted EPS."

Buybacks keep outrunning cash generation. O'Reilly repurchased 11.8 million shares for $1.03 billion in the quarter ($3.47 billion in nine months) and another $204 million after quarter-end, leaving about $727 million under its current authorization. Quarterly free cash flow (operating cash flow minus capital spending) was $252 million, down from $297 million. Long-term debt rose to $7.71 billion from $7.01 billion at June 30 and $5.92 billion a year ago, and adjusted debt to EBITDAR (debt plus a lease-based charge, divided by earnings before interest, tax, depreciation, amortization, share-based pay and rent) reached 2.26x, up from 2.17x at the end of Q2. Shareholders' deficit widened to $2.09 billion: O'Reilly has returned more than its cumulative retained profits, which is a choice, not a sign of losses, but it means leverage is the lever being pulled.

The early cash from tax-credit timing is unwinding, as expected. Year-to-date operating cash flow is $2,598 million against $2,105 million of net income, still flattered by the timing of payments for renewable energy tax credits that boosted the first half. Q3 operating cash flow was $559 million, below last year's $617 million, and other current liabilities fell to $744 million from $1,071 million at June 30. That reversal is what our Q2 report expected.

Inventory is growing a bit faster than sales. Inventory was $6,165 million, up 9.9% against 8.8% sales growth, and inventory per store rose 6.3% to $912,000. Supplier payables cover less of it: accounts payable equal 121.8% of inventory, down from 125.9% a year ago, so O'Reilly is funding slightly more of its stock itself. Receivables rose 9.3%, roughly in line with sales.

On balance the quarter is flattered: EPS rose 14%, but net income grew about 4% once the $39 million tariff refund is set aside, and the rest of the EPS gain came from a share count shrunk with borrowed money. The underlying sales trend is genuinely strong.

Takeaway: The demand picture improved: comparable sales accelerated to 7.2% and repair-shop sales grew 12.7%. But the margin expansion and much of the EPS beat came from a $39 million tariff refund that will not repeat, and underlying operating margin was flat at about 20.7%. EPS growth of roughly 10% without the refund depends on buybacks running at four times quarterly free cash flow and pushing leverage to 2.26x.

Did last time's read hold up?

Our Q2 report said the full-year comparable sales guide of 4%–6% implied only about 1%–5% in the second half, and that the Q3 comp would show whether that was caution or a real slowdown. It was caution: Q3 came in at 7.2%, above that range, and management raised the full-year guide. We also flagged that first-half cash flow was flattered by tax-credit timing that would reverse; Q3 operating cash flow fell 9% and other current liabilities dropped by $327 million, so it is reversing. And we said buybacks above free cash flow would mean more borrowing and a higher leverage ratio; both happened (2.17x to 2.26x). The DIY transaction count we said to watch cannot be checked until the 10-Q is filed.

Outlook

Management raised its full-year 2026 guidance on October 28:

The company says the new ranges "incorporate our strong third quarter performance, including the benefit from tariff refunds." The EPS range moved up $0.05; the refund alone is worth about $0.04, so most of the EPS raise is the refund rather than a better view of the fourth quarter.

Our read: the guide is cautious on the fourth quarter. With 7.1% comparable growth through nine months, a 5.5%–6.5% full year implies roughly 1%–5% in Q4 if the quarters weigh about the same. Nine-month EPS is $2.54, so the EPS range implies roughly $0.71–$0.81 for Q4, and the $1.73 billion of free cash flow so far implies only $0.17–$0.47 billion more. Three things to watch next quarter: whether the Q4 comp stays near the top of that implied range; operating margin without one-offs, which was flat year over year in both Q2 (20.2%) and Q3 (about 20.7%); and the leverage ratio, since only $727 million of buyback authorization is left and a new authorization would show how far above 2.26x management is willing to go.