O'Reilly Automotive closed 2025 with a 5.6% fourth-quarter comparable store sales gain and 4.7% for the full year, led by over 10% professional comps, lifting total sales 6.4% to $17.8 billion and fourth-quarter EPS 13% to $0.71 in its 33rd consecutive year of comp growth. Elevated team-member healthcare and self-insurance costs pressured SG&A and held full-year operating margin flat, and free cash flow declined on tax-credit timing and higher capital spending. For 2026 the company guided to 3%-5% comparable store sales and $3.10-$3.20 in EPS, assuming a stable tariff and pricing environment with continued cost pressure weighted to the first half.
Thank you, Matthew. Good morning, everyone, and thank you for joining us. During today's conference call, we will discuss our fourth quarter and full year 2025 results and our outlook for 2026. 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 fourth 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 am once again pleased to begin our call today by congratulating Team O'Reilly on another strong year in 2025. We finished the year with a comparable store sales increase of 5.6% in the fourth quarter, which brought our full year comp for 2025 to 4.7%. The 4.7% was at the high end of our revised guidance range of 4%-5% and above the expectations we set in our initial guidance coming into 2025.
Our strong comparable store sales performance, coupled with the continued successful execution of our new store expansion, drove a total sales increase of 6.4% to $17.8 billion. To provide some perspective, our 2025 sales reflect an increase of over 50% in total sales volume over the last five years, representing growth of over $6 billion since 2020. Our ability to continue to grow our business and capture market share year in and year out is a testament to our team's commitment to providing excellent customer service. I want to thank each member of Team O'Reilly for their daily commitment to our customers and our company. To touch on the rest of our results as we finish out the year, I want to briefly highlight both areas of strength and some headwinds we faced in 2025 before Brent provides more color in his remarks.
For the full year, we generated operating profit of $3.5 billion, a 6.4% increase over 2024. On a percentage of sales basis, our 2025 operating profit of 19.5% was flat to the prior year and right at the midpoint of the guidance range we maintained throughout 2025. We are pleased with our team's ability to drive robust gross margin results in an environment of rising costs and prices by ensuring that we are providing exceptional value to our customers to earn their business. We are also pleased that our team continues to capitalize on the investments we have made in our business, including enhancements to our distribution and hub store network, expanded inventory assortments, and strategic technology investments. We believe our continued sales growth trends reflect share gains won by consistently executing our proven business model while also delivering incremental improvements to further differentiate our service from the competition.
We will continue to prioritize these initiatives to lean into our business to sustain our growth momentum. However, we unfortunately also faced substantial cost pressures in 2025, including headwinds reflected in our fourth quarter results, primarily from rising costs related to our team member healthcare and self-insurance programs. We are certainly not pleased that these headwinds dampened an otherwise strong finish for our company in 2025, but we remain intensely focused on managing our business effectively to deliver the excellent customer service that drives long-term growth and profitability. During the fourth quarter, we generated diluted earnings per share of $0.71, which represents an increase of 13% over the prior year. For the full year, we generated EPS of $2.97, which was an increase of 10% over 2024.
As we noted in yesterday's press release, our 2025 results represent our 33rd consecutive year of annual comparable store sales increases and record levels of revenue, operating income, and EPS. This remarkable track record of strong, consistent earnings growth is a reflection of the effectiveness of Team O'Reilly's customer service-oriented culture and our focus on profitable, sustainable growth. Now I'd like to take a few minutes to provide some color on our fourth quarter sales results. Our comparable store sales for the fourth quarter grew 5.6%, which was at the high end of our expectations. Similar to the third quarter, growth in our professional business was the stronger driver of our sales results, with an increase in comparable store sales of over 10% for the second consecutive quarter.
We're also pleased to generate a positive DIY comp in the low single digits, as this side of our business also performed largely in line with the trends we saw in the third quarter. Our comparable store sales increase in the fourth quarter reflected growth in both transaction volume and average ticket value, with the average ticket growth representing the stronger of the two drivers. Average ticket grew in the mid-single digits on both sides of our business, driven by a contribution from same-SKU inflation of approximately 6%, partially offset by a headwind from the composition of our product mix. As we have noted throughout 2025, the pricing environment has remained rational in response to tariff-induced product cost pressures.
After a significant ramp in these cost pressures and corresponding price changes in the third quarter, the fourth quarter leveled out, and the inflation benefit was realized in a very consistent month-to-month. This dynamic aligned with our expectations given the timing of the impact we have seen in tariff and acquisition costs, and we believe also reflects a stable pricing environment in the aftermarket. We were pleased with a positive contribution to comps from ticket count growth in the fourth quarter, driven by continued robust growth in our professional business, partially offset by modest pressure in DIY transaction counts. Our fourth quarter performance in our professional business matched the consistent strength we saw throughout 2025. The value proposition we are creating for our customers is clearly distinguishing O'Reilly as the preferred partner to the professional service provider.
Next, I want to provide an update on the results in our DIY business in the fourth quarter. As we have discussed throughout 2025, we have remained cautious regarding the impact to consumers from broad-based inflation and macroeconomic pressures. This included our comments on the pressured trends to transaction counts we saw midway through our third quarter and into the beginning of Q4. As we move through the fourth quarter, we saw stabilization in the demand backdrop in our DIY business, including some modest improvements in DIY transactions month-to-month, but both in absolute terms and relative to our initial plan expectations for the cadence of our business. To be clear, we still experienced some pressure that resulted in slightly negative traffic comps as we finished out our fourth quarter.
This was most evident in the small subset of our DIY business that is highly discretionary in nature, including categories like appearance and accessories. On balance, we view the current sales trends in our DIY business as pretty consistent with what we have seen for the last several quarters now. However, we are pleased to not see any heightened pressure to the consumer that would indicate a more significant negative reaction to economic conditions. Turning to the cadence for the quarter for our consolidated business, our results were fairly consistent throughout the quarter, with December being slightly stronger than the first two months. This was due in part to solid performance as we finished out the year in winter weather-related categories. These categories performed well even against tougher comparisons to last year.
We view this season, both in the fourth quarter and what we have seen so far in 2026, as typical winter weather and consistent with last year. Beyond the strength in our winter weather-related categories, we also saw strong results in the fourth quarter in maintenance-related categories, in line with the trends we have seen for several quarters now. Next, I want to transition to a discussion of our guidance for 2026, starting with our sales outlook. As we disclosed in our release yesterday, we're establishing our annual comparable store sales guidance for 2026 at a range of 3%-5%. We want to provide some additional color on how we're viewing the economic conditions in our industry and our opportunities to outperform the market. Beginning with our industry outlook, we view the fundamental backdrop for the automotive aftermarket as relatively stable.
While we believe the industry has experienced some sluggishness over the last several quarters from a more cautious consumer, we believe the drivers for demand in our industry remain very solid. There continues to be a very compelling value proposition for consumers to invest in the repair and maintenance of their existing vehicles to meet their daily transportation needs. The U.S. car park has seen an increase in total miles driven of approximately 1% over the last two years. We expect to continue to see steady growth in this metric, supported by growth in the total size of the car park. Due to the resiliency of our customers and the nondiscretionary nature of our business, we have confidence in a steady industry environment in 2026, even if we continue to see a cautious stance from consumers.
Ultimately, our performance this year will depend on our effectiveness in executing our business model, providing exceptional customer service, and in turn gaining market share. To that end, our 2026 comparable store sales guidance includes expected growth in both our professional and DIY businesses that we anticipate will again outpace the industry. For 2026, we expect to see continued growth in average ticket values, primarily supported by anticipated same-SKU inflation. As a reminder, our 2025 results reflected a muted impact from inflation in the first half of the year before we began to pass through tariff cost increases beginning in the third quarter. In total, 2025 saw same-SKU inflation of just under 3% on both sides of our business, and we anticipate similar levels in 2026.
Thanks, Brad. I would also like to begin my comments this morning by congratulating Team O'Reilly on another strong year. Once again, your commitment to excellent customer service drove our performance in 2025. Today, I will further discuss our fourth quarter and full-year operational results and provide some additional color on our outlook for 2026. Starting with gross margin, our fourth quarter gross margin of 51.8% was a 49 basis point increase from the fourth quarter of 2024 and above our expectations. Our full-year gross margin came in at 51.6%, representing an increase of 39 basis points over last year and in the top half of our guidance range. Our team was able to deliver this strong gross margin performance despite facing a headwind from the robust performance in our professional business for both the fourth quarter and the full year.
Our gross margin performance is the result of the collective efforts of our supply chain, store, and distribution operations teams. Our supply chain teams, with outstanding support from our supplier partners, were highly effective in navigating the rapidly evolving cost environment in 2025 to drive improved gross margins through incremental improvements in acquisition costs and effective management of the pricing environment. Our distribution teams were equally effective at driving efficiencies and capitalizing on our strong sales momentum. Our DC teams generated improved leverage on our distribution cost while relentlessly delivering the highest standard of service and support to our stores. Finally, our store teams executed at a high level to maximize our value proposition to our customers. Their ability to consistently provide excellent customer service and industry-leading inventory availability enabled us to generate a healthy margin in an environment of increasing acquisition cost.
For 2026, we expect to continue to see further expansion of gross margin as we calendar our gains in 2025 and capitalize on incremental improvements to reduce acquisition costs as we progress through the year. We have established a guidance range for 2026 of 51.5%-52%, which at the midpoint would represent a 16 basis point increase over 2025. Our guidance reflects our continued confidence in the ability of our teams to effectively manage cost and leverage the premium value proposition that they create for our customers to generate improvements in our gross margin rate, despite expected incremental headwinds from a faster growth rate in our professional customer sales. Our gross margin rate also reflects an anticipated benefit from the continued evolution of our business in Mexico, away from a distribution model to independent jobbers.
As we continue to increase our store count in Mexico, we anticipate a continued rapid transition away from jobber sales that historically represented the majority of our sales mix in Mexico. The reduction of these lower gross margin sales creates a mixed tailwind to our consolidated gross margin rate, but also modestly pressures our SG&A rate as we reduce the leverage benefit of these non-store sales. From a cadence perspective, our quarterly gross margin remained fairly consistent throughout 2025, with the quarter-to-quarter differences reflecting the pace of improvement we realized as we progressed through the year. We expect a similar quarterly cadence for 2026. As Brad mentioned during his remarks, our guidance for 2026 assumes a stable cost and price inflation environment.
Our baseline assumptions include the normal puts and takes in the cost environment that we would expect in a typical year and do not include any projections for volatility related to changes in tariffs in either direction. Ultimately, we expect our industry to continue to behave rationally and have confidence in our team's ability to effectively navigate through any changes that we may encounter in the coming year. Next, I want to provide an update on some supply chain and distribution initiatives. To start on the distribution side of our business, we are very excited to report the successful opening of our newest distribution facility in Stafford, Virginia, in the fourth quarter. The addition of this DC opens up a new section of the map in the heavily populated and important untapped markets for us in the Mid-Atlantic I-95 Corridor.
We're also making great progress on the development of our new distribution center in Fort Worth, Texas, and expect this facility to be operational in Q1 of 2028. This new facility will expand our available capacity in some of our most important mature core markets, enabling continued new store growth and support of increased per-store volumes that have grown significantly over the last several years. Finally, our capital investment outlook for 2026 includes dollars allocated to future expansion and development of our distribution infrastructure. Coming into 2025, we had a similar provision in our CapEx plan that was ultimately allocated to the Fort Worth project. While we do not currently have specific details to announce on the next slate of projects, we are steadfast in our commitment to proactively enhance our distribution network to support the store growth opportunities that Brad outlined earlier.
The success of our industry-leading distribution infrastructure is a direct reflection of the professionalism of our distribution operations teams. These leaders have proven time and again their effectiveness in planning, building, and seamlessly opening new distribution centers, often successfully executing multiple DC projects at the same time. Moving on to inventory, our inventory per store at the end of 2025 was $870,000, which was up 9% from the end of last year. The investment exceeded our initial plans on a per-store basis, driven by our continued opportunistic investments to support our sales momentum. For 2026, we expect per-store inventory to increase approximately 5%, comprised of investments in hub store inventories and targeted additions in store assortments. We continue to prioritize incremental inventory enhancements to capitalize on the opportunities that we see to accelerate our growth momentum and are pleased with the productivity of these investments.
Now I want to spend some time covering our SG&A and operating profit performance for 2025 and our outlook for 2026. Fourth quarter SG&A expense as a percent of sales was 33.0%, down 25 basis points from the fourth quarter of 2024. This reduction was the product of the favorable comparison to the $35 million charge that we recorded in the fourth quarter of 2024 to adjust reserves relating to our self-insurance liabilities for historic auto liability claims. The leverage benefit came in below our expectations for the quarter as a result of an elevated per-store SG&A increase of 3.3%. A portion of this higher-than-anticipated spend reflects incremental expenses in support of our strong sales momentum, which finished the quarter at the high end of our expectations, as Brad noted earlier.
However, the larger impact driving our spend in the quarter was the broad-based pressures that we saw from continued heightened cost inflation in our self-insurance programs, including headwinds in team member healthcare cost, workers' compensation and general claims expenses, litigation cost, and auto liability reserves. Average per-store SG&A expenses for the full year of 2025 were up 4%, finishing 0.5 point above our full-year guide as a result of these same drivers. Outside of the headwinds that we faced from these discrete expense pressures, our remaining SG&A was in line with our expectations. Our ongoing priorities for our expense management remain focused on improving our operational strength in our stores, opportunistically pursuing enhanced technology, and further equipping our teams. As we look forward to 2026, we are planning to grow average SG&A per store by 3%-4%.
Our SG&A expectations reflect ongoing management of our expense structure to support our core operations and lean into the sales growth opportunities that Brad outlined earlier. We have also factored in continued plans to prioritize enhancements to our hub network, development of incremental tools for our teams, and improvements in technology infrastructure and capabilities. Also included within our assumptions is a cautious outlook regarding potential continued pressure in the self-insurance and legal line items that created the headwinds throughout 2025. While our recent experience for these costs has been more pressured than is typical for our business, at times in our history, we have experienced similar periods of accelerated above-trend increases. Ultimately, we believe the inflation growth rates for these expenses will stabilize over time, but we remain cognizant of the potential to see further pressures in 2026.
Based on the anticipated cadence of our SG&A spend during the year and how our comparisons to 2025 lay out, we are anticipating SG&A growth on a per-store basis to be higher in the first half of the year than the back half of the year, consistent with the comparable store sales cadence that Brad detailed earlier. Based on our SG&A expectations and projected gross margin range, we are setting our operating profit guidance range at 19.2%-19.7%, which at the midpoint is in line with our full-year 2025 results. Stepping back for a moment from the puts and takes that drove our operating cost dynamics over the past year and our expectations for 2026, we remain pleased with our team's ability to drive consistent top-line growth at stable, strong operating margins.
Our focus on enhancing our strong competitive positioning to sustain our industry-leading growth momentum is the strategic North Star that drives how we leverage our capital and operating investments to drive long-term growth and high returns. Before I turn the call over to Jeremy, I want to once again thank Team O'Reilly for their continued hard work and unwavering commitment to our customers. Now I will turn the call over to Jeremy.
Thanks, Brent. I would also like to thank all of Team O'Reilly for their continued hard work and dedication to our customers. Now we will fill in some additional details on our fourth quarter results and guidance for 2026. For the fourth quarter, sales increased $319 million, driven by a 5.6% increase in comparable store sales and a $94 million non-comp contribution from stores opened in 2024 and 2025 that have not yet entered the comp base. For 2026, we expect our total revenues to be between $18.7 billion and $19 billion. Our fourth quarter effective tax rate was 21.5% of pre-tax income, comprised of a base rate of 21.8% reduced by a 0.3% benefit for share-based compensation. This compares to the fourth quarter of 2024 rate of 19.6% of pre-tax income, which was comprised of a base tax rate of 20.4% reduced by a 0.7% benefit for share-based compensation.
The fourth quarter of 2025 base rate as compared to 2024 was higher as a result of the timing of recognition of certain tax credits. For the full year, our effective tax rate was 21.7% of pre-tax income, comprised of a base rate of 22.6% reduced by a 0.9% benefit for share-based compensation. For the full year of 2026, we expect an effective tax rate of 22.6%, comprised of a base rate of 23.0% reduced by a benefit of 0.4% for share-based compensation. We expect the quarterly rate to fluctuate due to variations in the tax benefit from share-based compensation and the tolling of certain tax periods in the fourth quarter. As we outlined in our press release yesterday, we have established our earnings per share guidance for 2026 at $3.10-$3.20, which reflects an increase over 2025 EPS of 6.1% at the midpoint.
This year-over-year increase in our guidance range reflects the anticipated headwind of approximately $0.04 from the increase in our expected effective tax rate. Now we will move on to free cash flow and the components that drove our results in 2025 and our expectations for 2026. Free cash flow for 2025 was $1.6 billion versus $2 billion in 2024. The reduction in free cash flow was driven by the accelerated timing of payment in the third quarter of renewable energy tax credits that were originally planned to settle in 2026 and higher CapEx, partially offset by growth in operating income. For 2026, we expect free cash flow to be in the range of $1.8-$2.1 billion.
The expected increase in free cash flow is driven by the inverse impact of the timing of the 2025 tax credit purchase payment and growth in operating income, partially offset by the step-up in capital expenditures Brad outlined in his comments. I also want to touch briefly on our AP to inventory ratio. We finished the fourth quarter at 124%, which was down from 128% at the end of 2024 and slightly below our expectations for the end of 2025. For 2026, we expect to see continued moderation resulting from our planned incremental inventory investment, and we expect to finish the year at a ratio of approximately 122%. Moving on to debt, we finished the fourth quarter with an adjusted debt to EBITDA ratio of 2.03 times as compared to our end-of-2024 ratio of 1.99 times, driven by a modest increase in adjusted debt.
We continue to be below our leverage target of 2.5x and plan to prudently approach that number over time. We continue to be pleased with the execution of our share repurchase program, and for 2025, we repurchased 23 million shares at an average share price of $92.26 for a total investment of $2.1 billion. Since the inception of our share repurchase program in 2011, we have repurchased 1.5 billion shares at an average share price of $18.77 for a total investment of $27 billion. 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 includes the impact of shares repurchased through this call but does not include any additional share repurchases.
Before I open up our call to your questions, I would like to thank our team for their continued commitment to the excellent customer service that drives our success. 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.