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Brent Kirby

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 and how we manage our supply chain and where we source our products. As we have previously stated, approximately 1/4 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% to 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 cost. 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% to 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% to 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% to 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 remained strong at 1.6 times as our teams work to continually enhance assortments by market. The tiered nature of our distribution network with regional DCs and hub stores allow 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 US 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 to $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. And 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.

Jeremy Fletcher

Thanks, Brent. 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 to $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 pretax 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 pretax 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 versus $439 million in 2024. The increase of $16 million was a 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 to $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 2.03 times as compared to our end of 2024 ratio of 1.99 times with a modest increase in adjusted debt partially offset by EBITDAR 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 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, as 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.

Question and Answer Session

Operator

(Operator Instructions) Michael Lasser, UBS.

Michael Lasser

Understanding that it's a very fluid situation. If you simply ramp 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? And 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?

Brad Beckham

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.
So 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 ran to date through the pandemic, a lot of inflation flowing through and we couldn't 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's kind of how we're thinking about it. This is day-to-day, week-to-week, month-to-month, and 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. And so that's a little bit of a challenge. But I'll kick it over to Brent to talk about some of the detail of how we're thinking about that.

Brent Kirby

Yes. Michael, thanks for the question, and it's 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, and 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.
And there's not been a lot of scrutiny on some of those harmonized tariff schedule codes until this point. And now there's obviously a lot within the industry for all those reasons.
So there's a level and a layer of automotive parts, especially from China, that's going to be -- that's going to have some exclusion and have a 25% additional rate versus that reciprocal tariff rate. There's still some debate there on what is going to be in that layer and what's not going to be a net layer. And our team is 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's a lack of understanding of the details of something like this. And then once the industry gets involved, there becomes a better understanding, working with government. So all of that is playing out right now.
So it's really wouldn't be prudent to share a number right now because that number, whatever that number would be today is going to change when it's all said and done.
What I can tell you, though, I have extreme confidence in our team, the work that they're doing. I have extreme confidence in our industry and the resiliency of it in times like this. And I just feel like that we're well positioned no matter where we end up with this to be in a good place with our suppliers, with our customers and the resiliency of our industry.

Brad Beckham

Michael, just lastly, maybe on that. As always, our goal is going to be to -- do everything we can to maintain rate. It's 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've got a lot of great partners. We're still negotiating through a lot of that, and 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.

Michael Lasser

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 hyper inflation within the category? And would there be any consideration to evolving that strategy? Given what is possible.

Brent Kirby

Michael, this is Brent. I can start on that. I think it's a good question, a fair question. What I would tell you though, and 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 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 never take that for granted, but we are absolutely focused on continuing to grow, continue to gain share with the backdrop of a very rational and a very resilient industry.
So 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.

Brad Beckham

Yes. And Michael, this is Brad. The other thing I'd say directly to what you -- the way you frame that up is, our pricing profiles today on both sides of the business are extremely competitive. When I started this business back in the '90s, when we were less of a DIY supplier and still really better at the professional side, the DIFM side of the business, that -- the way you framed it up would have been more of the case. But 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. And on the Professional side, we couldn't feel better about the way we're positioned from a pricing standpoint.
We're 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've been through the last many years with our professional pricing initiative, in the way that we use data and science along with the street view of how we need to be from a competitive pricing standpoint. I just -- the way you framed it up, I don't think that's the case. I think we're going to be playing from a position of strength. I feel good about our pricing.
And 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 pipe for some of the independent side of things, and we feel really good about that.

Operator

Simeon Gutman, Morgan Stanley.

Simeon Gutman

So Brad, the last couple of years O'Reilly has invested a lot into SG&A, and you presented again with this unique moment, your share gains have been solid. Balance sheet is good, and 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?

Brad Beckham

Yes. 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, and sometimes models don't get exactly right from quarter-to-quarter based upon how we see it internally. So there's a little bit of that. But we were somewhat disappointed with our SG&A performance in the quarter. Our team takes great pride in managing every detail of SG&A., and 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. And as Brent pointed out earlier, basically for Q2 and Q3, we're going to be at that 2.5% to 3% range and then less than that in the fourth quarter, part of that being the self-insurance charge comparison. So we don't 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, and we're going to make sure we manage diligently the remainder of the year and make sure that we come into expectations, and really, 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's not a big deal that will flush out in the remainder of the year. And 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.
And then on the tariff side, in terms of pricing, really, for what we've seen so far this year, Simeon, continue to see a very rational environment. As the 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 plans to invest in price in terms of the way you ask that.

Simeon Gutman

Okay. Now a follow-up on inventory. I remember in the COVID period, you got ahead of inventory. You had a better position and you're 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?

Brent Kirby

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 and our teams are -- have been committed to that, through COVID and ever since. And 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, and we don't have any anticipation of changing the focus there.

Brad Beckham

Yes. And I think maybe just to wrap that up, Simeon, with disruption or without disruption, we couldn't feel better about our investments in inventory. We've been pouring into this for a long time. It's a competitive strength of ours. We're 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. And our teams are doing a really great job doing that in a disciplined way. So we're going to continue to invest in inventory, obviously, do it in a disciplined way.

Operator

Greg Melich, Evercore.

Greg Melich

I wanted to (inaudible) competitive environment and particularly store closures from (technical difficulty) and just disruption with independents. So do you see the M&A opportunity shifting? Or is this a good time to ramp investments that you have planned in the pipeline?

Brad Beckham

You cut out a couple of times, but I think we picked everything up. So yes, competitive landscape, Greg, it's -- not a lot has changed. It's a competitive market out there. We have a lot of big competitors. They 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's some mediocre independents and then some independents that are struggling that is 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 that a lot of those wrapped up kind of toward the tail end of Q1, and 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, and some of that may not be addressable or things that we want at our margin profile. That said, Jason Terrance 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. And so 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, and 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.
And then on the M&A front, Greg, yes, I mean M&A continues to be an opportunity for us. When I think about it, especially as we start to really fill in the 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 in material in those markets, but kind of yet to be seen.
But yes, 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. Then a couple of onesies and twosies type opportunities to tuck-in kind of spread across the country from that disruption, and we're going to continue to look for those opportunities.

Greg Melich

That's great. And on gross margins, I just have to follow up, given how EBIT margin did fall in 1Q, as we look forward to get EBIT margins up for the year, how much do we expect gross margins to expand in 2Q and in the rest of the year?

Jeremy Fletcher

Yes, Craig. 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, it'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 a tighter band.
There's just some mix 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.

Operator

Chris Bottiglieri, BNP.

Chris Bottiglieri

Can you elaborate more about your experience. Can you elaborate more about your experience moving product from China since the last out of tariffs? How long does it take to move sourcing? Is there anything that out the first 5 points of sourcing that you move and made it easier? How feasible to move the next 5 to 10, if it comes to that?
It sounds like right now, you're staying put. But just kind of curious like how to think of the time line of moving?

Brent Kirby

Yes, Chris, this is Brent. I can start on that. It's a great question. And honestly, as I mentioned in my prepared remarks, we've continued to reduce our dependency on sourcing from China. Really started back during COVID, but the teams have done a good job of continuing to move some of our sourcing out of that country.
And 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.
And as -- again, as I mentioned in the comments, I mean, 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. And 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, but our proprietary brand portfolio gives us a great umbrella to do that under and 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. So 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.

Jeremy Fletcher

Yes, Chris, maybe the only thing I would add to that is we're -- as Brent mentioned, we're in a better position, I think, based upon the work we've done over the last several years in the close work we've done with our supply partners to be able to work through the process to stand up in other places because, obviously, there's some time, there's an investment cycle to do that. And I think the big question that we all have and Brent pointed to 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 in a lot of our supply partners as some of the previous changes in the tariff regime sustain themselves through another administration, where there was some permanence around how that first round went from the earlier time period. And so there may be some degree to which we don't go as fast as we possibly could is, we just want to be appropriately deliberate about how we think about the right long-range approach.

Chris Bottiglieri

Got you. Okay. That makes sense. Then a follow-up. Do you have a sense for -- I would think like you always want to own the company the most scale, which is O'Reilly-type of environment.
But do you have a sense for like how your competitors, particularly on the private side, are they sourcing generally from the same suppliers in countries of origin as the publics are like O'Reilly? Or are they still over next to the US? Or they didn't leave quickly, China as quickly as you had over the last five years. Like just have a sense of your competitive position on sourcing. I mean, moving forward, it sounds like you'll be the most dynamic nimble.
But just curious what you think the private sits there?

Brent Kirby

Yes, 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. And in many cases, we don't share them with our competitors. It's a bit of a mixed bag.
And then 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. So those national brand partners, again, some of them do business and some of our competitors some don't exclusively. So there's a mixed bag there as well.
So I would tell you, probably the answer to your question is it's a bit mixed. But 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.

Operator

Bobby Ohmes, Bank of America.

Robert Ohmes

It's Robbie Ohmes. Actually, sorry to keep asking about tariffs, but I wanted some help with a clarification on what's happening right now. So are you guys are you receiving higher tariff goods right now? And when or when would you be receiving them? And when would stuff that would already be at the very high tariff out of China be sort of flowing through your income statement and pressure in gross margin?
And then 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 won't be excluded potentially, and so there actually ordering excesses from you guys themselves right now?

Brent Kirby

Yes. Robbie, this is Brent. I can start and the other guys can chip in. I mean I think really the first part of your question, what are we experiencing now?
A couple of things. Our suppliers are by and large importer of record for most of our US business. So, when you think about some of the stay that's been given on the reciprocal tariffs down to 10% for the 90 days, yes, some of that is starting to begin to impact being cost of goods. I will tell you, though, as we've 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. And then you have this stay on the reciprocal tariffs for other countries. But 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. So even Q2 will be somewhat of a transitionary quarter to see how much of this really sticks versus it doesn't in terms of true long-term impact to cost of goods.
So that's really kind of where we are at this point on that piece of it.

Brad Beckham

Robbie, this is Brad. I was just going to follow up on the customer side. Good question there. No pull forward that we're seeing. That's pretty difficult in our business with the application complexity of the hard defined 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.
But really, our -- for sure, our retail customers don't -- they don't behave that way. And then really on the DIFM side, it's really the same. There's not a lot of that. Well, we really haven't seen any of that. But just generally, in our history, it's just not really how they operate.
Our shops aren't set up to keep a lot of big stocking levels in their locations and don't really have the necessary the financial flexibility to do that. And that's a good thing. The way it works in our industry. We rely on each other. And so I wouldn't expect to see any of that.

Brent Kirby

And Robbie, this is Brent. Just one other item to talk about because we kind of -- a lot of these conversations on tariffs have leaned towards China. But there's also been conversation around Mexico and Canada. And 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.
So that's worth noting also.

Operator

Kate McShane, Goldman Sachs.

Kate McShane

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. But do you think ultimately, there will be maybe some elasticity impact, maybe in more of like the maintenance and certainly the discretionary categories, if those prices were to go beyond a certain level?

Jeremy Fletcher

Kate, this is Jeremy. It's a great question and one that -- different cycles within the course of the 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, they're great availability.
They help solve problems for DIY customers, they help get allow our professional customers to run a very effective business in the parts that we sell are very non-discretion in nature. They're a key component of what you got to do to support all the other areas of your life.
So over the course of time, what that has historically been is that the industry has been very rational and prices have not had to adjust off of, or you haven't seen a lot of a lot of elasticity that would cause people to go to market in some different way. The only exception to that, and it's not necessarily been always as price driven as you see, but when that consumer is under more significant pressure, you can't see instances where they'll 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, because I think the thing that supports the very resilient demand in the 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. So 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. But clearly, it's hard to address things that would be unlike anything we've ever seen in the industry.

Operator

Christopher Horvers, JPMorgan.

Christopher Horvers

So I want to talk about tariffs as well. I guess the first question is historically, the industry would take price out of cost in many situations and you sort of have this front-end clip with a 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?

Jeremy Fletcher

Yes, 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 willing 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'll take on in the timing impact of where those higher POs are going to hit.
But 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 are matched up. That's typically been our approach from an industry-wide perspective that, there are always kind of puts and takes on how that timing works out because not everybody's schedules line up in the same way in terms of when a wood particular impacts show up. But generally speaking, that all even within an industry perspective happens in a relatively continue 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 that can cause -- and I'd just say maybe quarter-to-quarter fluctuations at some point.
But generally speaking, those things align fairly closely in how we think about managing through these periods of time.

Brad Beckham

Chris, this is Brad. One of the 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, and 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.
And so 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.

Christopher Horvers

And so my follow-up is, can you put yourself in the position of if you're a WD or an independent, 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. So is there -- is this a stress moment where, I don't know, the independents have working capital considerations? Or maybe are they going to be put in their stress from an availability perspective. Does it create a market share opportunity? Or is this a sort of a, quote, rising tide for the entire industry?

Brad Beckham

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 WD's independence two-steppers, there's amazing operators that will operate very well in this environment. And there are some that are probably middle of the road and some that may be struggling. And so 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. But I think, generally speaking, Brent had a question earlier about, do we share similar suppliers with a lot of the private companies, independents? And Brent kind of talked about how that was a little bit of both. A lot of similar suppliers, there is some unique suppliers.
But generally speaking, there is a lot of of similar suppliers. And to your point, I think there can be disruption in just the general management of that for a smaller company. And 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 built up to be in roughly 50% of our sales and even bigger in the back room, and the smaller companies have to rely more on the national brands. And 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.
So I don't want to take anything those folks do for granted, they're amazing competitors, but we do feel like there can be some opportunity.

Operator

We have reached our allotted time for questions. I will now turn the call back over to Mr. Brad Beckham for closing remarks.

Brad Beckham

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. Thank you.

Operator

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.