Q3 2019 Earnings Call
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Good day, everyone and welcome to the Asbury Automotive Group Q3, 2019 earnings Conference call. Today's call is being recorded and now with this time I'd like to turn the call over to Matt Pettoni. Please go ahead.
Thanks, operator, and good morning, everyone welcome to Asbury automotive groups third quarter 2019 earnings call. Today's call is being recorded and will be available for replay later today.
The press release detailing Asbury door third quarter results was issued earlier. This morning and is posted on our website at <unk> auto dot com participating with us today or David <unk>, Our President and Chief Executive Officer, John Hartman, Our senior Vice President of Operation and Sean Goodman, Our senior Vice President and Chief.
Financial Officer.
At the conclusion of our remarks, we will open the call up for questions and I will be available later for any follow up questions. You might have before we begin I must remind you that the discussion during the call today is likely to contain forward looking statements.
Forward looking statements our statements other than those which are historical in nature.
Forward looking statements are subject to significant uncertainties and actual results may differ materially from those suggested by the state.
For information regarding certain of the risks that may cause actual results to differ.
Please see our filings with the FCC from time to time, including our Form 10-K for the year ended December 2018, any subsequently filed quarterly reports on Form 10-Q , and our earnings release issued earlier today, we expressly disclaims any responsibility to update forward looking thing.
In addition, certain non-GAAP financial measures as defined on her FCC rules may be discussed on this call.
Required by applicable FCC rules, we provide reconciliations of any such non-GAAP financial measures to the most directly comparable GAAP measures on our website is my pleasure to hand, the call over to our CEO , David whole, David Thanks, Matt and good morning, everyone welcome to our third quarter 2019.
In earnings call.
We achieved record third quarter, adjusted EPS of $2.33 up 5% from the prior year.
This was driven by revenue and gross profit growth 5%.
We're able to grow our parts and service gross profit by 9%.
Gross total front in yield by increasing happened I gross profit.
And bring our new vehicle inventory levels down by 10 days, which is within our targeted range.
During the quarter.
We expanded our footprint in Indianapolis by acquiring a turn to score.
When we entered a new market were acquiring a subaru store in Denver.
Both of these stores are characterized by high quality and turn your team.
Solid performance profile.
Strong and loyal customer base and sound business processes.
We're excited to be entering a new market in Denver.
We have long been attracted to this market due to its business friendly environment.
Moderate cost of doing business and growing population and attractive demographics.
And Mike shot Subaru, we have found the ideal anchor store.
We plan to build our presence in the market following a similar approach to what we successfully executed in Indianapolis.
Subaru also happens to be the number two brand in Colorado.
We're excited about the return that we will generate from these two great acquisitions and the growth opportunities for Asbury in the Denver market.
This quarter, we continue to make great progress implementing an enhanced processes and procedures that leverage technology to create a highly guest centric consumer experience.
At our pilot store in North Carolina.
We're excited to see excuse me were excited to consistently see exceptionally favorable consumer reviews, as I guess react to a level of service and transparency.
While we are focused on being at the forefront of innovation in our industry.
We believe that success is driven by well design process improvement and effective change management.
We plan to start thoughtfully rolling out our technology driven process improvements to additional stores in the first quarter of 2020.
We are confident that our investments in creating an unrivaled guest centric experience.
The yield attractive returns.
Before I am I want to think Sean for his valuable service and contributions to Asbury.
He's been a great partner in a pleasure to work with I speak for the entire organization in wishing him well see embarks on his next chapter.
I'll now hand, the call over to Sean to discuss our financial performance.
Thank you David and good morning, everyone.
Overall compared to the prior third quarter.
Our revenue increased by 5%.
Gross profit increased by 5% growth.
Gross margin of 15.9% was 10 basis points higher than last year.
SGN day as a percentage of gross profit increased by 100 basis points to 68.9%.
Operating margin decreased 10 basis points to 4.5%.
Income from operations increased by 2% and adjusted earnings per share increased by 5% to two daughters and 33 cents.
As a reminder, in Q3 off 2018, we adjusted for an approximately 600000 dollar discrete tax item related to the 2017 tax act or three cents per share.
The other adjustments for the third quarter of 2019.
During the quarter, so about stores in Florida were impacted by the threat of Hurricane Dorian. However, the effect was not material to our financial results.
Our performance this quarter was how has that significantly impacted by a single midline import brand, where despite earning the available manufacturer incentives results were considerably below last year.
Yes, Brad London negatively impacted earnings per share for the quarter by approximately 14 cents.
Bob.
It was 24.4% for the quarter compared to 25 to sit in the quarter of 28 team.
Looking at expenses.
It's just as a percentage of gross profit for the quarter was 68.9% an increase of 100 basis points over last year.
This increase was driven by the enhanced benefits packages provided to our front blind associates.
Reduced OEM advertising credits and continued investments in omni channel initiatives.
As expected our year to date, it's DNA as a percentage of gross profit is 68.5% inline with our full year guidance of between 68 and 69.
With respect to capital deployed.
During the quarter, we spent $13 million on capital expenditures and $4 million repurchasing shares of our common stock.
Our remaining share repurchase authorization stands at $66 million.
This year to date, we have invested $43 million in existing business through capital expenditures and real estate acquisitions returned $15 million to shareholders through share buyback activity and we have completed the acquisition of six new stores with total annualized revenue for her.
$25 million.
When making capital deployment decisions, we focused on achieving the highest risk adjusted return.
In the case of acquisitions, we assess each store individually with consideration for the market dynamics quality of the brand customer profile operating performance of the store opportunities book value creation.
Let's see on earnings and much more.
As an example, we have a higher hurdle rates of return when acquiring an underperforming imports school requiring a significant turnaround investment then we went for a luxury store with a loyal customer base high margins and a solid parts and service business.
At the end of the quarter total leverage ratio stood at 2.8 times and on debt leverage ratio at 2.3 times.
We believe that our capital structure positions us well opportunistically capitalize on expected attractive future capital deployment opportunities.
Appropriate interest expense increased by $600000 over the prior year driven by increased inventory levels.
Does that on new credit facility effective on September 20, but resulting a decrease in our new pool plant interest rate by 15 basis points.
Used group that interest rate by 10 basis points.
Probably liquidities perspective, we ended the quarter $2 million in cash $65 million available in school pad will sit accounts $101 million available used vehicle line $237 million available on our revolving credit lines and.
$173 million on growing mortgage facilities.
In closing I want to take this opportunity to express my sincere, thanks and appreciation to David in the board for the support during my time it as Brian . It has been an audit to be part of this exceptional team and I wish everyone. What are the very best and continued success in the future [laughter] with that ill.
And the quota to John to walk us through though right.
Detail.
Thank you Sean My remarks will pertain to our same store performance compared to the third quarter of 2018.
Looking at new vehicles Saar for the quarter was 17.1 million units or flat versus last year and retail Saar was down 1% for the quarter.
Our new unit sales decreased 5% and the margin rate was 3.9% down 40 basis points from the prior year.
We experienced we experienced margin pressure across our midline import brands. However, domestic margins were flat and we were able to grow gross profit in our luxury brands.
We're pleased that we were once again able to offset the overall margin pressure by strength in up and I.
Our total new vehicle inventory was $810 million and our day supply was 76 down 10 days from the prior quarter.
Turning to use vehicles unit sales were up 6% from the prior year on top of an 8% growth rate last year.
Gross profit margin of 6.6% represents a gross profit per vehicle of $1467 down $113 from last year.
Our gross profit per unit was down is important to remember that used car volume growth also drive increased reconditioning parts and service gross profit as well as up and I business.
Our used vehicle inventory of $176 million is at a 36 day supply up three days from the prior quarter.
Turning to up and I.
Total ethanol gross profit increased by 8% and gross profit per vehicle increased by $119 or 8% to $1628 from the prior year quarter.
No that when we think about gross profit per vehicle, we look at the total front end yield which comprise new used and ethanol gross profit. This provides us with the best view of our true profit per vehicle sold in the third quarter, our front end yield per vehicle increased to $3065.
From $3056 last year. This total front end yield has remained stable over the past decade.
Turning to parts and service.
Our parts and service revenue increased 8% and gross profit increased 7%. This was achieved with a 7% increasing customer pay and a 13% increase in warranty.
And now an update on our Omnichannel initiatives.
Our ports Star online sales were up 3% from the prior year.
We continue to grow traffic utilizing our digital parts and service scheduling tool and we reached a record of 137000 online service appointments this quarter up 23% from the prior year.
In addition to our omni channel strategy, an important part of our continued success is our people as previously announced at the beginning of this year, we put together an industry, leading benefits package for our frontline and Celsius, including subsidize medical plans equity grants education.
France, a 40 work week extended vacation time unpaid maternity leave.
This enhanced benefits package is continuing to have favorable impact on both recruiting and retention.
In conclusion I'd like to take this opportunity to express appreciation to all our teammates in the field and our support center.
Can you to produce best in class performance.
I would also like to welcome all our new teammates in both Indiana, and Colorado, We will now turn the call over to the operator and take your questions. Operator. Thank you if you'd like to ask a question simply press the star key followed by the digit one on your telephone keypad.
So if you're using the speakerphone. Please make sure your mute function is turned out to layer signal to reach our equipment. Once again press star one at this time, we'll pause for a moment.
And we'll first hear from Rick Nelson of Stephens.
Thanks, Good morning, guys.
Ask you about 10, new coal.
Same store units down 5% fight.
And keep pace with the overall market and that domestic.
Brand declined to 17%.
You could comment.
What was the driver there.
Sure the directors as John I'll address the domestic first.
We were pleased we're able to increase the PVR and our domestic stores, 3% and maintain our margin.
This is certainly we want to increase the wyman domestic in a scenario of business and we will focus on and improve.
As far as.
Midline imports being down.
Three or four the brands, we actually outperformed the market. It was really one brand, where we underperformed as far as volume, which took us down the 5% in that segment.
Yeah.
Lagging brand it was that all sell responsible for the margin erosion.
Yes.
Rick This is David it was.
David I guess.
No.
Strategies here with that brand to reinvigorate out or I know you sold some stores.
Your thoughts for buyback.
Yep.
We sold one.
You know you overtime these brands are cyclical.
We more than any of our peers have a high percentage of this brand.
And it has a material impact on us right now.
We're doing our best efforts to do we can't offset it with parts service at benign use what we can control.
But at the end of the day, where a franchisee to the manufacturer and we're trying to be opportunity to invest that can do the best we can with it.
Okay advertising.
PVR, a 198 bucks compared to 854 of last year.
Got it has really stepped up.
Is that focused on specific brands or.
And driver.
And that growth right.
I'd say, it's a couple of things.
One there's a little bit less credits from the manufacture this year over last year, that's a small piece of it.
Other piece of it as to when we do acquisitions and we took in the Bill asked this group kind all at once.
We kind of go through a transition phase to not to a culture shock.
They were a lot more aggressive and spending advertising dollars. So.
You will see improvements over time.
And that number coming back down.
Just a moment in time, if you will and most of it is related more to the new acquisitions than it is the core competence.
Here in the used car.
Are you sort of second weren't cars at auction too.
Drive volume and that's causing some of the margin erosion I Wonder if you can speak to the competitiveness of environment.
Okay.
Sourcing vehicles at auction.
Hey, Rick this is John again.
Our auction purchases run a small percent.
It's about 50% of our total retail sales, we still focused on trades to keep the margin.
To keep the margin high we were certainly happy to get used vehicle growth back this quarter, especially with our comp versus last year.
What we focus on Rick is really.
The company, we turn the inventory about 1.2 times per month.
So for stock and 100 retail vehicles, we can expect a 120 sales the the issue when you have to go to auction as if you have 100 cars of stock you have a big weekend and you sell 30 causes NIE. All you have a 70 and the guys tend to run out and try to backfill that with quick purchases. So we've really focused on trying to keep a more steady flow the price.
And inventory and having less fluctuations.
That being said.
We were happy with.
With the volume last quarter, we're going to focus on getting the margin back too.
I would also had record we're focused on CPR to and our CTO sales for the quarter up 11%.
And with those as if there's a little bit more cost involved sort of find those vehicles.
Thanks.
Getting back to the.
Problematic brand.
Are you.
Are there any appearing on the horizon I guess to.
Sure.
Direct or those pressures.
Right.
Like all I can say at this point break is.
Our job is to be great capital allocated and really strong operators and we're always seeking to how can we better positioned as Barry.
And our brand mix.
And that's certainly a focus that we have right now.
Gotcha.
Thanks, guys. Good luck.
Thank you thanks Rick.
Next we'll hear from John Murphy of Bank of America.
Good morning, guys.
I just wanted to follow up on on one of the comment and I apologize I may have misunderstood or or Miss heard this sean when you're talking about this midline import.
Brand you having issues with you said there was a 14 cents per share hit is that correct, because the volume rebates or stairstep Rebids didnt come through I, just want to understand if I am getting this right.
Yes, John .
The EPS impact was 14 cents wonderful.
And it was primarily related to reduce manufacturer incentives. So a decline in the available incentive dollars.
Just to clarify further.
We obtained almost all that money that was available by that OEM, but the total amount available was about 30% less than it was prior year.
Okay and that was known in advance that was not a change in the program mid quarter or mid month or something like that.
No we.
We were notified of it right after the quarter started.
Okay.
The second question, we think about the front end gross being up nine Bucks, obviously after nine PVR.
Helping out quite a quite a bit there just curious if you can engage us give us sort of a range of what sort of like the highest definite PVR you have on an individual vehicle.
Roughly and how far you think you have or penetration for extended service contracts and stuff like that that might also helped trying to understand where this where this can go and if theres a absolute number increase potential and also a penetration potential as well.
John This is John I think there's still plenty of opportunity enough and I.
I think we've talked about this before we kind of focused on the bottom half of the organization and getting them up to average so as far as PVR via see penetration and overall penetration on product I think there's still opportunity for us to grow.
Okay and then just lastly, I think it's on your slide you see about 23% of your parts and service revenue is recon, if I run that through it looks like it was about $52 million recon revenue in parts and service in the quarter, if I apply that all to use it looks like you're doing about 23 $2400 of recon revenue per unit.
Probably about $1500 in profit there is that I mean.
Are you use really drive unit recon really driving that big a chunk of profits in parts and service or is there something else going on there or what sort of the average recon revenue and.
Gross profit number we should think about four used vehicle.
So I would tell you the number per vehicle is a lot lower than that on reconditioning it'll vary by brand.
But it typically hovers around 12, Han 12 to $1300 the car.
So if you think about us selling or used car the way we look at it to your point, we look at that front end margin. We understood. We recognize that 1200, and then naturally the up and I dollars.
I'm, sorry, and the recon, that's that's a revenue number we should assume roughly 60, 62%.
Gross profit off that is that is that a fair.
Well I think about it John I missed the revenue where debt to gross profit number. It's a gross profit knowledge on body revenue number. So if we looked at all then fully loaded GP for our used vehicle. Your guys are printing 14 75 on the vehicle sale and about another 12 to 1300 on the on GP for.
On the on the recurring side within parts and service.
That's correct.
Okay.
All right. That's very helpful. Thank you very much guys.
Thank you.
Next we'll hear from Bret Jordan of Jefferies.
Hi, good morning, guys.
Hey, Brett could you talk a little bit about the warranty growth at I guess are we looking at particular recalls or how long might we expect this.
Pretty significant warranty growth to continue.
This is John Brett did there are still some recalls going out there is nothing major right now.
Takata still running out in some of the stores.
So that does nothing major right now that's out as far as warranty recall the lot of little things reprogram in that type of thing going on.
Okay, and then a question on that but I mean, just sort of big picture is there a negative for correlation between FICO scores in ethanol I spend I mean can you get at the lower end consumer either a longer loan term or GAAP insurance or products that don't sell further upstream.
So I would tell you.
As the credit scores go lower and I'll, just talk sub prime for a second.
Europe and I'd dollars, a very much governed.
By the lender.
Right down to what products you can offer in cell or not.
So I would say you actually have more opportunity as the FICO score goes higher for product sales.
Okay, great. Thank you.
Next we'll hear from Armintas sync vicious circle.
Great. Thank you for taking my question.
As we were thinking about the quarter here.
Second quarter had an elevated level of inventory versus a year ago.
You worked that down I'm surprised will not see it come through in the new vehicles same store sales, maybe you could walk me through the dynamic on.
The inventory days supply and the impact to same store sales.
We worked hard on the quarter trying to bring on new vehicle inventory.
Back to our targeted range some of that was we moved inventory internally.
So the stores that had a higher day supply we moved it to the stores with the lower day supply.
And that that's essentially how we get the lower day supply was just shifting inventory around.
Got it this is David it's also again, you're doing your allocations with these manufacturers once or twice a month.
So it's obviously scaling back then when you think about an overall day supply youre looking at a number but would you have to realize is the width of these inventories how many different model lineups. There are and then within the model lineups, how many different package offerings there are.
It's very difficult to satisfy everyone, but you have to have a spare sampling of inventory to try to be to hit, especially in the domestic truck side.
The amount of this hundreds of different ways, you can order and package. These trucks. So it's really key to make sure you spend the time to be thoughtful about how you're packaging and moving those trucks.
John's comment as far as moving inventory that was more on the domestic side with trucks and that market shifts around a little bit based upon how the trucks are equipped and what market has a certainty.
Okay, and then you know.
As we're thinking about the challenges here from from the third quarter with with this specific brand.
How do we think about the incentive environment here for the fourth quarter.
Yeah, I would say.
We're in the same position today as we were in the third quarter as it relates to incentives.
And where we are with that particular brand.
Quite honestly.
We called it out because it was a very material number were actually pretty happy with our quarter.
When you think about what we did with up and I parts service and use.
Simon over that 8% growth rate last year.
And our additional investment in our omni channel.
There's a lot going on in the quarter than you had the noise of a hurricane the hurricane that Didnt hit but it was five days of in fact, we know how the media can drive those up our stores were actually shut for a couple of days.
And then the few days they were opened around that there was no business because everyone's focused on the hurricane. So it was a lot going on in the quarter.
And quite honestly, we're happy we stayed focused to generate what we did.
Okay appreciate the answers.
Thank you.
Next we'll hear from Chris Bottiglieri of Wolfe Research.
Hi.
Quick question on the pushed our 3% growth you've been making a lot of progress on that pretty impressive growth overtime was there any but the comparison this quarter that was more difficult to 3% just kind of seems relatively level, where you are with that.
And then just.
For context, given your exposure to Atlanta in Florida.
You've seen any impact from Carmax is omni channel pleasure to carve out a bit better any thoughts there be helpful.
Sure.
This is David.
I would tell you.
It's a new entry for new car dealers to be able to do full transactions online.
I don't know what everyone else report with first that out but my perception is we've been leading the market as far as sales.
And I think when you initially come to market, you get that low hanging fruit and pretty strong increases quarter over quarter.
It's really now bought us enhancing the product.
Getting more lenders online.
Because.
What we've seen over this last year with the product.
Where it started off kind of half new half U.S sales its tip more to more use the note.
So having that a bill availability of lenders online, we think will enhance it further.
We have a tremendous amount of activity on the tool in a tremendous amount using it.
But the exit point right now for most consumers that on converting our around the credit application piece, where they are putting their social security number online.
It's a difficult challenge to convince a consumer in this day and AIDS to put their personal information out there.
Yes that makes sense and then just one follow up question unrelated.
For warranty like can you elaborate a little programming like is the compares get more difficult to warranty into Q4 into next year.
Maybe how much confidence you have that warranty continue I'm just not sure I understand like what's driving the warranty growth given Sars and slide and CBS going up slightly just doesn't seem to get metric that should grow as robustly as it has just want I get your thoughts on kind of sustainability of that would be helpful.
Sure I would say in years past there were certain brands that had dramatic recalls for large dollar amounts.
And this year, it's more about many brands, having small recalls I think as technology gets better in these vehicles.
There's a lot of programming errors in issues that come up.
It's very very difficult to to us I mean in over this has come up from 34 years from your retail one of the hardest things to predict is what is warranty going to look like next year.
It's very difficult to say some of the brands that are down this year, we expected to be up some of the brands that are up we expect that to be down.
So it's really very difficult I guess is a little bit of a cadence around new models.
As far as looking ahead to think potentially you might have some small issues that come with it.
But we tend to go into every new year thinking warranty is going to be flat or we model that.
And then see how.
How that adjusts throughout the months.
Yes. Thank you.
Thank you.
Group does with Jpmorgan has our next question.
Hi, Thanks for taking my question.
Just another question on the edge DNA pickup in the quarter I know you had talked about.
Second have being a little.
Higher than the first have you had cited omnichannel investments as one of the reason.
You also cited reduced OEM advertising credits as all the reasons or can you help elaborate on what's going on Darrin.
Is this more of a onetime major step up and investments or you know this is something should we should expect isn't going to be its run rate going forward.
Sure. This is David I'll start and then shock and cleaned it up we foreshadowed in the last couple of quarters as the second half of the year.
We anticipated SGN, a going up so we kind of it ended up where we expected to end up.
Uhhuh m. credits being a little bit light it wasn't across the board with all Oems It was only certain ones and it wasn't material.
We knew we had the acquisition of Walesa's coming on and what they were used to spending and what that was going to do for an impact and we understood. The cadence of our investment in on the channel. So again that was the purpose of foreshadowing in prior quarters expecting it to increase.
John I don't I want to.
Yes, the anything I'd add to that as one of the other items was the enhanced benefits packages that we are providing tough frontline associates that it just the timing of expenses related to that.
We will be higher in the second half as we push said last quarter.
Our year to date SGN, a is 68.5% it's very much.
Line with an expectation of between 68, and 69% and so we continue to expect that for the full year.
2019.
Got it and I know it again and the big another you already have talked about 60 768 I believe.
Or you read in that ballpark historically, I mean is 60 to 69 kind of good level to think about going forward just I.
I think about 2020 are going quoted that kind of like a range you would like to be Ed.
Or goodwill or from there.
Sure. So we started the guidance actually at the beginning of the year was between 69 in 70, I really relating to the IND additional investments that we've been making an omni channel initiatives and as she can appreciate a lot of those additional investments flow through the SGN a line on the Inc.
Come statement.
All issued expenses will be other than that this year, primarily because of the results from a multi channel initiatives betting.
We initially expected in that Thats actually.
Resulted in some benefits on the SGN a line and that's driven as expenses lower.
Do I believe long term that raw opportunities to increase the efficiency of ice gionee spend to below that sort of range I do.
But I think that is a long term.
Outlook as we enhance omnichannel initiatives and enhanced processes, but I think 68% to 69% is.
Reasonable expectation.
In the medium term.
Got it that's helpful and been any any updated thoughts on capital allocation, where you're seeing in the M&A Sps out there in terms of female multiples.
It's still a pretty attractive market out there looks like you know, there's still decent amount of opportunity on your balance sheet to take on some leverage or what you're seeing out there and then any thoughts on you know potential to say, what a little bit towards buyback as well given where the stock prices.
Sure. Thanks.
This is David.
Theres, a tremendous amount of activity with acquisitions out there.
Some of the stronger brands.
In luxury brands are holding their multiple as well.
Some of the more struggling brands right now the multiples have come down pretty good.
I think our.
Our approach going into every quarter is whereas our opportunity.
And where it what presents our highest potential for return for our shareholders.
We will certainly be opportunistic and into the core that way.
We do believe in growth and adding stores, but thoughtfully.
It's very easy to buy something much harder to run it. So we really want to make sure that it's a good long term acquisition for the company and most importantly, it balances out our portfolio well.
Got it.
Any thoughts on buyback.
And the near term or is the focus more on M&A at this point.
Yes, I would simply add to that by saying as the quarter ends as we see what our opportunities are certainly that's a lever that we will pull it thats more attractive than an acquisition.
Just add to that that we have a balanced approach to capital location that we are very opportunistic as David said, it's hard to look at on numbers for one quarter you to look of the not was over a period of time you'd look for example last year in the fourth quarter.
We spend all of us $50 million on share buybacks.
This year, we've spent a little bit more on acquisitions and buybacks, but it's really is based on the opportunities of where we can see the opportunity to create the highest risk adjusted return for our shareholders.
Got it makes sense. Thanks, so much.
Thank you.
Next we'll hear from Stephanie Benjamin of Suntrust.
Hi, good morning.
Something what you could you maybe talk a little bit further on your omni channel investments in some of the digital investments that you're making I know that in the past and even in the slide deck you called out you know whether it's on the sales side are building out financing capabilities, maybe provide a little bit more granularity on what you're focusing on right now or is there really out.
Broad suite of things and you know what we can expect to be your focus on that you know next quarter as even as we move into late 2020. Thanks.
Sure. This is David.
I would say, it's ramping up in the second half of the year.
And we'll probably neutralize a little bit towards the first half of next year.
It's really in several different categories, its software expense costs and investments.
Its investment in people.
Adding positions changing positions.
So it's I would say as human capital and software technologies, where the biggest investments have been in this second half of the year and we'll be there in the first half of the year. So we have the online approach with parts and service that we're doing we have the online goal of completing a card deal, 100% online, which we're not there yet, but we're getting close.
Sure.
And then we have the guest experience piece within the dealership and how to the to melt into one so they're not too different processes and they're very seamless.
So we're very focused on that integration and that that was my point the scrip right referred to that store North Carolina. So it's kind of the Omnichannel, what we've been working on it and enterprise level, creating those transactions, but then bringing it into the store to make it seamless.
And Thats, where eventually we're going and that's what we're going to start rolling out in 2020.
We see strong potential.
Not only from a guest experience standpoint, but but an opportunity to tighten up SGN a little bit.
Great well I really appreciate the color that's all I had thank you.
Yes.
Next we'll hear from David Whiston of Morningstar equity research.
Thanks, Good morning.
First question is on a same store eastern ratio.
What was driving that.
Really large increase of 880 Bips is that Omnichannel is that just a lot more awfully supply.
Turning people away from new can you talk about but that a little more.
Well, we use our this is John eaves are used vehicle sales are up so obviously that was part of it.
And David touched on the online that the.
The first start is really heavily heavily more towards the used vehicle side the new currently.
Okay.
On the.
Pressure from the midline import brands.
Obviously these types of.
Stair steps and monthly targets as it's an issue all the time and some automakers are more flexible and others and my questions basically yet.
What point do you just how many quarters or years does it take for you to say that at some point, maybe it's not worth it.
For a particular break.
No I think this space has been saying for a couple of years, it's not worth it.
It's a little bit more exacerbated.
Hope to not be confusing with this but when you think about.
We believe our opportunities are part service up and I unused and we can control that we can't control the new car market, having said that.
Several of the midline import brands are very strong parts and service.
Business units as well.
One of the midline imports.
Really the one that I referred to today on the variable side also happens to be a little bit weaker than the other midline imports when it relates as parts and service.
On an odd way youre getting exacerbated on both ends you feeling it with the incentives on new and then it's not traditionally as robust the parts and service customer is some of their competitors.
Okay.
Finally, just a broader strategic question.
Always been interested in the fact that you're not in California, given us the largest carmike in a country do you have interest in ever expanding there.
You can never say never.
There's a when we look at an acquisition.
Big part of it as land costs in the business friendly environment.
The dealerships expanding can track well from an expense standpoint in markets and can adjust to Saar well you can adjust your fixed expenses.
So our goal is to always be in markets that we can weather up and Downtimes and we don't laid and ourself with heavy dead on fixed.
Expenses meeting real estate or a heavy tax environment or something like that so, California is a great state to do business and I'm sure.
But we think that theres better opportunities for Asbury to create larger returns in other markets.
Okay. Thanks, guys.
Thank you.
This concludes todays discussion we appreciate your participation in today's call have a great that.