Q1 2020 Earnings Call
Good day welcome for the Asbury Automotive Group Q1, 2020 <unk> earnings call. Today's conference is being reported at this time I'd like to turn the conference over to Mr., Matt Pettoni. Please go ahead Sir.
Thanks, operator, and good morning, everyone welcome to Asbury automotive groups first quarter 2020 earnings call. Today's call is being recorded and will be available for replay later Tonight. The press release dealing Asbury. Its first quarter results was issued earlier. This morning and is posted on our website I was very auto.
Dot com participating with us today, our David hold our President and Chief Executive Officer, Dan Claire, Our senior Vice President of operations and not the Tony Our Vice President Finance and Treasurer at the conclusion of the old remarks, well open the call up for questions and I will be available later.
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, including those statements relating to the duration.
The blade impact of the Cobot 19 pandemic on our business and financial performance as well as a financial projections and expectations about our product markets and growth.
All forward looking statements are subject to significant uncertainties and actual results may differ materially for knows suggested by the statements including potential impacts from the Cobiz 19 can't that back on our industry and our customers suppliers vendors and business partners.
For information regarding certain of the risks that may cause actual results to differ please see our filings with the SBC from time to time, including our form 10-K for the year ended December 2019.
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 statements. In addition, certain non-GAAP financial measures as defined under FCC rules, maybe discussed on this call as required by applicable FCC rules, we provide reconciliations of any non-GAAP financial measure.
<unk> for the most directly comparable GAAP measures on our website, it's my pleasure to hand, the call over to our CEO David whole David.
Thanks, Matt Good morning, everyone.
Welcome to our first quarter 2020 earnings call.
The quarter started off very strong.
Genuinely February our company was pacing extremely well here are the results.
Total revenue increased 10%.
Gross profit increased 12% and adjusted EPS increased 31%.
On a same store basis total revenue increased 6% growth.
Gross profit increased 7% new vehicle gross profit increased 10%.
Used vehicle retail gross profit increased 9%.
Finance insurance gross profit increased 9%.
Parts and service gross profit increased 3% and S. DNA as a percentage of gross profit decreased 130 basis points.
Our business performed very well all the way through the first half of Mark.
During this time.
Very successfully implementing our business and omni channel strategy.
Which Dan will provide an update on the progress we have made.
As we continued executing our business strategy, we completed our financing and integration work to close the park place acquisition in late March.
We divested a Nissan store in Atlanta.
And exited the Mississippi market, which included two Nissan stores once radiata, one Chevrolet and one fourth store.
We also acquired a Chrysler Jeep Dodge Ram store in Denver, where we continue to grow.
These transactions are in line with our strategy of managing our assets to create the most shareholder value.
Well the quarter started off right our operations will significantly impacted by the covert 19th endemic in the second half of Mark and continued into April.
As we start business decline, we acted decisively to acquire business to prepare for the inevitable slow down.
Unfortunately this included canceling the park place acquisition.
Furloughing employees, and reducing salaries and benefits.
We also actually fast to rightsize, our business by reducing expenses.
Putting most of our capital expenditures.
And negotiated significant discounts with certain vendors.
This totals approximately 15 million expense reductions for April.
Turning to the business in April.
Same store revenue declined approximately 35% for the month.
We started off the month very slow with sales and service off between 50 and 60%. However.
Squeak in April improved in the last week being off about 25% sales and 30% in parts and service.
We believe our made business will grow 20% incrementally over April.
[music].
Because we cannot predict the duration of the pandemic and resulting economic impact on our business.
We will continue to evaluate our options and make realtimes decisions as appropriate during this challenging time.
Our top priority Thats ensure the health and safety of our employees I guess <unk>.
While preserving the financial strength of our company.
One final comment.
During tough times.
You find out the resilience of people.
I just want to say, how impressed I am with our teammates.
It has been inspiring to watch our teams in the field have positive attitudes.
Deliver great guest experience.
And find ways to serve our guests in a safe manner.
Thank you very much to all our teammates.
I'll now hand, the call over to Matt to discuss our financial performance, Matt. Thank you David the first quarter marked performance, but the adjusted earnings per share of a dollar any overall compared to the prior year first quarter revenue decreased by 4%.
Profit decreased by 2% gross margin of 16.9% was 20 basis points higher than last year as DNA as a percent of gross profit increased by 310 basis points to 71.5%.
Adjusted operating margin decreased 50 basis points to 4.3%.
Adjusted income from operations decreased by 15% and adjusted EPS decreased 18%.
Net income for the first quarter of 2020 was adjusted for the following pre tax items, a gain on dealership divestitures of 33.7 million or $1.30 per diluted share a legal settlement gain.
Of 900000.
Or three cents per diluted share gain on the sale of vacant property of 300000 or one cents per diluted share.
A loss on debt extinguishment of 20.7 million or 79 cents per diluted share a loss on franchise rights impairment of 23 million or 89 cents per diluted share and park place termination costs of 11.6 million for 45 cents per diluted share.
Net income for the first quarter 2019 was adjusted for a fixed asset write off of 2.4 million or nine cents per diluted share.
Our effective tax rate was 19.1% for first quarter of 2020 compared to 23.8% in the first quarter of 2019. The decrease in our effective tax rate was primarily the result of an excess tax benefit relating to the vesting of share based awards.
Looking at expenses SGN adds a percentage of gross profit for the quarter was 71.5% an increase of 310 basis points over last year.
This was a very solid performance considering the pressure we felt on total gross profit related to the cobot 19 pandemic.
Floor plan interest expense decreased by 3.2 million over the prior year quarter, driven primarily by the decrease in the LIBOR rate.
With respect to capital deployed we acquired a Chrysler Jeep Dodge Ram store in the Denver market in late January 2020, we expect this starts to generate approximately 124 million in annual revenues in a normal environment, we divested our Nissan Atlanta store in February 2020, this dealer.
Got it generated approximately $77 million in annualized revenue and we divested all five stores in Mississippi market in March 2020.
Dealership generated approximately 334 million in annualized revenue.
In early February we raised the financing for the park acquisition and we refinanced our 600 million, 6% notes due in 2024, we were able to extend our maturity and save approximately $8 million in annual interest expense after repaying the 525 million.
That was designated for the Park place acquisition, we now have to bonds outstanding a 280 million dollar 4.5% senior note due in 2028, and a $320 million 4.7, 0.5% senior note due in 2030.
Midmarket approach and the Cobot 19 pandemic started that Brad we focused on maximizing our financial strength.
We made a tough decision to cancel the park place acquisition and drawer draw our entire $237 million revolver, and our 110 million dollar use line to ensure we have ample cash to manage through this pandemic and be opportunistic after.
From a liquidity perspective, we ended the quarter with 389 million in cash $180 million available for plant offset accounts and $13 million available on our used vehicle line.
In addition, we have $69 million available to draw on a mortgage facility and approximately $100 million of unencumbered real estate at the end of the quarter. Our total leverage ratio stood at 3.6 times and our net leverage ratio stood at 1.8 times, we believe that our Sip.
$651 million liquidity and the extension of our debt Mr. net debt maturities gives us the strength to manage through ever session and allow us to capitalize on attractive future capital deployment opportunities once the pandemic is behind us.
These actions could our company in a very healthy financial position and as a result, we did not apply for a loan through the paycheck protection program.
I would now like to hand, the call over to Dan to walk into our operating performance in more detail Dan.
Thank you, Matt My remarks will pertain to our same store performance compared to the first quarter of 2019.
Looking at new vehicles.
Wireless for another quarter was at 15.2 million units or 10% below last year, we focus on retail SAR, which was also down 10% for the quarter.
And is lower retail Saar environment unit sales decreased 9%.
Overall, our new core margin was up 4.5%.
Slide from the prior year period.
While important margins were flat from the prior year period domestic margins were up significantly.
At the end of March our total new vehicle inventory was $861 million an hour day supply was 105.
18 days from the prior year.
In April we were able to drop our new car inventory approximately $120 million from March 2020.
While this levels may seem high.
Because the OEM factories have been shut down we believe we could run into a low day supply for the summer selling season.
Turning to used vehicles.
Gross profit margin was 7%.
Which is up 70 basis points from the prior period and down 50 basis points from Q1 2019.
Represents a gross profit per vehicle $1552.
While our used vehicle unit sales decreased 7% from the prior year, we were able to increase our used to new ratio by 250 basis points to 91.5%.
And for the first two months of the year, we were pacing strong with good growth.
However in March the shelter in place government mandates and the covered 19 closures at several of our stores negatively impacted our sales.
Our used vehicle inventory ended March 30, 158 million, which represents a 42 days supply.
During April Euroscore auction prices experienced major declines.
The market valuations drop we put a plan in place to maximize the value of our inventory.
We made a decision to move used vehicles from markets being severely impacted by the pandemic two markets less impacted.
This action enabled us to drop used vehicle inventory.
In April.
Turning to astronaut.
Our team continues to deliver strong results.
Total ethanol gross profit decreased by 3% due to their vehicle sales volume decrease.
However, gross profit per vehicle increased by $90 per $1688 from the prior year quarter.
When we think about gross profit per vehicle, we look at the total front end yield, which combined you use and ethanol gross profit.
This provides the best view of our troops profit per vehicle sold.
In the first quarter, our front end yield per equal increased to $3301 from $3231 last year.
Note that our front end yield has remained stable over the past decade.
Turning to parts and service.
Our parts and service revenue decreased 1% in gross profit decreased 3%.
Our gross profit was impacted by the decision we made to protect the income of our a and b thickness and during December Tech.
Our parts and service business was also significantly impacted by several of our highest volume stores being shutdown for up to two weeks because of positive Corbett 19 test.
Finally, I would like to provide an update on some of our key operational responses to the corporate 19 pandemic decline in business.
We experienced sheltering plays governmental orders in all of our markets.
We implement that CTC recommended health and safety measures in each dealership to ensure the safety of our employee and guest.
We took a market based approach to both new and used inventory because each market and new store has had a different experience.
Furloughed approximately 2300 employees.
Not for low any a and b level technicians. However, we have several that up for a personal leave of absence.
Based on consumer demand, we reduced our advertising in March 50%, while putting a focus on online transactions and customer pickups.
For the quarter. This actions helped us drop our quarterly per vehicle advertising expense $21 to $155 per vehicle.
We relocated in held back used car inventory to avoid auctions.
We reviewed every expense line on our PML.
And focused on reducing vendor pricing.
We grew our online service appointments, 1% in the quarter.
However for January and February we were up 24% year over year.
We were also able to grow our push start online sales.
They were up 9% in the first quarter and in March push start sales represented 15% over have already used car sales.
In conclusion I.
I will like to take this opportunity to welcome our new team members from the John Elway see BJ, our store that joined as very this quarter.
I also want to express appreciation to Walmart payments in the field and our support center, who continue to produce best in class performance. During these tough times.
We will now turn the call over the operator and take your questions operator.
Thank you if you would like to ask a question. Please the goal by pressing star one on your telephone keypad, if you're using a speakerphone. Please make sure. Your mute function is turned off two layers adultery chart equipment again, Please press star one to ask a question.
We'll take our first question from Rick Nelson with Stephens.
Thanks.
Good morning.
Good morning Kara.
Are you.
Some or be hey, there.
Hey engineering.
Post cattle the.
Maybe selling your digital how far it.
To address that changing consumer behavior.
Sure Rick This this is David.
I am sure like every one of our peers and private.
Retailers, where we're experiencing a lot of traffic online.
And we're doing a lot of transactions pickup and delivery and at home and roughly about 25% of our sales of being deliberate at home.
We've been dealing with each of the counties and states in mandates as far as filter in place.
We think with we found a nice rhythm that our business. We're excited that the incremental business that we've seen increased in April and we're experiencing that increase to continue into may.
So, it's a little bit difficult to predict the future and whether the virus comes back around or what happens, but as we sit here today were positive of we feel very good about the pace of our business. The changes that we made to adapt to the business.
How we look going forward to handle the business. It's a very flexible model for us and bringing back employees is certainly an opportunity for us when the business wants it.
So they were positive growth Merrill.
It's hard to improve.
Great.
Adequate.
Yes.
Yes.
Pardon plays is there potential to reengage or whatnot.
Import.
Sure.
It did we thought that Barclays deal was going to be a trend transformational deal for us and it was a heck of an acquisition, but things to happen.
On the other side of that corn, we're sitting on a lot of cash and probably the knows the lowest net leverage ratio we've had.
It may be ever.
So we're very opportunistic I think we need to see the dust settle a little bit there is some activity out there were certainly talking to people.
I don't want to comment on the on the park place transaction.
But we feel like from a cash position and where we're sitting operationally.
We have the ability to be very flexible.
And be inquisitive, when the right opportunities count.
Oh, sorry costs card.
Hey.
Thank you put those.
Our terms.
Whatever that being said there are.
My comments on our cost take out there with more of instruments.
Equally ship Green to digital.
Sure.
When we came into this in early April we wanted to build the plan for 90 days and not beyond not knowing what that was what was going to take place.
We made choices.
We kept more expensive than we needed we could have cut more encoder cut more of a bond. We believe this the strength and success of our company is our people.
So we furloughed the folks that we needed to the folks that we didnt for a low we basically guaranteed everyone's they took them off the commission plans.
And we guaranteed RMB level, the technicians and Didnt furlough any technicians because of our cash position and how we manage our expenses in the history that we'd have shown how many how well we manage that DNA.
Actually could have been better in the quarter had remittance had we just cut the normal expenses you wouldn't that typical recession.
We believe that this was going to be temporary and eventually the business was come going to come back.
So we wanted to show our teammates on once we value them by taking care of them through compensation.
Keep in the stability with eminent employed at the same time.
We took out about $15 million an expense in the month of April.
Most of that expense or over half of that expense was not personnel related.
That other levers there if we need to do it.
We have like I'm sure all of the other over our peers, we're strong metrics.
That will dictate to us when we bring people back.
And when we see those metrics starting to be achieved will certainly bring people back at that time, the folks that we have for a load we communicate with them consistently.
And we were hopeful one day to bring them all back.
Yeah, Hi, Marc Caira that have.
Okay.
I know you spoke to last weeks.
Sales being down 25%.
Parts burn down 40 years, where their parents.
And the markets kind of open.
Are those performance.
Yes, there's no question is a different than the market, there's certainly performing well and again, we've stated in the remarks that we see March being a 20% incremental increased over April were only a few days into may.
But we're very optimistic what we've seen so far so we hope to virus can.
Be contained and that it doesn't come back a resurgence, but we're hopeful and what we're seeing our OEM partners have been very supportive.
Incentives in communications in conversations and seeing what they can do to assist US. In addition shows how valued to have a part of they are to west and where appreciative of that.
So we're opportunistic looking at night.
Hey.
Hi.
Okay.
Thank you.
And we'll take our next question from John Murphy with Bank of America.
Good morning, guys I just wanted to follow up on one of the comments you made around new vehicle inventory about the potential of our run into some shortages potentially in the summer months, depending on how production gets up and running I'm just curious how you're thinking about your you and even used vehicle inventory.
Yes at the moment, particularly.
On the comp in the context.
For tight pricing and protecting or supporting Gpus, because it seems like it may actually have yet an odd situation.
Developing here with some of that each that Nancy down, but you might actually be.
Three shortage that supports GP. So just trying to get your thoughts around that what you meant by that commentary.
Good morning, John This is Dan and.
From a new car vehicle standpoint, and day supply back to what I referenced.
Earlier.
We're seeing with the close in shutdown in the.
Plans by the different Oems.
As business continues to increase.
Then.
In some of our luxury and some of our domestic specifically, we could run into a lower day supply.
Of some of the models.
Specifically talking as how do we all how we are managing through new and used car pricing.
And also the day supply will look at it have a model by model basis, and we make decisions based on.
Based on that the pricing, we continue to implement our market based pricing.
And to your point.
The bottom has now fallen out.
As much in the market based pricing.
So we will continue adjusting and our continue executing our strategy once again based on market day supply in market based pricing.
And what I would add to that specifically around use.
It took a dramatic drop in valuations at the auctions in late March in early April and we made a decision at that point in time not to get nervous and fire sale inventory because I didnt think that that was a real I think that it was an knee jerk reaction to the market and wasn't sustainable and they didn't weren't really want to stuff for large losses or or blog.
Inventory there was a needed.
Each week sense and this week is extremely strong at the auctions.
They're coming back significantly every week. So our day supply is looking a little bit high, but we just didnt feel the need to to turn it and take the loss because we didnt see the values dropping that much and we thought it come back we got lucky and they've come back well. We also moved a lot of inventory from state to state depending upon the shelter in place.
To move inventory to a market, where it had the potential to turn faster.
Okay. That's incredibly helpful. And then also use for me gene being.
Our automakers, helping out which ones inventory carry here.
It sounds like into will be carried for little bit longer, but you like you kind of you said, we'd be necessarily fire sale.
Trying to help you get on floor plan assistance and ultimately in any other fashion from the automakers the moment.
Hi, John This is Dan again, and we have seen support.
From our Oems and floor plan assistance.
And back to David's point.
Comments earlier, we really appreciate their support and what they have done for for the industry as we go through the pandemic.
Okay. That's the aging specific ground floor plan or the needs this isn't being extended.
10, 2030 days or is there any kind of specific example, given the on the clearances and so.
They've all given additional times in days and floor plan assistance.
They've been extremely helpful. As it relates that they've also increased during says coming out with zero percent financing.
It's been a great partnership and as to what we're going through and they've been supportive.
Okay, and then just lastly, I don't think pods engine, a big thing I didn't mention that.
The life of the monies are always tied to hit in certain targets theyve essentially eliminated those targets and just paid out the money.
Which has been extremely helpful as well.
Okay Thats, great detail and then just just labs parts and service.
One of the constraints Prequaled was a human capital or or tax.
Given everything that's going on right now I'm just curious if you think on the other side hopefully in a few weeks or a few months, where the rebound in park in service you may have more thats available to you to higher Andrew or no overtime with some of the folks that get furloughed could you.
And the trade schools eventually get them trained up to be BNC tax or mentioned being a tax and provide another.
Career paths for them, it will be pretty profitable to them as well.
Sure I'll tell you.
Having been an industry longtime events and many downturns the never let a good downturn go to waste.
The great opportunity to focus on your employees and trading.
And career development and really build stronger processes within the organization get better what you do.
Guaranteeing that technicians pay and not furloughing dnbi level tax.
Where it has gotten out in a lot of markets and we've actually been hiring some tax.
In the last 30 days that heard about what we're doing for our tax.
So they were looking to come onboard.
Downturns serve a good opportunity for you to really get your house in order and that tax and we're hopeful.
But we know the business will come back we know there's going to be some pent up demand.
People have been putting off service and part of it would sell through in place and not driving the cars. The cars on begun in Switzerland, a high with a collision slowing down a little bit, but eventually as that comes back and driving geared around Atlanta I can tell you that already starting to beg into each other again.
That business will come back for us. So we're excited about that we're happy to bring these technicians on now and pay them, even though we might not necessarily have to work for them.
And that that value is been well received biotechs.
And then just just one quick last question on that.
Any sort of level.
Pass the Governor you think that you might sort of point you as what you can handle or not handle on the recovery meeting what cities NASA paintball parts and service work in the third and fourth quarter I need to handle up 10%, 15%, 20%. What you think gains is reasonable to think about sort of on a year over year basis, where you might start run.
The into some some limitations on demand capacity in service date.
Sure John it.
It depends upon the month of the circumstance and you get hit all brands at once or how does it come but I would say a fair number would be 20% could easily be absorbed.
Thats, 20% over normal times.
Over times right now again parts and services I made the comment it was down 30% by the end of April it's starting off may better than it ended in April.
But if were backwards say, 20% in parts and service right now Theres, an additional 40% on top of that we can handle.
Without worrying about staffing issues and as far as bringing back support staff in the parts and service area that would be efficient and quick again store by store decision, depending upon how the business and the market reacts.
Okay. That's very good here, thank you very much.
Yes.
And we'll take our next question from Bret Jordan with Jefferies.
Hi, good morning, guys.
[music].
And I guess sort of the magnitude and the abruptness of the shock do you think there'll be any.
Or closing by their franchise or independent use dealers or even independent garage operators they would allow for.
Well market share gains here or.
The hit the recovery quick enough that most towards will stay open.
You know it this is David.
That's tough to predict a lot of the independent used car dealers rely on plan lines.
I know a lot of the floor plan lenders for those independents really govern their ability to buy cars starting in March so really only advancing 80% of the values. So that kind of brought down the market as well like anyone else depending upon how some was position regarding capital going into this will determine how well they'll be able to.
Whether it.
And obviously, we've never in our lifetimes come across a virus like this and had to deal with something like this so.
Very difficult to talk to someone and predict what next week or 30 days or 45 days, but now it's going to look like it's hard to imagine that some independents wouldn't go out it's hard to imagine that some folks will run into some capital issues, but I couldn't really comment on a number.
Okay, and then I guess, a follow up your comment about $15 million expense reductions in April and you said a bit over half of that was not personnel is that a number something a bit something half or so of that would be a sustained expense reduction.
I guess, just taking out permanent overhead or is it not as much as that.
Yes, I'll talk about both half of it the non personnel expense side a lot of it was negotiated discounts with our large vendor partners for a period of time. So so a lot of that expense will come back some of it like anything else because of the scale of business right now some of the.
Expense will stay.
But like anything else as an incrementally comes back some of it will come back the personnel side, we could've gotten a lot deeper than we did we chose not to because we wanted to pervert preserve the stability of our teammates and show them. How much we value then we give them a steady paycheck it income through this.
There was an incremental expense in doing that because from a percentage standpoint, we're paying up more than we're bringing in.
Because we realized for a period of time. This was the right thing to do for our teammates and eventually would come back.
So far that's worked out well for us where in a great cash position to be able to do that but certainly for some reason. If this ended up being a very prolong thing in a much slower recovery.
We could certainly make those adjustments on the compensation side as well.
Great. Thank you.
Thank you.
And we'll take our next question from Ryan second with Craig Hallum.
Hello.
And just one moment.
Yes.
Please standby just from a moment.
And Mr. six all please go ahead with your question.
Hello can you hear me.
Yes.
Okay, sorry about that guys.
Just Nolan for me.
Can you talk about your omnichannel business, either quantitatively or qualitatively amid the shelter in place restrictions and do you think that has helped you guys take market share amongst some of your.
Yes technology savvy dealer competitors.
Good morning, this is Dan.
Yes, you know like I'd like I mentioned on our Omnichannel.
Technology.
And strategy for the for the first two months the year.
We were up 25% increase in both in January and 23% in February.
And I do believe that it is.
Continue to to.
To give us a.
A competitive advantage.
As we move into the entire Q1 of 2020, we increased 9%.
And once the of the pandemic hit.
The online activity continue to increase and even in the month of we continue to see that trend translating to the month of March.
April and May Assorting, very healthy as well.
And I would just follow up.
15% of our used car sales and a month is a record for us we've been hovering in the 8% to 10% range. So we're excited about that.
Something we did we've been working on this for four years and above four years ago. We also decided to go to really 30 day outs with all our software partners.
Because we wanted the ability to be flexible in transition. If there was a better profit came along and we don't think from our perspective, it's a good capital investment to to invest in software from a hardware costs. So we work with partners, we utilize their cash in our ideas and we partner together and share ideas with anyone.
That's interesting.
Were solely focused on creating an entire sales transaction online 100% completed.
We like anyone else, we shop our competitors.
We think we have a pretty good tool out there we've created a new relationship with another partner.
And we think we can actually go further than where we've been so we're excited about the future we're working hard on developing that product more.
And we think we've been pretty good in the space at the execution so far.
Just one quick follow up are you able to elaborate on who that new partners.
I really don't want them, because it's such a competitive space.
I'll say the one that we've used for four years as has done extremely well and parted with other large fears of ours and Oems, which has been great.
Dave.
Total little bit and a very solid company, but there's another aggressive company out there that.
We can we can see a pathway.
To take us further down that transaction line.
We compare ourselves to carvana from the standpoint of online transaction and I would say.
The trade in piece is one that they is better than what we offered today, we feel like our online marketplace for financing is superior to anyone in the marketplace right now.
So we're looking forward to working.
With this partner.
At enhancing those areas and getting more the documents online to complete the entire transaction, we're not there yet no one's really there yet.
But it's our sole focus to get there.
Alright, Thanks, guys I'll turn it over from there.
Thank you.
Okay.
Well take our next question from Armintas.
Yes with Morgan Stanley.
Yes.
Thank you for taking the questions just.
We think about the sequential improvement here week over week, and then the bay, what you've seen so far.
Can you give some color on who you've seen buying calls.
Whether it's geographically demographic.
And what are the drivers of.
That fit the sales that we've had during this shelter in place period.
Good morning, this is Dan.
You know we.
We're seeing a lot the.
Customer base coming in driven by the incentives at the Oems or.
Our putting out there.
You can see there's quite a few offering to zero percent and that is driving.
Quite a bit of a traffic as it provides an opportunity for.
Consumers to upgrade.
Into a new vehicle.
I think we're seeing across the board lending is available there is no tightening on lending, which is great zero percent. Another incentives that are out there I think people looking to be opportunistic. So it's not just the luxury deal. It's not just an important deal. It's not just the domestic deal clearly the trucks. This very strong right now.
But with all brands, there's some interest do pent up demand I think it's really mainly driven by the incentives.
Got it and then on the parts and services side.
Yes, thats been more resilient than been sales.
What were the drivers there what type of work for people getting done if you don't really do you believe you're all why you coming into your car service or what are you seeing.
Sure where.
Obviously varies by brand.
But I would say there is pent up demand is a lot of people that are starting at home, saying I'm not really driving the car I can push out the service.
We're doing warranty work right now we are doing a lot of customer pay work a lot of that as communicating kind of if you will the typical guerrilla marketing direct with the consumer locally grassroots.
And thats, the pickup and delivery and on average we're doing 25% of that but we have some suppose it over 50%.
Pickup and delivery.
So I'm sure that a Wayne as things got as the shelters open up so to speak in the markets open up.
But we're just trying to be opportunistic be here for our guests.
And communicate with them and offer them a level of service, but it really is everything across the board from traditional maintenance the warranty work and additional items as well.
Okay got it thank you for taking the questions.
And we'll take our next question from Richard.
With JP Morgan.
Hi, good morning. Thanks. Thanks for taking my question just wanted to follow up on coupled with the his question you talked about online opportunity.
Well I seem to think about yeah.
Could you give us a census.
What will be limited economics at looking like.
One loan transactions on the sale side on the southern Sawlog versus what you guys being slightly.
Okay, and specifically more like both from a gross profit going as you may begin a perspective, and how should that be trending going forward as well.
Sure.
I'll start with sales and then finished with service and if I missed something this favored by the way please come back around it and let me now.
On the sales side.
On an average month free free virus, where between eight and 10% of our new car sales.
Transacted online.
90% of our business is transacted online, but most of it comes in to show them that 8% to 10% is handled completely online.
So that took place as we went into this that number started incrementally growing.
And used cars was in that same entity to 10% rains in March.
It grew to 15%.
It grew a little bit larger than that into April.
I think it'll probably level off a little bit and maybe come down a little bit as the shelters open up.
But right now, it's it's 15% or higher.
Depending upon the brand as far as PV ours in margins.
This is an area of opportunity for US currently we see the same margins online as we do if the transaction took place in side.
We're always surprised by the good happened I numbers that have generated online, but I'll tell you one of our opportunities for growth is creating a better have been I experienced online.
And that is a big focus of ours that we've been working on for a while we're not there yet.
But we're optimistic about the future from a from a service standpoint.
Pre virus.
Between 35, and 40% of our business was handled online and scheduled online.
And we communicate with our consumers mostly via text as far as.
They are npis and also for them paying for their transactions via text as well.
Some stores were north of 50%, but whole company, where between 35, 40% of the parts and service business was generated online for us.
As we went into this.
Our overall appointment numbers naturally have dropped as the business dropped in the store.
And because of the way we were due to the communicate with our customers. The progressive online employments fell off a little bit on a percent basis, but.
As of this week, where were that's incrementally signs to grow back.
So I'm not sure if I answered all your questions if I didnt. Please.
Come back.
Well as possible helpful.
Just from what the cost structure perspective on the headcount perspective.
Would you see.
I'll sum it up a permanent shift towards the online channels. This in terms of oil sands base.
We will be able to manage that kind of Wally.
Your your fleet coated.
Structure or headcount or the show on the satellite.
How would that be as Ginny.
The unit economics look like no more close goals was to go down.
Looks like maybe could they would just be higher throughput.
Sales of is that like when the change gms growth profile going forward or multi case.
So.
One thing we started a little over a year ago.
We started to build the dealership and not to sex with term, but we're working on it our dealership of the future and that's basically the store looks different acts different is compensated differently in its focus to do most transactions online both incessant service.
That model shows tremendous potential.
To to have an impact on EPS DNA expense in a covert environment.
It's really difficult to say.
What the new normal is going to be in what the levels are going to be.
I would tell you in that model that we're seeing with the dealership for the future you can certainly be more efficient and you can be a flatter organization with less cogs in the wheel.
The more transactions and transparency that to have online it creates a better experience for our guests and quite honestly it creates a better experience for our team as well.
Please note that makes sense, thanks type waterfall forms of capital.
Thank you.
And we'll take our next question from Stephanie Benjamin with Suntrust.
Hi, good afternoon.
Hello.
I just wanted to follow up on specifically the you said I know that you called out some improving trends throughout April.
Improving trends in May call for full business, a lot of that driven by some of them, sometimes you're seeing the Oems and great support from that but can you talk about all everything between used vehicle volumes demand for consumers are you, saying, what consumers kind of gravitate towards new vehicle. So any color there would be helpful. Thank you.
I'll start and flip it to Dan.
You know it we're consumer driven market that appreciate incentives and deals.
I would say the demand is a little bit higher for new than used by now, but I think that's really driven by the incentives that are out there. The used car business is always going to be healthy and strong in my opinion and the certified pre owned our CTO option is a great value proposition for consumer.
So I think we feel pretty strong about is down from a comment David I would just echo what what you just said about potentially seeing a little more demand for gravitating towards the new side of the businesses because of the incentives and be a special financing, but again that certified pre owned.
As a great auction for the for the consumer as well.
Yeah.
Great and Thats all I have thank you.
Thank you Stephanie.
This concludes todays discussion we appreciate your participation and we look forward to speaking with you at the end of July have a great deck.
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