Q2 2020 Asbury Automotive Group Inc Earnings Call
Good day, you were currently holding for things out very automotive group second quarter 2020 earnings call.
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[music].
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Good day, everyone and thank you for standby.
Welcome to the outbreak automotive group second quarter 2020 earnings call Today's conference is being recorded.
At this time, a life to turn the conference over to Mr., Matt, but Tony. Please go ahead sorry.
Thanks, operator, and good morning, everyone welcome to Asbury Automotive group second quarter 2020, <unk> earnings call. Today's call is being recorded and will be available for replay later Tonight.
The press release detailing Asbury second quarter results was issued earlier this morning and is posted on our website Asbury auto Dot com.
Participating with me today, or David <unk>, our President and Chief Executive Officer, PJ Guard out, our Chief Financial Officer, and Dan Claire Our senior Vice President of operation.
At the conclusion about remarks, well open the call for questions and I will be available later for any follow up questions you might <unk> before we begin I must remind you that a 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 a duration and contemplated impact of the cobot 19 pandemic on our business and financial performance as well as the financial projections and expectations about our product market.
And growth.
All forward looking statements are subject to significant uncertainties and actual results may differ materially from those suggested by the springer, including potential impact from the cobot 19, pandemic honor, our industry and our customers suppliers vendors and business partners.
For information regarding certain other risks that may cause actual results to differ.
We see our filings with the FTC 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 expressively disclaim any responsibility to update forward looking statement. In addition, certain non-GAAP financial measures as defined under the rules maybe discussed on this call as required by applicable FCC rules, we provide reconciliations of any such non-GAAP financial measure.
Sure. So the most directly comparable GAAP measures on our website, it's my pleasure I hand, the call over to our CEO David whole David Thanks, Matt Good morning, everyone welcome to our second quarter earnings call.
We achieved record second quarter results, despite a volatile and challenging environment.
In a quarter, where it's our job 34% to 11.3 million.
And Americans felt at home due to the Cobot 19 endemic.
We delivered record operating margin of 5.7% well do our cost control measures.
The strength of our business model.
We're able to achieve record low s. DNA as a percentage of gross profit of 62.7%.
No the adjusted EPS of $2.52 up 6% over the prior year [noise].
During the quarter.
We saw new and used volumes sequentially improve each week in may and June but significantly higher profit per vehicle.
We also saw parts and service business rebound in June.
And in the months flat in gross profit with the prior year.
I'm extremely proud of our teammates for stepping up our pickup and delivery business.
As well as there are laser focused around keeping a dealership so before I guess.
Because of their hard work [noise].
We were able to deliver record results.
In addition.
Quarter proved the strength of the new vehicle franchise dealer model.
With significantly lower volume due to the macro environment.
We're able to flex our cost structure down rationalize inventory and improved margins to deliver these record results.
Our strong performance is also the result of our pioneering omni channel strategy, we launched over four years ago.
In the second quarter, 20% of our guess chose to complete their used vehicle purchase online.
While we were pleased with these results we're focused on further building and refining our omnichannel tools to enhance the guest experience.
More to come later this year.
We're also pleased that our business model and performance.
Allowed us to navigate the current environment and Reengage I'm, a highly strategic park place acquisition and the more flexible financing terms and more favorable pricing.
We're on track to close the acquisition in late August.
Looking forward.
Our main goals are to de lever and continue to build out our omni channel tools, while working towards becoming the most guest centric automotive retailer.
Finally.
Hi, Thank all of our teammates for their commitment during this pandemic.
These results happened because of your cost and perseverance adapting to our new world. Thank you.
I'll now hand, the call over the Dan to discuss our operating performance there.
Thank you David and good morning, everyone.
My remarks will pertain to our same store performance compared to the second quarter of 29 team.
Looking at your vehicles.
Well so for the quarter was at 11.3 million units or 34% below last year, we focus on retail, so [laughter], which was down 24% for the quarter.
It is lower retail store environment.
New unit sales decreased 23%.
Overall, our new gross profit per vehicle was up $436 per car or 30% from the prior year period.
All segment margins were up significantly from the prior year period.
At the end of June our total new vehicle inventory was 474 million and our day supply was 52.
34 days from the prior year.
<unk> levels are low because of temporary OEM factory shutdowns.
However, we expect a day supply to increase gradually through the summer selling season.
Turning to use vehicles.
Our gross profit margin was 7.5%.
30 basis points from the prior period, representing a gross profit per vehicle a $1690.
We focused on being opportunistic with our inventory and we were able to increase or used to near ratio by almost 1000 basis points.
The second aspect of our used car business. It's wholesale we increased our wholesale gross profit over $4 million.
Our used vehicle inventory ended June at 125 million, which represents a 26 days supply down seven days from the prior year.
Turning to every night.
Our strong consistent and sustainable growth in ethanol I delivered an increase of $80 to $1737 from the prior year quarter.
In the second quarter, our front end yield per vehicle increased $357 per car to an all time record of 3539.
Finally.
Turning to parts and service.
Although our parts and service revenue decreased during the quarter, we were able to recover and workflow in the month of June.
In addition.
41% or work customer appointments worth schedule from mobile and web devices.
I will like to remind you that our parts and service gross profit margin was impacted by the decision. We made to protect the income of our technicians derman does pandemic, which cost approximately $5 million.
I will like to take this opportunity to express appreciation to all our teammates in the field and our support center will continue to produce best in class performance.
I will now and the collaborative PJ to discuss our financial performance CJ.
Thank you Dan and good morning, everyone.
I would like to provide some financial highlights for the quarter, which mark a great achievement for our company in an unprecedented and volatile macro environment.
Overall compared to the second quarter of last year revenue decreased by 20% gross profit decreased by 18% driven by the impact of coded 19.
Gross margin expanded by 40 basis points to 16.8% compared to last year, driven by our proactive inventory management and focused on gross profit per unit.
Moving down the personnel, we saw asked today as a percentage gross profit decreased by 530 basis points to 62.7% on expense reductions and efficiency gains on personnel and advertising as well other cost control measures instituted across the business, although the op.
Operating environment remains uncertain in the back half the year, we expect our DNA as a percentage of gross profit to be somewhere in the mid to high sixtys for the full year 2020.
Our actions to manage gross profit and control expense resulted in an adjusted operating margin increased 90 basis points to 5.6%.
Adjusted EPS for the quarter increased by 6% versus the prior year period.
Net income for the second quarter 2020, with adjusted for a legal settlement gain of 1.2 million or five cents per diluted share.
Net income for the second quarter 2019, with adjusted for an $11.7 million gain on the store divestiture or 45.
Per diluted share.
And a 300000 dollar getting or one cents per diluted share on sale it real estate.
Our effective tax rate was 25.2 for 2% for the second quarter 2020, compared to 25.3% in the second quarter of 2019.
Floor plan interest expense for the quarter decreased by 6.4 million over the prior year quarter, driven primarily by the reduction in inventory and the decrease in the library.
With respect to capital deployed we spent approximately $10 million on store improvement and other investments.
Our balance sheet remain very strong position and we ended the quarter with approximately 747 million up liquidity comprised of 613 million cash 117 million available in floor plan offset account and $17 million available on our you'd be.
Hello.
In addition to strong liquidity, we also have unencumbered real estate with a fair market value of approximately 100 million.
At the ended the quarter, our net leverage ratio stood at 1.5 times well below our target leverage of 3.0 times.
This provided us with the capacity and the flexibility to acquire the park place stores.
Although we anticipate that leverage will increase next quarter as we close on the Barclays acquisition, we believe the accretive nature of the deal combined with Asbury organic growth and cash flow will allow us to proactively manage our debt portfolio and get back to our target leverage a three times within 18 months.
As a result of our commitment to a strong and flexible balance sheet, our primary capital X. allocation focus for the next several quarters de lever.
In closing I would also like to get back our teams across the business. That's worked tirelessly. During this challenging time to ensure our long term success.
We will now turn the call over to the operator and take your questions operator.
Thank you.
Ask a question. Please signaled by pressing star one on your telephone keypad also if you are using a speaker phone. Please make sure. Your mute function is turned off the line your signal.
Once again that a star one to ask a question.
And we'll go first to Rick Nelson Stephens.
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Follow up.
Yeah.
Sure Yes.
There are quite.
So what's your days supply.
That's where that car.
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Good morning, with this is David related to the newly it varies dramatically by brand, but I I would say as we sit here today.
We believe that it will really be September before we start to see no normalization of inventory.
We're certainly started to get vehicles and then we'll certainly get a minute in August.
But with the demand currently that's out there in the way the supplies coming in I think it's mid September before it starts to normalize.
The used vehicle side.
Little bit different and probably a little bit tougher to predict.
I would tell you a in we normally don't give any guidance, but when we think about July and where we are.
July is what June is as it relates the margin and may be better.
Volume is probably maybe just a little bit less than June we anticipate boggus.
To be the same as July.
And similar to June its very difficult with what's going on the well with the pandemic and everything to get too far I'm, making predictions, but we see July being strong and we see August being similar.
September is a little bit unknown at this point.
Yes [laughter].
A follow up for that that's true.
Gross profit.
Was 55 first time.
I know you guys.
Turning to high Sixtys.
But I'm.
Carriers simply just kind of detail.
Control or.
Are you start spending plans.
Yes.
Hi, there over the near term what.
55 cents British her doubled [laughter].
[laughter] specially with upside to your peers.
Yes, hi, Rick its PJ. So worked with regards to SDMA I think we would we need to just referenced and level set on the quarter as a whole when you know the pandemic first hit we we.
We're very quick to rightsize the business to align with the new environment that we thought going forward.
So.
You know that action.
Primarily on with regards to your headcount in advertising.
You know set us up to to operate in the current environment and I think going forward.
Although.
A lot of that is structural and we have gained efficiencies.
We do expect expense.
We don't see that as sustainable going forward, we do see expense coming back in as the environment waterlogged is as volume increases.
So you know again to achieve 62.7% as DNA.
In this environment or even in the mid Sixtys, which is which is still below historic as you know is an achievement.
But we do expect you know some expense to creep back in the normal.
Uh huh.
Finally, we tried to that's counterparts.
Ladies and current.
Sequentially I'm sure.
Sure Yes.
But there will no longer.
On track to your credit for the mid single digit growth.
<unk> is concerned.
Right.
Sure.
This is David Rick.
I would you when we look at our or a business. When we report numbers and we still customer pay I don't know that many of our peers do but.
We'd have to remember when we still parts and service customer pay.
That includes collision.
Collision is really what's taking the big hit for US then there's a delay in collision. So when April really shut down for sales and service collision was actually okay.
Cool isn't took their head may forward with less people driving on the road has been less accidents, so collisions been a little bit further behind.
Parts and service I would say kinda like June is similar in July.
With some growth in some areas, but we're still lagging in collision.
And I would say collusion is roughly about.
At this point, 10% back.
Of prior year, so when I talk about parts and service mid single digit increase I'm going to now slip a little bit and go just the parts and service and exclude collision.
I would expect each month going forward incremental increases.
I can't really say, what's going to happen with collision, but specifically parts and service I expected to go forward. The one unknown to US is what happens in the fall wouldn't flu season hits in the could the virus surge in that kind of thing we're really unsure about the fall.
But as we sit here today, we see incremental growth.
Each week in parts and service.
That's correct if I could add.
As for more cloud show.
So.
To the virus so the outboard starwood since you've got a little exposure to Florida.
Good.
How about time trials.
There's somebody is going to approach.
I would say you know <unk> again, I think about the news and then I think about our business. What do you hear on the news about Florida, and Texas is horrible and it's a record what's going on the country I will stay we don't see then our business, Florida is still operates extremely well for us.
I still holds the that concept there Americans you can always shelf with them in place for so long.
We're not seeing a material impact at all in our Florida business that actually is.
It is fairly healthy for us.
Right.
Thanks, Good luck.
Thank you.
[music].
Next we'll go to John Murphy with Bank of America.
Good morning, guys I just wanted to ask a first question on.
Validation in the industry, because there's obviously gets apart those acquisition you've done in some of the other groups getting more aggressive walk on acquisitions.
You look if it's something that deals that are being done in the private market are far bobs evaluation that your stock is currently selling at so I mean, obviously you just due to a very good attractive yields so trying to understand that but on the flip side.
The potential for selling a business you get to a large private group or another another public.
I'm doing evaluation that might be more in tune with some of that the private deal to going on I mean is that something you'd be open to or the board would have to consider that came up.
John I did that it's it's not something we think about on a daily basis I would tell you.
You know I know, there's a lot of vibe in the market about growth and how big people can get over the years and consolidation and national branding.
We have to remember that this is an of franchise business.
And that Theres dealer agreements with every single one of these brands and then this framework agreements on that.
So until those documents materially changed.
I don't see.
The massive consolidation that you might be question.
Okay. That's that's that's very very helpful. I mean, you think that the framework agreements in the franchise laws action you refer EBIT somebody getting significantly bugs to 2% of that the national market or something something.
In that range that you got a fair statement roughly.
Well I would it's unfair for me to say, what everyone's framework rates, but I would tell you.
Once you start having multiple rooftops of any brand beyond your dealer agreement that exist you'd have a framework agreement.
And within those framework agreement there are limitations.
And how many you can acquire a in an annual this season, so to speak or period. So there's a there's a lot to a framework agreement and what's involved and for our company aided by a company be of 40, plus stores overnight would take a significant amount of work with the manufacturers.
To make that happen then you would be a two test of some documentation that are out there.
Got it Okay. That's very helpful. And then just second question around SG name names in the performance was.
On the quarter it sounds like you hold onto a decent amount of it but you do expect some normalization there over time as you look at the omni channel.
Efforts in and as that is ramping up at the you're you're saying you're done a lot of your your sales it online in the quarter up to a news I mean is there an opportunity Gee, you stress or leverage that omni channel.
Effort at the asked you naked structurally come down overtime and get simply I was asked you need dollars on a on a newer you sell much lower if you're doing it online.
Absolutely.
There's no question about it and we're very we're focused on that did the transaction online not reserving a car not holding a car.
No not processing a piece of the deal where we're very focused on the complete transaction. We quoted a number 20% on pre owned we're proud of that in it and that's not reserving are holding nuts transacting in the 40% of our appointments online. It just shows where we've been working on over the years, we have more tools.
That we're looking forward to to launch later in the second half of this year.
We think we'll hopefully get us we believe it will get us to a hopefully at higher plateau, so very focused and keeping our heads down and just really focusing on getting better at what we do and more efficient at what we do our discipline and SDN ended the quarter showed a we're proud of that.
So the cost that will lead back into third quarter. Some of our vendor partners that gave us discounts.
They're not they're now so those cost and that you're going to come back in.
But we're disciplined on keeping the headcount where it is we're disciplined on keeping our AD dollars down I think we're one of the lowest in this space if not the lowest in the space. So I think was shown efficiency.
I think once we feel like we're at a point, where we can really a split the foot on a cost in the highway then we'll chase volume a little bit, but we're right now we're trying to get more efficient and what we do.
And yacht Omni channel as she needed grossing if you go online I mean, that's I mean can be as low as 50% or is that just wait wait too aggressive as to how far.
On the opportunity could be.
Yeah, I I'm smiling I I I really couldn't touched that number it would be unfair for me to say, it's more than fair to say that there's an opportunity overtime to lower SJ with online transactions.
Okay, and then just lastly use eagle pricing has been.
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Accurately strong certified lot of that factors in marketing, except maybe one ambitious this incredible underlying demand for travel utility and showing up in used to his new vehicles just on them a lot to sell I'm just curious what your interpretation is.
Strong needs Eagle pricing what means your your business can it seems I can say.
Keystone here that undeniably you know just home.
I understand what how you think about that what that means.
Yeah, I again, I I said that the girl early in July we had a perfect storm event happening with a lot of things that would the manufacturers shutting down and there's still a demand out there to purchase cars and the average age of <unk> ownership is almost 12 years, you do have some pent up demand.
And there's a lot of pre owned vehicles on on the market.
Say every quarter any company what did you do right what did you get wrong.
I'll tell you one of the things we got wrong in the quarter I felt were smart not to wholesale our cars and take any kind of loss when the market really drop in March because we didn't think it was real but in hindsight, we could have been more aggressive at buying more inventory.
And that's something we didn't do we chose to stay conservative and just bridge. The gross the business is still strong today in U.S I anticipate August won't be any different.
Timbers, a natural slow down after labor day in a normal year I would call 2020 anything but normal.
So it's really tough to predict what September comes but there you know there could be that natural slow in September.
Okay, Great. That's very helpful. Thank you very much.
Thank you.
Well go next to Ryan fiddle with Craig Hallum capital cuts.
Good morning, Thanks for taking my questions.
Well, yes, just as it relates to park place in digital all you know how do you think about allocating both financial and human resources towards you know the integration of park place.
Versus digital capabilities as the industry wrapping it shifts on line.
This this is David Ryan and I'll address that.
Yeah, I've been Lucky and 34 years, the worked for a lot of great companies a lot of great people and they've done a lot of acquisitions.
And acquisitions are fun to do but integrating them is extremely difficult.
This is gonna be 1700 employees a lot of stores a lot of revenue I'll tell you what attracts us most of this deal besides the obvious.
Are the people there, but it's also the systems that they have you won't find the company well we have enter I haven't seen in my career, where we aligned so much operationally right down to the software that we use both them Dms is the HR software. So we see this is a fairly.
Easy integration, even though it's a large size one.
We feel that their strength is delivering a high level of service.
And our strength as the digital side.
We think we can learn a lot from them and they can learn from us on the digital side and were very excited.
To get the acquisition done against and start chipping away at that.
That's helpful. One other one for me.
So one of your dealer appears announced its rolling out the national brand for its digital initiatives, where do you guys. Ultimately see are positioning in digital is that with a unified I'd say brand is that the push start brand. How do you think about kind of a nationwide roll off there.
Yeah, I would say when you think about branding nationally.
I got to go back to the dealers the dealership dealer agreements and framework agreements.
Like I mean, I'm, a small mercedes dealer in any city.
I have restrictions as to where I can market that vehicle and what I can do.
We all have restrictions on where we can market are our new vehicle sales service to some degree and CPL, where there are no restrictions are out no pre owned sales.
But I would tell you a cox automotive is pretty good on doing studies and everything else like that and if you look at their 2020 car buyer journey study on the pre owned side, 87% of the people that purchase the used vehicle purchase that within 60 miles of where they live.
And on the new car side. It was 93% so the way we look at it is we see brick and mortar as an expense and we see digital as a as a highway to do business and we feel like our omni channel approach, we have enough facilities.
Facilitate the deliveries of the vehicles as well so we look at unlimited potential through our rooftops, we think there our local branding names within the market have value.
And we'll go after it just like up here is just like on the private side. We also pretty on cars all over the country when people looking for certain cars. They go after them, but you know 87% of your business is done within a six mile radius and we still see that within our business as well. So we think there's high efficiency.
Through online we think the true savings in the S. DNA is brick and mortars not needed. It's all online and when you can come when you can truly complete the transaction, 100% on nine and make it fast and transparent to the consumer.
Sure I can't see how you're not likely to garner good results and acquire more business from doing that.
Great. That's it from you guys. Good luck.
Okay.
Next well go to think honestly us with Morgan Stanley.
Great appreciate the question.
Noted.
Import GPU.
Quite a bit here, maybe you could talk about the environment here with regard to the luxury domestic and import brands.
And then also how incentives have been trending through the quarter into July.
Hi, Good morning. This is Dan I'll take the other question.
So yeah, we saw a nice improvement.
Across all segments from a luxury standpoint, I'll address out one first again, you know that goes back to the supply and demand we made a conscious decision.
To be smart and not just let cars retail cars that are harder we place right now because of the OEM shutdowns and what have you from an important standpoint.
Same same as a similar situation that we experienced with luxury we have seen the some Oems Abbas support it.
With that factor incentive more than others.
And put into granting the Grand scheme of things I believe everybody was was a very key player in a very good partner through the pandemic.
And when you go down through the domestic again, there were affected by the factory shutdowns.
There was another domestic data prior to call that also had another factory shutdowns. So even more of a limitation when you come down to a day supply and again it goes down to the conscious decision that we may have.
Hold into their product, making good smart decisions.
In an environment, where it is tough to replace.
The unit that you just retail and the only thing I'd ask what color on that.
One of our core principles is our partnership with our Oems.
For a franchisee we value them hopefully they value us as well.
And we want to know what's important to them and we want to execute on that they supported us extremely well through the pandemic in so many ways and were very thankful for that I would tell you, especially in the midline import as it relates to Asbury. It was a very much a conscious decision for us.
To do it really just focused on margin and not chase gross and when you're in secondary markets were not with most of our midline imports, but when you are your naturally going to be higher on gross profit per units when you're in metro markets, a little bit more competitive. So we're very pleased with our results for the midline imports for the quarter, but it was it was a phone.
Because to not chase volume and religious.
Focus on margin.
Gotcha, and you mentioned about 20% of your sales involved.
The digital.
Frameworks, how that trended.
From co bid to the opening does that increase decrease to remain flat what's been the trend there.
Sure number moves around a little bit, but essentially pretty good pre cove excuse me it was around 10%.
So it jumped up to 20%.
Okay, and how's that been looking you know you've been able to build cars in dealerships and people have been able to have more options than just delivery and and curbside pickup.
There was there obviously.
Restriction there by jurisdiction.
Sure.
The number hasn't really moved yet it certainly could at any point in time, but it hasn't yet.
Okay, great. Thank you for taking the questions.
Thank you.
Next we'll go to Russia Gupta with Jpmorgan.
Hi, good morning, everyone and thanks for thanks for taking my questions.
Just had a falloff on the Omnichannel offering.
Got you talked in your prepared remarks on how you're looking to add staff for their.
Can you give us a sense. So you know what kind of steps you have in mind.
Bottlenecks at new team that you would want to improve on where you just each specific parts of the offering.
Thank you will be more focus on going forward and I have a formal.
Sure.
This is David Yeah, you know when we when we launched the loan marketplace, we announced last year that were the first to have it and basically you could apply online and you instantly got back from the large lenders.
With their logo, what what the approvals, where and what the rates, where we didnt pre announce it because it's a competitive space I would tell you in the second half of this year.
We will launch tools that don't currently exist.
No one has out there at this point in the automotive space us certain elements of the transaction online.
So there will be more to come but just because of competitive nature of our space. We don't want to talk about it yet.
I anticipate it things could change, but I anticipate talking about it in October.
Got it.
We'll look forward to that and just some Barclays.
No, it's not closed yet, but nobody give us any sense.
Did the same store metrics.
Within that group you know how that how data before the second quarter and what we're seeing hearing to drive costs across the different business lines.
Sure Hey, it respectfully, it's still privately held in.
I really don't want to disclose too much of his personal information, but I guess, a just a general statement I could make for the month of June he's been in business a little bit over 33 years news is most profitable month these ever had.
Their stores are performing very well.
And holding up very well and it certainly.
Transitioning that way into July as well.
Okay got it and you mentioned earlier I think to Rick's question that no July maybe slow a little bit off the slowing worsen June in terms of volumes.
With that moral some industry dynamic or is that more of a bunches division on your part because you know auction prices are so high or you just curious as to you know.
With that we've got more affluent punches division by just to maybe not hold off on like so saying.
Extensive wake goals.
Yes, I I would tell you it's a little bit everything first on the day supplies is low so naturally sales are going to slow a little bit with that and then the number one source for most new car dealers.
For a used vehicles this trade ins, so theres an offset there.
To your point about buying cars right now.
We're trying to realize would not just buying for among a moment in time or a quarter, but us overtime.
And we don't we want to stay conservative understanding that at some point the market's going to move a little bit. So we're buying what we need we're trying to be opportunistic we're buying directly from consumers.
We're doing a lot of equity mining as most dealer groups are I'm sure and try to be opportunistic, but I think our approach right now or a mindset is is how do we get our highest returns.
And that's our main focus now how does how do we generate as much grows as we possibly can while keeping our expenses down.
To come out on the other side of this.
Got it like a that's super helpful. Thanks, and good luck.
Thank you.
Next we'll go to Stephanie Benjamin with Suntrust.
Yeah.
Hi, good morning.
Hi, Stephanie.
Oh, just to circle up again on the digital initiative.
I wanted to see a maybe color you've had about those petsmart that chose to.
Purchase online there is additional channel that 20% how many of those customers chose the or roughly speaking chose the home delivery and star pickup just curious what you're seeing from that upsides.
Yeah, no step it it's it's a great question then.
Like anything we launched I'm always wrong I anticipated, a very high where we do this years ago in very very high delivery rate at home for obvious reasons.
It was a little bit more than expected in the beginning but it quickly flipped.
The majority of consumers are choosing to take delivery at the dealership.
I'm guessing as the reason is as they want that relationship with the dealership on the parts and service side and want to meet people there.
We certainly do do home deliveries.
I would say would do more the pickup in drop off on service than we are deliveries on the actual transactions when they purchase occur.
No actually ought to stay purchases are certainly being transported by trucks, but local transactions that have done are mostly done at the dealership after they've purchased it online.
Got it helpful. Thank you and then also I wanted to touch on.
At the night, but your digital understood as what you've seen adoption and penetration up really getting from about.
Additionally, the warranty or service sales via still going to potential platform reduction initiative that may be expanded into the quality just any color there would be great. Thanks.
Hi, Good morning, Stephanie This is Dan so we've we've seen but the the team adopt a pretty good.
To the new way of doing business with the.
Digital transactions and at home delivery, we have several of the tools that we utilize afford us the ability to be able to.
Further enhance the experienced by being able to present, the product print and digital aspect and.
The team did a very good job.
Adopting and we saw positive results from our consumers.
This transaction and therefore, you can see the consistent and sustainable growth that we delivered enough in height.
And I would add I would say if you could truly analyzed our online transaction Bill there's three key areas of whether you call weakness or opportunity to be better. So those are the ones that were focused on that we'll be launching and one of them is related to up and I were lucky that are up and I numbers are holding up online as they do.
In the store.
But in my personal opinion.
Our presentation of ethanol products online can be a lot better than what it is.
Got it and that's all I want thank you.
Thank you.
We'll go next to Bret Jordan with Jefferies.
Hi, good morning, guys.
Morning.
Oh, my discussion of the customer pay impacting the collision softness I think you meant you said it was up 10% backup prior year is that saying that collision is running at 90% of prior year levels or it is running at 10% fired a levels.
Yes, it's well and that number was for July.
And it's we're running at 90% of prior year, so were up 10%.
Okay, and what would have done to trend that improvement I guess, what would jane or may have been versus prior year.
Yes, we had collision was backwards about 30%.
Well, we're you know, 70% if you want to do it that way.
Okay, and then equating where I guess.
To be clear, we were generating 70% of prior year.
Okay.
I guess you commented the Florida has been strong despite sort of flow that we outbreak are there any markets that are outliers you talk about regional.
Funchal improvement are there any particularly strong or weak markets and the recovery.
No I wouldn't say you know early on end of March.
Beginning of April there was I would say once you kind of hit that mid April point, you seem fairly consistent recovery everywhere.
Colorado, we only have a couple of stores out there, but has been extremely strong for us and.
They had some tough shelter in place or regulations early on and we're still amazed that the business those coming out of there. So I think we certainly had our lumps along the way. Unlike a lot of our peers and show you know we had moments in times, we had stores physically closed for periods of time.
For a litany of different reasons, whether it be state regulated or a virus breakout.
But it it's just slowly coming back.
Over time.
Okay, and then one last question I guess what.
Many public players now focusing in the used car space and promising growth do you see auction activity getting any less rational or our goods, becoming more competitive in that channel.
Yeah, and I would say you know we.
No differently than our peers I'm sure we constantly look at the competitive space. The what people are doing what people are in the last 120 days some of those national brands.
We're not acquiring cars from consumers they shut that piece down for a period of time.
I think you know our goal is slow sustainable growth and we agree with coxon that 80, 87% of the people that purchase that pre owned purchase it within 60 miles.
We think we have a tremendous opportunity to grow our pre owned business I think our.
Our focus really right now is perfecting that online piece than we have not done that yet.
And that's why we keep quoting the actual percentages were so I don't think some others do the reason we do that is to hold ourselves accountable to a number and really want to get better, but we believe our growth comes when we have a better tool in a world class tool in the market.
And we can convince the consumers to transact online and that it's safe.
It's different when you think about buying a car lines the buying something on Amazon when you're buying something on Amazon, you're not trading anything into them and when you don't read anything into them you don't already money on it. So it's more complex when you're doing a vehicle transaction and there's different pieces of that element that has to be thought through.
When completing that transaction online, but that's where our focus is in growing our business as far as national brands.
We think within the markets, we do business than we compete really well.
We are a franchisee our partners are very important to us and we understand our restrictions around nationally marketing the new vehicle franchises, but.
But on the pre owned side, it's clearly an open market, but it's like anything else you know if you're going to ship of 5000 pound item.
10 States. This is certainly a cost associated with that and whatever that cost is is it that much of a savings not to buy it locally.
So there's just a lot of thought that has to be put into what that landscape looks like.
Right. Thank you.
Thank you.
We'll go next to David Whiston with Morningstar.
Thanks, Good morning, persist and I think some accounting question on the legal suddenly gain was that for gap and ask DNA or other income.
That was other income.
Okay and earlier you talked about last year, they will be coming back up as volumes come back up.
Is that just mull almost entirely from hiring more people on volumes come back up.
No it will be a combination of.
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As as volume comes back.
C.
The there'll be a little bit of pressure on overhead costs, that's outside services bank fees.
In the training.
But you'll also see.
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Yes, you could also see us.
Again, it just I guess head count to match the environment.
And then also on advertising.
We may elect to.
Deploy additional advertising dollars.
Again, depending on on the volume in the business. So it really just depends on what we see.
And then.
And then also that there could be pressure on the denominator side. The gross profit side again as volumes increase stuck in the one thing I'd add to that David.
Like our peers.
You know it wouldn't want tragic events like this happens you get to rightsize your business and focus on other things.
We're very disciplined right now and not adding back head count and would only do that if we saw a material difference in our business.
We're very focused on production per employee and it's higher than it's been in a long time and that's part of our success right now too and we certainly want to keep it there.
As we sit here in July in coming forward.
We're still seeing good margin and anticipate a strong results with the very disciplined s. DNA, but as we agreed with that forecast of mid Sixtys. The upper Sixtys was full year.
In the one element that none of us can predict is that fourth quarter.
And what could happen in the fourth quarter, but.
But in the short term.
We'll stay disciplined and take advantage of what the markets, giving us right now.
Oh, Thanks, that's helpful and then on used vehicles.
Well, there's a an adverse supply shock in that space due to collapse and new vehicle sales. So.
Vehicle pricing has come up a pretty rapidly after an initial collapse just like it didnt know nine but do you see that used vehicle pricing dynamic may be moderating in the second half of this year or is it not until 21.
Yeah. That's a great question I don't know the answer to that.
Yeah again, I think the fall will dictate if there's going to be a material change that up at a whether through a little bit longer I don't see anything changing.
The next 60 45 to 60 days.
And I know, that's not a great guidance or time period, but it's such an unusual period right now with so many different dynamics going on it's very difficult to predict.
July is every bit as strong as June and all in a lot of ways.
As we sit here today and I know is August is only a few days away.
We anticipate August looking the same but certainly that could change on a moment's notice as well.
Okay. Thanks, guys.
Thank you.
This concludes our discussion today, we appreciate your participation on the call look forward to speaking with you in October Thank you.