Q4 2020 Asbury Automotive Group Inc Earnings Call
Good day, ladies and gentlemen, and welcome to the Asbury Automotive Group Q4, 2020 earnings call. Today's conference is being recorded at this time I'd like to turn the conference or at a map and Tony. Please go ahead.
Thanks, operator, and good morning, everyone welcome to Asbury Automotive group fourth quarter 2020 earnings call.
Today's call is being recorded and will be available for replay later today the press release detailing Asbury fourth quarter results.
Were issued earlier this morning and is posted on our website Asbury auto Dot com participating with me today are David Hult, Our President and Chief Executive Officer, PJ, Guido, our Chief Financial Officer, and Dan <unk>, Our senior Vice President of operations.
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.
And we're looking statements are statements other than those which are historical in nature, including those statements relating to the duration and contemplated impact of the COVID-19 pandemic on our business and financial performance as well as the financial projections and expectations about our products markets and growth.
All forward looking statements are subject to significant uncertainties and actual results may differ materially from those suggested by the statements including potential impacts from the COVID-19 pandemic on us our industry and our customers suppliers and vendors and business partners for <unk>.
Formation regarding certain of the risks that may cause actual results to differ please see our filings with the SEC from time to time, including our form 10-K for the year ended December 2019, any subsequently filed quarterly report on form 10-Q, and our earnings release issued earlier.
Good day.
We expressly disclaim any responsibility to update forward looking statements. In addition, certain non-GAAP financial measures as defined under SEC rules may be discussed on this call.
As required by applicable SEC rules, we provide reconciliations of any such non-GAAP financial measures to the most directly comparable GAAP measures on our website. It is my pleasure to hand, the call over to our CEO, David Hult David.
Thanks, Matt Good morning, everyone welcome to our fourth quarter earnings call.
We have just reported and another all time record fourth quarter, despite continued volatility and uncertainty and the economy.
And sorry recovered from Q2 lows, we delivered a strong gross margin of 16, 7%.
Which expanded 80 basis points versus Q4 of last year.
We also remained very active and managing expenses.
And we achieved SG&A as a percentage of gross profit of 61, 4%.
Our focus on gross profit and expense management once again produced a great quarter.
With adjusted EPS of $4 and 44.
Up 76% over the prior year.
I would also like to call out that 2020 as a whole was a record year for Asbury.
For the full year, we grew adjusted EPS by 36%.
Increased adjusted income from operations by over 70 million to $405 million.
And increase of 21% and the highest level ever.
We acquired a Chrysler Jeep Dodge store and Denver from John Elway.
We acquired a park place dealerships to collision centers and one auction center in Dallas.
Which in total added $1 9 billion and annualized revenue.
We launched politically.
Immune Acacia technology and ecosystem.
Which allows for a true online car buying and selling transactions.
We publicly announced our five year strategic plan, which targets growing the company that $20 billion and revenue by 2025.
Our balance sheet remains strong due to our performance and cash flow.
Pro forma net leverage ended this quarter at two one times.
This will allow us to maintain a more active acquisition pipeline and grow our business strategically by deploying capital.
Yes.
Looking back over the last three years.
We have dramatically transformed our portfolio by acquiring $2 5 billion and divesting $700 million and annualized revenue.
Our acquisitions had much higher margin than our divestitures.
And were accretive to our overall margin.
And this helped us achieve our five seven operating margin compared to $4 six and 2018.
We will continue to optimize our portfolio and the future.
Turning to our key objectives in 2021.
We will continue to build a strong culture obsessed with the guest experience.
<unk> quickly and platform to all stores by the end of Q1.
Be great partners to our Oems by delivering an exceptional and transparent guest experience.
For our same store revenue across all departments.
Build our M&A pipeline to support our goal of acquiring 5 billion of revenue by 2025.
And maintain net leverage at or below three times <unk>.
While executing a more active capital allocation strategy.
And finally.
We know the only differentiator, we have and our franchise system is the level of service we offer.
Our strong performance is because of all the men and women and our stores, who show up every day and committed to serving our guests with passion and professionalism.
They are incredible performance inspires all of us to be better today than we were yesterday.
Our future is bright and we look forward to sharing this journey with all of our teammates who run our business every day.
We are thankful they are here, making a meaningful difference.
I will now hand, the call over to Dan to discuss our operating performance Dan.
Thank you David and good morning, everyone.
And my remarks will pertain to our same store performance compared to the fourth quarter of 2019.
Looking at new vehicles and.
And based on current market conditions, our focus remains on improving margin and not chasing volume.
Our new gross profit per vehicle was up $779 per car or 49% from the prior year period.
All segment margins were up significantly from the prior year period.
Factor and in the acquisition of Barclays, We increased our luxury mix of 48%.
Driving our all store <unk> is up $1282, a car or 79%.
At the end of December our total new vehicle inventory was $640 million and.
And our day supply was 40 day down 26 days from the prior year.
As a reminder, 40 days and average composite of all of our brands.
Some of our brands were below 20 day supply during the quarter and experienced major challenges due to the lack of inventory.
We expect the day supply to remain low for the first half of the year, but gradually recover towards the back half as production capacity recovers.
Turning to used vehicles.
Our gross profit margin was seven 1%.
Up 60 basis points from the prior period.
Representing a gross profit per vehicle of $1741.
Similar to our new vehicle strategy and the current market condition, we focused on being opportunistic with our inventory and improving growth is to maximize profit.
As a result of our performance our newest retail gross profit was up 10%.
Our used vehicle inventory ended December at 189 million, which represents a 31 day supply up two days from the prior year.
Turning to F&I.
Our strong consistent and sustainable growth and F&I and delivered an increase of $126 to $1817 per vehicle retail from the prior year quarter.
And the fourth quarter, our front end yield per vehicle increased $701 per car to a fourth quarter record of $3924.
In addition, if you include reconditioning gross profit, which we reported imports and service our front end yield per vehicle was $4582 per car.
Turning to parts and service.
Although our parts and service revenue decreased in the quarter, our business and improved from the lows in April but the recovery continues to be choppy due to the pandemic.
And now I would like to provide and update on our only channel initiatives.
In December we launched <unk>, which is the latest evolution and our openings channel strategy that we began more than five years ago.
Politically and as the communications technology ecosystem, which allows for a true online car buying and selling experience.
It feels many other guests that exist with online automotive retail platforms currently on the market.
Features that are unique to this platform include pending.
Penny perfect trading values and loan payoffs.
Bill payment and figures based on local taxes and fees.
A loan marketplace, which now includes more than 30 lenders.
Vin specific finance and insurance products customized to the vehicle and consumer.
The ability to sign documents online via <unk>.
<unk> serviced and commission appointment scheduler.
Early results and guest feedback on our <unk> platform has been extremely encouraging with.
And we pilot ex Lee cleaning and three stores with a full month of December and the results have exceeded expectations.
These three stores double their online car sales versus the prior year period and.
In addition, customer that comment that on the great transparency ease of use and ability to complete a transaction and minutes.
And the average time and to guests to complete a total online transaction, including a range and the financing was 14 minutes.
And it took only eight minutes for an entire transaction without financing or an all cash deal.
Since the end of Q4, we've continued with our rollout of click line and expect to have all stores rolled out by the end of Q1.
With the majority of stores connected during the second half of Q1.
And finally <unk>.
Looking at the results from our first full quarter of Barclays Reconfirms why we made the acquisition their first full quarter contributed meaningfully to our top line and profitability results and.
And we are well on track to deliver the synergies we have targeted within the timeframe previously outlined.
I would like to take this opportunity to express appreciation to all of our teammates and the field for their continued focus on the guest experience where they are.
Commitment to continuous improvement and their perseverance during 2020.
I will now hand, the call over to P. J to discuss our financial performance P. J.
Thank you Dan and good morning, everyone I would like to provide some financial highlights which marks another record quarter for our company and its still uncertain macro environment.
For additional details on our financial performance for the quarter I would refer you to our financial supplement and our press release dated today February 2nd.
Overall compared to the fourth quarter of last year total revenue was 18% higher than last year due to completed acquisition and improvement and F&I PBR and higher average selling prices for both new and used gross margin expanded by 80 basis points to 16, 7% driven by our.
Proactive inventory management and focus on improving gross profit per unit.
Moving down the P&L, we saw SG&A as a percent of gross profit decreased by 690 basis points to 61, 4%.
This is due to proactive expense reductions and efficiencies gained on personnel and advertising.
Our actions to maximize gross profit and control expenses resulted in a record fourth quarter adjusted operating margin of 6% and increase of 140 basis points above the same period last year and.
Adjusted EPS increased by 76% versus the prior period, maintaining momentum from the previous quarter.
Net income for the fourth quarter of 2020 was adjusted for a $3 9 million or <unk> 15 per diluted share pre tax gain on a dealership divestiture.
Net income for the fourth quarter of 2019 was adjusted for a $7 1 million pre tax charge for franchise rights impairments or <unk> 27 per diluted share a $6 million up 600000 pre tax charge for real estate related charges or <unk> <unk> per diluted share and a 600000 pre tax GAAP.
And from a legal settlement or <unk> <unk> per diluted share.
Our effective tax rate was 24, 8% for the full year 2020, compared to 24, 4% and 2019.
Floor plan interest expense for the quarter decreased by $4 $6 million over and over the prior year quarter, driven primarily by lower inventory levels and lower LIBOR rates.
With respect to capital deployed this quarter, we spent approximately $20 million on store improvements and real estate and we spent approximately $80 million on debt repayment, which includes fully paying off our <unk> line.
Also during the quarter, we divested a ford dealership, and Georgia, which generated approximately $50 million and annualized revenues.
As a result of our operational performance our balance sheet remains and a very strong position and we ended the quarter with approximately $462 million of liquidity comprised of cash floor plan offset accounts.
<unk> ability and availability on both our use line and revolving credit facility.
Also at the end of the quarter, our pro forma net leverage stood at two one times well below our targeted leverage range of three nine times.
I would now like to make a few comments regarding our expectations for 2021.
We are still operating in a volatile environment with limited visibility, but you and.
Anticipate a gradual recovery and the second half of 2021 as Covid vaccines get rolled out and OEM production capacity improves and as a result, we are planning our business for ESR approximating 16 million units, but we will remain nimble and vigilant to adapt to whatever conditions.
Evolve and inventory begin to normalize and the economy opens up we believe our parts and service gross profit is a full recovery.
We also believe SG&A as a percentage of gross profit should continue to benefit from active expense management and improved productivity.
We are also planning for a tax rate in 2021 of approximately 25% and capex of approximately $55 million. This amount excludes real estate purchases and potential lease buyout opportunities that we considered to be financing transactions.
Finally, I would like to also provide a quick review of our five year plan, we unveiled at our launch of quick line in December.
Our five year strategic plan to add $12 billion of revenue by 2025, and expand our operating margin and grow EPS in excess of revenue growth.
Specifically this includes driving same store revenue growth of $2 billion over five years.
Quiring $5 billion of additional revenue over five years, and adding an incremental $5 billion of revenue through the new line platforms.
In closing I would also like to thank our teams across the business who continue to work tirelessly. During this unprecedented time to ensure our current and long term success.
We will now turn the call over to the operator and take your questions operator.
Ladies and gentlemen, if you would like to ask a question. Please signal by pressing star one on your telephone keypad, if you're using a speaker phone. Please make sure. Your mute function is turned off to allow your signal and reach our equipment.
Again, Please press star one to ask a question, we'll pause a moment to assemble our phone queue.
Yeah.
We will take our first question from Rick Nelson with Stephens incorporated. Please go ahead.
Thanks and goodbye.
Hello.
And talk about the same store.
And at both Maryland.
<unk> moved out six years down.
And it sounds like.
You pick and our strategy.
Max from ours.
True.
If you could speak to that what you're trying to capital from two.
<unk> market share.
And in years and.
Well there.
Strategy.
Camping yet.
Yes, Rick good morning, and thanks for question and this is David.
No.
I would tell you we went into it with the approach of we can see our day supply of where we're at we're sitting in October we can see what we have for inventories and what's coming by the end of the year and we know what a large month December is for luxury.
So.
And would tell you on the new car side, we lost unit sales.
We just werent chasing volumes, because we couldnt replace the inventories. So we just thought it was a better return on our cash to maximize the gross profit as best as possible as Dan pointed out even with that strategy in.
In December we had many stores below a 20 day supply and Thats, a 20 day supply across all model line. So individual hot models, you Didnt have any day supply. So theres no question that hurt the unit sales.
On the pre owned side again.
Not about chasing volume for us its about maximizing our returns we make far greater profit when we sell a vehicle that we've traded for them. When we go out and purchase a vehicle. So we've tried to be more opportunistic and.
And at least that these challenging months when inventories tight and prices are high at the auction and so really just maintain the growth as best we can and give the greatest returns we can so I.
Would tell you we sat here a quarter ago and debt by the end of the first quarter day supply would be back up to normal, but because what's going on with the micro chips and some other things.
Probably going to bleed well into the second quarter before inventories gets back.
Never really know how that ends up but we're going into each month looking at is how do we maximize our return.
Even with some of those numbers, we actually exceeded market share and some markets and some we didn't.
Looking at debt short term market share gain or loss, we're kind of looking at the overall picture and return.
So we're happy with our strategy and the way it's played out so far.
Great.
Helpful color.
And so.
And your inventory.
When things do normalize it sounds like the back half.
'twenty and 'twenty Marlins here current expectation.
Thank you a whole down to some of the street do we go back to 2019 pretty covered level or your expectation there.
Sure.
As a company.
I don't think we'll go back to pre Covid because the acquisition of park place just just does move our overall numbers.
Do I think that will maintain this when things get back to normal I'm sure there'll be some drop off and some areas very difficult to predict what incentives are going to be what the day supply is going to be like and what the economic conditions are but from everything that we see.
We're very excited about 2021.
We see our business growing in 'twenty, one compared to 20.
And there might be different things moving around and those numbers throughout but.
A very opportunistic about what 2021 offers and quite honestly the acquisition pipeline is certainly active right now so there's a lot of good things happening in this space and we certainly want to be disciplined and execute as best we can.
Okay.
Chips coat and quick follow up on that comment.
Comments about the acquisition.
Pipeline, if you could speak to that.
And what you're saying in terms of.
Pricing out there and stepped up the buyback authorization as well.
Prints accurate and fish from <unk>.
Buybacks at the moment.
Yeah, Rick I would say generally overall is what gives the greatest returns for our shareholders, but and the best way for us to deploy capital.
Yes.
Pipeline for our conversations and activity was kind of slow around the holidays. It dramatically picked up in January and we're having a lot of meaningful conversations with different folks right. Now. So it's early we'll see where it goes but we're we're very engaged and a lot of conversations and excited about that as far as the pricing and overall multiples.
Competitive space right now and there's a lot of buyers out there and I'm sure. There's a lot of sellers that want to make sure that they are concerned about their legacy and who they sell to so it'll be and interesting year and see what happens, but I am sure from an M&A perspective at least what we see so far it should be and active year.
Alright, great. Thanks for all of it.
Go ahead, Rick Alright. This is P. J I would just add that we do have a capital allocation policy and first and foremost we want to reinvest in our core business.
And then we look to delever to the extent.
We're over our target and as I mentioned earlier were well below our target.
Which means our balance sheet is and.
It has capacity for acquisitions, which as David said, we're maintaining an active pipeline and to the extent.
And there's cash left over and the waterfall, we would look to return to shareholders.
Great.
The color.
Good luck.
Thank you Rick.
We will take our next question from John Murphy with Bank of America. Please go ahead.
Good morning, everybody.
Yes.
<unk>.
On the park place acquisition and integration.
It seems like.
We've gone and embedded and plan on the integration more hiccups whatsoever and actually they are helping you drive that.
Better performance.
And almost immediately and I'm just curious if there's any lessons learned here.
Targets or the actual integration process.
Well, David I mean, it just seems like it's true.
And and actually been sort of a net benefit right off the bat, which is pretty amazing and acquisition.
Sure John This is David I'll start.
It really just speaks to the park place folks and their level of professionalism.
Changing hands going through a buy sell 4500 employees. There is a lot of moving pieces and Im sure Theres a lot of frustrated folks and the park place side I think both sides went at it with the intent that theres a level of respect and trust for one another and work through the issues that came up.
But it is truly a credit to them necessarily in the quarter the luxury mix that they have and a low day supply that benefited us as well, but I will tell you post acquisition, we got exactly what we thought we were getting which is amazing teammates who are really passionate and professional and with what they do every single day and committed to what they do.
I would say and the last couple of years, that's been a big difference when we look at acquisitions. We just don't look at the revenue stream, we're really interested and how the business runs and whether it would be a good steward of the business and.
Whether it's the Colorado acquisitions, or the Indiana ones I think so far the model that we're working on.
As far as when we look at acquisitions and integrate we've been pretty successful at making sure we'd be a good a good steward of the business.
Okay.
Okay, that's incredibly helpful and just a.
And second question around parts and service.
Obviously, there was some choppiness year.
And the world and the market share.
Volatile sorts and somewhat understandable, but you think about parts and service.
Do you think that normalizes.
Post vaccine and sort of mid mid to mid this year, maybe second half.
Put it normalize sooner and and how much deferred maintenance.
Thank you.
You might catch up on overtime.
Sure.
And just as a reminder, and those numbers to our collision numbers and collision still maintains 20% to 30% back from prior year.
I'll tell you.
The virus, while it's only been around for a year it feels like it's been around longer and.
It was dramatic when it first hit but then it kind of cooled off through the summer and business started bouncing.
Coming back in the fourth quarter, we went negative and parts and service in November and we came back positive in December and we.
We're starting January off.
A little bit more volatility so I would tell you.
These high positive rates that youre seeing across the country and the number of deaths a day over 4000 are playing an impact on the parts and service business. It varies a little bit by market, but generally that's the theme.
So we feel confident as the vaccines rollout and things normalized parts and service not only comes back and should have a nice tailwind to your point on pent up demand with service work.
And our opinion and.
And I believe right now is somewhere between June and late July early August.
Is when we think that we should really start to get back on and a group of our normal look.
And parts and service could be sooner.
And to predict with what's going on with the vaccine and it's very fluid. We're all reading about it every day.
But thats the way, we see it right now.
Hopefully all of us a little sooner, but that's yes that's helpful.
And then just lastly on SG&A.
And just the last few quarters, youre running and 61% range.
Gross is R. R.
Our high rates and the denominator is benefited to some degree but you think about SG&A going forward has something structurally changed here and you're seeing that you can operate and these low <unk> and maybe even better over time as quickly and takes off and we're able to leverage the whole the whole base of bricks and mortar.
I would say there's three main levers.
Like I said in my statement.
Some of the divestitures and some of the acquisitions really lifted our margins.
And those were stores that had a history from higher margin business. When we were lower margin business. So I think there is definitely going to be a sustainable pickup there.
We also changed our production per employee when the downturn hit and we stay disciplined with that and.
To your point with click Lane.
Only three stores, it's one full month, but it's up over 100% with grocery store. It's most of them were luxury brands that we've tried quick question and so.
<unk>.
We're very hopeful between those three levers.
Debt, there's a meaningful difference there and SG&A overtime as well.
Okay, but would you underwrite 60, something in the low 60% range now is that you really kind of solve where this is going to land.
Yeah, I would say, it's still bouncing around right now.
And our goal through the.
The next view I would say this quarter is maintaining high operating margin and maximizing our opportunity.
Pending when we get back to normal depending upon where margins Lei.
I think we'll certainly be and a much better position from an SG&A standpoint than we were pre COVID-19.
But where exactly that lands I think there's too many variables to call that right now.
Okay. Thank you very much.
Thank you.
We will take our next question from Brian <unk> with Craig Hallum Capital Group. Please go ahead.
Yes.
Great. Thanks for taking my questions just wanted to dig in a little bit on the online so specifically and looking at slide 11, and 12. So it shows internet leads down sequentially.
Alright, I guess year over year down a little bit online service appointments also trended lower and Youre expanding your quick claim.
You talked a whole lot of traction and are gaining on line I guess can you just talk through that sequential decline and kind of the moving pieces there.
Yeah, So I'll talk about the decline in traffic and then.
The comment on click line.
<unk>.
One thing is true for our industry.
When you have more inventory online you have more leads and more eyeballs on your sites so part of the traffic coming down.
And that was lack of inventory that had we had more inventory I don't think that leaves would've been down as much. The other piece of it was to us trying to be more strategic with the marketing dollars. Knowing we had less of an inventory did it really makes sense to create some supply of lease where we really didn't have the product there to sell it.
On the <unk> side the growth that we're talking about on click Lane I would say the material difference when we made that comment and I'm going to compare push start which most of our stores are on today compared to quickly and it's.
The conversion.
It's not the lead counts up quickly and its the conversion on quickly and is up dramatically from from push start.
Great and then just on quick lane.
For rollout by the end of Q1, we have three beta test and December can you talk through the cadence of how you're going to roll that out over the next couple of months and all at one stage or what the cadence plan and stuff.
Sure.
And have the whole company setup, we're rolling out depending upon the size of the stores and win anywhere between eight to 12 stores a week.
And it will also include towards the tail end of the quarter Park place.
And which in the fourth quarter did not offer and online transactional tool at all.
So bill.
Get their first shot our first look at it if you will at the end of Q1, it wasn't at all and their sites in Q4.
Great. Thanks, guys I'll turn it over good luck.
Thank you.
We will take our next question from Adam Jonas with Morgan Stanley. Please go ahead.
Alright, and everybody can you hear me okay.
Yes.
Okay.
So let's talk about a couple of questions for you here.
Oh yeah.
And stop sales on ICD powered vehicles.
And.
I'm just wondering if you could refresh us on a rapid move to EEV and anyway concern and long term stakeholder and.
About your how about your business, including our PFS business sense.
And also noticing a lot of startups are moving to direct to consumer models and they and SaaS. They don't want to use existing dealer franchises.
<unk> is entering the auto industry. We built it's our understanding is they don't want to do a franchise dealer model. Although that's not fully confirmed that they want to control. The downstream distribution is there David debt debt.
And youre acquiring legacy brick and mortar dealerships.
They'll sell legacy ice OEM products and ice intense PFS, how can you assure shareholders that you are not doubling down on this ice legacy check at the worst possible time at the end of the ice age.
Sure sure.
I would tell you.
Debt our manufacturer partners have been building quality cars for a long time.
And they're all in the process of transitioning to EV.
And we'll certainly go along for the ride and the journey with them and be great partners to them.
And I would tell you like any industry that has.
Spurts. If you will there is a lot of companies that are coming out, we will see which ones make and which ones don't which ones consolidate and which ones share and sell their technology.
I would also tell you and as Im sure Youre aware some of them that will be launching car soon.
Our literally as we speak working with third party vendors to try and figure out how they're going to handle parts and service.
And on the back side.
So I don't think Thats, a well thought out model either.
And I think there is something about theres, something tried and true to the supply chain and mechanisms that work now so the mechanism, whether it's ice or electrification.
Or hybrids or whatever it might be it doesn't really matter.
And here locally and the community to sell and service vehicles and have been for many years and have a strong reputation and.
And know how to do it we're not making it up as we go or figure it out as we go or how to handle a recall.
I appreciate it thanks.
Yes.
And we'll take our next question from Rajat Gupta with Jpmorgan. Please go ahead.
Hey, good morning, everyone and thanks will thanks for taking my question.
Yes, just a follow up on the SG&A.
Question <unk>.
I'm not sure if I missed this earlier, but.
Could you give us a sense of where you expect.
The SG&A and gross to wind.
Like some sort of range.
Do you want to walk around.
And for this year.
And just based on where your expectations are for GPU for GAAP and good afternoon.
Yeah.
Thanks.
Yes Roger.
And so on SG&A and as David mentioned it.
Difficult to forecast in this environment, what we do know is the leverage we generate and Q3 Q4.
Predominantly driven on the personnel side and then.
The balanced and advertising and other related costs.
We have confidence and as that.
Those are.
There are structural changes there that.
We will.
We continue to benefit from in the form of higher productivity, whether it's units per salesperson and average gross per associate.
A lot of metrics and we do see that our productivity is up and.
And we hope to.
We're confident that we can retain that.
<unk>.
And as the.
Production comes back online again.
And again, we're looking at.
Later half of the year, we do expect to see some pressure on grocers, which will put pressure on SG&A, but again.
The structural changes we've made and the fact that we're very active and managing expense gives us confidence.
And that our SG&A will be.
We will continue to be favorable.
Got it.
And within the SG&A and more the buckets within that.
And in total.
And so tissue along with advertising might look like.
And you can leave the context.
Well in line with little marble lithium platform and broadening the reach of that platform.
Outside of just a normalization and guidance and digital and Dr.
Please go ahead Robin should you expect.
A follow up and beyond that just additional people and purposes.
And that's not the case.
Raj This David and if I, if I got the question, Ron and I apologize it was cutting in and out a little bit.
As it relates to marketing and click Lane, if you look at us against our peers.
We have traditionally and still do I guess I can't speak for the fourth quarter, but prior to that have the lowest dollar per car spent and marketing. So I think we are as efficient as we're going to get.
<unk> quickly and is fully rolled out and our stores by the end of Q1.
For the first time, we will make an investment and spend some dollars marketing click claim.
To drive traffic, we never really marketed push start that much we will market.
Click line, so I don't know that Youll see much of a meaningful difference and the PV or at the end of the quarter.
But there will be some dollar spent on it.
SG&A, because we've kept our head count down our productivity is up.
There's always opportunity and compensation and certainly operating expenses and.
I think we've been fairly disciplined over time regarding that we'll continue to look at that.
And we think our plan moving forward, we will keep us keep is certainly competitive and probably on the better half with our peer group.
Got it that's helpful and just last one from me.
And any color on and you talked about like automotive chip shortages and they were like the margin strength here.
And the near term and color.
And like how January was adjusted just units.
Yes.
And obviously the same station basis from the fourth quarter and logistics.
The demand versus the GPU and trade out.
And then maybe mid June so far and Jetblue.
And just in general.
How is the demand environment looking back here.
Jewelry.
Yeah, absolutely Yeah and January always there's always a little bit of a let down from December but I would tell you compare and this January for the last $35 Ben and the business.
Was very surprised by the activity.
And the overall performance in January.
It was amazingly resilient and we're very pleased with how our January looked.
I will tell you it's the same frustration.
And last day supply and a lot of areas. So.
There is debt potential what you could've sold compared to what you did sell just because of lack of inventory but.
Considering what went on with the pandemic and the month of January and the horrible numbers. We also are nationally.
It was a it was a productive January for us.
Got it.
That's helpful.
And that's all from me, Thanks, and good luck.
Thank you. Thank you.
We'll take our next question from Glenn Chin with Seaport Global Securities. Please go ahead.
Great. Thank you good morning, gentlemen.
And so David perhaps and perhaps a question for you I'm getting a lot of questions from investors regarding.
And the Achievability.
Revenue and imply by and targets to quickly can you just remind us or share with us.
A framework or the assumption underlying saga goldstrike Cooke clean and if you could just start at the top will final and we'll narrow it down for us maybe starting with <unk> and the number of lead you expect to get from naphtha conversion rates and the market share that ultimately and implies.
Sure.
And if I don't explain and world where I'm pleased.
Come back at me.
We will start to spend money and quickly and we do expect additional traffic because of that but when we talk about our model of the $5 billion with click Wayne It actually is not accounting for any additional traffic. It's basically looking at the traffic we have now and looking at the conversion on push.
And what we believe the conversion will be with click line. So for lack of a better term. If we had 100 leads and push star and.
And we closed 10 of those leads out of 100 Thats a conversion at that 10% number. If we had those same hundred leads with with click Lane, we believe that number will be more than double debt.
In year, one and.
And by the time, we get to year five like any tool and anything that takes place online and you think about airline tickets.
And when they first converted to online people, who used to calling in and if you remember at the time, they actually charged and more to call and then on line because they were trying to push online once at the acceptance level is there and people realize you can do a full transaction. We believe over the next five years that number will go up materially. So we think 100% of the people are going to buy online and no of course.
And not.
But we certainly believe somewhere between 30% and 50% of the consumers will transact online over the next five years. So it's basically taking our traditional conversion rates looking at what pushed me what quickly and can do against push start and modeling that out over five years with really no incremental <unk>.
Growth on the <unk> tool itself. So we think we're very conservative and our numbers and our approach and again one month out of the gate.
And with only three stores, but within those three stores you had four different luxury brands and the midline import.
And I would tell you again month, one out of the gate.
And we were conservative on our conversion numbers.
Okay.
And.
So speaking about that five year window, David and I take your clothing and automotive means.
And to be saying that you expected.
Clean sort of clean type capability.
And primarily throughout the industry within two years after that key areas when it is.
Has pull for a full frame around and the dealer network nationwide.
Cash conversion rate or the traffic gene and me.
And then just given the increased competition on line.
I don't I kind of look at us and the websites came on line in the late night, and there's really 2000 and walk in and toll and traffic and now there was internet.
And the traffic flows move into different channels the benefit here to the overall automotive space.
Will be the level of satisfaction to the consumers.
The speed and experience that the consumers can go through and how it transparent and it'll be and how that will be beneficial and controlling cost within a store.
With the use of a tool like this.
Really being accepted and the space.
And that's the opportunity that.
And is really meaningful.
Mhm and then the $5 billion target David is that all.
And they need as retail is is that EBITDA parts and service F&I.
Well some of it's F&I and for sure, but no it's not parts and service. It just simply sales when we talked about the five year plan and we've talked about the 2 billion and revenue growth and our store count and it didn't assume any acquisitions, obviously and we looked at our same store sales and what we have now and then we look to over the next five.
Years, we looked at our service retention numbers, our market share numbers and where we thought we could do with the brand we did not factor in any economic downturn and that five year model, we kind of assumed ESR somewhere between 16 and 17 over that five year period.
We were very conservative numbers as everything that we do.
So we just kind of modeled it that way and Thats what were the numbers late if you will.
Okay, I guess my question around that.
And I, David was not so much around volume because obviously that will go up with increased volume of retail sales day before around I guess increased penetration or attachment rates.
Sure.
Looked at.
Yes.
And that's going to be subjective because it's over time, but again and it's a small sample and I'll talk to the four luxury stores and one midline import.
And it's in three stores with one store and has multiple brands.
I would tell you we're very pleased with the F&I numbers that we've seen so far again, it's I know, it's only a few stores that only 30 day.
But in most cases were up significantly and.
F&I per vehicle with the click lane tool so far.
More than we forecasted flow.
And what do you think might be driving that.
I think I think there is a convenience of consumers and consumers telling themselves.
Most people who sell themselves on something before they ever go out and purchase it and they justify why they're going to buy it and what they are going to pay for it.
We focus on products that add value to the vehicle. The average length of ownership is almost 12 years and the country.
A big purchase a big expense I think if you can present products professionally.
Pricing fairly and give information on the products to allow a consumer to make and educated decision. What you end up with is selling products.
Okay, great. Thanks, very much I appreciate the feedback and.
And just a quick.
Housekeeping follow ups tour for P. J P J.
And did you guys say that your.
And your leverage target and has changed it was two to three times is it now just three times someone is asking.
Yeah, Hey, Glenn So it's typically been.
And it's typically been three times, so two to three times debt that's a.
Kind of a big window.
Target three times, and we feel like that.
Conservative and balances both risk with being able to put the balance sheet to work.
Okay, but just to clarify how has your thinking around.
I think thinking and how you framed.
<unk> changed.
Okay Alright.
Lead times target.
Okay very good alright, thanks, very much John and good luck.
Thank you. Thank you.
We will take our next question from Stephanie Benjamin with true. Please go ahead.
Hi, good morning.
Good morning, good morning debt.
I wanted to ask about the <unk> side of your business.
And just looking at it whether it's growth is our margins themselves decelerated and the fourth quarter. So the growth year over year, but but what would you could speak a little bit about that just given we did see actually a slight acceleration and asps and and even the unit performance.
You could kind of walk through what Youre seeing and and you said that thank you.
Yeah, Stephanie this is.
David I would say.
The best way to describe the used business right now is.
And our goal is not to chase volume our goal is to chase return, we really track all the different avenues, whether we purchased the car and their service drive whether we acquire doctors treat whether we take it and trader bided and auction.
And we say, what's our best investment and how do we get our highest return.
And I would say, we're very happy with our margin performance on pre owned and being up 10% and gross profit was kind of a target where we want it to be I would tell you. The margins are not deceiving, but the cost of sale has really jumped up a lot.
And if you think about it it's probably up a couple of thousand dollars since 18.
I think we ended the quarter over 24000 and close to 24 four.
And when you think back.
At the end of Q4 2018, it was 22 and change so a.
And material increase and cost of sales is going to have an effect on the margin, but just as a GPU standpoint in Q4 of 2018 were $15 41 a car.
So we're still running a couple of hundred dollars a car.
Head of where we work and a competitive market space.
And that's based on our same store numbers. So we're confident.
And our plan is just really being opportunistic where we acquire inventory from.
Our ability to make money and pre owned is not going to be above the sale price because the market dictates that it's really going to be about the acquisition pricing.
And we're really trying to have a strategic plan on how to acquire the inventory and.
And not just turn over the inventory at a low margin, but turn it over to a fair margin.
Great and quick follow up on that as you rollout quickly and you know.
And then come back what kind of advertising support behind that tool will that also include possibly from advertising about supplying of vehicle sales and online component and what kind of like some of your peer group.
And it all peers out there and buy a car and is that something up on the table.
Yes. It is.
And the tool and the quick answer is yes.
It's on the homepage of the website.
Around those stores now.
Absolutely as a part of it yes.
Got it well thank you so much.
Thank you.
We will take our next question from Bret Jordan with Jefferies. Please go ahead.
Good morning, guys.
Good morning.
And the quick line I guess and the test stores is there any I guess information and I anecdotal maybe that these are incremental customers.
Or is it just a better conversion of folks that would have been coming to and Asbury store and the first place.
Your bread and again, it's early on it's a few stores. So I can share stories and give you a real numbers the answer is yes.
It's both.
It's higher conversion of the customers you may or may not have had before.
But it's also where we're seeing acquisitions, what I would call outside of our marketplace.
With pre owned.
And I think it's because they can actually do the transaction online and I'll just.
Give you one anecdotal sale.
It was a $97000 used land Rover.
It was sold from our Greenville store, and South Carolina, and the person lived in the DFW marketplace.
They put $13000 down on their credit cards, they finance the balance.
And did the whole transaction online and we delivered the car over 950 miles away.
And obviously there were a lot of local dealers from quite honestly one of them was park place.
Within that market space.
When you talk to that consumer.
The ease and transparency with the vehicles that they wanted to be.
Are you able to do the whole transaction online and have it be so transparent and seamless was a great experience for them. So that's one story, we have many like that.
But just I think the awareness of consumers actually they've all wanted this for a long time, so to know that it actually exists out there are a lot of them are stumbling on it by mistake when they see it on the website.
Are you finding a district different customer reaction between mid line and and luxury I guess you can download it for us at a key a dealership and Florida are you seeing true buyers are more likely to do it online.
And and excellent mid line or is it similar.
It's a fantastic question that I'd like to give you an honest answer by saying I'd like to give you my thoughts before we started it and then tell you what the reaction was or the real numbers.
Before we launched it and I assumed it would take off with mid line imports.
And I was concerned and what would happen with the luxury buyer.
As of December.
Like usual I was wrong.
Was accepted really well by the luxury buyers.
It had nothing to do with price transactional Lee.
And it did well with the midline imports customers too, but I expected that I was shocked how well it did with the luxury buyers.
Thanks, and I guess, maybe you might ask Paul to sales before but the $5 billion expected close eye and revenues and 25 whats the mix of new versus used and that outlook.
So we kind of stick to our same.
And I'll tell you this with push start.
When we initially launched push start right out of the gate. It was majority new reuse sales very soon and that transition within months and it stayed there for years to where over two thirds of it was pre owned and a third of it was new as we start off with quickly and it's closer to 50 50 right now.
But the way we've modeled it and we've kind of again, we want to get granular with our five year plan and so we built a five year plan and literally by rooftop. So we kind of kept to our used to new ratio and then we kept the same sales volume just higher conversions and quickly.
Great. Thank you.
Thank you.
We'll take our next question from David Whiston with Morningstar. Please go ahead.
Thanks, and good morning.
A question on the Toyota announcement yesterday on there.
Our new ecommerce platform.
And a lot of the capability and you sounded very similar to a quick lane.
Obviously at the and they do transfer the customer average of a dealer, but I'm. Just curious is having more automakers, having a capability of their own like click line does that help you hurt you or is it really neutral to EBITDA.
Thanks for the question Dave This is David I'll answer it the way it did in December and the Investor Day, I think it helps us space overall.
Our franchise system is being challenged now as John talked about earlier with startup company is coming into this space.
There's tool really levels, the playing field and changes the experience so.
And I'm excited to see my competitors within the franchise system get the tool and get them to see the benefits of it and so we actually see this as a very positive thing for our space and helps us and the long run dramatically.
Okay and on the.
And the used market I was just wondering if you could contrast or maybe compare.
Today's new vehicle customer seems very light truck focused.
And Barry on a high and trends focus versus it used customer who may have used customer wants absolutely wants us and Dan.
And what kind of differences are you seeing and preferences between those two channels.
David It's a great question and I'll I'll.
And I'll jump in and then this is David and then Dan canopy warrants we are to the same on the pre owned.
And because there's more discretional income right now with what's going on because people and spending on vacations or in bars, and restaurants or that kind of thing we've seen higher down payments in 2020, and we saw higher credit scores and 2020.
And you could see that by the jump and our cost of sale of pre owned people are stepping up buying more car with more equipment.
They're looking for the trucks and the Suvs.
When you have a used truck you can't go wrong with it and it's going to move very quickly.
And when you have a nice sedan depending.
And depending upon the price market that it's in and it may turn quickly or it may set a little bit but.
And the used business is the same as the new it's.
Imminent.
SUV and truck.
Okay.
So in your opinion are sedans, and just going to keep shrinking do you think like truck penetration stabilize us now or keeps growing.
Yes.
Hard to say I mean.
Over the last few decades, we've seen a lot of movement and a lot of different areas and.
As you see electrification coming in.
<unk> when you get to the SUV size and bigger vehicles, and how thats going to come into play there is still a huge issue that hasn't been addressed and the country.
With and infrastructure to support it.
The demand there from the Oems coming out with the products and the startups and as the incentives there from the government, but theres not an infrastructure to charge it and support it.
So I think and there is also the ranging xiety that you talk to when you talk to customers that arent just willing to go there yet all of that will change over time and things will get better and battery life will get better.
But I am showing no differently than we all noticed that the electric cars that have been out there for years now as they get up to 80, and 90000 miles Theyre battery life as far as charging goes is and what it was when the car was no. So theres a lot of things to work out over time with electrification.
And to see how that goes and what role that will play as it relates to sedan SUV and truck market.
Okay and last question on the new generation F 150 or year for customers really anxious to get to by that truck.
Yes, it's a great question David.
So you can say.
We're not hearing I'm not hearing a tremendously high demand and demand right now is a tremendous amount of curiosity.
About seeing it and what it looks like and what the numbers will be as far as range and all that stuff, but I'm just not hearing it.
And this is Dan David I have not heard anything.
And regards to that after the new F 150, although as you know.
The truck buyer is.
Very very loyal to the brand.
Probably one of the most loyal ones out there so I would expect that their loyal toward buyer.
Definitely excited about it and can't wait for it to come out.
Okay. Thanks, guys.
Thank you very much.
This concludes today's discussion we appreciate your participation and look forward to talking to you at the end of the quarter.
Great day.
Okay.
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And.
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