Q2 2019 Earnings Call
After the speakers remarks, there will be a question and answer session.
If you would like to ask a question. During this time simply press Star then the number one on your telephone keypad. If you would like to withdraw your question press. The pound key. Thank you Robert core Carol you May begin your conference.
Thank you.
Good morning, and welcome to Autonations second quarter, 2019 conference call and webcast.
Leading our call today will be Mike Jackson, our executive Chairman and Cheryl Miller, our new Chief Executive Officer and President.
Oh in their remarks, we will open up the call for questions.
Chris Kate and I will be available by phone following the call to address any additional questions that you may have.
Before we begin let me read our brief statement regarding forward looking comments.
Certain statements and information on this call, including any statements regarding our anticipated financial results and objective constitute forward looking statements within the meaning of the federal Private Securities Litigation Reform Act of 1995.
Such forward looking statements involve known and unknown risks.
Leading economic conditions and changes in applicable regulations that may cause our actual results or performance to differ materially from such forward looking statements.
Additional discussions of factors that could cause our actual results to differ materially are contained in our press release issued yesterday and in our SEC filings, including our most recent annual report on Form 10-K , and subsequent quarterly reports on Form 10-Q , and current reports on form 8-K.
And now I will turn the call over to Autonations Executive Chairman, Mike Jackson.
Good morning, Thank you everyone for joining us today.
And it did like be able to report such a strong before performance a record second quarter for the company.
Earnings per share of $1.12, if you adjust for the impairment its $1.20.
And sure I'll give you the drivers in a minute.
Oh, the reason I'm on the call today is to officially introduce Cheryl Miller.
As our new CEO and president of Autonation, It's an honor and a very exciting step for me to be able to do that.
She replaces the current LIBOR.
Hi, Thank Carl for his commitment and his efforts on behalf of auto nation.
We had a open dialogue that there was risk and.
Coming to a completely new company and a new industry and that we now have to have a running conversation as to whether this would work whether it would be a fit and.
We came to the mutual conclusion that it's simply was not let's say the story is as simple as that there's nothing else to report.
He will be with us for the next 30 days to help with a it's a transition there was no weather shoe to drop there's no story behind the story, a it's as simple as that.
I'm excited to work with Cheryl she's been with US 10 years.
She's been in the auto industry almost 20 years.
I've worked directly with her for the last four years with or having the responsibility of Chief Financial Officer.
I've worked hand in hand with her on the development of our brand extension strategy and all the planning that goes behind that.
All of our strategic initiatives she is CEO ready.
And I'm very excited.
Two.
Yes, Sheryl to talk about the drivers of the results in the second quarter sure. Thanks, Mike and good morning, ladies and gentlemen, I'm honored to continue the legacy of Autonations, Great leader, Mike Jackson, and Wayne High Zynga.
Autonation has a history of excellent and an amazing future.
Together with my 26000 colleagues, we will continue to focus on the core business, while diversifying our future current brand extension strategy and strategic alliances.
In addition, today Autonation announced that Jim Bender Executive Vice President of sales was named Chief operating Officer.
Jim brings a wealth of knowledge to the position and a proven track record of success.
I look forward to our continued partnership.
Turning to our quarterly results for the second quarter, we reported net income from continuing operations of $101 million or one dollar and 12 cents per share versus 97 million or $1.87 cents per share during the second quarter of 2018, a 5% increase on a per share basis.
Net income from continuing operations included after tax noncash franchise rights impairment charges of $7 million or eight cents per share in the second quarter of 2019.
And $6 million or seven cents per share in the second quarter of 2018.
In the second quarter, we continued to focus on our new vehicle margins.
For the quarter, our same store new vehicle gross profit per vehicle retail was up $165 or 10% compared to the same period a year ago.
As a part of this strategy, we continue to manage our inventory levels to meet customer demand in the current retail environment.
Year over year, we have reduced our new vehicle inventory by approximately 9000 units.
Same store customer financial services delivered another record breaking corner with gross profit per vehicle retailed at $1926, which was up $134 or 7%.
Same store second quarter, 2019 revenue totaled $5.3 million, which was relatively flat compared to the year ago period same store gross profit of $879 million increase by 5% compared to the year ago period.
Same store customer care gross profit was $405 million, an increase of 7% compared to the same period, a year ago, driven by growth in customer pay up 8% and warranty up 12%.
I'd like to provide an update on the five autonation USA stores. The Autonation USA group broke even in the second quarter for the first time and several autonation USA stores for profitable for the quarter, while we have no plans to build additional stores in 2019, we continue to make steady progress.
Ask you now as a percentage of gross profit was 71.5% for the quarter, which represents a 190 basis point improvement compared to the year ago period.
Strong margins and gross profit growth as well as disciplined cost management drove SDMA leverage in the quarter.
As we've previously stated we expect full year 2019, as she made a gross profit to improve year over year compared to 2018, the pace of the year over year improvement will depend on gross margin seasonality and the timing of certain brand extension expenses.
The provision for income taxes in the quarter was 37 million or 26.9% Floorplan interest expense increased to $37 million compared to $32 million in the second quarter of 2018, driven primarily by higher average interest rate, which rose in line with one month LIBOR.
Non vehicle interest expense decreased to 28 million compared to 30 million in the second quarter of 2018, primarily due to lower average debt balances as we pay down debt for free cash flow.
At the end of June we had 2.4 billion of non vehicle debt in line with balances as of March 31st 2019.
Other operating income was 3.7 million in the second quarter of 2019 compared to $13.9 million in the prior year, a decrease of 10.2 million.
Second quarter 2019, other operating income was primarily comprised of gains related to store in property divestitures and second quarter 2018. Other operating income was primarily comprised of gains related to store and property divestitures as well as legal settlements.
During the second quarter.
We repurchased approximately 283000 shares for $11 million at an average price of $39 and 54 or four cents per share Autonation has approximately 290 million of remaining board authorization for share repurchase.
As of June Thirtyth, there are approximately 89 million shares outstanding not including the dilutive impact of certain stock awards.
Capital expenditures were 67 million for the quarter compared to $78 million in the prior year capital expenditures on an accrual basis, excluding operating lease buyouts and related asset sales.
Our leverage ratio decreased to 2.8 times at the end of the second quarter compared to 2.9 times at the end of the first quarter and our total liquidity was approximately 836 million at the end of June .
I would like to thank Mike and the Autonation Board of directors for this opportunity and to congratulate Jim Bender on his appointment to Chief operating officer.
I would also like to congratulate before honorees, who received the automotive news 40 under 40 award and our 10 stores that were named to the automotive news top 100 best dealerships to work for list.
These honors continue to distinguish autonation as not only a great place to purchase or service of vehicle, but also a great place to work and an employer who continues to attract top talent.
We continued to demonstrate strong performance in the second quarter Autonation remains committed to executing the strategy that the executive team is fully aligned with a focus on new vehicle margins.
Optimizing the balance between new vehicle pricing and volume and the company's brand extension strategy and with that operator, we'd now like to open up the line for questions.
Thank you at this time I would like to remind everyone that Bernard just ask a question Press Star then the number one on your telephone keypad, we'll pause for just a moment to compile acuity roster.
And our first question comes from the line of David Tamberrino from Goldman Sachs. Your line is open.
Oh, great. Thank you and congratulations Sheryl.
Appointment.
We all.
We'll probably know the answer to this but would love to hear from you.
Now that you have taken.
The top job with a company, where you've been there for a while how do you see the strategy and the playbook changing if at all and if not where do you expect to spend the most of your time.
Improving.
The initiatives that had been put in place over the past couple of years.
So the great thing is we've had two great quarters with a strategy that we have in place a record first quarter, Iraq and record second quarter, we're going to continue to focus on the core and I'm pleased with Jim and as COO and with Scott Arnold our SVP of customer care that we will continue to do that customer care was up 7% our core business on the variable side was up strongly as well. So I'll continue to make sure we optimize the core that we get the leverage that we're expecting in the business from a cost standpoint, and we will continue to focus on the brand extension strategy. So as I mentioned, the Autonation USA stores were break even some of them are profitable. So we've got a good solid foundation, there and we'll continue to focus on the calendar strategy as long as the parts strategy within the business.
Okay.
But is there any.
What you've seen so far and the progress to date is there anywhere where you believe you need to add additional focus or spend more time in order to bring results are in line with where you want them to track or at least enhance them from.
Yeah, Hi, Oh, ROI projects that had been working out so far where there's an opportunity to continue to grow.
Yeah on the collision parts side of the business that something were continuing to focus on and certainly we've mentioned customer care as a critical part of our brand extension strategy. So that will be a key area of focus for me.
Okay.
Maybe sticking there from a parts and services standpoint.
I believe you called out customer care as being a positive for the quarter or how was the gross broken down between warranty work customer care.
No the remainder.
Yes, the warranty was up 12% and customer pay was up 8%. So those were really the strong focal points that led the customer care business for the quarter.
Okay, and the underlying continued growth and warranties that you know I don't know, we've three way for the takata recall or is that something else being driven.
It's it's broader than that in addition to to recall you also have the improvement in gross margin in that area as well.
Okay.
And then my last one is just really interesting enough and I guess you've seen.
<unk> penetration continuing to grow relative to where your new is by definition is continue to hit record numbers.
No I think we would have believed that there would have been a mix down a couple of hundred dollars lower ethanol I for used vehicle versus the new.
What's really been driving that continued strength as of yet, but I attachment rates as it continued education.
You know the Autonation associates, and just ability to up sell is there any product to call out where there's been much stronger penetration really curious just how that's continued to grow and if there's room for that to get maybe above $2000 per vehicle retailed.
The first is best in class Associates. So we had a consistent training and a great process. There and also if you recall that was our first brand extension. If you think about the leveraging of the Autonation brand, we're seeing that performance pulling through an app and I, we certainly have strong and I attach rates throughout the business as well and you're right that as we add additional use or as we like to call. It nearly new business and that the blended down some but we've been able to outperform not with a talented team of associates combined with having our own products in that area.
Understood.
Congratulations again and looking forward to seeing what you guys can do thank you.
Thanks, David appreciate it.
Our next question comes from the line of John Murphy from Bank of America Merrill Lynch. Your line is open.
Hi, good morning, everybody and Cheryl congratulations on a very well deserved promotion.
Great to hear.
Just a first question on what seems to be a slight change in strategy.
On the new vehicle side, where you're a little bit more focused more GPU as opposed to volume and it just seemed like that kind of coincided with call showing up and just curious if that's something you think you know keep going we answer the skeptics out there on highlighting this might decrease your you lie goes over time that may have an impact on your parts and service and used.
Eventually sort of you know 2345 years time already installed you're going to stick with or or is that.
Hi, James.
So this is Mike Jackson.
So the strategy was.
Devised last year.
As far as a new vehicles and we have had several years.
Of declining front end gross that.
Oh really needed to be stabilized if not turned we had a national leadership meeting with all our leadership of the company in January and made the pivot to this direction and have been concentrating on executing it ever since and you can see the results now.
Where we are at the moment is saying okay.
Is there a middle ground or adjustments that we need to make where the balance between price and volume we can find it even better line than what we were wrong, but the first.
Important step of stabilization and improvement in May worrying control again, we'll probably do some.
Test markets to see but I would not expect any significant.
Adjustment.
In the strategy through the balance of the year, but we will do some pilots and see if there's.
A tweak that we could do that that would give us an even better long as as far as units and service, we're not particularly concerned about that our pre owned business is strong so.
That's all we're bringing units into our marketplace and selling them as breo. So the overall unit movement is not really that great. So we have the time to find the optimal line on the new vehicle business and we're working on that.
Okay, but it's fair to say it might be somewhere between where you are right now and where you are operating it's kind of fine tuning right now.
Yeah, I would say, that's a fair statement and but for now no change no no different structures have been sensitive store going into third quarter.
Okay, and then just a follow up on this as we think about new vehicle inventory you've done a great job of managing this.
The industry appears to have fairly balanced inventory as well yeah. We're hearing some anecdotal [noise].
Hey, you know stories about vehicles in transit being some excess inventory that's floating around that may not be reporting on your lot I'm. Just curious how much pressure you are gaining from the automakers is it more than the past year or two on taking inventory and are you kind of getting the same kind of pressure there might be some excess inventory floating around in the channel.
Yeah, that's always an open dialog on between us and our manufacturer partners. We've obviously continued to manage the inventory level for the current retail environment down 9000 units year over year I I think certainly it always becomes a conversation a as you look at where the Saar is headed but we feel like we have an optimal inventory mix and we will continue to monitor that and the industry conditions tightly, but we're not in a position of having excess inventory and when and.
Where the market is headed or what were also.
Thinking about that in that if I go back.
Six months ago, nine months ago, and I looked at the forward curve you could we could have expected a higher interest rate environment in the second half is 2019 going into 2020.
And now from today's perspective, there's a very good chance that we're going to be seeing.
Rate cuts not rate increases so that's a huge.
Change in mindset and it will it'll it'll have a significant impact on the consumers' willingness to buy.
Because they've been struggling with this combination of a high price point with a higher rate.
And if indeed it turns out we're going to have lower rates, we would rethink.
A bit on our inventory and what the forward market looks like.
Thinking of it in a more positive direction.
Okay, and then just lastly on the Autonation USA, a U.S stores it sounds like you're making some good progress there.
Maybe more than you had been for the past few quarters I'm. Just curious why we're looking at sort of a stalled process. Our process. It seems like you're hitting pausing went when could you be accelerate sort of you use your openings can it sounds like that is actually turned the corner and might be a real driver in the future.
Yeah, I would say John is when we launched the USA stores, we put all our forward thinking in them as far as customer experience.
And our conclusion after this journey has been.
That's a customer experience we have in our traditional stores ended in pre owned business.
It is actually exactly what the customers want and so were.
This one price and everything that goes around it has now been installed in the USA stores and it's working quite well.
So now the stores are stabilized the next opportunity is to drive higher volume through stores, we didn't want to drive volume through the stores if the process within the store hadn't been sorted out, but we now have that sorted out and will take a couple of pilot stores into third quarter and see.
How we bring the volume to higher levels, which is like now about 100, a month through the stores. So that's got us to break even with the process. We have today you put some volume through their stores turned very profitable, but again, we're not going to build new stores until we completely.
Have validated exactly what process works in the store and what's the marketing stocking plan that leads to higher volume and and.
Sure on Jim will lead that effort during the third quarter and I think we can give you a better outlook from there.
Great. Thank you very much and congrats can't Cheryl.
Great. Thanks, John .
Our next question comes from the line of Register from JP Morgan Your line is open.
Hi, Good morning, Thanks for taking my question and I'm not sure on the appointment.
Oh, thank you.
Oh I just had a question you know just to follow up on the ball control. This is business.
Could you all have a breakout from the middle of Baird.
Oh, you know between parts and services and then you know just cold. So between your just while you know transaction prices. If you could just give us a sense of how that's progressing.
And then for the rest of your because of something.
Is this the kind of growth we should be expecting in the near term or are there any components of that that's good to know more through remainder of the dough and I will follow up.
Yes is it the big drivers were obviously customer pay and warranty within the business and as you see new unit declines that does pressure the internal reconditioning within the business and where you can see the gross pulling through well, particularly from our parts initiatives isn't the a in a percentage of gross profit. They see a 50 basis point improvement in growth as a percentage of revenue on the customer care line I in terms of outlook as you know we don't give the forward guidance on it but we feel very optimistic about the second half of the year with the ability to continue to perform strongly in that business. As you know recalls are a bit unpredictable. So warranty is always a little bit unpredictable. We certainly have some pressure in new units in the industry as a whole which does affect internal reconditioning about we feel very good about our customer pay gross profit as we're able to pull through.
Pardon.
Into that part of the business.
Got it all makes sense, just a just a changing changing truck here or no.
Can you give us an update on the room investment.
And how how we should expect that partnership for wallboard volume wrote one of your peers.
Oh, I made a similar investment a competitor and they're obviously expanded their partnership in many different ways. So.
So would we expect to hear something in the near future on their partnership so just to sum up where there would be helpful. Thanks.
Yeah. So I met recently with the brand team with Paul and the strong team that he continues to build out there and we continue to have discussions we'll keep everyone updated on any future opportunities or pieces of that we are doing some work for them in the customer care part of the business.
Does that make sense. Thanks.
Our next question comes from the line of Chris Bottiglieri from Wolfe Research. Your line is open.
[noise].
Thanks for taking the questions.
It's been kind of brought up a few times and I don't think other crack at it.
I'm just wondering if more color in the 12% warranty growth how much of that's gross margin versus traffic driven.
I think the gross margins, probably just because it's more labor intensive than parts intensive I mean, you could comment on that.
And then just big picture, though given like gears, a flat SAR, what's driving all this week increased recall activity is it like a number of different campaigns is it like one big lumpy one like anything that could help us think about this perspective would be helpful. Thank you.
Yes.
Great and benefit from improved margin performance. So a lot of that like as you pointed out a shift in the next two or three and at a higher margin Recon service work and improved labor and parts rates that we negotiated with certain manufacturer on as you know based on history warranty I can be a little bit unpredictable within the business in terms of timing certainly there were some large recalls in the past what we're seeing now though is certain recall that have this higher margin a portion of the work. So it's not something that we forecast out into the future, but we do manage our volume with respect to customer pay and trying to drive that customer pay business, while making sure that we're taking care of customer issues and safety issues in particular, when they come to us for warranty.
Yes, Okay. That's helpful.
And then yesterday growth has been pretty impressive the last couple of quarters.
I'm just wondering maybe comment how much the restructuring is benefiting it and then last quarter, you talked about potentially pushing back some of the steps investments later in the year.
Just maybe you can give some more color there and then just lastly, just big picture like what's left for the brand extensions I'm not sure I understand like what the issues are currently that you've accomplished a lot over the last five to 10 years, just curious what's like a lot to the table that you're investing it. Thank you.
Yes at least on the Aston They front that said, it's two things first that deliver in the growth.
So when you deliver 7% and customer care units up 5% and all time record customer financial services that flows through pretty well on top of that we did put in place the 50 million annualized restructuring at the beginning of the year. That's actually been helpful for the flow of our business consolidating from three reasons down to two and you see that you see the results of that in a very strong bottom line for the quarter. We will continue to make sure that we run cost in a smart manner. We're going to continue however to invest in the business invest in digital in that and brand extensions to your question about what's left a lot is left on brand extension. So we started off with customer financial services as our first brand extension, we rolled into the parts business. We are improving the performance of Autonation USA. We've got four successful auctions up and running and our big focus continues to be in parts and in particular in collision.
Art and pulling that through.
The base business as well as the collision part of our business.
That's really helpful. Thank you.
Our next question comes from the line of Michael Ward from Seaport Global Your line is open.
Thanks, very much good morning, everyone.
Why am I sure will still restructuring costs include industry in the second quarter.
No we did not have restructuring costs in the second quarter, but we did have the benefit of the restructuring that we put in place flowing through in the second quarter.
Okay. So how far along are you in the 50 million.
Savings.
So we've completed all of the action. So all of those actions have been completed and that's what you're seeing now is the flow through of those initiatives hitting the bottom line. So theres no more actions to be taken to effectuate the $50 million, you're just seeing the benefits of that and when you add some additional gross profit on top of that you see the very strong EPS DNA performance improvement.
Okay. So the costs were completed as of the first quarter. So that's gone. So now it's just the savings flow through.
Correct.
Okay. Thank you very much.
Great. Thanks, Mike.
Our next question comes from the line of Derek Glynn from consumer Edge Research. Your line is open.
Good morning, Thanks for taking my questions and again congratulations Sheryl.
Thanks.
Looks like looks like that other income line decrease from prior quarters, presumably from smaller gains or less store divestitures.
What kind of pace of divestitures can we expect moving forward and what inning are we in with respect to you optimizing your footprint.
So we're in the late innings of that you will see some select divestitures going forward, but not at the pace of what you have seen in the prior two years and you're correct that was part of the change as well as last year's results included a legal settlement, which are not in this years result, so we will have select divestitures, but they certainly will slowed from prior periods.
Got it and then in looking across your segment mix between domestic import and premium luxury it appears premium luxuries gained share within your portfolio over time and just curious if that's a function of any strategic change you're making we want more exposure that segment or if this is just a function of natural market share changes, we're seeing in the broader market.
Thanks.
For the function of two things I'd say first we love the balance within our portfolio. So we love. The fact that we're roughly a third domestic a third import NSR in premium luxury and we like our geographic footprint as well.
Premium luxury did grow based on its organic growth within the actual business performance, but in addition over the last couple of years, we had a series of add points from different manufacturers, where we had built that out and so you saw us selectively increase our concentration within the premium luxury part of the business, which performed extremely well not only from a sales standpoint, but also certainly from a customer care margin standpoint.
Got it thanks for all the color.
Our next question comes from the line of Rick Nelson from Stephens. Your line is open.
Okay. Good morning, Yeah.
My congrats to transform.
Very well thank you Rick Thank you.
Hey, Tim.
Follow up on the used car volume same store sales really picked up.
This quarter's 7.6%.
Strongest we've seen four quarters from Augusta.
Tough compare.
Right, if you could discuss the drivers there anything that.
Changed this quarter versus the last few quarters.
So we've really been driving the play in U.S. So we definitely see continued opportunity with an exceptional customer experience, we continue to leverage one price.
No haggle pricing strategy, and we're going to continue to build off the success of well buy your car program. So we're seeing some traction in our role by your car programs all those things combined as well as a good inventory mix helped us drive as you resolve.
Got it.
Yeah.
Your capital allocation, we're seeing more in the way of debt reduction up much in a way of buyback activity or acquisitions.
Yes, if you can discuss.
The go forward.
Our plan there.
Yeah, absolutely so nothing's really changed with respect to capital allocation Rec as you know we remain very opportunistic on not.
From a leverage standpoint, we were getting close to three times, we certainly value our investment grade rating, we do keep a focus on not all but we do have the capital from our free cash flow, particularly with the result that we've been generating to continue to invest in so we'll look at continued investment brand extension strategy, including a focus on collision a focus on our parts initiative, we have not been as active in the dealership M&A space recently, and we will continue to look at a pricing or with respect to our shares and be opportunistic if the right moment.
Okay, and then final one for Mike It's great to have you on the calls and yeah.
And I'm curious if you're planning to take any.
Yeah, Thanks for two or more active role.
Now in the business and on the calls in the future.
So I remain executive chairman.
And it is as far as being on the call.
Right.
In the future no I will not not the 11 everybody.
Cheryl as the CEO and President the company is perfectly capable of handling the call.
As far as executive Chairman now on on the big issues are definitely.
Here at the table and.
No the situation in have a point of view expresses it and.
And the team takes it to heart, so and it certainly is far.
As the decision as to who is.
The chairman and CEO of this company, there's no question as far as the discussion with the board and the board decision yet.
Oh I was at the table and.
I think the right decision was made between Carlin I that a it wasn't a fit.
And again I'm thankful for his.
His commitment his efforts it just wasn't a good fit.
If you come into the company and automotive retail it was just a bridge too far.
And I'm certainly.
Hey, I have to say it was it Cheryl.
Joe was the final is the lifetime. This decision was made and it was a close call I explained all the reasons why we took the risk.
Oh, we faced up to it that it wasn't working I don't believe in dragging down once we come to conclusion that it's not working let's be decisive and that then led to a unanimous decision for Cheryl.
From the board she supported by our large shareholder and she has my full support and Mentorship as executive Chairman and I wouldn't say I would I would absolutely state. It's a mentorship. She she is and I think you see it I think you hear it I think you feel it she is C O ready day one.
And I have.
Every confidence that.
She is a winner and will be an outstanding CEO of this company.
And by the way I would remark that.
I'm very proud that with the board I got to participate in a decision that we have a woman leading the largest automotive retail enterprise.
In America.
And and that's a first for it probably traded auto retail companies.
I'm thrilled that we have a Hispanic a leading our company, but first and foremost she is see already day, one she's a winner.
She has a competency inspires confidence use unflappable and she is a joy to work with.
[laughter] anymore.
Okay excellent.
Thanks Ryan.
Our next question comes from the line of Stephanie Benjamin from Suntrust. Your line is open.
Hi, good afternoon, and just echo everyone else congratulate I'm correct. Congratulations Sheryl again on the appointment looking forward to working with you in the future.
I just wanted to follow up a little bit on that if we could just kind of go through some of the investments on the digital strategy. So maybe just kind of what isn't the initial stake there for to build out that strategy and kind of what we can look oh look for going forward that would be helpful. Thanks.
Yes, I remember from a digital perspective, the way we think about that is both the front end and the back end so investment in the customer experience with respect to sales and as you know with Autonation dotcom or front ability to.
Reserve the vehicle there all the way through to how were thinking about activating in digital within customer care and I think that's an important component that sometimes overlooked when people think about digitizing. The front. We're also focused on how to continue to invest to digitize the back as well.
And then just kind of following up on the question fashion. A is there anything that we need to be aware of in the first or even second quarter in terms of some of those investments and the digital strategy as well as the brand diversification strategy that may not continue or should pick up in the second half that was then I'm just kind of different going into second half. Thank you.
I'd say, there's nothing in particular to call. It as you know S. DNA varies you've got different.
Insurance reserves and other drivers in the background that they can do things slightly each quarter, but I would say, there's nothing particularly notable in one quarter of this year to point out I always mention not seasonally the fourth quarter or the year is typically the strongest from an M&A perspective, but there's nothing in particular to to call out or carvel from SDMA result for this year.
Great I really appreciate your time, thanks, so much.
Right. Thanks, Stephanie.
Our next question comes from the line of Bret Jordan from Jefferies. Your line is open.
Hey, good morning.
Good morning, Brett.
Quick question I guess on the parts strategy, maybe where you are in parts coverage versus your target parts coverage sort of skewed skew count and secondarily I guess one Carl was brought in he was talking about sort of us supply chain expert that might help in that part strategy and I guess is that something that you're going to need to add.
Additional supply chain expertise given his departure.
Yes, and then on the first I'd say, there's two parts of that parts coverage. One is really the mechanical parts coverage and we're certainly pulling that through well at our store location today and you see that in the gross profit on the collision parts side, we still have more work to do to build out our broader coverage there and I think we'll continue to look at the organizational model and how we activate with supply chain. So as we talked about brand extension investments, we're going to continue to be investing heavily in that area.
Great. Thank you.
Our next question comes from the line of them into thinking Vicki Us from Morgan Stanley . Your line is open.
Great. Thank you for taking the question good morning.
Good morning.
My first question is first you know hey, congratulations to Sheryl and also Jim.
When I look at the press release, Jim was credited with some successful initiatives with regard to the first and second quarter.
Just curious what those initiatives were and how we should think about them going forward.
Jim is a terrific execute her and if you think about the new vehicle profitability. So as Mike noted, we had new vehicle profit under pressure for the better part of a year and half to two years, Jim drove that execution in the field to make sure that we were balancing the equation with respect to new vehicle PVR and volume will buy your car as well is another initiative that Jim help drive in addition to improving the profitability of the Autonation USA stores, So Jim as a tremendous executive would with fantastic experience and he is a very hands on execution and was able to drive those initiatives and you see the pull through of those results with a record first quarter and a record record second quarter.
Great and then the investment in room I understand its its financial in nature at the moment and there is constant dialogue, but you've had it for a little while here and I'm. Just curious how you know lessons learned from the investment are impacting your thought process with regards to your own digital initiatives.
I think it's an ongoing dialogue and anytime you have a strategic partnership where investment whether that's froome or rather that the relationship we have with Waymo, you're always learning along the way and as I mentioned, we are doing some customer care work with them. So so we're testing and learning and understanding where they are in their journey as well. So I would say, it's a very iterative process.
Okay, and you know Cheryl Mike's been very forward thinking and how he approached the company and.
You know you've been credited with building and cultivating that partnership with with Waymo. You know how are you thinking about you know sort of a unique areas to position auto nation strategically you know with partners and otherwise going forward.
Yes, I think that the great thing about having been in the automotive business for 20 years as I get a lot of inbound and I think that between Mike and I have strong board and a great management team, we continue to to operate in the present, while focusing on the future and I think citrus strategic partnerships are great way to do that and so we're going to continue to cultivate those opportunities as we think about our growth.
Initiatives for the future in particular brand extension strategy. So as we think about collision as we think about parts as we think about the Autonation USA stores, we're going to continue to be a broad in our discussion.
Great much appreciated.
Great. Thank you.
Our next question comes from the line of David Whiston from Morningstar. Your line is open.
Hi, Thanks, Good morning, Cheryl congratulations.
I guess, a similar question, but going be on strategic partnerships is there are there some things whether it is on people the structure of the balance sheet operations any aspect of the company that over the years, you've perhaps given a a nudge to Mike and to Carl too and and never got done and you wanted to see it get done.
And now that you're the boss you have the opportunity to make some changes I don't I'm, not saying and you do on a radically different direction anything but is there just some aspect you guys haven't done that you'd like to see more attention to.
Well the great news is when I nudge Mikey lessons that sometimes he says I heard I heard you. The first time, but I I tell in the second and third time. So I think I think the great thing is we've been a great operating teams together I'm extremely proud of our balance sheet positions us well to do the things we want to do you want to be very opportunistic and certainly I have Ah I had a front row seat to the capital markets crisis, I know how to to manage balance sees a and in concert with a really strong board very effectively.
We've got great people I'm extremely proud of our field leadership teams in particular in our associates 26000 associates that sell and service cars every day and I think a lot of it is just broad strategy look automotive retail continues to change I started my career at circuit cities corporate headquarters when when Carmax was in its infancy, and if you think about the model evolves and so I think you need to be out there with a broad lens thinking through that but understanding that.
Every hour that were open and people are waiting there with vehicle needs and we need to be meeting that today, while investing for the future and I think that balance is critical and Mike and I over the years have had great dialogue and think we've struck the right balance there, but that's a continued.
Evolution and love. The fact that we have some feet into the future and we'll continue to learn in that area.
Okay. Thanks, that's helpful and.
Is there any change you guys are seeing perhaps in terms of winning enthusiasm amongst your customers for light trucks, especially in Texas, California and Florida.
No.
They love them, they love the commanding position.
Okay, great. Thank you.
Thank you.
Our final question today comes from the line of Colin Langan from U.B.S. Your line is open.
Oh, great. Thanks for taking my question of both my questions are answered, but just to clarify I mean, when we look at the rest of the year.
Same store new unit sales were down so that was part of your strategy to focus on more profitable units. So we should expect that the kind of company for the rest of the here and then stabilize the nextshares right trend, we should be thinking about.
Well continue to strike the right balance, but I do expect to continue to deliver solid new PV ours.
Got it and just lastly, capex was down in the first half by 75 million Boes surprising with the growth strategy should that pick up through the rest of the year or how should we think about or is that just a high comp last year.
Little bit of a higher comp last year as we talked about from a dealership acquisition standpoint, we have not been as active in that space and if you think about some of our collision center buildouts. They don't have the same cost necessarily as a dealership acquisition done. So there will be some some blending of that over time, we're still committed to making sure. We have fantastic facilities. So we'll make sure we commit the right amount of capital as we go forward, but given our strong balance sheet, we feel very good about the relative capex position, but we are making sure that we spend that money wisely.
Okay, Alright, thank you very much and like everyone else are congratulations and well deserved.
Great. Thanks Alan.
Right and with that that will officially end the call today and thanks, everyone. So much for that question.
This concludes today's conference call and you may now disconnect.