Q3 2022 Asbury Automotive Group Inc Earnings Call
Yeah.
Good day and welcome to the Q3 2022 earnings call. Today's conference is being recorded at this time I'd like to hand, the call over to Karen Greene. Please go ahead.
Thanks, operator, and good morning, everyone. As noted today's call is being recorded and will be available for replay later this afternoon.
Welcome to Asbury Automotive group third quarter 2022 earnings.
The press release detailing Asbury third quarter results was issued earlier this morning and is posted on our website at investors Dot Asbury auto dotcom.
Participating with me today are David Hult, our President and Chief Executive Officer.
Dan Clara, our senior Vice President of operations, and Michael Walsh, Our senior Vice President and Chief Financial Officer.
At the conclusion of our prepared remarks, we will open the call up for questions and will be available later for any follow up questions.
Before we begin we must remind you that the discussions during the call today is likely to contain forward looking statements.
Forward looking statements are statements other than those which are historical in nature, which may include financial projections forecast and current expectation each of which are subject to significant uncertainties.
For information regarding certain of the risks that may cause actual results to differ materially from these statements.
Please see our findings with the SEC from time to time, including our Form 10-K for the year ended December 2021, any subsequently filed quarterly reports on Form 10-Q, and our earnings release issued earlier today.
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 much directly comparable GAAP measures on our website.
We have also posted an updated investor presentation on our website investors at Eric Dot Asbury audio dot com, highlighting our third quarter results.
It is now my pleasure to hand, the call over to our CEO , David Hult, David Thank.
Thank you Karen and good morning, everyone welcome to our third quarter earnings call.
Before we get started today I would like to take the opportunity to say that our thoughts are with all those affected by hurricane Ian.
Thankfully our team members living in the path of the storm.
Also thanks to the preparedness of our teams we are fortunate and avoiding any notable damage to our stores and inventories.
I will note that although we did not make adjustments to net income to reflect the effect of hurricane and.
We estimate that the store closures at a negative earnings impact of <unk> 14 per diluted share on our third quarter results.
For the third quarter, we grew adjusted EBITDA by 115 million to $329 million, an increase of 54%.
The adjusted EPS from $7 36.
The $9.23 an increase of 25%.
We delivered an eight 1% adjusted operating margin.
Increased revenue by one 5 billion to $3 9 billion and grew gross profit by 288 million to $768 million and drove F&I gross profit per vehicle to $2480 up five.
<unk> and <unk> 69 from prior year.
During the quarter, we continued to integrate our acquisitions and build a strong balance sheet and reduced our net leverage.
Our day supply increased to 19 days, partially due to deliveries delayed by Hurricane Irma.
Yet still low day supply and inventory affecting overall unit sales.
Year to date, we have generated $782 million of adjusted operating cash flow.
Net leverage has decreased from two seven times at year end to one nine times at the end of the third quarter.
Our strong cash flow and reduce leverage enables our focused capital allocation strategy.
Currently the car Park average age is over 12 years.
We have pent up demand from supply constraints over the past two years.
Our parts and service revenue continues to strengthen.
We look forward to continuing to deliver strong results for our shareholders.
Being outstanding partners with our Oems to steward, great brands now and in the future.
And offering an environment, where our team members can thrive.
While providing the most guest centric experience and automotive retail.
Once again I would like to acknowledge the hard work and dedication of all my fellow Asbury team members.
It is through your passion and persistence that we continue to deliver these strong results for our shareholders and to be the most guest centric automotive retailer.
Thank you.
I will now hand, the call over to Dan to discuss our operating performance Dan.
Thank you David and good morning, everyone.
I would also like to thank all our team members nationwide for their hard work dedication.
<unk> commitment to delivering an exceptional guest experience.
Now I will turn to our same store performance compared to the third quarter of 2021.
Unless stated otherwise.
Starting with new vehicles.
In the third quarter, new vehicle inventory continue to remain well below normalized levels and consumer demand outstrips supply.
At the end of September our total new vehicle inventory was $332 million and our day supply was at 19 days up seven days from the prior year quarter.
Due to supply constraints, our new vehicle volume declined 16% year over year. However, we experienced a significant increase in our new average gross profit per vehicle, which increased $717 from the prior year quarter to $5782.
We anticipate new inventory levels to remain low through the end of the year.
We are focused on maximizing profitability, while also remaining steadfast in our commitment to our guests.
Turning to used vehicles.
Used retail revenue was flat to last year.
Our total used vehicle inventory ended the quarter at 368 million, which represents a 31 day supply.
Our used to new ratio for the quarter was 120% up from 112% in the prior year quarter and in line with our second quarter of 2022.
Shifting to F&I with.
<unk> delivered another strong quarter with an F&I PBR of 2000, and $254 an increase of $339 compared to the prior year quarter.
Thank you to our F&I team once again for this impressive results.
In the third quarter, our total front end yield per vehicle increased $307 per vehicle to $5916.
Moving to parts and service.
Our parts and service revenue increased 12% in the quarter.
Our customer pay revenue continued its momentum with a 15% growth.
Jumping to quickly.
Not including La Chairman Stephenson, we sold over 6800 vehicles that are clinically in the third quarter, a 13% increase year over year. In fact, Q3 was click length best quarter ever.
We experienced a 16% increase in visits to our website, reaching a noteworthy 10 million visitors in the quarter.
Based on the activity from our legacy Asbury stores, we are on pace to generate approximately $1 billion of revenue from <unk> in 2022.
We are excited to announce that click lane is now rolled out to the Stevenson La channel stores.
We expect to generate $2 2 billion in revenue for 2023 from quickly across all stores.
Those sales of new vehicles continue to be constrained by a lack of inventory we achieved 92% of our transactions. This quarter were with customers that were incremental to Asbury dealership network.
Average transaction time remain roughly in line with prior quarters with eight minutes for cash sales.
In 14 minutes for finance deals totaled.
Total front end PBR of $3450 and F&I PBR of $293, which equate to a total of 5543 of total front end yield.
The average click linked customers or increased to 718, which is higher than the average credit score at our stores and demonstrates a robust omnichannel consumer.
The average down payment for vehicle was $9481 up from $6 $713 or 41% versus last year.
81% of consumers seeking financing and received <unk> approval.
An additional 10% require some offline assistance.
91% of those that applied or approved for financing.
41% of Cleveland sales have trade ins with 53% of such trades recondition and retail to consumers.
And 95% of our Cleveland deliveries were within a 20 mile radius of our stores those allowing us the opportunity to retain our new customers in our parts and service departments.
<unk> customers are converting up more than double the rate of traditional internally, but we won't see the full potential until inventory levels normalize.
We achieved almost 200000 online service appointments and increase of over 50000 or 35% compared to Q3 of last year.
I will now hand, the call over to Michael to discuss our financial performance Michael.
Thank you Dan to our investors analysts team members and other participants on the call good morning.
I would like to provide some financial highlights for our company for additional details of our financial performance for the quarter. Please see our financial supplement and our press release today and our investor presentation on our website.
Overall compared to the third quarter of last year, adjusted net income increased 43% to $205 million.
And adjusted EPS increased 25% to $9 23.
Net income for the third quarter of 2021 was adjusted primarily for the sale of dealerships, which netted to <unk> 18 per diluted share.
Third quarter 2022 did not have any adjustments.
The estimated reduction in EPS due to hurricane.
Ian was <unk> 14 per diluted share.
As David mentioned earlier, we did not include this impact as an adjustment to our full year results, but we are providing to help size the hurricanes effect.
During the last week of September we experienced loss business for closures.
Our 24 stores in Florida, which represents approximately 35% on a same store unit sales.
And we continue to pay our team members while those stores were closed we estimate the impact to same store SG&A as a percentage of gross profit to be 40 basis points, Thus 55, 4% when excluding the impact of the hurricane.
Year to date, we generated adjusted operating cash flow of $782 million.
Excluding real estate purchases year to date, we spent approximately $63 million and capital expenditures.
Our balance sheet remains strong as we ended the quarter with approximately $1 2 billion of liquidity.
<unk> cash excluding cash a total care auto floor plan offset accounts and availability on both our use line and revolving credit facility.
We recently amended our credit agreement to enhance flexibility and supporting our strategic objectives.
Also at the end of the quarter, our pro forma adjusted net leverage ratio stood at one nine times down from two seven times at year end and two one times at the end of the second quarter.
For 2022, we are planning for Capex of approximately 120 million this amount excludes real estate purchases.
For the quarter TCA made $22 million of pre tax income, which included $1 9 million of net investment losses.
Excluding the investment losses, TCA would've made $24 million for the quarter.
TCA TCA provides us the opportunity to expand horizontally into our F&I business.
TCA has generated $65 million of income year to date on the <unk> stores, excluding net losses on investments.
We now have expanded TCA into all of our Colorado stores, and we anticipate a full rollout to our existing stores by the end of 2023.
As a reminder, we expect EBITDA from this unique asset to hit $185 million by 2025.
Finally, I would also like to thank all of our team members at Asbury, who have dedicated themselves to building a brighter future for ourselves our communities, our shareholders and all of our stakeholders.
I will now hand, the call back over to David to provide some closing remarks David.
Michael <unk>.
In closing with our diversified revenue streams.
We continue to generate robust cash flow and profits.
And with the age of the Nations car Park at historic highs and our fixed operations performing so strongly the resilience of this business model continues to deliver solid results.
We've maintained our disciplined expense control through significant revenue growth.
Almost doubling the size of the company in a depressed Saar environment.
We continue driving towards strong execution across these lines and we are always evaluating and optimizing our portfolio.
This concludes our prepared remarks, we will now turn the call over to the operator and take your questions operator.
Thank you, ladies and gentlemen, if you wish to ask a question. Please signal by pressing star one.
If you wish to cancel your request please sigma by pressing star two.
I will now take our first question from Daniel <unk> from Stephens. Please go ahead.
Yes, thanks, good morning, everybody and thanks for taking my questions.
David I want to start talking talking about quickly and actually I think of the slide you said, 95% of deliveries are within 20 miles when do we have enough data yet to track the service attachment on those sales and how sticky they are or is it the same as the physical sale just thinking about the lifetime value of using click land more in market versus new market.
And what Youre seeing on the data is out there.
It's a great question Daniel.
It varies by market, depending upon whether it's a metro or a single point market, but it generally lines up.
With what we're selling out of our conventional stores.
The benefit in our focus to stay within a 25% to 50 mile radius is really to ensure we capture their parts and service business. Our intent is to govern sales beyond 50 miles when possible because again the revenue from parts and service is just too important to us.
Got it but no data yet on whether the I guess working are you keeping those service sales.
Yes. It's so it's early on there are a lot of them are coming up on their first oil changes and like I said, so far we're seeing similar results as if we sold the car in the Charlotte compared to quickly.
Got it got it.
I wanted to ask one was on the F&I redesign you guys talked about last quarter I think that included some bundling in a new tools how is that progressing I know it's early but then obviously the FTC I'll tie that in with that question they've closed the comment period talking about potentially.
Looking at and impacting the F&I departments. So how does that impact your your F&I business or some of the bundling and other tools you've introduced there.
Hey, Good morning, Daniel This is Dan I'll start with the last question and then I'll go into the.
To the.
The second iteration of our F&I tool.
We've always.
Selling and support it.
Proper disclosure on full transparency in the F&I products.
Is the right thing to do for a consumer that is the right thing to do for our business.
We've always offered without condition and we will continue to operate in.
We will adjust to whatever the FTC.
It's out there.
Again under the full transparency spectrum from a from the second iteration of our click Lane.
<unk>.
The first quarter, where we started rolling it out.
We don't have enough data for me to share it with you.
What is going on but what I will tell you is that we continue to tweak it based on what we see from a consumer standpoint.
On what they like what they don't like and continue to make adjustments to to make sure that we're providing what they want.
On the digital aspect of the sale.
The only thing I would add to that as it relates to the FTC and pending stuff we have a tremendous.
Amount of folks that are professionals at disclosing these products and selling them professionally.
Traditionally our mix is 50% products and 30% reserve.
Everyone's compliant trained we're constantly tweaking our training to get better at what we do at the end of the day.
Like I'm sure all our peers do.
We strive to only sell products that are needed from our consumers and add value.
Certainly have a tremendous amount of confidence whatever the outcome is we will maintain our.
F&I numbers.
And then last one for me.
I just wanted to ask on the SG&A side, you know I think you continue to lead the peer group staying in the high Fifty's. Despite your Gpus normalizing any update on how youre thinking maybe where that ratio of SG&A to gross shake out either in 23 or 24 as the industry evolves.
Given the cost savings you guys are realized.
Yes, I mean I.
I think the thing there is productivity per employee is one of the key things for US and then also the change in our business in terms of selling so far.
Higher cost stores in Mississippi, and replacing those with park place.
And then some of the new acquisitions, we still have ways to go on the acquisitions, but we think when the.
Margins come back to wherever they end up back at its F. 'twenty four 'twenty through 'twenty four.
We're kind of in that $60 range for SGA percentage of growth.
The low sixty's.
But also there is some potential to be able to bring that number back down into that mid <unk> range, but once quick playing gets enough volume under it and that will help us change the.
<unk> structure in the stores.
But that's kind of a second wave when click one gets to be a higher percentage of our sales.
I would add to that Daniel if you look at our same store SG&A was 55 I think 8%.
Which is pretty solid.
It obviously shows that we haven't reached our synergies yet with our acquisitions.
So theres definitely some tailwind there for us to work on over the next 12 months to get that in line with the rest of the company.
Great really appreciate all the color today and good luck going forward.
Thank you.
John Murphy Bank of America. Please go ahead.
Hi, good morning, guys.
Obviously, there's a lot of cross currents going on here that are there are a little bit unusual, particularly on on the new vehicle supply side of the equation.
Just curious.
It seems like you guys had slightly lower volume, but by higher grosses.
And it seems to be kind of bearing between group and Conversely, some slightly better.
Buying but lower grosses.
But still very strong grosses and in general I mean, when do you think this is going to normalize I know you guys said you think it will stay tight through the end of the year, but it seems like it's going to stay relatively tight welling well into next year, which should be supportive of grosses.
Well into next year, but what do you what is your take on this and how do you manage this you just keep taking much higher grosses.
And fight through this or I mean, how are you thinking about it and how do you manage it.
John This is David I'll start and then Dan can jump in.
This is one of those deals where they're not all going to come back at the same time I think generally a lot of the domestics are the day supply will come back.
Late first quarter into second quarter, and the imports and luxuries that really could be the second half of the year at best.
Hard to tell.
When you look at our quarterly results in the tables in where the unit sales came from.
The vast majority of the volume comes from import and when you look at in a couple of the input brands that represent 25 <unk>.
Percent of our import business that we never had a five day supply of cars in the quarter. That's why you're seeing such strong margins I think those brands are still going to struggle.
Into the first half of next year to get back to a normalized day supply so.
We're still selling pre selling into our pipeline percentage wise, a little bit less than prior quarter, but still really great results are pre selling cars that are coming so the demand is still there and I can't stress enough appointed on the script with the average age of the car around 12 years.
There is just a natural attrition.
Benefit that we're going to have that.
Even whatever headwinds come our way, we feel like that will maintain better than most sectors. Some of you want to no I have nothing to add.
Okay, and then just to follow up on that I mean, we're going to be any constraint sounds like will be in a constrained environment.
Well, then well into next year and even at a reasonably good recovery on the new side, just going to take a long time to restock the one to six year old car.
<unk> fleet I mean, it might take three three years plus at least before you even get a recovery there does that bode well for your parts and service business.
And can you push growth there further whereas your cap you in your.
And your service bays and is there an opportunity for you to really grow that much faster to offset what might be still continued constraint on our used vehicle business.
Yes, John .
The parts and service piece first.
One person's opinion not guidance, but I think the next 10 years parts and service has a tremendous opportunity to have tremendous strength you think about the number of combustible engines on the road electric cars coming this quarter is no different than the previous four quarters for us our highest repair order dollars per ticket.
On electric vehicles. So the first generation warranty work is going to be strong in those vehicles as they enter into the market. So between combustible engine higher retention numbers electric business coming back to us for retention larger dollars generated we think parts and service is going to be in a great space for a while when you look.
Our us business.
We went backwards, 10% in the quarter were backwards pretty good in PBR, but when you break down the PBR and you look at what we normally generate for gross profit and our trade ins, we would 'twenty three 'twenty $400, a car, which was significantly higher than what our overall number was and it's because of your point.
The market has been so depressed for so long cars hasnt been available when you are buying cars in the open market you only get them. If you pay more than anybody else. So that certainly has been bringing down our margin.
We think over time, it will normalize, but it's going to be a ways out I mean, it's probably a good 18 to 24 months out before we start to really get some of our trade business back to normal.
Got it and then just I'm sorry, just one last thing David you'd mentioned something about quickly.
And that you didn't want to go much beyond a 50 mile radius around stores. Because then you don't retain that consumer for parts and service I'm. Just curious is there a normal physical radius for the normal physical stores before we get into <unk> that you think it might be 10, or 20 miles and it's now larger because it quickly into 50 miles or is it.
Just quickly will garner a higher market share in that 50 mile radius and it's kind of the same as what you think about what a normal physical store.
Yes, I'll start and then Dan can jump in I think what's been consistent through the quarters, which has been a little bit surprising to me is that north of 90% of the customers that have purchased live in our communities, but haven't done business with our stores. So I look at that as a couple of things the independents or the private cap there were dealing within the markets don't have the full <unk>.
Transactional tools the consumers with their strong credit scores through the value in time save and we're gaining these customers for it I think we're going to continue to see strong penetration for the next few quarters.
Until the private side catches up with the technology, but it's just logic based I mean, if you could purchase occur in 2014 minutes compared to sit in a strong for two and a half hours, what's a better use of your time.
We think that will continue to grow I think the other aspect is within our tool.
If you are buying a car in New York when Youre buying it from one of our stores in Atlanta, when you purchase the vehicle you type in your address where you want the car delivered to and it's almost like Google maps, we map out in real time exactly how many miles as it is to you.
And what the cost per mile is of the overall cost to shift the car to you.
So you have to factor that into that that delivery. If you will of that cost to deliver the vehicles being passed on to the consumer we don't have it marked up we have a national transportation company that services as well in servicing those customers as well, but it is an additional expense of the consumer so it's not to say that we haven't shipped <unk> 501000 miles.
We have we just don't like to do it because we want to retain the relationship.
Good morning, John Good morning, but the one thing I will echo what David is saying is going back to the primary market area responsibility that.
We are given by our OEM partners.
Key to maintain that and as you as I mentioned in my script, we have.
We have reached close to 200000.
Online service appointments and when you look at convenience, which is really what the ultimately what the consumer wants within the primary market area that we service I think that that has given us a competitive advantage and that's what we're seeing that moderate or stay right within our PMA.
And reaping the benefits of it from a retention standpoint.
Entire domino effect.
Very helpful guys. Thank you so much.
Thank you John .
Brian seek done from Craig.
<unk> Hallum Capital Group. Please go ahead Sir.
Good morning, guys.
Want to start on quick lane, so solid metrics across the board continues to.
To get better there, but curious on the 2023 guidance for $2 2 billion in sales I think I caught that right in the prepared remarks, but growth has been slowing sequentially on a unit basis. There I guess what are the main drivers to more than double sales year over year next year.
Yes.
This is David.
Couple of things I'll point out the 6800 sales we are really just the legacy stores and year over year.
Backwards in new car volume.
But yet click lane was up 13%, so I think theres a huge delta between the amount of transactions that increased on click land compared to the decrease in number of units that we sold the increase next year is the simple math, it's taking the same.
We added over 70 stores.
On top of the legacy stores. So it's taking those stores and extrapolating out the same conversions that we have in the other stores to get to that number. So the big increase is all the law, Jim Stevenson Arapahoe Carlo stores that we've added in the last year or two.
And the end of 'twenty, one that are going to be in that number now for 23.
That makes sense helpful. And then just on capital allocation any change to how you think about that given kind of all the cross wins in current conditions, both potential M&A pipeline as well as current business stock et cetera, I think.
I think you were the only public franchise do or not to buy back stock in the quarter, but.
How do you think about that.
It's a great great question, Ryan we've been fairly disciplined on making sure that we get our leverage down.
To two before we did anything where they're at one nine.
We believe like I'm sure all our peers do that we're trading at a really low multiple and people don't appreciate the cash generation that we that we offer.
And how strong this model will be going into a recession or not.
It's now time for us to focus on that and we're going to see what the best returns are for our shareholders and it might be a combination.
Of.
Repurchasing stock and making acquisitions.
We don't feel the gun to our head to grow stores, we really are looking at our portfolio.
And we've turned down a lot of stores that we've looked at and we really want to focus on the stores that we think of culturally fit into our organization and be accretive to us on day, one otherwise naturally our highest returns, we'll certainly be repurchasing stock, but we also as Michael pointed out briefly in the call and Youll see this in 'twenty three we're going to have.
A fair amount of capital expenditures catching up with these new acquisitions and their facilities over the next couple of years.
Okay.
David.
Yes.
Thank you we will now take our next question from Bret Jordan from Jefferies. Please go ahead, hey, good.
Good morning, guys good morning I.
I got on a little bit late maybe you already talked about this but did you comment on sort of a trajectory longer term in new unit Gpus I mean, obviously one of your peers said, possibly pre COVID-19 levels.
Before stabilization and others sound like we might be structurally higher forever do you have a could you give color there.
Sure. This is David I'll start and Dan can jump benefit once I've said this a few times. So I'll stay with this breath, but then I'll try and give a little bit more color to it.
2019, we didn't have the large luxury stores in Dallas of Park place, we had a platform of stores in Mississippi that was a drag on the company and then we just bought some high operating margin stuff west between the Miller organization and Stevenson, so materially Asbury as a different company so even if.
It got draconian and we went back to those margins of 19, we would never get there because we are a different company.
I would say going forward for the next few years because of the average age of the car being over 12 years and the pent up demand that's there and we're still selling over 25% of our inventory before it ever gets here, we think margins are going to stay healthy.
Through 2023, the question will be how it impacts me to some of my peers, it's going to be based upon what level of brands, we have percentage wise and what their inventory comes back with on a day supply. If you look at it we put in the table at some pretty good numbers, our luxury sales important domestic sales imports the <unk>.
Volume numbers.
Two important brands that dominate the percent of that.
Mix for Us and were extremely low day supply with no line of sight of it coming back so as we sit here today. We think next year is going to have very healthy margins. We think we're going to continue to see extremely strong growth.
In parts and service.
Great. Thank you and then I guess on the TCA business in the legacy stores could you talk about the penetration.
The trends Youre seeing in the Larry Miller stores since you've owned it.
Sure.
And if I don't get this question right. Please come back around.
Generally speaking.
The <unk> stores have higher penetration numbers, and the legacy Asbury stores and selling products.
It's taken us awhile to get our network linked and get TCA aligned with our legacy stores. So is literally last month that we started rolling out the legacy Asbury stores with TCA.
We started with our Colorado stores, which Stephenson and Mike Shaw and a wrap of Hull Hyundai.
Our next they will be Texas, and then we will continue to roll them out it'll take us to the end of 'twenty three to get there.
Philosophically, we're aligning with la <unk> with the rest of the legacy Asbury as far as compensation, how we pay our folks and using their methodology to get hopefully the same increase in sales.
<unk> has experienced its too early on to say that theres any track record there yet, but I'm hopeful in our next earnings call. We can have that conversation give some give some factual data for you.
Great. Thank you.
Yes.
Rich add Gupta J P. Morgan. Please go ahead.
Great.
That's for taking the questions just wanted to follow up on the F&I questions earlier.
$2500 today.
100 <unk>.
No.
Where do you think F&I settles down.
On a normalized level for the company, including the impacts from D. A.
Could you help us bridge that gap from pre COVID-19 to that normalized number or maybe from today to that normalized number I have a follow up.
Yes. This is Michael I, just wanted to kind of from a numbers perspective, if you look at.
The dealership operations.
We were at two.
<unk> 200 for F&I PBR and then our consolidated basis, we're at about $24 80, so that kind of gives you a little bit of a color on the impact of TCA on the numbers because the difference between that dealership number of 22 and the $24 80 is the TCA impact.
Granted that TCA impacts only on a portion of the store so just on the <unk> stores.
That should help you maybe.
You do a little bit of math on what that's worth in the future, but we don't see any reason that F&I goes backwards.
At the store level and the TCA will just continue to grow and improve that number.
And I would say is that.
Just to add onto that.
The cost of sale is used as you well know over the last 18 months has gone up dramatically F&I numbers flowed up with that.
Both in the reserve that you are getting because you're financing more in the products that you're selling so it is all of a sudden the sudden decrease in the cost of sale.
That could be a headwind for F&I numbers, but as we look into the future with electrification more expensive cars coming and what we're seeing the propensity of consumers to spend on products. We think that there's more opportunity for us to grow F&I I don't say that a significant dollars there by any stretch, but I think there is room to improve a little.
More.
Where are you in terms of product penetration levels today.
Please go ahead.
And where do you think that can go.
It's a great question currently where we are right around 70% for products and 30% for reserve as we start to sell and I would say, it's probably more 'twenty four 'twenty three but a larger portion of electric vehicles it'll be interesting to see if that product mix changes at all for it sustained at that level, we would like to get to us.
A 75% product and 25% reserve, but.
But we're not there.
Got it got it and maybe just a follow up on the SG&A.
In the past you had mentioned that youre slowly working to pivot your.
Personnel expense.
Head count structure into more fixed.
So the variable.
Excuse me for the <unk> transaction, I'm curious, where we are.
On that pad.
Any metrics you could share.
On the on.
What changes are already awkward.
Where do you see that settling in over the next three or four years.
Richard This is David again.
I would tell you.
As it relates to compensation nothing has changed.
And I don't anticipate any change starting on our end until we get through what I would call critical mass with click lane and the target we have in our mind is between 45 and 50% of our sales.
We will have to come on quickly and for us to start changing how we compensate people, how we staff stores and ours, we think from a productivity per employee level were pretty good and that shows that our same store SG&A number 55, eight especially in these high interest rate markets are higher than what we're used to.
So we feel confident that we are running lean and mean, we still feel as we sit here today two to three years from now which will achieve that 45% to 50% number.
And if we get there then that's when we'll start to see.
Opportunities with SG&A.
Got it great. Thanks for all the color.
Yes sure.
Thank you as a reminder to ask a question. Please signify by pressing star one.
Our next question comes from David Whiston from Morgans Morningstar. Please go ahead.
Hi, everyone.
Going back to same store new vehicle unit volume declining.
And I get that the profitability is is to focus on the improved.
Gpus, but.
A year ago inventory industry with incredibly low you guys were still down year over year. So is that because now in 'twenty two there's a huge decline in midline import availability or is there something else going on there.
Yes.
I would say and I haven't had a chance to study our peers, but when you look at our brand mix.
While we finished with a 90 day supply those midline imports were single digit days supplies and most of them were around five days.
So I think that was the material impact there for us the luxury car business, we sell a lot of luxury cars in Florida, a lot of those deliveries got held off because of the hurricane. So they fell into the fourth quarter. If you will so I would say some of it is a timing issue on our set our standpoint.
But at the end of the day.
We're still back a fair amount.
On inventory.
But click claim was a positive number so.
You take the puts and the takes you don't want them massive hurricane like that to hit your your largest state if you will.
But we think we're thankful our folks weather did well and that the business did and we think that just means there's some pent up demand hopefully for the fourth quarter with Florida.
Okay and on the credit availability is there any pullback in that being available for both new or used customers.
Zero.
We're seeing real healthy Downpayments real strong credit scores.
I'm, not saying that won't change at some point, but it hasn't yet.
There's still a good amount of cash out there and the credits holding up really well from what we see and just as a quick reminder, David.
When you look at our portfolio of business, our subprime businesses.
A low of 8% and a high at 10%. So it's certainly a meaningful piece of our business, but it's a smaller piece.
Okay and on.
On the consumer behavior question, I guess compared to the start of the year.
We've obviously got much higher inflation now People's food budgets are getting squeezed by inventory still remain below are you seeing consumers.
Perhaps more tired of waiting for inventory.
Or is it more the opposite where there just.
Thanks, Lee, saying well we.
We will just take what we can get.
Yes. This is Dan I think we see a mix of it.
Some consumers.
All attributed more maybe to the to the luxury side of the business, where there may be a little bit of frustration.
But that customer knows what they want.
They are waiting for it.
The other domestic and imports.
Whenever there we do see some shift to maybe taken or letting go of a particular option that they want it just to be able to get it.
In stock, we're coming readily available within the next truckload.
It's a mix, but overall I think that also if you think about the whole pandemic that we went through a shift of consumers minds as well and as before it was all about right now right now right now just about whatever you try to buy out there that you have to wait so its condition that consumer to be more patient.
Work with us.
Our product becomes available.
Okay and last question on F&I penetration you talked about products, if I heard you aren't going up to 75%, whereas the opportunity on product penetration what products in particular, yes.
Yes, so we'd like to get to 75 were not there.
It's that old adage I'll, just use a round number of 100 stores.
The bottom half and get them, averaging the top half you get to that 75% number.
That are our main core product that we focus on the most is our service contract business.
People are keeping their cars a lot longer it's a great value add product for a consumer it's a great product for us for a retention standpoint. So that's the number one product that we focus on.
Okay. Thanks, everyone.
Thank you for your time.
Thank you and as there are no further questions in the queue I'd like to hand, the call back over to our speakers for any additional or closing remarks.
Thank you operator. This concludes today's discussion we look forward to discussing our fourth quarter results. Soon we appreciate your time today and participation in the call have a great day.
Thank you. This concludes today's conference call. Thank you for your participation ladies and gentlemen, you may now disconnect.
Okay.
Okay.