Q3 2024 Asbury Automotive Group Inc Earnings Call
Speaker Change: Greetings and welcome to the Asbury Automotive Group third quarter 2024 earnings call. At this time all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation.
Speaker Change: If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Chris Reeds, Vice President of Finance, Treasurer. Thank you, sir. You may begin.
Chris Reeds: Thanks, Operator, and good morning. As noted, today's call is being recorded and will be available for replay later this afternoon.
Chris Reeds: Welcome to Asbury Automotive Group's third quarter 2024 earnings call. The press release detailing Asbury's third quarter results was issued earlier this morning and is posted on our website at investors.asburyauto.com.
Chris Reeds: Participating with me today are David Hult, our President and Chief Executive Officer, Dan Clara, our Senior Vice President of Operations, and Michael Welch, our Senior Vice President and Chief Financial Officer.
Chris Reeds: At the conclusion of our remarks we will open up the call for questions and will be available later for any follow-up questions.
Chris Reeds: Before we begin, we must remind you that the discussion 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, forecasts, and current expectations, each of which are subject to significant uncertainties.
Chris Reeds: for information regarding certain of the risks that may cause actual results to differ materially from these statements.
Chris Reeds: Please see our filings with the SEC from time to time, including our Form 10-K for the year ended December 2023, 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.
Chris Reeds: 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.
Chris Reeds: We have also posted an updated investor presentation on our website, investors.asburyauto.com, highlighting our third quarter results.
Chris Reeds: It is my pleasure to now hand the call over to our CEO, David Hult. David? Thank you, Chris. Good morning, everyone. Welcome to our third quarter earnings call.
David Hult: As I look at our results and set them against some of the unique challenges we face in the quarter, I'm really pleased with our overall performance and credit the team for their ongoing resiliency.
David Hult: In particular, those individuals and their families impacted by both Hurricane Helene and Milton. Operationally, we saw sequential quarterly growth in used vehicle profitability.
David Hult: And the pace of gross profit decline for new vehicles has started to moderate, a notable achievement given our exposure to Stellantis.
David Hult: Stellantis in particular continues to be a headwind for our business.
David Hult: To give you some context, our 20 Stellantis locations are seeing year-over-year new volume declines of 30%, with gross profit per vehicle down over 53% from Q3 of 2023. Encouragingly, however,
David Hult: We've recently seen them take a more aggressive stance on incentives.
David Hult: Our SG&A, as a percentage of gross profit, improved quarter over quarter, showing that our efforts to take costs out of the business is gaining traction.
David Hult: And finally, our parts and service business continues to show healthy growth.
David Hult: For the quarter, we delivered adjusted earnings per share of $6.35.
David Hult: But as I mentioned at the start of the call, several unique events had a meaningful impact on our performance.
David Hult: Hurricane Helene affected store operations in Florida, Georgia, and South Carolina, and the extended stop sale order for certain Toyota, Lexus, and BMW models impacted volumes on some of our most profitable and in-demand vehicles.
David Hult: Excluding the negative effects from these two items, we estimate our adjusted earnings per share for the third quarter would have been between $6.74 and $6.78 per share.
David Hult: Thank you.
David Hult: With Hurricane Helene, stores in the path of the storm closed their doors early or opened later after the storm passed.
David Hult: Most importantly, however, all of our team members were safe, although many incurred damage to their homes and property.
David Hult: Temporary store closures and reduced customer traffic in the days leading up to the storm and immediately afterwards resulted in fewer new and used unit sales.
David Hult: along with Lots Business and Fixed Operations.
David Hult: All told, we estimate the impact of this storm on earnings per share to be between $0.07 and $0.09 per share.
David Hult: The Lexus TX and Toyota Grand Highlander models have been popular vehicles with healthy gross profit margins.
David Hult: Based on our pre-stock sale trends for these models and for our BMWs, we estimate that this resulted in nearly 1,200 fewer new units sold for the quarter.
David Hult: The estimated negative impact to our 3rd quarter earnings per share was between $0.32 and $0.34 per share.
David Hult: As it relates to Hurricane Milton, while we're still assessing the operation financial effects from this fourth quarter event, we believe the magnitude of the impact to our business will be greater than Hurricane Helene.
David Hult: The size and path of the storm placed it over a larger section of our store footprint, and the damage to our dealership locations was more extensive.
David Hult: A higher number of stores closed for longer compared to Haleen. Several locations experienced flooding, parcel loss of vehicle inventories, and extended power outages.
David Hult: Other locations had varying degrees of wind and water damage, preventing them from reopening in a timely manner.
David Hult: Separate from the hurricane, we are also working to better understand the fourth quarter impact on all the various stop sale orders.
David Hult: This is inclusive of the ongoing stop sale for certain Toyota, Lexus, and BMW models, along with the recent Honda stop sale order for several of their more popular models.
David Hult: We will provide additional details during our fourth quarter earnings call.
David Hult: Now for our consolidated results for the third quarter.
David Hult: We generated $4.2 billion in revenue, up 16% year-over-year.
David Hult: had a gross profit of $718 million, up 7%.
David Hult: and a gross profit margin of 16.9%. Our same store adjusted SG&A as a percentage of gross profit was 63.8% and 64.4% on an adjusted all-store basis.
David Hult: We deliver an adjusted operating margin of 5.6%.
David Hult: Our adjusted earnings per share was $6.35, and our adjusted EBITDA was $233 million.
David Hult: During the quarter, we repurchased nearly 400,000 shares for $89 million, bringing our year-to-date total through October 28 to approximately 830,000 shares for $183 million.
David Hult: In the third quarter, we divested one Chevrolet and one Honda store as part of our ongoing efforts to optimize our portfolio.
David Hult: And finally, in the fourth quarter, we launched our long-awaited pilot with Techion in four stores and our shared service center.
David Hult: Now, before I hand the call over to Dan, I want to say thank you again to our team members for delivering another solid performance.
David Hult: given our heavy presence in Florida and the Southeast.
David Hult: The recent storms have had major impacts to our team members and the communities in which they serve.
David Hult: Their dedication to getting our stores back up and running is just a small part of the overall recovery effort, and I couldn't be more proud of them.
David Hult: Now Dan will discuss our operational performance. Dan?
Dan Clara: Thank you, David, and good morning, everyone. First, I would also like to say how grateful I am of our team members.
Dan Clara: Our team members rose to the occasion through major storms to deliver the most guest-centric experience in automotive retail.
David Hult: Thank you.
David Hult: Now, moving to same-store performance year-over-year, which includes dealerships and TCA, unless stated otherwise.
David Hult: Thank you.
David Hult: starting with new vehicles.
David Hult: Same store revenue was flat year over year.
David Hult: with strong performance from Ford, Mercedes-Benz, and Hyundai, to name a few. Offset by the challenges we saw in Stellantis, plus the impact of stop sales affecting volume for certain in-demand Toyota, Lexus, and BMW models.
David Hult: Toyota and Lexus represent 30% of our new vehicle revenue and are great partners with terrific brands. Unfortunately, the stop sale led to a meaningful impact on our unit volume and gross profit per unit.
David Hult: And as it relates to Celantis, while it is early days, we are encouraged by changes we have seen lately on incentivizing their product.
David Hult: New average gross profit per vehicle was $3,512 as we moderated sequential GPU decline better than we anticipated.
David Hult: Our same store new day supply was 63 days at the end of September with wide variation among brands
David Hult: Thank you. Thank you.
David Hult: Turning to Used Vehicles.
David Hult: Third quarter, unit volume decreased 6% year over year, and used retail gross profit per unit was $1,566.
David Hult: On a quarter-over-quarter basis, use gross profit per unit slightly increased.
David Hult: As we mentioned in the prior quarter, we have assessed the balance of volume and gross profit.
David Hult: And until the pool of used vehicles gets back to more historical levels, we will prioritize unit profitability over chasing volume.
David Hult: We will continue to evaluate our approach and adjust to market conditions.
David Hult: Our same store used day supply was 38 days at the end of the quarter.
David Hult: Distinct to FNI, we earned an FNI PBR of $2,111 in the quarter.
David Hult: Our results holding in line with the second quarter of 2024.
David Hult: As we expected, the deferred revenue headwind of TCA contributed to nearly half of the year over year decrease. It was $51 of the $108 decrease in the same store FNI PVR number year over year.
David Hult: We view this headwind to be more impactful throughout 2025 and into 2026.
Speaker Change: Michael will provide more details on these factors for TCA.
Speaker Change: In the third quarter, our total front-end yield per vehicle was $4,743, and it was encouraging to see total front-end margin stabilizing given headwinds from CERN brands this quarter.
Speaker Change: Moving to parts and service.
Speaker Change: As David noted, we were pleased with the progress of our parts and service business.
Speaker Change: Our same store parts and service gross profit was up 4%, even with hurricane disruptions in several markets.
Speaker Change: For the quarter, we earned a gross profit margin of 56.8%, an expansion of 144 basis points versus prior year quarter, driven by margin increases in our customer pay operations and revenue mix.
Speaker Change: I'd like to provide further visibility on the progress being made in our fixed operations.
Speaker Change: At a store level within the customer pay bucket this quarter, same store customer pay service sales revenue was up 11%.
Speaker Change: and Same Store Parts customer paid revenue was up 4%.
Speaker Change: And now, shifting to our gross profit performance within fixed operations.
Speaker Change: Our largest portion and most profitable piece of the business, customer pay, generated gross profit growth of 8%. In warranty, we were up 14%.
Speaker Change: The smaller units of the business, Wholesale Parts and Coalition, were down 2% and 10% respectively.
Speaker Change: These are lower margin profile businesses and that mixed impact contributed to the overall fixed operations margin expansion.
Speaker Change: I am especially pleased with the progress and momentum of our Western stores this year, with a 22% growth in service customer paid labor gross profit year over year.
Speaker Change: And finally, we retailed approximately 13,000 sales through ClickLink in the quarter, a 13% increase over last year.
Speaker Change: We were especially encouraged by the performance in new units, a differentiating factor for us. With approximately 6,400 units sold, a 20% increase year over year.
Speaker Change: Thank you, leaders and team members, for helping make the Carbine experience in-store and online more transparent and easier for our guests.
Speaker Change: I will now hand the call over to Michael to discuss our financial performance. Michael?
Michael Welch: Thank you.
Michael Welch: Thank you, Dan. I would also like to give my thanks to our team members.
Michael Welch: for the perseverance and performance through the hurdles we face this quarter. I will now walk us through a more detailed financial overview.
Michael Welch: of the quarter. Overall.
Michael Welch: Adjusted net income was $126 million.
Michael Welch: and Adjusted EPS was $6.35 for the quarter. However, as David mentioned in his opening remarks, we estimate our adjusted earnings per share for the third quarter would have been $6.74 to $6.78 per share, when excluding the impact from the storm and various stop sales.
Michael Welch: Adjusted net income for the third quarter of 2024 excludes net of tax, net gain on divestitures of $3 million, and losses related to the hail damage of $2 million.
Michael Welch: Adjusted income for the third quarter of 2023 excludes net of tax of $3 million gain on the sale of real estate and $1 million of professional fees related to the acquisition of the Jim Coons Automotive Companies.
Michael Welch: Adjusted SG&A as a percentage of gross profit came in at 64.4%, a sequential improvement over the second quarter.
Michael Welch: Despite the headwinds with certain brand performances and lower vehicle grosses,
Michael Welch: We are encouraged by the efforts of our team to contain cost. We anticipate SG&A, on a percentage basis, to be in the mid-60s for the fourth quarter.
Michael Welch: given the anticipated impact from Hurricane Milton and the ongoing stop-sale activity.
Michael Welch: The adjusted tax rate for the quarter was 25.4% and we anticipate the full year adjusted tax rate to be approximately 25.3%.
Michael Welch: TCA generated $18 million of pre-tax income in the third quarter and $59 million due to date.
Michael Welch: We anticipate full year results to be between $70 and $80 million on a pre-tax basis. We plan to offer TCA across the Florida and Coons markets next year, and have outlined the puts and takes for the TCA pre-tax income estimates for the next few years in the presentation posted this morning on our website.
Michael Welch: We generated $487 million of adjusted operating cash flow year-to-date. Excluding real estate purchases, we spent $105 million on capital expenditures year-to-date, and we anticipate to end the year between $180 and $200 million.
Michael Welch: Free cash flow is $383 million a year to date. We ended the quarter with $768 million of liquidity comprised of four plan offset accounts. Availability on both are used and revolving credit facility and cash, excluding cash or total care auto.
Michael Welch: Our transaction adjusted net leverage ratio was 2.9 times at the end of September, which reflects our strategic deployment of capital in the quarter to share buybacks.
Michael Welch: We continue to seek and create opportunities with our rigorous capital allocation approach across share buybacks, M&A, and organic investments.
Michael Welch: In closing, thank you team members once again for delivering strong results to support our missions to be the most guest-centric automotive retailer.
Michael Welch: This concludes our prepared remarks. We will now turn the call over to the operator and take your questions. Operator?
Speaker Change: Thank you.
Speaker Change: Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad.
Speaker Change: A confirmation tone will indicate that your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment please while we poll for questions.
Speaker Change: For more information, visit www.fema.gov
Speaker Change: Our first question comes from John Murphy with Bank of America. Please proceed with your question.
John Murphy: Good morning, guys. You know, it's a really good quarter in the face of a lot of adversity here.
John Murphy: David, just first on the on the Stellantis impact I mean sounds like in the Stellantis stores you're starting to manage this better with with some help from the from the factory.
John Murphy: But if you think it's sort of the spillover to the pricing environment and the risk it's creating to new GPUs I mean, how do you how do you think about that? I mean and so far it doesn't seem like it's really had any significant impact on their overall market But just curious how you think about that
Speaker Change: John, I'll give you my thoughts and I'm sure Dan will jump in. You know, a lot of it, when you think about incentives, we all think of the traditional methods. In the last quarter,
Speaker Change: The incentive, everyone had a high day supply of Solanus, including our peers, and they came out with coupon incentives, which were basically put on taking more inventory.
Speaker Change: Our stores chose not to, for the most part, take more inventory because we were already at a high day supply. So, for the quarter...
Speaker Change: We were at a competitive disadvantage because a lot of our competitors that chose to take more inventory had more coupons to use.
Speaker Change: So that put pressure on our volumes and it put pressure on our margins as well.
Speaker Change: It still is impacting early in the fourth quarter with the coupon concept, but they're also engaging with other incentives that we think will help. But over the last 12 months, they've also eliminated a lot of their entry-level models.
Speaker Change: and they probably haven't been, from my perspective, building vehicles with the right content that has been able to move the product faster.
Speaker Change: They're a good company. They're going to figure it out. It's just taking them a little time with the management changes and other things that they've had. And we're unique in the sense that our size of 153 rooftops, 20 Stellana stores, you know, unfortunately has a material impact on our business. Dan, I don't know if there's anything you want to add to that.
Dan Clara: Good morning, John. I'll just add that lately, to what David mentioned, the new incentives that we're seeing is when they become
Speaker Change: When they put money that can be used for a better transactional price for the guest,
Dan Clara: The response that we're starting to see is slightly better from the guests.
Dan Clara: And so, therefore, it is allowing us to move some of the units. In addition to that, just as of last week, end of last week, they announced some special interest rates starting in November.
Dan Clara: So, it's like I stated, it's early in its days, but we're excited with what we're doing.
Speaker Change: Okay, and then just a follow-up to that on the GPU at 3512. I mean, it's better than people have been fearing, better than we were estimating, and in the face of what you just talked about on the Atlanta side.
Speaker Change: It's pretty remarkable. How do you think about this going forward? It seems like we're getting... It's a little stickier in the $3,000 to $3,500 range as opposed to the $2,500 range that people ultimately think it might settle into.
Speaker Change: Yeah, I would say again, you know, when you look at the peer group, you really have to break down the brand mix.
Speaker Change: 30% of our revenue is Toyota and Lexus, very low day supply, so those are very high margins. Mercedes obviously had a good quarter as well. And then when you look at our segments broken down, luxury, import, domestic, you know, luxury held up the best.
Speaker Change: and even when we're showing backwards in units with on the domestic side, a hundred percent of those units being backwards was solely Stellantis. We were up with the other brands.
Speaker Change: Dan, anything you want to add as far as the margin?
Dan Clara: Well, I would just say to that, you know, even on the other domestics, when you look at our other domestic partners, margins are holding pretty steadily there as well. So we're encouraged by what we're seeing there. But I think a lot of it is also our portfolio mix that is definitely contributing to what David stated of the 3500 GPU.
Speaker Change: And just one last one on the parts and service. I mean stop sales are negative in the short run but probably provide a pretty good warranty. Parts and service bump on the on the other side. You know how do you think about that and how fast does that you know potential you know benefit come through?
Speaker Change: Thank you. Thank you.
Speaker Change: Yeah.
Speaker Change: I'll start, and then David, I'm sure, will add anything that I forget. So, John, you know, we have, there are several stop sales going on right now, as I'm sure you're aware of.
Speaker Change: Some of them, there are fixes. Toyota and Lexus just announced that there is a fix that is
Speaker Change: available for for the Highlander and also for the TX.
Speaker Change: and you know the the warranty reimbursement rates that we're getting some of those are paying 3.1
Speaker Change: And then there's going to be some nice gross profit margin that we should see from the parts side of the equation as well.
Speaker Change: It really depends to your question of how soon we're going to see it. It really depends on the availability of the parts, when the recall notices are sent to the consumer, as to when they're going to be available to come into our shops. We We We We We We We We We We We We We We We We We We
Speaker Change: We have the throughput, we're ready to serve our guest, but I would expect that we're going to see that definitely started in Q4, but I would expect for it to move into Q1 of 2025 as well as we complete all the recalls.
Speaker Change: Yeah, I would say, agree with Dan, we'll get a little bit of a tailwind from the warranty with Ted on Lexus. With the Honda stop sale, that just came out last week, I believe, and they don't have a fix yet. So it's too early to predict what kind of impact that'll have.
John Murphy: Great, thank you guys. Thank you, John.
Speaker Change: Thank you.
Speaker Change: Our next question comes from Rajat Gupta with JP Morgan. Please proceed with your question.
Rajat Gupta: Great, good morning. Thanks for taking the questions. Just on the stop sales impact, you know, if I look at, you know, the impact, you know, from the stop sale and the hurricane.
Rajat Gupta: It seems like it turned out to be much higher than what some of your peers might have experienced.
Rajat Gupta: You know, was there something to do with, you know, the fact that, you know, because you were more exposed to, you know, the hurricanes?
Rajat Gupta: It made it harder for you to, you know, just get those fixes done and, you know, get those cars out the door late in September? Or is there anything else, you know, you would flag, you know, on just the magnitude of the impact from the stop sales? And I had a follow up on the used car business.
Speaker Change: Rajat, I'm going to hand that to Michael, but I'll start by saying the fix for the Tudor and Lexus did not come in the third quarter.
Speaker Change: It's literally coming right now.
Speaker Change: So even into the fourth quarter, it's at the end of October before we're starting to see it.
Speaker Change: So, we haven't even started performing the fixes yet, but we're about to. But in the third quarter, hurricane aside, there wasn't a fix, and there wasn't parts available to address them, and in true stop-sale, you obviously can't sell the vehicles either.
Speaker Change: Yeah, so on the hurricane, because we had exposure in Florida, Atlanta, and up into Greenville, you know, we got hit in multiple markets. And that just shut down the business from a customer perspective in closing the stores across multiple markets for us.
Speaker Change: And so that's the, you know, the impact of that was mainly just those those stores impacted. It was so late in the quarter there's not really a way to recover from a sales perspective and there was very little damage.
Speaker Change: on that storm in those specific markets.
Speaker Change: So you don't have that recovery demand. When we get to the fourth quarter and get to Milton, there is some flooding and some things there that will probably provide some benefit on sales in the fourth quarter. On the stop sale for us, we're just a higher percentage, Lexus and Toyota, than most of the groups.
Speaker Change: And so we just took the new vehicle sales, the used vehicles that would have gone with that from a trading perspective, and then just kind of fed that down the income statement so you get the internal gross profit from those used vehicles.
Speaker Change: And then you have the SG&A flow through. So the majority of that is the reason we're higher is just our exposure to Toyota and Lexus versus the rest of the peer space.
Speaker Change: In result, we just took the run rate of those models prior to the stop sale and just assumed the sand going through it, and in reality, it would have been higher because you're coming into that selling summer season, so to speak. So from our perspective, we think we took a conservative approach.
Speaker Change: Thank you.
Speaker Change: Understood. Understood. That's helpful. And just in the used car business, you know, you know, the 6% same store decline, I'm sure like some of that was impacted by the hurricane and also the stop sales of the stores for the traded.
Speaker Change: But just curious how we should think about recovery in that business here, fourth quarter, perhaps next year, especially, you know, in light of the off-leave shortages that we might start to see.
Speaker Change: and anything else you might be doing, you know, to, you know, to turn around the operations there. Thanks.
Speaker Change: Sure, I'll start and then Dan can jump in. You know, last quarter I said we're still assessing whether we're going to chase volume or go back to gross profit. We decided to go back to gross profit and not chase volume. Based on the peers that have, I think, announced already
Speaker Change: Most of them, I think there was only one better than us so far.
Speaker Change: as far as being backwards in unit sales. So we improved our margin quarter over quarter. We lost sales with the hurricane. We were able to maintain margin, not as much as we wanted.
Speaker Change: But I think until the pull becomes normal again with the off-lease cars and everything coming which is
Speaker Change: still a year away. I don't think it makes sense for us to chase volume because we have expenses with every car that we sell. And from our perspective, we would rather be more conservative on the unit sales and focus more on the gross profit. Dan, any thoughts?
Dan Clara: Rajat, I agree with David and just to expand on your question about what else are we doing focusing on the on this side of the business.
Dan Clara: We, as you all know, we make our highest margin on trade-ins and acquisitions that we do with the with our local customers.
Dan Clara: really trying to stay away from auctions and what have you because
Dan Clara: The one that wins that card is the one that is holding the hand at the end of the bidding process and usually brings you a very low margin.
Dan Clara: So, we have processes in place to increase and continue to work on capturing the trades, acquiring inventory through the service department. We also have the loaner car pool that we can utilize when those cars are available to come out.
Dan Clara: and just trying to maximize our margin as we move forward. And when the availability of inventory comes back, like I stated on the call, then we will assess if it is the right time to get more aggressive on the volume side of it.
Speaker Change: Understood. That's right, Gary. Thanks for all the color and good luck.
Speaker Change: Thank you, Joe.
Speaker Change: Our next question comes from Jeff Likwitz Stevens. Please proceed with your question.
Speaker Change: Great, congrats guys, that was a very impressive quarter, given what you were up against this quarter.
Speaker Change: You know, I was curious.
Speaker Change: With respect to your SG&A percent of gross at 64.4, you know, that's the best amongst your peers. Could you talk about where you think that could go and also highlight the impact of, you know, how your test and potential rollout of Techeon may disproportionately influence this going forward?
Speaker Change: Thank you.
Speaker Change: Jeff, thank you. On the SG&A side, we still have the declining new vehicle PVRs. We'll put a little bit of pressure on that number over the next year.
Speaker Change: But the things we're doing with the Techeon launch and rolling that out in 25 and 26, we think that will give us the opportunity in the long term to pull that number down as we become more productive with our employees and we just don't have as many bolt-ons.
Speaker Change: There will be a little bit of cost in 25 and 26 if we do the rollouts.
Speaker Change: Just in terms of transitioning from CDK to Techion, but not much in the way, just a little bit of overlap cost there, but we really see the benefits kind of late 26 into 27 from an SG&A perspective. Hopefully, we'll be able to pull that number back below, you know, back into the 50s once we get those things rolled out.
Speaker Change: Thank you. Thank you.
Speaker Change: And then just a quick one on F&I, you know, GPU, F&I came in at 2141, which, you know, is stronger than us in the street estimated, you know, given you guys have been guiding the TCU, or the TCA would have a negative impact short term, is that still the case or would this 2140 level kind of be the base from which you're going to grow off of?
Speaker Change: So I'll answer the TCA thing and then let Dan weigh in on just the operational side of the store level. TCA and 25 and 26 will have a more meaningful impact and lower that overall consolidated PVR just because we'll take the headwind from TCA deferral as we continue
Speaker Change: The deferral impact of the stores we've already rolled out, but then also roll out our large market in Florida.
Speaker Change: and the Kuhns Market. So 25 and 26 will be the hefty years for F&I.
Speaker Change: PBR Perspectives.
Speaker Change: And specifically, we think the second half of 25 will be a really sizable hit into 26. And then 27 should start to become a tailwind for us, where it goes the opposite direction. Dan?
Dan Clara: From an operational standpoint, nothing has really changed. We continue to focus on the bottom 20% of our stores, continue to train them, coach them, make sure that we provide a great guest experience during the final process of purchasing a car.
Speaker Change: Awesome well congrats and look forward to catching up here in a bit. Thank you.
Speaker Change: and Chris Reeds. Thank you. Thank you.
Speaker Change: Our next question comes from Ryan Sigdahl with Craig Hallam Capital Group. Please proceed with your question.
Ryan Sigdahl: Hey good morning guys. Looking at slide 14, helpful from a breakout mix standpoint of what EVs are versus ICE. Curious what the sales breakdown would be.
Dan Clara: Dan, you got that? Yeah, Bob, just give me one second here. Good morning, Ryan.
Ryan Sigdahl: Thank you.
Ryan Sigdahl: on
Ryan Sigdahl: Thank you. Thank you.
Ryan Sigdahl: Thank you for joining us. Thank you.
Ryan Sigdahl: I can give you some color. I don't have the sales breakdown percentage-wise. I can certainly give that to you later. But I do have the... I'd like to give you some color on some of the GPUs, if that's okay with you.
Ryan Sigdahl: from a EV standpoint. I break it down by brand. I'm gonna start with luxury, then I'm gonna move on to the imports and domestic. But on the luxury side of it, we're seeing GPUs,
Ryan Sigdahl: holding on pretty good with a BMW and Lexus and I'll just give you a specific example. So one of our partners, we run about a $3,500 front-end GPU and in EVs that number is in the $2,800 range.
Ryan Sigdahl: But then, when we go into some of our domestics,
Ryan Sigdahl: We're starting to see a little bit of a steeper decline in GPUs.
Ryan Sigdahl: And in some cases that
Ryan Sigdahl: number is a negative number in the front end.
Ryan Sigdahl: From an Enforce standpoint, it's a mix throughout all of them. So, you know, when we look at, for example, Nissan is pretty flat compared to the ICE versus EVs. And we do have some of them that are substantially different. Specifically, if we look at some of the
Ryan Sigdahl: Some of the GPUs in
Ryan Sigdahl: I'm looking here at my charts, so just bear with me, at Nissan, I'm sorry, at Hyundai and also Honda, we see a drop. But overall, the EV, we're seeing a negative impact to the PBR, and I would have to get back to you on the exact numbers, breakdown from a sales perspective, because I don't have that readily available.
Speaker Change: Helpful, you answered my second question. I was going to move into the GPUs and how that compared. Instead, I will ask about the hurricane impact. Have you seen any positive externalities? Thinking pricing, used vehicle pricing, GPUs, demand, insurance proceeds coming in, etc.
Speaker Change: Yes, we have.
Speaker Change: Go ahead, David. Go ahead, dude. No, you go.
David Hult: Yeah, I would just say there was certainly more vehicles lost in Milton, so there should be some tailwind in the fourth quarter with replacement vehicles certainly on the western side of Florida.
Speaker Change: And from an insurance perspective, you know, we'll have the insurance claim related to the property damage and the inventory damage that will settle pretty quickly. You know, as you know, BI claims with the insurance companies just take a while, and so I wouldn't expect any BI recovery until, you know, mid-25 or later.
Speaker Change: For more information, visit www.fema.gov
Speaker Change: Very good. Thanks guys. Thank you.
Speaker Change: As a reminder, if you would like to ask a question, please press star 1 on your telephone keypad. Our next question comes from Brett Jordan with Jeffries. Please proceed with your question.
Brett Jordan: Hey, good morning guys. Morning. On that service slide that breaks out the repair order by Powertrain, do you think that BEV premium is something that's sustainable or is this sort of working the bugs out of new technology and that will revert lower as these...
Brett Jordan: units get a little bit more seasoned.
Brett Jordan: Brett, this is David and Dan can jump in. You know, I think logically you're correct. I think there's going to be a few more years of higher dollars on BEVs.
Brett Jordan: And as you get probably closer to 2030...
Brett Jordan: A lot of the kinks should get worked out as you move forward. There's just a lot of technology in these vehicles and you add wind, weather, and cold. It just creates a lot of disruption. So I think in the near term it's good and when you look at the car park that's out there and the age of the car park and, you know, one of the slides shows that, you know, we're averaging over 71,000 miles coming through our service drive.
Brett Jordan: So we're not just servicing during the warranty period, 71,000 is well above it. So we're doing a good job at retaining them. We look at the next six to 10 years as pretty strong in parts and service between the mix.
Brett Jordan: of all the different products. And we still believe with the BEVs, as they continue to come to market, retention numbers are only gonna go up. Frequency should come down over time, but we think the dollars and margins will stay higher. Dan, anything you wanna add?
Dan Clara: No, I have nothing to add.
Speaker Change: Okay, and then a question on collision. Obviously, that's been soft, I think, for everybody. Is that something that's secular? Is there a real structural change in collision demand, or is this tied to something shorter term?
Speaker Change: That's it. We're all scratching our head on that one, Brad. It doesn't matter the market. It doesn't matter the state.
Speaker Change: You know, everywhere is experiencing less year over year.
Speaker Change: Some are, you know, there's more total losses because the claims are higher, there's more technology in these cars, so the dollar values are higher, so we're seeing more total losses year over year.
Speaker Change: But it's, you know, not only does it affect our collision business, it affects our parts business because we're obviously not wholesaling as many parts because our competitors...
Speaker Change: are also not seeing the business either.
Speaker Change: Curious to see how this turns out over time, but it's been a trend all year and it hasn't really changed at all.
Dan Clara: Dan? Right.
Speaker Change: And I guess question on customer pay, parts and service, traffic versus ticket just as a housekeeping, that plus four I guess, how much would his car count?
Speaker Change: and Daniel Clara. Thank you. Thank you.
Speaker Change: Thank you.
Speaker Change: This is Dan and from a, if we look at customer pay RL count specifically,
Dan Clara: Luxury was up 9%, the import up 1%, total was up 3% from a customer pay RL count.
Speaker Change: Great, thank you.
Speaker Change: You're welcome.
Speaker Change: Our next question comes from David Whiston with Morningstar. Please proceed with your question.
David Whiston: Thanks. Good morning. Just curious if, especially for the domestic and import brands, if negative equity is at all a concern for you either right now or in 2025?
David Whiston: . . . . . . . . .
Dan Clara: Good morning, David. This is Dan. Yes, it is. We're definitely seeing our fair share of consumers that are in a negative equity situation and, you know, obviously it is requiring, in a lot of cases, more money down as a down payment to offset some of that. So definitely a slight concern as we move forward.
David: Are you seeing it more with one particular brand, customer brand set, like import versus domestic?
David: Yeah, I mean we definitely see it a little bit more with domestic, but I will tell you that nobody really has been protected. We see it in every, in luxury, we see it in the imports within domestics, but more heavily weighted into the domestic side of the business.
Speaker Change: Okay. And on your balance sheet, your leverage ratio is near the high end of your target range. Profits are normalizing post-chip shortage. Do you feel the need to pay down some debt before doing more M&A, or can you go either way?
Speaker Change: This quarter we saw an opportunity to deploy some capital to share buybacks and so we elected to buy those shares and the leverage ticked up a little bit. We do think in the future we can continue the cash we generate we can deploy toward the net leverage.
Speaker Change: and look for those opportunities as they come.
Speaker Change: Thank you for joining us.
Speaker Change: Okay, thank you. Thank you.
Speaker Change: Thank you for joining us. Thank you.
Speaker Change: There are no further questions at this time. I would now like to turn the floor back over to David Hult for closing comments.
Speaker Change: David, before you close, do you mind if I jump in? I have the numbers for Ryan on the EV sales. It's between six to seven percent of our total sales.
David Hult: Okay, thank you. This concludes today's call. We appreciate your participation today and look forward to discussing the fourth quarter early in 2025. Have a great day. Thank you.
Speaker Change: This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
Speaker Change: Luther Chopin Symphony No. 20 in B-flat Major. StariĆ. Luther Chopin Symphony No. 20 in B-flat Major.
Speaker Change: Daniel Clara Michael Welch Chris Reeds Michael Welch Michael Welch Michael Welch Michael Welch Michael Welch Michael Welch
Speaker Change: Music by David Hult
Speaker Change: [music]