Q4 2024 Asbury Automotive Group Inc Earnings Call
The
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Our earnings release issued earlier today.
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Chris: We have also posted an investor an updated investor presentation on our website investors don't Asbury auto Dot com highlighting our fourth quarter results now it is my pleasure to hand, the call over to our CEO, David Hult, David. Thank you, Chris and good morning, everyone welcome to our fourth quarter earnings call.
Chris: The performance of our business is a direct reflection of the efforts of our team members who come to work each and every day striving to improve the guest experience.
Chris: Their hard work translated into strong results for the fourth quarter and I couldn't be more proud of the team.
After our recent election, we saw an increase in traffic and sales throughout Q4.
Chris: Overall volume for same store, new vehicle was up 7% year over year 12.
Chris: 12% sequentially.
Chris: And same store gross profit per new vehicle was up $149 compared with the third quarter of 2024.
Chris: In 2025, we expect new vehicle gross profit per vehicle.
Chris: We're in the 2500 to $3000 range.
Chris: Our performance in used vehicles is consistent with our shift in strategy in mid 2024.
Chris: Prioritizing profitability over volume given the supply challenges in the used vehicle market.
Chris: While overall volume was essentially flat our gross profit per unit increased for the second quarter in a row.
Chris: These results are particularly impressive when set against the backdrop of rising new vehicle incentives, which create headwinds on used vehicle pricing.
Chris: We expect inventory challenges to persist throughout 2025.
Chris: Shifting to our parts and service business I couldn't be more proud of how the team came together to deliver outstanding results for the quarter on a same store basis gross profit for our fixed operations business was up 11%.
Chris: In the all important customer pay segment was up 13%.
Chris: Looking ahead, we remain confident in the mid single digit growth rate for customer pay is sustainable.
Chris: In parallel with our operational success, we remain keenly focused on cost discipline.
Chris: Our SG&A.
Chris: Costs as a percent of gross profit fell for the second consecutive quarter.
Chris: Coming in at 63% on an adjusted basis.
Chris: While we are proud of our results to make the business more efficient.
Chris: Our work here is not done we continue to evaluate other opportunities to deliver a guest experience more efficient and a more efficient manner.
Chris: Our fourth store pilot with checking on went live in October.
Chris: We're encouraged by the early feedback from our operators.
Chris: From sales to service this new platform has the potential to simplify the guest experience.
Chris: Proved team member efficiency, all at a lower cost per transaction.
Chris: Now for our consolidated results for the fourth quarter.
Chris: We generated a record $4 5 billion in revenue up 18% year over year.
Chris: At a gross profit of $750 million up 11%.
Chris: Gross profit margin of 16, 6%.
Chris: Our same store adjusted SG&A as a percentage of gross profit was 62%.
Chris: And it was 63% on an adjusted all store basis.
Chris: We delivered a same store adjusted operating margin of 6% and an all store adjusted operating margin of five 7%.
Chris: Our adjusted earnings per share was $7.26.
Chris: And our adjusted EBITDA was $254 million.
Chris: Finally, thank you to our team members, who continue to deliver it and find innovative solutions to make our company better.
Chris: We're excited about the momentum we've built heading into 2025.
Dan: Now Dan will discuss our operational performance Dan.
Dan: Thank you David and good morning, everyone.
Dan: I would also like to thank our hard working team members.
Dan: You make a difference by providing a high level of service that powers. Our strong results. Thank you.
Dan: Now I'm going to give some updates on our same store performance, which includes dealerships and TCA on a year over year basis unless stated otherwise.
Dan: Starting with new vehicles same.
Dan: Same store revenue was up 8% year over year and units were up 7% driven by strong performance from a number of our luxury brands as well as Hyundai Kia General Motors and Ford.
Dan: New average gross profit per vehicle was $3661 a sequential increase from the last time, we spoke and in line with the typical seasonality and strength of luxury brands in the fourth quarter.
Dan: A broad solid performance across our portfolio helped to overcome the pressure on gross per unit as it relates to Atlanta, which was down substantially year over year.
Dan: Our same store New day supply was 47 days at the end of December.
Dan: Turning to used vehicles.
Dan: Fourth quarter unit volume was down slightly versus prior year results.
Dan: Used retail gross per unit was $1584, which was $19 higher than third quarter 2024.
Dan: We believe in prioritizing unit profitability at this point, but the used car supply cycle.
Dan: At the same time, we're monitoring market conditions that may shape, our strategy within the pre owned business.
Dan: Our same store used DSI was 37 day supply at the end of the quarter.
Dan: Shifting to F&I.
Dan: We earned an F&I per vehicle retail of $2238 improving sequentially over the third quarter 2024.
Dan: The deferred revenue headwind of TCA contributor at $40 or the $72 decrease in the same store F&I P V our year over year.
Dan: For the past several quarters, we've discussed the timing of the rollout of coolers and Florida in the first half of 2025 and the impact it would have.
Michael will walk you through the additional details on the financial impact regarding TCA.
Dan: In the third quarter, our total front end yield per vehicle was $5040, reflecting the healthy gross per unit and therefore <unk>.
Dan: Moving to parts and service.
Dan: As David mentioned, our parts and service business excelled in the quarter.
Dan: Our same store parts and service gross profit was up 11%.
For the quarter, we generated a gross profit margin of 57, 9% an expansion of 224 basis points.
Dan: This expansion was driven by increased profitability of our higher margin segments, which contributed 124 basis points of the growth.
Dan: In addition, I'd like to provide further visibility on the progress being made in our fixed operations by breaking out the components of our parts and service business.
Dan: Our largest portion of the most profitable piece of the business customer pay generated gross profit growth of 13%.
Dan: In warranty we were up 26% driven by increased recalls.
Dan: Also parts and collision where down 5% and 6% respectively.
Dan: Our western stores built upon their momentum in customer pay posting a 21% growth in gross profit year over year, and we continue to see strong performance in our eastern stores as well.
Dan: And finally, we retooled approximately 12000 sales through click landing in the fourth quarter.
Dan: A 6% increase over last year.
This brought our total units retailed to over 51000 units for the year 2024, which is a 13% increase versus 2023.
Dan: We sold approximately 6200, new units and 8% increase year over year.
Dan: New vehicles made up 52% of our click lean sales.
Dan: We view this ability to sell new is an important differentiator differentiating factor in the marketplace.
Dan: I will close by once again express my gratitude for our hard working team members as we focus our efforts to be the most guest centric automotive retailer.
Dan: I will now hand, the call over to Michael to discuss our financial performance Michael.
Michael: Thank you, Dan and happy birthday.
Michael: We are pleased with our fourth quarter results, our teammates execute at a high level and put the guest's first a great way to finish the year and head into 2025.
And now I will discuss our financial performance in the quarter, along with some full year figures for the fourth quarter adjusted net income.
Michael: $143 million and adjusted EPS was $7.26 for the quarter.
Michael: Adjusted net income for the fourth quarter of 2024 excludes net of tax and $11 million of noncash asset impairments.
$5 million of losses related to Hurricane Milton.
Michael: And $1 million of income related to the proceeds from the termination of a franchise.
Michael: Adjusted SG&A as a percentage of gross profit came in at 63% a sequential improvement over the third quarter.
Michael: We were pleased by the team's discipline and agility to contain cost.
Michael: We anticipate 2025, SG&A as a percentage on a percentage basis to be in the mid sixties.
Michael: Given the projected glide path on new vehicle Gpus, and the investments in our business.
Michael: The adjusted tax rate for the quarter was 24, 8%.
Michael: And we estimate that full year adjusted tax rate for 2025 to be 25, 3%.
Michael: TCA generated $20 million of pre tax income in the fourth quarter and $79 million for the full year. The noncash deferral impact for the year was a benefit of $6 million or 22 cents per diluted share.
Michael: We anticipate offering TCA in our Florida market in Q1, and the Q and the Coons platform in Q2. These rollouts along with the increasing vehicle volume levels are likely to be a headwind to earnings we anticipate 2025 Tcf.
Michael: TCA pretax income to be approximately $8 million, which includes a noncash deferral head of $62 million or $2.35 per diluted share.
Michael: We expect the first half of the year to have a small deferral benefit before flipping to a negative deferral impact after the rollout of Florida and Jos.
Michael: We expect the peak deferral to occur in 2026, we have outlined the estimated impact on EPS over the next couple of years on slide 17 of the presentation posted to our website. This morning.
Michael: In addition, we have included an example of a single T cell product lifecycle and the effect it has on cash and GAAP.
Michael: Please see the appendix for more detail. We hope this will better illustrates the mechanics of how the deal with TCA flows through our financials now.
Michael: Now moving back to our results, we generated $688 million of adjusted operating cash flow for the full year 2024.
Michael: Excluding real estate purchases, we spent $163 million on capital expenditures in 2024.
Michael: We anticipate approximately 250 million and Capex spend for both 2025 and 2026, depending on the timing of some significant investments.
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Michael: Free cash flow was $526 million for the year.
Michael: We ended the quarter with $828 million of liquidity comprised of floor plan offset accounts.
Michael: Illinois on both our used line and revolving credit facility and cash excluding cash of total corrado.
Michael: Our transaction adjusted net leverage ratio was 2.85 times at the end of December.
Michael: Finally effective capital allocation remains one of our top priorities and we continually evaluate opportunities to grow the business and a disciplined approach.
Michael: I'll close by saying, Thank you again to all of our teammates who are working to ensure both our current and long term success.
Michael: This concludes our prepared remarks, we will now turn the call over to the operator.
Michael: Your questions operator.
Speaker Change: Thank you.
Speaker Change: This time, we'll be conducting a question and answer session.
Speaker Change: If you'd like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue you.
Speaker Change: You May press star two if you'd 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: Our first question comes from John Murphy with Bank of America. Please proceed with your question.
John Murphy: Oh, good morning, guys lot at a lot of good data points to ask questions about here, but I just David just wanted to focus on on G. P. Use obviously, you got the seasonal benefit sequentially here, but.
John Murphy: I don't know if you can tease out how much of that is you know the seasonality and how much of this strength in new GPU, specifically as a result of the market kind of bottoming out here on pricing and Gpus and and maybe we're seeing much more resilience than I think people were fearing so I mean, how do you how do you think about that how much of a seasonality.
John Murphy: How much it is you know reaching this this lovely.
John Murphy: Leveling off point.
John Murphy: Thanks, John It's a great question and obviously, it's complicated to answer you know you look at our day supply were around a 49 days supply to know within that we have some brands that have a seven day supply and some that have almost a 90 day supply.
John Murphy: What I would tell you and I'll speak specifically to Asbury and referenced the past for this.
John Murphy: Everyone's focused on 2019 numbers and kind of comparing off of that I stated it before I'll state. It again I suppose a different company today than in 19, our model mix is different our brand mix is different and we're in different market almost all the acquisitions. We've made over the years in the last five years there of Gpus were accrue.
John Murphy: Two what Asbury was doing so I think we'll always stay above that number for lack of a better term.
John Murphy: As we enter into this year.
John Murphy: We had the biggest impact was the Atlanta based on our size and the number of rooftops. We have it was still a huge material hit to us in the fourth quarter would have been significantly better if they just performed average for US we do believe that they're going to get their act together and improve which should actually give us a little bit of a tailwind in the future when that happens it's not there yet.
John Murphy: But it's just all brands are not floating the same and it's difficult to predict what the future is going to be.
John Murphy: Where being optimistic with some of the brands that we have children elections have been very low day supply a good gross profit, but so do a lot of other brands and we have some input brands are up 40% year over year in the quarter and some of them went backwards, 2%. So it's it's really mix right now and I think.
John Murphy: It has to be a lot of work put into each of our peers and looking at the brand segments than what they have to really calculate what the future holds but as we sit here today we.
John Murphy: We think we're entering a more stable market I mean with the new administration, it's a little bit more pro business with the shift from Evs coming back to ice. We see these are all benefits and again, we're in a situation where the average age of the car is 12 and a half to 13 years old and you can see in our slides.
John Murphy: <unk> you know the average miles on a car that we're servicing has over 71000 now it keeps creeping up and we have some stores over 90.
John Murphy: Which means we're doing a great job at retaining them after the warranty is over.
John Murphy: So we're optimistic about 25, but there'll certainly be some headwinds coming our way for sure. We're excited that's you know we every month, we get closer to the Atlantis fixing the issues, which will have an impact on our business.
Well, that's very helpful. And then just a second question on Turkey on in the in the forest door.
Speaker Change: Test are you you mentioned a couple of things I'll paraphrase efficiency.
Speaker Change: Improve consumer experiences improves and its all at a lower cost. So I don't know maybe you can maybe get into a little more specifics about like what the Delta is versus your other D. M S.
Speaker Change: And you know what the potential savings savings are and then you maybe business opportunity.
Drive topline matecki on.
Speaker Change: Yeah, I would tell you without getting into too much particulars.
Speaker Change: Switching from Tech you onto C. D. K, one large pickup as we reduce our plug ons by about 70%. So you reduce those costs and you reduce the toll fees that you know the dms charged for plug on so that's one large cost savings there. The other one is.
Speaker Change: It's a heck of a lot easier to onboard and trained someone with Turkey on because of the way. The software is designed it just makes you far more efficient and more transparent with the guest our productivity numbers.
Speaker Change: Even in the pilot and the first few months, where you expect things to be a little bit rocky our productivity per employee went up.
Speaker Change: In all the stores, some slight some more than others, but a positive sign.
Speaker Change: At the end of the day, which as you know close to two years from now year and a half anyhow. When we're fully rolled out on Turkey on there will be a material savings and SG&A costs are just because of the you know the what I've mentioned earlier with the software application. So too early to say only enforced through a pilot right now we're very encouraged we're getting.
Speaker Change: Great feedback from our associates.
Speaker Change: Some of the leaders said you know it used to take US five days to onboard a service adviser we can do it in a day now.
Speaker Change: Because the technology. So a cushing it also empowers our teammates more to handle the guests without going anywhere else. So it's transparency efficiency is going to raise our level of service ease of use is going to make it a big differentiator for our teammates and to US. The exciting part is the software is going to increase our productivity make us more efficient.
Speaker Change: Allowing our folks to really create the experience.
Speaker Change: I'm sorry, if I can sneak one in you mentioned that sort of the Trump bump in ensuring traffic and business just in general a lot of concern that that might burn out over time and that might just be somewhat transitory. What are you seeing in E. E. In January I mean, maybe without even giving exact numbers, but just trying to understand if you're seeing that momentum continue into January.
Speaker Change: <unk>.
Speaker Change: January is kind of mixed and kind of like the day supply it really depends upon the brand and then just for my Geographics. You know this January has been worse than most januaries in the last four or five years with weather.
Speaker Change: We've had a lot of stores and a lot of our states shut down for multiple days with weather. So that's going to impact us if you take those days out which you can't.
Speaker Change: Whereas you know, we're seeing an increase over prior year not dramatic, but an increase but I think January traditionally is a slower month.
Speaker Change: But we're encouraged with what we're seeing in parts and service and sales. So far I don't think it's going to burn out with the new administration. They seem to have an agenda. They seem to be very business friendly going back to that average age of the car where it is.
Speaker Change: You know this has the potential to be.
A fairly I would say strong, but certainly stable year for us in the automotive industry.
Speaker Change: Yeah, I guess, you probably have a few more of those in front of you at least in my opinion. Thank you very much guys. Good quarter. Thank you. Thank.
Speaker Change: Thank you.
Speaker Change: Our next question comes from Rajeev <unk> with J P. Morgan. Please proceed with your question.
Rajeev: Oh, great. Thanks for taking my question Firstly, just on the SG&A.
Rajeev: 63% level, we definitely are very solid bumble.
Rajeev: I was curious if there's any way to unpack that a little bit.
If you look at third quarter versus fourth quarter.
Rajeev: Gross profit went up 40 million SG&A went up $10 million.
Rajeev: It's primarily given.
Rajeev: Do some of the CDK needed.
Rajeev: Payments that you have to still make your sales force.
Rajeev: The lost sales.
Rajeev: Did not have to in the fourth quarter, but curious if you could unpack that you know what drove that sequential leverage.
Rajeev: I just have a follow up on TCA.
Rajeev: This is David I'll start and then Michael can can come in yeah. We've mentioned prior corridor that we're working on cost reduction. So I think part of it is you're seeing the cost reductions as part of it is the increase in gross profit and the incremental benefit we get for every incremental dollar I would tell you.
Rajeev: And just not picking on them, but you know its Atlantis was a major headwind to us materially in the fourth quarter that absolutely hurt SG&A.
So there's a there's an opportunity for us once the Atlantis writes itself. If you will that we could improve even more we've been very focused on cost discipline and we think we have our personnel expense at a at a pretty good number we have an opportunity to increase our efficiency per associate which leaves a little bit of savings there is.
Rajeev: Well and we've been pretty disciplined over time regarding our operating cost.
Rajeev: And being conservative so while it was a nice job in the quarter. As there was you know looking at it from our side looking at the detail. There was a lot of opportunity. There that you know just with a little bit different brand mix would've had better results.
Rajeev: Yeah Rajeev. Your other question your second quarter had the impact and a little bit in third quarter for CDK, but not a whole lot.
Rajeev: So really it's just the cost savings and the increase in both fixed ops and new vehicle margins. So that helped the number.
Rajeev: Got it and then just a follow up on the in D. C. A R.
Rajeev: Just looking at what you had provided us last quarter. It looks like a good definitely headwinds are a lot higher.
Rajeev: Now for 25 and 26.
Rajeev: Curious, what's driving that is it just you know a higher expectation for unit growth or Rollouts cabins.
Rajeev: It claims just curious.
Rajeev: You know why that drag is higher than what you had three months ago.
Rajeev: Yes, it's it's kind of a perfect storm of the roll off of 18 to 19 from the legacy L. H M stores is kind of you know at the end of early this year.
Rajeev: And as volume comes back half, we're kind of at the low point for the five year comp cumulative Saar and so now you're adding that volume back. So yes, it's higher expectations on SAR and used vehicle growth.
Rajeev: The ending of those Goodyear's Smelly, Jim and then Florida tunes Rolling on and so you basically lose lose the good news from the old years and all you have is kind of the deferral hit for growing SAR growing used cars, and Florida and coons coming fully on.
Rajeev: Got it got it and did you just follow you classify the F&I numbers, excluding like the headwind was for a pretty nice acceleration or was that just makes.
Rajeev: Was there like penetration increase you know on contracts Oh, there's a non service contract more ancillary stuff just curious what drove that and it's pretty pretty solid.
Rajat: Hey, good morning Rajat.
Rajat: We just continue to focus on our bottom 20% are we continue to focus on the training and believes that to the extent that we continue to make improvements there are the number moves so great job to the training team great job to the field team you know but.
Rajat: This is history and we've got to continue the trend and was that just add onto that I would say nothing's changed as far as the mix. It's still one third finance reserve and two thirds product sales.
Rajat: You know probably with the lifting cost of sale, a little bit and the down payments coming down a little bit that gives you a little bit of a tailwind in your P. B R.
Rajat: Yeah.
Rajat: Got it. Thank you congrats on a strong quarter.
Rajat: Okay.
Speaker Change: Our next question is from Jeff Lake with Stephens. Please proceed with your question.
Jeff Lake: Oh, good morning, guys, Congrats on a fine quarter and extend my happy birthday wishes to Dan.
Speaker Change:
Speaker Change: Yes.
Speaker Change: I was wondering if you could just talk about it in terms of the everyone's a little more excited about the Saar environment.
Speaker Change: For 2025, and obviously, that's kind of spurred on by what happened in Q4.
Speaker Change: David just to the extent that obviously to sell more units you're going to need more inventory.
Speaker Change: Curious to kind of the there's a relationship between your the more inventory you add that could put pressure on our <unk>.
Speaker Change: G P use.
Speaker Change: Marginal there might not be as profitable as the lifestyle cause any thoughts there I just got them a relationship as we go.
Speaker Change: As we build inventory in the GPU environment.
Speaker Change: Well, you know, Jeff you're spot on.
Speaker Change: The direct correlations there the higher the day supply the lower the margin.
Speaker Change: A lot of the Oems are still being more disciplined than in the years past, which is keeping a tighter which is great.
Speaker Change: But certainly some Oems have been penalize with that but you know even in our circumstance, let's just say we don't go with the with the market in the sense that word more discipline on our day supply and we have a lower day then the market it still impacts us because we have to compete within the market.
Speaker Change: So the key is really a balanced days' supply in the market, So where we do business and there's always conversations with our OEM partners to do the best job, we can and they really it is a domestic general motors is a great example of one that's done a fantastic job at managing the day supply.
Speaker Change: Overtime.
Speaker Change: I guess, just a quick follow up Dave I'd be curious as you.
Listen to all the questions and kind of parse through everything that's been written you know as you look at 2025, what do you think is the things that you know.
Speaker Change: The investment community, just under appreciates or maybe doesn't understand where there's the biggest chance for a.
Speaker Change: Variances relative to expectations in 2025.
Speaker Change: Sure.
Speaker Change: You know, it's always subjective, but being an operator you tend to be optimistic there's been a depletion of the used vehicles that are out there because of what happened during COVID-19 and you know we'll start to see a benefit in 'twenty six.
Speaker Change: We Asbury has a headwind of TCA, but as you can look in our earnings our investor deck.
Speaker Change: There's a huge tailwind a few years down the road, that's going to make us whole.
Speaker Change: No material difference, we believe against our peers.
Speaker Change: As it relates to 25 I would tell you that demand is still strong.
There's a lot of positive momentum with the New administration, we believe that we can feel it and hear it in our markets. The average age of the car are mile is going up are the high margin business. We have in parts and service I think that the revenue numbers in parts and service are less relevant than the gross profit numbers and that's where the focus should be.
Speaker Change: But then we still have the potential to grow our fixed operations business. So I would tell you like usual this everyone seems to fear their space and I always think the worse I would kind of invert that and look at it with the consolidation that's happened with more consolidation coming with evs being pushed out a little bit.
Speaker Change: The average age of the vehicle you know this looks like a pretty sustainable market for a period of time and that can certainly be thrown off by a world War, you know something else going on that that is not foreseen, but generally speaking the industry is upbeat about 2025.
Speaker Change: We're certainly upbeat with what we've done and what we built.
Speaker Change: Selfishly, we noticed Atlantis will fix itself at some point when it does it's it's really going to be a tailwind for us.
Speaker Change: Great well impressive quarter and best of luck in 2025.
Speaker Change: Thank you.
Speaker Change: Yeah.
Speaker Change: Our next question comes on Ryan <unk> with Craig Hallum Capital Group. Please proceed with your question.
Ryan: Hey, good morning, guys sounds like a lot of optimism kind of with Q4 <unk> seen improved trends Trump.
Ryan: E V switching back to ice et cetera, et cetera, et cetera give.
Ryan: Given new vehicle GPU that glide path lower decelerated in the last two quarters were better than expected flat lined a little bit I guess your commentary on the outlook for 'twenty 'twenty five I caught our rate was 2500 to 3000 GPU and it plays a pretty big acceleration I guess.
Ryan: Lower on the GPU. So I guess, what's what are you currently seeing or what's the cause of that.
Speaker Change: Yeah, Brian it's it's a it's a fair point a fair question and you're right based upon the trend, it's probably a little draconian.
Speaker Change: You know, we anticipate SAR growing a little bit this year, we don't have insight beyond 45, 60 days, what's coming for inventory and what people are building and how they're going to try and adjust to that new Saar number and what the fleet.
Speaker Change: Hum.
Speaker Change: Our business is going to look like as well. So I would tell you you know it is probably a conservative number at this point in time and you know may not happen until later in the year than in the first half of the year, but I think that potential lift in the fourth quarter that you see is really driven by luxury and the one thing that's true about our space it's seasonal.
Speaker Change: It just is I mean January was a slower month November is a slower month March is a big a month there are certain months that you just go with the seasonality of it. So I think you know and in the short term.
Speaker Change: P V ours will hold up the gross per unit will hold up better.
Speaker Change: But over time, it may adjust a little bit and from our standpoint, we're about a 40% mix of import.
Speaker Change: And about a 30% mixing and and domestic and when you look at our domestic P V are and in the tables.
Speaker Change: You know overall it doesn't look bad I would tell you two of the three brands are a real healthy number and you know the other brand is really dragging that number down so there's opportunity there.
Speaker Change: And as I said earlier with the acquisitions, we made out west in the mountain states with some of these domestic franchises.
Speaker Change: The Gpus are just higher than what legacy Asbury. It was and we think that'll stay sustainable going into the future so probably to sum it up probably a little bit.
Speaker Change: Too aggressive in the comments for the first half of the year are really just trying to predict what's going to happen, which you know may or may not happen, Michael anything you want to add to that yeah I mean.
Speaker Change: To me that 20, 503000 is kind of where we think we ended up that's kind of a new normal.
Speaker Change: The question is what is it.
Speaker Change: Mid mid to late next year 25 or is it early 'twenty six but that's more of a projection of where we think the PBR shake out at.
Speaker Change: For her that new normal.
Speaker Change: So just to be clear that is a new normal steady state versus that's what you expect on average for the year correct, that's where we end up at the after yeah got it.
Speaker Change: Question Mark out when that occurs during 'twenty five.
Speaker Change: Yeah, but that the average for the year will be higher just because the starting point, where we are today is higher correct.
Speaker Change: Okay very good and then still Lantus I I know a lot of talk and don't want to get too specific on one OEM and what's going on but it feels like.
Speaker Change: They've made some nice improvements to help dealers all getting a little more incentives pricing help et cetera, but it sounds like a pretty big headwind in Q4, So I guess given the changes that were made in the fall.
Speaker Change: What else needs to happen there or I guess was it just kind of churning through in cycling and getting those those initiatives kind of running a to get that in a better place.
Speaker Change: Ryan This is David I'll start and then Dan can jump in I would tell you. They brought the inventory day supply down which was way out of control, which is great still too high but a big improvement, but they had to throw a lot more incentives and we had the wrong inventory on the ground and not just us our peers as well competitors.
Speaker Change: So you had to work through a lot of selling the vehicles that really weren't the right vehicles for the market with heavy incentives. So it's still very low gpus.
Speaker Change: As we move forward with better inventories more in the sense of the right models with the right equipment at the right price has the potential to help GPU. So there's upside there, but with them, bringing the right vehicles right equipment with more gross because it'll be higher demand fourth quarter was more about getting the inventories down and pushing through with the insert.
Speaker Change: N homes, but really selling a lot of inventory that wasn't highly desirable to the consumer.
Speaker Change: Brent the only I am sorry, Ryan the only item that I would add is.
Speaker Change: There were some restrictions any time, though we had an allocation on what was available or not available to order.
Speaker Change: We're starting to see some of those restrictions lifted which allows us to order their cars with the auctions that the consumer wants and that turns faster. So from a short term as those as that starts to kick in we're excited about that the overall sentiment from the operators when I speak to them just Atlanta store.
Speaker Change: Or is that they they feel a shift.
Speaker Change: It is not going to happen overnight. There's also you know they abandon some some products or models.
Speaker Change: The quick volume.
Speaker Change: Because without we lost market share was to Lantus.
Speaker Change: And all of that is being talked about being brought back but that is going to take some time. So now essentially just we just got a put to fruition everything that has been laid out by industrial and his leadership team and we need to execute at the store level as it comes around.
Speaker Change: Helpful. Thanks.
Speaker Change: Thanks, David Michael and happy birthday, Dan that's it for us.
Speaker Change: Thank you.
Speaker Change: Yeah.
Speaker Change: As a reminder, if you'd like to ask a question. Please press star one on your telephone keypad.
Speaker Change: One moment, please while we poll for questions.
Moderator: Our next question comes from Bret Jordan with Jefferies. Please proceed with your question.
Bret Jordan: Hey, good morning, guys good morning.
Bret Jordan: <unk> Atlantis, one more time I guess following up on the last question is is it feel like the GPU has sort of bottomed here if their production mix is more in line with customer demand and volumes are coming down from an inventory standpoint, that's not continue with the step down to kind of flatlining.
Bret Jordan: It's a great question.
Bret Jordan: Yeah, and no way of knowing the future, but in my opinion, yes, I would say the fourth quarter was the low point and pushing through the inventory that was overpriced and really not as desirable. So there should be some upside from there.
Bret Jordan: I agree.
Bret Jordan: Okay, and then a question on the customer pay service, obviously really strong.
Bret Jordan: It doesn't appear you're driving that with promotions given the margins are strong, but sort of what do you attribute the strength in customer pay too as it is a capacity expansion or somehow better reaching the customer post warranty.
Bret Jordan: Yeah I'll start Brad Good morning. This is Dan I'll start it and then David can add whatever I missed.
Bret Jordan: You know the there has been we've talked about this in several quarters about the the whole cycle of the guest experience and it all starts with a proper multipoint inspection and then the tools that we installed about a year ago in our western store.
Bret Jordan: Or is that were already being utilized in the AR in the legacy stores.
Bret Jordan: So a big part of what Youre seeing there is just a more efficient way to inspect the cars are more efficient and a more guest centric way to percent.
Bret Jordan: The the recommended services to the consumer in a more efficient way for them to approve our decline in debt service. In addition to that the store level is doing a pretty good job of retaining customers as David mentioned.
Bret Jordan: Our average mileage or a 71000 miles so.
Bret Jordan: So that means they're doing a good job retaining the guest.
Bret Jordan: After the warranty expires and without higher mileage. It comes with you know a maintenance.
Bret Jordan: Items that break and that needs to be taken care of and repairs or what have you. So it's a combination of training execution of the tools and then and ultimately delivering a much more efficient guest experience is that on top of that I would tell you we've been fortunate with our hiring over the last year and a half.
Bret Jordan: Adding some great leadership.
Bret Jordan: So our western stores, we've had it in our eastern stores, all along and people make the difference in this business and some of our new leadership that has come in as just making made a material difference in really driving.
Bret Jordan: Better results and there's still you know the good news is there's still good upside for US you know for the year overall, we had a 5% increase in tech head count, which is a benefit to us but.
Bret Jordan: But we still have a lot of opportunity to grow our space without adding brick and mortar.
Bret Jordan: So again, it's it's on us to offer a higher level of service get better at what we do and I think where we're making great strides in that and you can see the material impact that team has set out west.
Bret Jordan: Thank you thank.
Bret Jordan: Thank you.
Yeah.
Speaker Change: Our next question comes from David Whiston with Morningstar. Please proceed with your question.
David Whiston: Hi, Good morning, just on the possibility of Trump tariff threats, the 25% and whatnot I mean is the dealer ear the importer here.
David Whiston: Or do you have any kind of contingency plan or have you had discussions with the Oems on sharing the cost burden or are you just going to have to either eat or pass it all through the consumer.
David Whiston: If it happens.
David: Yeah, David This is David and others can jump in we haven't had any conversations with the manufacturers yet and I think it's too early to call. You know a lot of the products are made in the U S. Even on the import side.
David: We have a healthy parts and service business with the average age of the car out there in the used car business is out there as well.
David: You can always at the end of the day, we fear or something more than we should and it tends to work itself out.
David: And I don't pretend to have any inside knowledge, because I don't but I assume this is gonna be wanted it's gonna get worked out I'm sure the administration understands how important.
David: The retail automotive spaces.
David: So the GDP number.
Speaker Change: Thank you and on affordability post election have you noticed any kind of.
Speaker Change: I guess reduction in consumers' concerns about affordability, because they feel better post election or is affordability is still a really major problem for both new and used.
Speaker Change: David Good morning, this is Dan.
David: Back to David's comment.
David: We did see an uptick after the election and it feels like the affordability.
David: <unk> is his question and issue is still out there, but the sentiment is much more positive and and customers are as we saw it there was pent up demand in and.
David: It took place in the fourth quarter.
David: And David I would add to that in the fourth quarter, because it's always strong with luxury you know, we we had the opportunity to have a better quarter than what we did we were eliminated by product availability you know already.
David: Customers are you know they can handle the adversity of a down market or anything else.
David: Man was there in some cases, we just didnt have the product to sell them and there was more opportunity, which really held up the margin as you can see with luxury.
David: Okay.
And what was the $11 million non cash impairment for.
David: So each year at the end of the year, we have to do our annual impairment test and go through some stores and so we had some stores out west that we had some impairments on just as we went through kind of the cash flow model.
David: For those stores.
David: So about five stores had impairments this year.
David: Thank you.
David: Thank you.
David: We have reached the end of our question and answer session I'd now like to turn the call back over to David for closing comments.
David: Thank you operator. This concludes the call today, we appreciate your participation and look forward to talking are discussing the Q1 with you in the future.
David: Great day.
Speaker Change: This concludes today's conference you may disconnect your lines at this time and we thank you for your participation.
Speaker Change: Yeah.