Q1 2025 Asbury Automotive Group Inc Earnings Call
Yeah.
Greetings and welcome to the Asbury Automotive group first quarter 2025 earnings call. At this time all participants are in a listen only mode. A brief question and answer session will follow the formal presentation.
Anyone should require operator assistance during the conference. Please press star zero on your telephone keypad.
Speaker Change: As a reminder, this conference is being recorded it is now my pleasure to introduce your host Chris Reed Vice President of Finance Investor Relations. Thank you Sir you may begin.
Thanks, operator, and good morning.
Speaker Change: As noted in today's call is being recorded and will be available for replay later this afternoon.
Speaker Change: Welcome to Asbury automotive group's first quarter 2025 earnings call the press release.
Speaker Change: Our president and Chief Executive Officer, Dan Clara, Our Chief operating Officer, and Michael Welch, Our senior Vice President and Chief Financial Officer.
Speaker Change: At the conclusion of our remarks, we will open up the call for questions and will be available later for any follow up questions.
Speaker Change: 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 forecasting current expectations 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.
Speaker Change: Please see our filings with the SEC from time to time, including our Form 10-K for the year ended December 31 2024.
Speaker Change: Any subsequently filed quarterly reports on Form 10-Q.
Speaker Change: In our earnings release issued earlier today, we expressly disclaim any responsibility to update forward looking statements.
Speaker Change: 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.
Speaker Change: Comparisons will be made on a year over year basis, unless we indicate otherwise.
Speaker Change: We have also posted an updated investor presentation on our website investors thought Asbury auto dot com, highlighting our first quarter results.
Speaker Change: It is now my pleasure to hand, the call over to our CEO, David Hult David.
David Hult: Thank you, Chris and good morning, everyone welcome to our first quarter earnings call.
Speaker Change: I want to begin by expressing my appreciation.
Speaker Change: For our hard working team members in delivering strong first quarter results.
Speaker Change: I'm proud of the way our team members came together to serve our guests.
Speaker Change: Since 2017, Asbury has been the top public operator, and adjusted SG&A as a percentage of gross profit.
Speaker Change: And an adjusted operating margin.
Speaker Change: We take pride in how we run our business to generate strong long term results for our shareholders.
Speaker Change: I'd like to spend just a few moments addressing the issue of tariffs as the scale and scope of the new tariff approach became more clear.
Speaker Change: Saw rising demand in late March as consumers purchase vehicles ahead of the potential price increases.
Speaker Change: Our OEM partners are all working to determine how the tariff policies will impact their specific brand.
Speaker Change: And they will communicate those decisions to us when ready.
Speaker Change: As we assess our own scenario planning, we believe our portfolio is comparatively insulated from the tariff impacts on pricing.
Speaker Change: We estimate that approximately 56% of our new vehicle units in Q1 were produced in America and would be shielded from the tariffs.
Speaker Change: As it stands today, we are seeing a wide range of approaches for how the Oems are addressing the tariff impacts.
Speaker Change: We expect to get more clarity in the weeks and months ahead, but until then predicting the trend lines for key metrics like volumes of a new gpus will be challenging.
Speaker Change: Transitioning to highlights for the quarter.
Speaker Change: We posted another all time record in gross profit from our parts and service business.
Speaker Change: The team built out their momentum from previous quarters with same store gross profit up 5% and same store customer pay gross higher by 6%.
Speaker Change: I think it is important to give some historical context.
Speaker Change: The consistent growth, we have produced with our stores over time.
Speaker Change: We look back at the subset of stores today that we operated in 2014 and saw a 97% increase in customer pay gross profit over that 10 year period.
Speaker Change: Dan will provide additional detail about this in his comments.
Speaker Change: And I'm optimistic about our positioning for long term growth.
Speaker Change: Our Turkey on implementation continues to progress.
Speaker Change: We recently expanded the rollout beyond our fourth store pilot.
Speaker Change: Koons group, which is on a different Tms and the rest of Asbury.
Speaker Change: Has had multiple stores transitioned to checking on and should be completed before the end of Q3.
Speaker Change: We have seen early signs of improvement in productivity and the guest experience.
Speaker Change: Shifting to capital allocation.
Speaker Change: We are excited about the pending acquisition of the Herb Chambers automotive group.
Speaker Change: This is a strategic part of the country that we have been looking to enter for a long time as part of our disciplined growth strategy.
Speaker Change: The Boston areas traditionally resilient market that can weather different economic cycles.
Speaker Change: In addition, they have a wonderful group of luxury stores that we expect will balance our overall brand portfolio.
Speaker Change: We expect to close the transaction following OEM approval by the end of the second quarter.
Speaker Change: We also divested our Colorado Nissan store in South Carolina Global store.
Speaker Change: And are continuously evaluating our portfolio to optimize brand mix.
Speaker Change: Following the pending acquisition of Herb Chambers, we intend to focus on reducing our leverage over the next 18 to 24 months.
Speaker Change: Michael will provide more details in his remarks.
Speaker Change: And now for our consolidated results for the first quarter we.
Speaker Change: We generated $4 1 billion in revenue.
Speaker Change: Gross profit of $724 million in.
Speaker Change: And our gross profit margin of 17, 5%.
Speaker Change: Our same store adjusted SG&A as a percentage of gross profit was 63, 9%.
Speaker Change: We delivered an adjusted operating margin of five 8%.
Speaker Change: And our adjusted earnings per share was $6 82.
Speaker Change: Our adjusted EBITDA was $240 million.
Speaker Change: Before I pass to Dan I want to say, thank you again to our valued team members for their performance and service to our guests now Dan will discuss our operational performance Dan.
Dan: Thank you David and good morning, everyone.
Dan: I am thankful and proud of our team members' commitment to our north star to be the most guest centric automotive retailer.
Dan: Now I am going to provide 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.
Dan: Same store revenue was up 6% year over year and units were up 4% driven.
Dan: Driven by the boost in March sales.
Dan: New average gross profit per vehicle was $3449, a solid first quarter performance compared to normal seasonality from fourth quarter to the first quarter.
Dan: Our volume for Atlanta is was up 3% this quarter compared to national sales down 12%.
Dan: While this is an improvement from where we have been we estimate this to lantus headwind through our PBR was $125.
Dan: Across all brands, our same store New day supply was 44 days at the end of March versus 47 at the end of December.
Dan: Turning to used vehicles.
Dan: First quarter unit volume was down 8% year over year.
Dan: Used retail gross profit per unit was $1587, which marks the third quarter of sequential growth.
Dan: We still plan to prioritize unit profitability at this point or the used car supply cycle we.
Dan: We remain ready to adjust our approach to their pre owned business based on how market conditions are shaping up.
Dan: Our same store used day supply was 31 days at the end of the quarter.
Dan: Shifting to F&I.
Dan: We earned an F&I <unk> of $2263, a sequential increase versus the fourth quarter.
Dan: The deferred.
Dan: This year.
Dan: We now plan to integrate TCA into corn stores by early Q4.
Dan: The current stores are undergoing a transition to <unk> that we would like to focus on before rolling out TCA at those locations.
Dan: Our total front end yield per vehicle was $4854.
Dan: Moving to parts and service.
Dan: As David mentioned it was impressive to see the consistent growth over the last couple of quarters continue.
Dan: Our same store parts and service gross profit was up 5% in the quarter and up 7% in the months of March driven by warranty.
Dan: We believe growth would have been higher if not for the weather related disruptions.
Dan: For the quarter, we generated a gross profit margin of 58, 3% an expansion of 170 basis points.
Dan: This expansion was driven by increased profitability of our higher margin segments.
Dan: When looking at our customer pay and warranty performance together they grew a combined nine 1% and gross profit.
Dan: And in our western stores disc and bind figure grew 14% and gross profit led by 14, 4% growth in customer pay.
Dan: We continue to be bullish on the long term trajectory of our parts and service business.
Dan: As David mentioned earlier in his remarks, there were 54 stores in 2014 that we still owned in 2020 for.
Dan: We looked at those stores and compare their customer pay performance back then to what they generated in 2024.
Dan: For the cohort of rooftops, we saw our customer pay gross profit dollars grow from 122 million to $241 million, an increase of nearly 100% in that 10 year period.
Dan: Through fluctuating Saar levels macro conditions and other economic factors, we have demonstrated our ability to consistently deliver robust profitable growth year in and year out.
Dan: We believe that the continually aging car park and increasing complexity of modern vehicles means our stores are well positioned to capture future service growth.
Dan: And finally, we retailed over 10500 sales through click lane in the first quarter.
Dan: We sold approximately 5000, new units or about 47% of all click land sales.
Dan: We view this ability to sell new cars as an important differentiating factor in the marketplace.
Dan: Thank you once again to our team members as we progress along our journey 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.
Michael: And thank you to our team members for a solid start to the year for.
Michael: For now I will discuss our financial performance in the quarter.
For the first quarter adjusted net income was $134 million and adjusted EPS was $6 <unk> for the quarter.
Michael: Adjusted net income for the first quarter of 2025 excludes net of tax.
Michael: $11 million of noncash asset impairments $7 million of cyber insurance recovery proceeds.
Michael: $3 million related to the gains on divestitures and $2 million of professional fees related to the pending acquisition of the Herb Chambers automotive group.
Michael: There were no adjustments in the first quarter of 2024.
Michael: Adjusted SG&A as a percentage of gross profit came in at 64% as we stand today, there is a risk for slightly higher SG&A profile, if tariff policies persist.
Michael: The adjusted tax rate for the quarter was 24, 7%.
Michael: And we forecast full year adjusted tax rate for 2025 to 25, 2%.
Michael: TCA generated $19 5 million of pretax income in the first quarter.
Michael: The negative noncash deferral impact for the quarter was about $2 million or <unk> <unk> on an EPS basis.
Michael: In the first quarter of 2024. This was a slight noncash benefit to EPS, we estimate our second quarter 2025 would follow this trend of negative noncash deferral impacts.
Dan: As Dan mentioned we.
Michael: Now anticipate offering Tc and the Coen stores in early Q4.
Michael: The updated schedule of the Rollouts would affect the timing of deferrals in future periods.
Michael: We have outlined we.
Michael: We've outlined our timeline of estimated impact on EPS on slide 18 of the presentation posted to our website. This morning, along with the accounting example for last quarter.
Michael: For future periods have not been updated due to the uncertainty around tariffs.
Michael: Now moving back to our results, we generated $187 million of adjusted operating cash flow for the first quarter of 2025.
Michael: Real estate purchases, we spent $21 million and capital expenditures through March we anticipate approximately $250 million and Capex spend for both 2025 and 2026. However, this is dependent on the impact and duration of tariff policies with adjustments to spending as appropriate.
Michael: Free cash flow was $166 million for the first quarter of 2025.
Michael: We ended Q1 with $964 million of liquidity comprised of floor plan offset accounts availability on both our used line and revolving credit facility and cash excluding cash of total corrado.
In February we announced the pending acquisition of Herb Chambers automotive group.
Michael: The transaction is valued at 1.3 or $4 billion before inventory and fixed assets to be acquired at close.
Michael: This transaction amount represents $750 million blue Sky and $590 million of real estate and improvements. We expect this deal will be financed through a combination of our credit facility funding proceeds from the new mortgage facility and existing cash.
Michael: Earlier this month, we amended our credit facility, which would increase our revolver capacity of $925 million and our new vehicle floor plan capacity to 2.25 billion. It was very encouraging to see that the facility was oversubscribed showing robust interest from our banks and OEM partners.
Michael: These increases are conditioned upon and will become effective concurrent with the closing of the chambers deal. Please refer to the 8-K filed on April nine for more details.
Michael: Our transaction adjusted net leverage was 275 times at the end of March we anticipate that this ratio will be near the higher end of our target range showing a presentation by next year as it relates to capital allocation, we plan to focus on deleveraging over the next 18 to 24 months we.
Michael: We estimate that the net proceeds from our pending divestitures and assets held for sale. Following the close of the pending chambers deal should be between 250 and $275 million.
Michael: Which would contribute a meaningful amount to paying down debt at the appropriate pace.
Michael: In closing thank you again to all our team members for your efforts for resiliency.
Michael: This concludes our prepared remarks, we will now turn the call over to the operator and take your questions operator.
Michael: Thank you. Thank you we will now be conducting a question and ask questions.
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 one on your telephone keypad, a confirmation tone will indicate your line is another question. Kim you May Press Star two if you would like to remove your question from the queue for.
Speaker Change: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.
Speaker Change: One moment, please while we poll for questions.
Our first question comes from Jeff Lee Stephens. Please proceed with your question.
Speaker Change: Hi, Good morning, guys. Congrats on a nice quarter. Thanks for taking my question.
Speaker Change: Yeah.
Speaker Change: As it relates to TCA on slide 18.
Speaker Change: You guys highlighted the 74 cent benefit in <unk> and then you have a 30 cent benefit for the rest of the year is that simply a implying that.
Speaker Change: I'm just going to be a 44 set cost the rest of the year and that also building on.
Slide 18, you highlighted that 25% to 92 in 2025 to 2029, we're under review.
Speaker Change: Could you maybe highlight how tariffs will affect the TCA business as well.
Speaker Change: Yeah.
Michael: Jeff This is Michael Yeah.
Michael: Okay.
Michael: [noise].
Michael: With tariffs.
Michael: If it results in a decrease in the volume that would slow down the deferral impact and so you would have less of the deferral impact in 'twenty, five and push off that deferral impact in the future years and so it's really you know what that does to the Saar level, sorry ends up in the $15 million range. So that's gonna be a less of the deferral impact for <unk>.
Michael: Five <unk>.
Michael: But probably more of a deferral impact in 'twenty six 'twenty seven so just kind of slides it over a year, depending on the impact on volumes.
Got it and just a quick follow up on Tech yard you think you've mentioned that.
Michael: You're rolling out.
Michael: Stuff that Koons now you guys have talked about the SG&A opportunity longer term I'm just curious in the short term how is the integration going and maybe if you could remind us just big picture.
Michael: How this is going to manifest itself into a substantial SG&A savings I think you guys. Even highlighted that you could get into the <unk>.
Michael: Yeah, Jeff This is David the rollout has gone extremely well.
David Hult: And it continues to progress and our hope at this point is to have all stores converted by the end of 'twenty six beginning of 'twenty seven.
David Hult: We still have some pending litigation, we have to deal with with CDK, but we're optimistic.
David Hult: The savings for US is certainly going to be a material number to us its own a twofold basis, we're basically unplugging two thirds of the software applications that we have currently in CDK that will no longer have to pay.
David Hult: And then with each application that we Havent CDK, we have to pay a fee for integration on a monthly basis. So those fees go away as well so theres a benefit on overall expense savings there on the flip side, we see the benefits on the productivity if our increase if our productivity increases per employee like we anticipate and what we are.
David Hult: We're seeing early on that lowers our personnel cost as well.
David Hult: Great I'll pass it along.
David Hult: Yes.
David Hult: Thank you.
Speaker Change: Our next question comes from Rajat Gupta with JP Morgan. Please proceed with your question.
Rajat Gupta: Great. Thanks for taking the question.
Rajat Gupta: I just had one question on just overall gross profit performance.
Rajat Gupta: I mean, if you look at you know the new unit performance and in the same store service performance it seems a little bit below.
Rajat Gupta: And then some of the peers that have reported.
Rajat Gupta: I was curious if there's anything you can point to either in terms of regional differences I know you have a lot of exposure in the D. C area and maybe that caused some outsize headwind.
Rajat Gupta: Any way you can unpack you know what might be causing that divergence if any in your opinion.
Rajat Gupta: A quick follow up thanks.
David Hult: Or is that this is David.
Rajat Gupta: You know it was a lot.
Rajat Gupta: <unk> went on in the quarter.
Rajat Gupta: It started off January a little bit soft for us we had a lot of weather issues and a lot of our markets and you know when we pull out Sundays when we look at the quarter we generate.
Rajat Gupta: $50 million of revenue a day.
Rajat Gupta: And that kind of ties into the days, we lost with weather as far as we're aware off there as we started to progress into the quarter and things are heating up on the tariffs.
Rajat Gupta: My message to the operators was don't Chase volume, we can't replace the cars that we have focus on gross profit don't get caught up in volume.
Rajat Gupta: When you look at growth quarter over quarter, you can't just get caught in the concept of how much someone's up but what are the dynamics within the quarter and how do we maximize our returns.
Rajat Gupta: And I think at the end of the day, we're here to maximize our returns, which I think we did again.
Rajat Gupta: So far having the highest operating margin in the lowest SG&A.
Rajat Gupta: What are there any regions that maybe some outsized weakness you know Uh huh.
Rajat Gupta: Relatively we didn't win.
Rajat Gupta: Your store growth.
Rajat Gupta: And.
David Hult: The only reason you as you would expect the D C market that area around D. C. Baltimore, we saw some weakness there just with the uncertainties around the government jobs and so that's the one market that kind of stood out as a tough market out there the ones that David mentioned in terms of the weather impact we had no weather impact across a lot of our stores we had in June.
Roger: Roger the Carolinas, Indiana, St. Louis Northern Florida, you know Unfortunately, we just got hit hard compared to a year over year and coons, probably took the biggest hit.
Speaker Change: Got it got it that's helpful. And then just just one question on heart Chambers.
Roger: In the past when there was a lot of uncertainty.
Speaker Change: Pandemic areas you had.
Roger: No.
Roger: If I have the option to you know.
Roger: Walk away from the Barclays deal and you know then youre getting renegotiated.
Roger: Are those terms and agreements still leaves you with four O Chambers, you know in case, the macro got worse due to the terrorist backdrop. Just curious how you would approach it in that backdrop and you know what the breakup fee would be like for Asbury.
Roger: Sure.
Roger: The asset purchase agreement, we have doesn't have a breakup fee for us it does for the seller.
Roger: We do have a Mac in the contract you know based on current market conditions.
Roger: We don't see any reason to.
Roger: To not move forward with the deal and Theres nothing in the contract that would allow us to get out at this point, but we don't have interest in getting out at this point in the contract and the group is performing extremely well in the first half of the year.
Roger: Like most we're hoping the next couple of months create a lot of clarity with the tariffs.
Roger: But as we said in our statements you know 56% of our products that we're selling is U S. Based did not involved in the tariffs plus our parts and service business and our TCA business. You know we think we're in a good position. We also think long term as we should be thinking for our shareholders. This is a really great asset and a part of the country, we have been trying to get into.
Roger: For a while and we believe the luxury mix and their brand recognition a name in the market.
Roger: This is certainly the dominant player in that area.
Roger: Understood.
Roger: Thanks for all the color and good luck. Thank.
Roger: Thank you.
Roger: Yeah.
Roger: Bank of America. Please proceed with your question.
Roger: Good morning, guys.
Roger: Three three quick ones, David first on front end.
Speaker Change: Grosses at 45 to <unk>.
Speaker Change: It's a really good number I mean, if we were looking at the year over year decline in looking at some of the components, but I think you know last year you know as you.
Speaker Change: You kind of average out the year you ran at 4880 <unk>.
Speaker Change: The year over year declines are slowing.
Speaker Change: Youre kind of kind of reaching what appears maybe sort of an asymptotic limit.
Speaker Change: On the downside how.
Speaker Change: How do you think about that front end yield of that front end gross.
Speaker Change: Going forward I mean is a lot of moving parts in it but it seems like we're kind of getting close to a floor here.
Speaker Change: China I'll take a shot at it and hopefully at some point every time I repeat this it'll get some credibility in the street.
Speaker Change: We're a different company today than we were pre.
Speaker Change: Pre COVID-19.
Speaker Change: Our store balance mix is different.
Speaker Change: It shows that our acquisitions prior.
Speaker Change: To Covid, we're accretive as far as Gpus go to what the legacy Asbury was and I think you've seen that in the numbers. The other comment that I would make and Dan can call. This up if he wants with my comments that were shot I don't think necessarily highest year over year increases in certain areas necessarily project.
Speaker Change: The winter I think it base, it's based upon the market conditions and you know.
Speaker Change: The market conditions were such in Q1, where we had been on weather issues, you could see the wins coming with the tariffs and to US the inventory we had on the ground couldnt be replaced at the same dollar value in general thinking.
Speaker Change: So why would we give the cars away, we should focus on gross profit and not chase volume and that's what we chose to do it certainly debatable, but that's why we chose to do.
Speaker Change: The weather days as I said earlier tied into the revenue Miss that we think we had.
Speaker Change: And we feel really comfortable with the stability that we have and I think that Dan's comment is really relevant when.
Speaker Change: When you look at customer pay and warranty combined at 9%, that's a pretty strong number coming through the weather issues in the delays we had within Q1.
Speaker Change: Okay, and then just a second one on parts and service I guess Youre talking about this on the weather.
Speaker Change: Et cetera that depressed the quarter, but I mean, there's no change really in your view that you should be doing mid to high single digits on a same store basis.
Speaker Change: I'm just curious if there's any change there and are you seeing the consumer.
Speaker Change: Kind of getting freaked out and maybe buying a head on on vehicles, but maybe on service work.
Speaker Change: Hitting the hitting the pause button and we're seeing some deferred maintenance potentially build up with a slightly slower same store sales on parts and service.
Dan: Hi, John Good morning, This is Dan No R.
Dan: Our thought process is still the same we're not changing our outlook of our fixed operations.
Speaker Change: <unk> digit growth.
Speaker Change: As far as the second question of are foreseeing any slowdown or pushing back our service work.
Speaker Change: Because of the tariffs I would say we've seen.
Speaker Change: A little bit of the opposite where customers are calling in and getting more information as to what the true impact. This are the parts of the of the cost of the parts to repair future services and.
Speaker Change: We shared with them that this is something that the Oems are cautiously.
Speaker Change: Cautiously watching and we only share the information that we have with them, but in some cases. Some of these guests have decided to mood their services upfront rather than delay it.
Speaker Change: In in hopes that if the tariffs impact parts in a negative way that they have already servicer car at least for the short term and John I would add as I said in my statement.
Speaker Change: That base of 54 stores that we still own in 'twenty four to go from $122 million to $240 million was essentially flat volume because SAR went up and down during that period, but when you snapshot 14 against 24 to grow $100 million and 54 stores with essentially flat volume shows our growth with.
Speaker Change: The market stays consistent.
Speaker Change: The other thing that I think it's really important to refer to is slide 15 on our IR deck, where it shows the average miles through the shop at over 71000 approaching 72, and we have some stores over 90, but the average is over 71.
Speaker Change: That's pretty strong and it shows tremendous growth there. So that also insinuates supposedly the franchise dealer loses the customer after warranty well this as well after warranty and it shows we're retaining it and we keep getting it.
Speaker Change: It's not coming in huge chunks at once but it's slow steady growth, which we think is smart because we want to retain the customers as well. So we're very focused on that and then as I've said in prior calls.
Speaker Change: In my opinion between now and 30 between the Evs and all the other things going on in the marketplace right now in technology changing we think we're in an opportunity over the next several years to grow revenue.
Speaker Change: Because you know cost of ownership is going to go up and that service expenses are going to go up as well their cost per ownership is going to go up. So we see this as favorable for us and with technology. The way. It is we think it makes it tougher for the independents and we see it as an opportunity for the franchise model to continue to thrive and grow.
Speaker Change: I completely agree just one last one David on <unk>, we I think a lot of folks tend to focus on the cost side of the equation.
Speaker Change: But as that system is is integrated you know are there other revenue opportunities as folks become more efficient how do you think about it sort of on the sort of the topline potential benefit as opposed to just the cost side.
Speaker Change: Sure John I'll take a stab at it and please follow up if it doesn't make sense, what I'm, saying.
Speaker Change: One of the main elements that we did when we designed our software with Jackie on was a one customer profile.
Speaker Change: So basically you know right now in Atlanta with the stores that we have if you do business in one store and your wife does business in another store. This to the two stores can't see that without one customer profile all stores see that customer in the family and what goes on so it allows us to better communicate its also one CRM for all departments you usually see.
Speaker Change: Our rooms are just for our sales department.
Speaker Change: They have a CRM for sales service parts and collision. So it allows us better connectivity better communication more efficient marketing and communication to that consumer as well. So we see an opportunity with efficiencies and costs with marketing, we see obviously lower cost with the software.
Speaker Change: To your point as technology continues to advance our production per employee or on the sales side sales units per salesperson, we expect to see it go up over time fairly materially which is going to save us on the expense line and we're also starting to see it on the productivity per service adviser as well.
Speaker Change: The technicians get more comfortable with videos and technology that they have and how seamless it is integrated into Turkey on it just makes it a lot easier. It also allows the consumer at the same time instead of just getting a text message to see how their card did on an M. P. I.
Speaker Change: Theyre getting to see all of the documents and create their own library. So the transparency and communication. We think is going to build trust, which is going to allow us to capture more business within the markets we compete in.
Speaker Change: Super helpful. Thank you very much thank.
Speaker Change: Thank you.
Speaker Change: Our next question comes from Ryan Macdonald, Craig Hallum Capital Group. Please proceed with your question.
Matthew Rob: Hey, Thanks, This is Matthew Rob on for Ryan.
Speaker Change: And believe it has mentioned this.
Speaker Change: As Rick just slightly higher SG&A profile as the tariffs persist what sort of guardrails would you provide us knowing what you know today about the tariff situation I think last quarter you called out.
Speaker Change: Mid 60% range for 2025 any puts takes there would be helpful. Thanks.
Speaker Change: Yes, it would be slightly higher than that so you know call. It mid to high sixties, if that's assuming that you had a big falloff on volume.
Speaker Change: And so we will be able to control the cost of all of our costs are variable compensation related or advertising related and so we were able to pull the levers pretty quick to get the cost out, but if you saw a meaningful drop off in the sales volume.
Speaker Change: You'd see a little bit of an uptick on the SG&A side.
Speaker Change: And just as a follow up if the volume goes down we can track the head count.
Speaker Change: Generally speaking over the last few decades and the franchise model when volume decreases you don't usually margins sustain or grow.
Speaker Change: That's great. Thank you very much.
Speaker Change: <unk>.
Speaker Change: As a reminder, if you'd like to ask a question. Please press star one on your telephone keypad.
Speaker Change: Our next question comes from David Whiston with Marc Marc Morningstar Excuse me. Please proceed with your question.
David Whiston: Thanks, Good morning.
Speaker Change: And I'll make the tacky on David you said that personnel costs are going down, but the pilot and so once you roll that out.
Speaker Change: Does that mean that these personnel cost me more from you on that point head count reductions could be done or do you mean that this would be less replacement hiring.
Speaker Change: Yeah, David let me clarify that head count.
Speaker Change: <unk> has not gone down today.
Speaker Change: You know, it's like anything else you get better with practice with software and you become more efficient with it over time.
Speaker Change: Impaired to the software and the stores, we had before and what we have with tech yarn, it's kind of like going from a car to a Ferrari.
Speaker Change: Traditional car so it takes a while to get used to it.
Speaker Change: We're confident that over time head count will come down because we will we'll be more productive, but it's also part of our vision of being a flatter organization and offering a better guest experience time.
Speaker Change: Time inefficiencies what matters to our guests and we think this software along with future training inefficiencies will certainly get US. There. We also think when the head count comes down our income per employee will go up which is going to allow us to garner a higher quality employee to service our guests.
Speaker Change: Our focus is that I mean at the end of the day, we gain and grow a business based on the level of service we offer.
Speaker Change: And then on tariffs.
Speaker Change: It likely there'll be some type of price increases eventually.
Speaker Change: Do you think that's the automakers would be more likely the first try and cut incentives trying to do it in an indirect way are they do you think they'll just be more blunt than just do an increase in trying to get it over with.
Speaker Change: Yeah, I wish I knew the answer to that I I would tell you it's going to vary dramatically by brand and let's face. It I mean, the demand from the consumer is going to dictate what the threshold is for price increases. If you have a product pre tariff that has a high day supply in a low churn.
Speaker Change: It's not a car that can absorb a price increase I would assume the first lever would be to back off on incentives. Some have already done that some have not I think it's really too early to tell and everyone's trying to navigate what the future holds I think the other thing is whatever sticks at the end of the day all of us will be able to create our plans and move.
Speaker Change: Forward, which we're excited to get to that point, but it also could fluctuate what models you see coming to the U S.
Speaker Change: And what kind of supply and if any models get eliminated along the way again I wish I had more insight, but I think it's a little bit early to figure out where it's going to settle.
Speaker Change: And then on that point of uncertainty, which I totally understand I'm going to ask you. Another one that's tough to say, but do you think a lot of March was more pull forward or a lot of pent up demand.
David: Yes, David.
Speaker Change: And I heard our peers.
David: Our standpoint.
David: March was kind of pacing along like a traditional march for us it wasn't until the last seven to 10 days of the month that it started to go on a little bit higher trajectory.
David: Again, I can't stress it enough, we really started focusing on in the middle of the quarter don't Chase volume, let's focus on margin hold off you can't replace that car. So.
David: Right or wrong, our focus was on generating gross it means that.
David: Per transaction and less on volume, but there was a slight uptick towards the end of the quarter I wouldn't say there was any uptick in parts and service, but we certainly did see it on the sales side slightly.
David: Yes.
David: Great. Thanks, guys.
David: Thank you.
Speaker Change: Our next question comes from Bret Jordan with Jefferies. Please proceed with your question.
Bret Jordan: Good morning, guys.
Bret Jordan: Parts and service could you give us maybe you said it and I missed it but what was the contribution from price versus car count and I guess as you think about the year shaking out how do you see price contributing to that mid single digit growth in parts and service.
Speaker Change: Brent I'm, sorry, I missed the question can you. Please repeat it yes, and the parts and service what was price versus car count and ticket versus traffic and I guess in your outlook for the year, where do you see price contributing to the mid single digit growth.
Speaker Change: This is this is David Brett I would tell you because of the weather impacts that traffic count was slightly above.
Speaker Change: And what we've been trending the last couple of quarters has been the revenue dollar that increases.
Speaker Change: Part of it you can kind of see in our brand mix of what we have in what we're generating per per transaction, but it's generally dollar increases more than traffic increases.
Speaker Change: We anticipate in the future quarters, meaning the spring and summer are not to have weather related issues in that car counts to increase but what you saw in the quarter was was mainly dollar increase.
Speaker Change: And then a question on luxury it seems like a couple of the German brands are holding product pre tariff at the import.
Speaker Change: Is do you see any sort of short term issue on supply it sounds like maybe Porsche Audi are enough to get through may but.
Speaker Change: Is what you hear from the Oes when they probably keep the inventory flowing or is there a risk that we're going to stop.
Speaker Change: Stock out in some of the German luxury brands.
Speaker Change: Yeah, and then kind of the comment earlier about us not chasing volume you can't replace it.
Speaker Change: You know we win when the brands announce.
Speaker Change: Porsche Audi and land Rover kind of announced that they were holding off shipments coming to the U S. G.
Speaker Change: Generally they had between 45 and 60 days supply of vehicles currently in the United States. So that gave them. This is my thought not there they don't share it but it gave them inventory on the ground.
Speaker Change: That was not tariff.
Speaker Change: If they brought shipments in early meeting continued the shipments they were going to have that heavy tariff and if for some reason things got worked out in 45 60 days later, they would've had that product on the ground at a much higher tariff rate potentially so I'm, assuming it was a little bit strategic to say, let's take a breath, we have enough product in the United States with <unk>.
Speaker Change: See where the dust settles decide what we're going to do to your point.
Speaker Change: We're certainly getting down at a lower day supply than we would like to be at and we're looking forward to those shipments to continue.
Speaker Change: But not inside knowledge from an OEM perspective, just an opinion from sitting on the sidelines watching it.
Speaker Change: Okay, great. Thank you.
Speaker Change: Thank you.
Speaker Change: Okay.
Speaker Change: This concludes our call for your questions.
Speaker Change: I'm sorry go ahead Robert.
Speaker Change: There are no further questions at this time I would now like to turn the floor back over to David Holmes for closing comments.
David Holmes: Thank you very much. This concludes our call today. We appreciate you all participating and we look forward to discussing our performance in the next quarter have a great day.
David Holmes: This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
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