Q2 2025 Asbury Automotive Group Inc Earnings Call
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Operator: As a reminder, this conference is being recorded.
Chris Reeves: It is now my pleasure to introduce Chris Reeves, Vice President of Finance and Investment Relations. Thank you. You may begin.
Breathing, welcome to Asbury Automotive Group's second quarter 2025 earnings call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce Chris Reeves, Vice President of Finance and Investor Relations. Thank you. You may begin.
Chris Reeves: Thanks, Operator, and good morning. As noted, today's call is being recorded and will be available for replay later this afternoon.
Chris Reeves: Welcome to Asbury Automotive Group's second quarter 2025 earnings call. The press release detailing Asbury's second quarter results was issued earlier this morning and is posted on our website at investors.asburyauto.com.
Thanks operator and good morning. As noted today's call is being recorded and will be available for replay later this afternoon.
Chris Reeves: Participating with me today are David Hult, our President and Chief Executive Officer, Dan Clara, our Chief Operating Officer, and Michael Welch, our Senior Vice President and Chief Financial Officer. At the conclusion of our remarks, we will open up the call for questions and will be available later for any follow-up questions.
Welcome to Asbury, Automotive, group's, second quarter 2025 earnings, call, the press release, detailing Asbury second quarter results was issued earlier this morning and is posted on our website at investors. Asbury auto.com.
Participating with me today are David halt, our president and chief executive officer Dan, Clara our chief operating officer and Michael Welch, our senior vice president and Chief Financial Officer.
Chris Reeves: 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 uncertainty. For information regarding certain of the risks that may cause actual results to differ materially from these statements, please see our filings with the SEC from time to time, including our Form 10-K for the year ended December 31, 2024, and any subsequently filed quarterly reports on Form 10-Q and our earnings release issued earlier today.
At the conclusion of our remarks, we will open up the call for questions, and we'll be available later for any follow-up questions.
Before we leave, get We Begin. We must remind you that the discussion during the call today is likely to contain forward-looking statements
Chris Reeves: We expressly disclaim any responsibility to update 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 for information regarding certain of the risks, that may cause actual results to differ materially from these statements. Please see, see our filings with the SEC from time to time, including our form 10K for the year. Ended December 31st 2024 and any subsequently filed, quarterly reports on form 10q and our earnings release issued earlier today, we expressly disclaim any responsibility to
Chris Reeves: 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. Comparisons will be made on a year-over-year basis unless we indicate otherwise.
To update forward-looking statements.
Chris Reeves: We have also posted an updated investor presentation on our website, investors.asburyauto.com, highlighting our second quarter results.
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. Comparisons will be made on a year-over-year basis, unless we indicate otherwise,
David Hult: It is now my pleasure to hand the call over to our CEO, David Hult. David. Thank you, Chris. And good morning, everyone. Welcome to our second quarter earnings call.
We have also posted an updated investor presentation on our website, AsburyAuto.com, highlighting our second-quarter results.
It is now my pleasure to hand the call over to our CEO. David halt. David
And good morning, everyone.
David Hult: This is an exciting time for Asbury, and I want to begin my remarks by thanking our team members who make it all possible through their hard work and approach to execution that has helped us consistently lead the pack in operating efficiency. I would also like to formally welcome the more than 2,000 team members from Herb Chambers. And finally, I want to personally thank Herb Chambers for the opportunity to be a steward of his business. We look forward to a bright future together, and we're eager to partner with the Herb Chambers team members to continue growing our presence in the New England market with the high level of service you have been delivering for 40 years.
Welcome to our second-quarter earnings call.
This is an exciting time for raspberry.
And I want to begin my remarks by thanking our team members who make it all possible through their hard work and approach to execution, which has helped us consistently lead the pack in operating efficiency.
I would also like to formally welcome the more than 2,000 team members from Herb Chambers.
and finally,
I want to personally thank Herb Chambers for the opportunity to be a steward of his business.
We look forward to a bright future together.
And we're eager to partner with the Herb Chambers team members.
To continue growing up, presence in the New England Market.
David Hult: Shifting to our operational performance. We continue to see strong demand in the second quarter as consumers weigh the decision to buy ahead of potentially higher prices from an ever-changing tariff landscape. But we did see the SAR decline as the quarter went on. We believe the outlook for the second half of the year will be heavily dependent on how various tariff decisions make their way to consumer-level pricing. While new vehicle GPUs have been resilient year to day. We still see those metrics trending back towards the 2,500 to 3,000 range over time, with optimism that we end up more towards that 3,000 level.
With the high level of service you have been delivering for 40 years.
Shifting to our operational performance.
We continue to see strong demand in the second quarter.
As consumers weigh the decision to buy ahead of potentially higher prices from an ever-changing tariff landscape.
But we did see the star decline as a quarter went on.
We believe the outlook for the second half of the year.
Will be heavily dependent on how various tariff decisions make their way to Consumer level pricing.
While new vehicle gpus have been resilient year to date.
We still see those metrics trending back towards the 2500 to 3,000 range over time.
David Hult: Used vehicle profitability has remained strong, supported by a constrained supply environment. Based on the limited pool of used vehicles, we have chosen to focus on gross profit, but we'll continually evaluate that approach based on how the used vehicle market evolves.
With optimism that we end up more towards that 3000 level.
Use vehicle, profitability has remained strong supported by a constrained Supply environment.
Based on the limited pool of used vehicles, we have chosen to focus on gross profit.
But we will continually evaluate that approach based on how the used vehicle Market evolves.
David Hult: Our parts and service business continue to deliver stable, consistent growth, with same store gross profit up 7% for the quarter. We are continuing to invest in tools and technology that will enable our fixed operations business to operate more efficiently and deliver an even better guest experience. Our transition to TechEon is part of that investment. and we are happy to report that our Kuhn stores are now 100% converted to the new DMS. As I mentioned at the start of the call.
Our parts and service business continued to deliver stable, consistent growth.
With same store, gross profit up 7% for the quarter.
We are continuing to invest in tools and technology that will enable our fixed operations business, to operate more efficiently and deliver an even better guest experience.
Our transition to techon is part of that investment.
And we are happy to report that our Coon stores are now 100% converted to the new DMs.
David Hult: It's been an exciting but busy time for Asbury. Our near-term focus will be ensuring all of our critical initiatives are executed at the highest level possible. I couldn't wrap up my comments about our operational performance without commending the team for their focus on running the business efficiently. our same store adjusted SG&A as a percentage of gross profit was 63.2% for the quarter. an improvement of over 100 basis points from the second quarter of 2024. and a sequential improvement from the first quarter of 2025. It is important to note that we still see opportunity to further reduce our SG&A profile over time.
as I mentioned that the start of the call,
It's been an exciting, but busy time for Asbury.
Our near-term Focus will be ensuring all of our critical initiatives are executed at the highest level possible.
I couldn't wrap up my comments about our operational performance without commending the team.
For their focus on running the business efficiently.
Our same-store adjusted SG&A as a percentage of gross profit was 63.2% for the quarter.
An improvement of over 100 basis points from the second quarter of 2024.
And a sequential Improvement.
from the first quarter of 2025,
David Hult: Our ability to grow the company through transformative acquisitions while maintaining our operating margin profile is a point of pride for us. But it's just one element of our broader approach to strategically managing our portfolio and deploying capital to its highest and best use.
It is important to note that we still see opportunity to further, reduce our sgna profile over time.
Our ability to grow the company through transformative acquisitions.
While maintaining our operating margin profile.
Is a point of Pride for us.
But it's just 1 element of our broader approach to strategically managing our portfolio.
David Hult: in the second quarter and through July 28. We divested of nine stores as part of an ongoing capital allocation in our effort to optimize our portfolio. The proceeds from these transactions help to offset some of our investment in Herb Chambers. And we anticipate prioritizing leverage reduction over the next 12 to 18 months as we work to integrate the acquisition.
And deploying Capital to its highest and best use.
In the second quarter.
And through July 28th.
We divested of 9 stores as part of an ongoing Capital allocation in our effort to optimize our portfolio.
The proceeds from these transactions helped to offset some of our investments in Herb Chambers.
David Hult: and focus on our migration to Techeon. That said, share repurchases are an important component of our capital allocation strategy. And we will be opportunistic in our execution of share buybacks, even as we work to reduce our leverage ratio.
And we anticipate prioritizing leverage reduction over the next 12 to 18 months as we work to integrate the acquisition.
And focus on our migration to Tech on.
that said,
share repurchases are an important component of our Capital allocation strategy.
And we will be opportunistic in our execution of shared buybacks.
Even as we work to reduce our leverage ratio,
David Hult: And now for our consolidated results for the second quarter. We generated $4.4 billion in revenue. had a gross profit of $752 million. and a gross profit margin of 17.2%. we delivered an adjusted operating margin of 5.8%. Our adjusted earnings per share was $7.43. and our adjusted EBITDA was $256 million.
and now for our Consolidated results for the second quarter,
We generated 4.4 billion in Revenue.
Profit of 752 million.
And a gross profit margin of 17.2%.
We delivered an adjusted operating margin of 5.8%.
Our adjusted earnings per share worth 7.43.
David Hult: Before I pass it in, I want to once again acknowledge our team members for their focus and dedication to the business. Your commitment every day puts us on the path to be the most guest-centric automotive retailer. and we're optimistic about the future.
And our adjusted EBITDA was $200 million and $56 million.
Before I passed it in, I want to once again, ignore our team members for their focus and dedication to the business.
Your commitment every day puts us on the path to be the most guests Centric Automotive retailer.
Dan Clara: Now Dan will discuss our operational performance. Thank you, David, and good morning, everyone. I am going to provide some updates on our same store performance. dealerships, and TCA on a year-over-year basis unless stated otherwise.
And we're optimistic about the future.
Now, Dan will discuss our operational performance, Dan
Thank you, David and good morning, everyone.
Dan Clara: starting with new vehicles. The same store revenue was up 9% year over year and units were up 7%. The new average gross profit per vehicle was $3,611. Brand unit performance varied widely depending on availability or potential for tariffs. Our volume for Stellantis was up 15.6% this quarter compared to national sales down 11.5%. Across all brands, our same store new day supply was 59 days at the end of the year.
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,
Starting with new vehicles.
The same-store revenue was up 9% year-over-year, and units were up 7%.
New average, gross profit per vehicle was 3,611.
Brand unit performance varied, widely depending on availability or potential for tariff impact.
Our volume for Stantis was up 15.6% this quarter compared to national sales, which were down 11.5%.
Dan Clara: turning to use the. Second quarter unit volume was down 4% year over year. used retail gross profit per unit was $1,729, which marks the fourth quarter of sequential growth. We continue to monitor conditions on a market-by-market basis for deploying our approach to pre-owned. And we still plan to prioritize unit profitability at this point of the used car supply cycle. Our same store used day supply of inventory was 37 days at the end of the quarter. Shifting to F&I, we earned an F&I PBR of $2,096. The deferred revenue headwind of TCA was a $161 decrease in the same store F&I PVR number year over year.
Across all brands, same-store new day supply was 59 days at the end of June.
Turning to use the vehicles.
Second quarter unit volume was down 4% year-over-year.
On 1,729 which marked the fourth quarter of sequential growth.
We continue to monitor conditions on the market by market basis for deployment approach to pre-owned and we still plan to prioritize unit profitability at this point of the used car supply cycle.
Our same store used day. Supply of inventory was 37 days at the end of the quarter.
Shifting to fni.
We earned an fni PBR of 2,096.
Dan Clara: As a reminder, we are planning the TCA rollout to the Kuhn stores in the fourth quarter of this year, following the recent completion of the TechEon conversion at those stores. The timing of this TCA rollout changes the magnitude of the deferral headwind that we had estimated at the start of the year.
The deferred revenue headwind of TCA was a 1614 year-over-year.
As a reminder, we are planning the TCA rollout to the Coon stores in the fourth quarter of this year, following the recent completion of the tech conversion at those stores.
Dan Clara: Michael later will walk you through additional details regarding TCA. In the second quarter, our total front-end yield per vehicle was $4,861.
The timing of this TCA rollout changes the magnitude of the deferral headwind that we had estimated at the start of the year.
Michael later will walk you through additional details regarding TCA.
Dan Clara: Moving to Parts and Services. As David mentioned earlier, our same store parts and service gross profit was up 7% in the quarter. We generated a gross profit margin of 59.2%, an expansion of 53 basis points. In addition, our fixed absorption rate was over 100%, an important benchmark for the strength of the business. When looking at our customer pay and warranty performance, customer pay gross profit was up 7%, with warranty gross profit higher by 16%, or 9% on a combined basis. In our Western stores, we grew 15% on this combined metric.
In the second quarter, our total front end yield per vehicle was 4,861.
Moving to parts and service.
As David mentioned earlier, our same store parts and service gross profit was up 7% in the quarter.
We generated a gross profit margin of 59.2% and expansion of 53 basis points.
In addition, our fixed absorption rate was over 100%, an important benchmark for the strength of the business.
When looking at our customer pay and warranty performance, customer pay gross profit was up 7% with warranty gross profit, Higher by 16% or 9% on a combined basis.
In our Western stores, we grew 15% on this combined metric.
Dan Clara: We continue to be bullish on the long-term trajectory of our parts and service business. We believe the continually aging car park and the increasing complexity of modern vehicles mean our stores are well positioned to capture future service growth. The average age of a passenger car on the road is 14.5 years old, and the average truck is nearly 12 years old. Additionally, recent and upcoming models have more technology and innovative powertrains, which should create opportunity for our service departments for years to come.
We continue to be bullish on the long-term trajectory of our parts and service business. We believe that continually aging car park and the increase in complexity of modern vehicles. Mean our stores are well positioned to capture future service growth.
The average age of a passenger car on the road, is 14.5 years old, and the average truck is nearly 12 years old.
Dan Clara: And finally, on an all-store basis, we retailed over 9,500 sales through ClickLink in the second quarter. 46% of these sales were new users.
Additionally recent and and upcoming models have more technology and Innovative power trains, which should create opportunity for our service, departments for years to come.
And finally, on an All-Star basis. We read all over 9,500 sales through clan in the second quarter.
Dan Clara: Before I pass the call, I would like to once again thank our team members for their commitment to service and to be the most guest-centric automotive retailer.
46% of these sales were new units.
Michael Welch: I will now hand the call over to Michael to discuss our financial performance. Michael. Thank you, Dan. To our investors, analysts, team members, and other participants on the call, thank you for joining us this morning. And now, on to our financial performance. For the second quarter, Adjusted Income was $146 million, and Adjusted EPS was $7.43 for the quarter. In addition, the non-cash deferral headwind, due to TCA this quarter, was $0.43 per share. Our adjusted EPS would have been $7.86 without the deferral impact. Adjusted net income for the second quarter of 2025 excludes net of tax.
Before I passed the call, I would like to once again, thank our team members for their commitment to service, and to be the most guests Centric Automotive retailer.
Michael, to discuss our financial performance, Michael
Thank you, Dan to our investors analysts team members and other participants on the call. Thank you for joining us this morning.
And now, on to our financial performance.
For the second quarter, adjusted income was $146 million, and the EPS was $7.43 for the quarter.
In addition, the non-cash deferral headwind due to TCA this quarter was 43 cents per share.
Our adjusted EPS would have been $7.86 without the deferral impact.
Michael Welch: $4 million of cyber insurance recovery programs. $4 million related to the gain on divestitures, and $2 million of professional fees related to the acquisition of Herb Chambers. Just SG&A's percentage of gross profit came in at 63.6%. Noting that the Techeon implementation costs are beginning to impact our P&L, we still anticipate 2025 SG&A in the mid-60s, caveating that we are monitoring tariff and trade developments. While we see additional expenses for Techeon rollout and legal fees, we still are optimistic there are opportunities to lower SG&A in the future. The adjusted tax rate for the quarter was 25%.
Adjusted net income for the second quarter of 2025 excludes net of tax.
4 million of cyber Insurance Recovery proceeds.
$4 million related to the gain on the best years at $2 million of professional fees related to the acquisition of Herb Chambers.
The justice sgna is the percentage of gross profit came in at 63.6%.
Noting that the techon implementation costs are beginning to impact our pnl.
We still anticipate 2025 sgna in the mid-60s. Cavity cavity, adding that we are monitoring tariff and trade developments while we see additional expenses for tech on roll out and legal fees. We still are optimistic. There are opportunities to lower sgna in the future.
Michael Welch: Following the Chamber's acquisition, we estimate the third and fourth quarter effective tax rate to be 25.5%. TCA generated $7 million of pre-tax income in the second quarter. The negative non-cash deferral impact for the quarter was $11 million, or $0.43 on an EPS-based basis. As Dan mentioned, we now anticipate offering TCA in the Kuhn stores in early Q4. The updated schedule of the rollouts, along with the lower SAR projections versus our original estimate, will affect the timing of deferrals in future periods. We have outlined our timeline and estimated impact on 2025 EPS on slide 19 of the presentation posted to our website this morning.
The adjusted tax rate for the quarter was 25% following. The chamber's acquisition, we estimate the third and fourth quarter effective tax rate to be 25.5%.
PCA generated 7 million of pre-tax income in the second quarter, the negative non-cash deferral impact for the quarter, was 11 million or 43 cents on an EPS basis.
As Dan mentioned, we now anticipate offering TCA in the Coon stores in early Q4.
Michael Welch: The periods beyond 2025 have not been updated due to uncertainty around tariffs. Now, moving back to our results, we generated $334 million of adjusted operating cash flow through the first half of 2025, excluding real estate purchases, we spent $60 million on capital expenditures. through the end of June. We anticipate approximately $250 million in CapEx spend for both 2025 and 2026. However, this is dependent on the impact and duration of care policies with adjustments to spending as appropriate. Recash flow was $275 million through the first two quarters of 2025. We ended Q2 with $1.1 billion of liquidity comprised of floor plan offset accounts, availability on both our use line and revolving credit facility, and cash, excluding cash at Total Care Auto.
The updated schedule of the rollouts along with the lower SAR projections, versus our original estimate will affect the timing of the deferrals in future periods, we have outlined our timeline. And estimated impact on 2025 EPS of slide. 19 of the presentation posted to our website. This morning, the periods Beyond 2025 to not been updated due to uncertainty around tariffs.
Now, moving back to our results, we generated $334 million of adjusted EBITDA in cash flow through the first half of 2025, excluding real estate purchases. We spent millions on capital expenditures through the end of June. We anticipate approximately $250 million in capex spend for both 2025 and 2026.
However, this is dependent on the impact and duration of Tara policies with adjustment to spending as appropriate.
Free cash flow was 275 million to the first 2 quarters of 2025.
Michael Welch: Our transaction adjusted net leverage ratio was 2.46 times at the end of June. Following the Chamber's acquisition, we anticipate that this ratio will be above our target range. We will work down our leverage over the next 12 to 18 months and expect to be below the higher end of our range in mid to late 2026.
We ended Q2 with 1.1 billion of liquidity. Comprised of floor plan offset accounts, availability on both our used line and revolving credit facility and cash excluding cash at Total Care Auto
Michael Welch: On July 21st, we closed on the acquisition of Herb Chambers Automotive. Full year 2024 adjusted EBITDA for Herb Chambers was $176.8 million, and the transaction was valued at about $1.45 billion. Of this amount, $750 million represented Blue Sky, and $610 million was real estate and improvement.
Our transaction adjusted, net. Leverage ratio was 2.46 times at the end of June following the chamber's acquisition. We anticipate that this ratio will be above our target range. We will work down our leverage over the next 12 to 18 months and expect to be below the higher end of our range in mid to late 2026.
On July 21st, we closed on the acquisition of Herb Chambers Automotive Group full year, 2024 adjusted, EBA for her, Chambers was 176.8 million and the transaction was valued at about 1.45 billion.
Of this amount, $750 million represented blue sky, and $610 million.
Michael Welch: Please refer to slide 32 in our investor deck and the form 8K8 filed this morning for more information on the pro forma financial. Upon completion of the deal, with our amended credit agreement, our revolver capacity increased to $925 million and our new vehicle floor plan facility to $2.25 billion. This deal was financed through a combination of our credit facility funding, proceeds from a new mortgage facility, and cash. As noted in our release this morning, we divested nine stores with annualized revenue of $619 million since the start of the second quarter. This was done as part of our portfolio optimization strategy.
Was real estate and improvements.
Please refer to slide 32 in our investor deck and the Form 8K file this morning for more information on the ProForm financials.
Upon completion of the deal with our amended with our amended credit agreement. Our revolver capacity increased to 925 million, our new vehicle floor, plan facility to 2.25 billion.
This deal was financed through a combination of our credit facility funding proceeds from a new mortgage facility and cash.
Michael Welch: And it allowed us to use the net proceeds of $250 to $270 million towards reducing our leverage.
Michael Welch: Before we take questions, I want to thank our team members. We appreciate and recognize your efforts and performance.
As noted in our release this morning, we devest in 9 stores with annualized revenue of 619 million. Since the start of the second quarter. This was done as part of our portfolio optimization strategy and it allowed us to use the net proceeds of 250 to 270 million dollars towards reducing our Leverage.
Michael Welch: And with that, this concludes our prepared remarks.
Before we take questions, I want to thank our team members, we appreciate and recognize your efforts and performance.
Operator: We will now turn the call over to the operator and take your questions. Operator. Thank you. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. And for participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment while we poll for questions.
And with that, this concludes our prepared remarks, we will now turn the call over to the operator and take your questions, operator.
Jeffrey Lick: Our first question is from Jeff Lick with Stevens. Please proceed. Good morning guys, congrats on a great quarter and congrats on the acquisition. I know that means a lot to you, David, with your New England roots up here.
A confirmation total. Indicate your light is in the question queue. You may press *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, while we pull for questions.
Our first question is from Jeff Lick with Stevens. Please proceed.
Dan Clara: I just want to wonder if you could just walk through, as the quarter progressed, you know, kind of the cadence of GPU and also units and just, you know, where do you see things standing now as we, you know, are into the first month of Q3? Morning, Jeff. This is Dan. So as the quarter progressed, we saw the GPUs started stronger in the first part of the quarter. As the SAR started to level off, as David mentioned in his remarks at the beginning of the call, we started to see adjustment into the GPU. as well.
Uh, good morning, uh, guys. Congrats on a great quarter and congrats on the acquisition. I know that means a lot to you today. Um,
I just want to wonder if you could just walk through as a quarter progressed.
Uh, you know, kind of the the Cadence of GPU uh and also units and just you know, where do you see things standing? Now as we, you know, are into the first month of the Q3
Morning, Jeff, this is Dan. Uh, so as the quarter progressed, uh, we saw the, uh, gpus, uh, start at stronger. Um, the first part of the quarter, uh,
As the Tsar started to level off, as David mentioned in his um, in his remarks, at the beginning of the call, we started to see adjustment into the gpus. Um,
Dan Clara: I'll tell you that as things move forward, the situation is still pretty fluid. There's been, as you know, a few agreements that have been reached with Japan and the European Union, but still trying to see where things are going to fall and how the OEMs will react. But back to the comment that David stated earlier. I still have belief that those GPUs fall into 2,500 or 3,000. And that that range you've given that's inclusive of any, say, new kind of dealer invoice to MSRP adjustments and relationships. It's, you know, it's, it's, again, it's still hard to tell where the putt is going to fall for lack of a better term until we start to see how they're adjusting.
As well. Um, I'll tell you that as as things move forward. Um it situation is still pretty fluid. Uh, there's been as you know, if you agreements that have been reached uh with Japan and the European Union, uh, but still trying to see where things are going to fall, and how the, uh, oems will react. Uh, but back to the, to the comment that David stated, um, earlier, we see those
Still have believed that those gpus fall into 2500 to 3,000 range.
And that that range, you've given that inclusive of any say, new kind of dealer invoice to MSRP adjustments in relationships.
Dan Clara: I will tell you, there's been a few OEMs, domestic, And is it your thinking that, you know, most likely all of the major adjustments, if there are any, will really kind of accompany the 2026 model year changeover? Oh, um. Yes, I... I think, yes, the 2026 model, when you think about the OEMs going through the transition right now, and this has been going on since the end of the first quarter, they've had plenty of time to strategize, think about it, and make the necessary adjustments that are going to come down the pipeline, but you also got to think about that anything that has to do from a production standpoint, it takes time.
Yeah. It's you know it's it's again it's still a hard to tell where where the part is going to fall for a lack of a better term until we start to see how they're adjusting. I will tell you there's been a few oems domestic and and and and some of the um luxury Imports that have a slightly adjusted uh invoice. But it's still too early to tell to see what the final impact is going to be.
And is it your thinking that, you know, most likely all of the kind of major adjustments that there are any will really kind of accompany the 2026 model year changeover?
Oh, um. Yes. I
Dan Clara: to really adjust the parts and the suppliers and what have you. So I do expect that in the 2026 model, there'll be the adjustments necessary to adjust to the tariff, but it'll take some time when it comes down to the packages and the options that might be available to adjust that accordingly with the supplier.
I I I think yes uh the 2026 model. You know, you when you think about the oems going through the transition right now, um, and this has been going on since the uh end of the first quarter. Uh they've had plenty of time um to strategize think about it and and make the necessary adjustments that are going to come down the pipeline. But you also got to think about that. It anything that has to do from a production standpoint. It takes time.
Jeffrey Lick: Awesome. Well, thanks very much for taking the question and best of luck in Q3.
To, uh, really adjust, uh, the parts and the suppliers and what have you, uh, I do expect that in the 2026 model, there'll be the adjustments necessary to account for the tariffs. But it'll take some time when it comes down to the packages and the options that might be available to adjust that accordingly with the suppliers.
Awesome. Thanks very much for taking the question and best of luck in Q3.
Frederico Marende: Our next question is from Frederico Marende with Bank of America. Please proceed. Good morning, guys. So you had a...
Thank you.
Our next question is from Frederick Rico mende with Bank of America, please proceed.
Good morning guys. Um
Dan Clara: solid sg&a performance during the quarter and I was wondering Can you talk more about the initiatives that are allowing the SG&A to remain under control? Yeah, I mean, the main one is just focusing on that productivity per employee. We just try to make sure we maintain that discipline on the headcount and gain the productivity for the employee side. That's the big one because most of our expenses are compensation, but then also looking at the different outside services that we use and making sure we're getting a good return for that investment. The one piece in that number that, you know, we still have in there is, you know, there's a couple million dollars of techion, you know, conversion cost in there, so that number would have been even lower if we wouldn't have had the, you know, the kind of techion conversion cost in that.
so you have a solid test, you need a performance during the quarter and I was wondering
Can you talk more about the initiatives that that are allowing the SJ to remain under control?
Yeah, I mean the the main 1 is just focusing on that productivity per employee.
Uh, we just try to make sure we maintain that discipline on the headcount and getting the productivity for the employee side.
Um, that's the big one because most of our expenses are compensation. But then also looking at the different outside services that we use for making sure we're getting a good return for that investment. Um, the one piece in that number that, you know, we still have in there is, you know, there's a couple million dollars of tekon conversion costs in there, so that number would have been even lower.
We wouldn't have had the, you know, the kind of tech on conversion cost, um, in that mix.
Frederico Marende: Thank you.
Dan Clara: And if we assume that in the second half volumes for new vehicles will be lower. due to higher prices and so consumers want buy big. I would assume that it would be harder to leverage your SG&A, so how would you... plan to offset the lower SG&E absorption. Again, that productivity for employees is key because a lot of our costs are commission based and they adjust with either a downturn in volume or PVRs, so that cost discipline is key. But that's also why we kind of said mid-60s, to your point, it will be a little tough to keep that lower number if the PVR drops off significantly or if the volume drops off.
Thank you. And, uh, if we assume that in the second half volumes for new vehicles will be lower.
Due to higher prices and so consumers won't buy vehicles.
I would assume that it will be harder to, uh, uh, uh, leverage your SG&A. So how would you...
Plan to offset the lower SG, absorption.
Frederico Marende: But that discipline on productivity is kind of the key to keeping that number as low as Thank you very much.
Again, that Pro tip for employees key because a lot of our costs are commissioned based and they adjust with the, with the, you know, either a downturn of volume or pvrs so that cost discipline is key. But that's also why we kind of said, you know, mid-60s, um, to your point it'll be a little tough to keep that um, lower number of the PBR drops off, um, significantly or the volume drops off. But um, that discipline on productivity is kind of the key to keeping that um that number as low as possible.
Thank you very much.
Rajat Gupta: Our next question is from Rajat Gupta with J.P. Morgan. Please proceed. Great. Thanks for taking the question. I just had one first one on just the Herb Chambers acquisition. You know, you have them under the hood for a couple of weeks. It looks like the SG&A to gross profile for Herb Chambers is slightly better than the legacy Asbury business. I'm curious, have you been able to, given the couple of weeks you've had, any incremental opportunities do you see to improve just metrics at the store, other areas around services or use cards that you see you can bridge the gap to versus Asbury or just versus like broader industrial areas that have better metrics?
Our next question is from Raja Gupta with JP Morgan please proceed.
Uh great. Uh thanks for taking the question. Um, now I just had 1 first 1 on uh just a her team was acquisition. Uh you know, you had you, you know, have them under the hood for a couple of weeks.
Um, you know, it looks like the edge you need to growth profile for her team. This is slightly better, um, than, you know, the Legacy Asbury business. Uh, I'm curious, you know, have you been able to, uh, you know, given a couple of weeks you've had, you know, any incremental opportunities?
Rajat Gupta: Just curious if you could just give us some more insight into what we should expect to see as the acquisition gets integrated further and have a follow-up.
Do you see uh, you know, to improve like just metrics and the store, you know, other areas around services or used cars, um, that you see you can bridge the gap to, you know, versus like versus as where your orders versus like broader industrial periods. You know, that have better metrics, uh, just curious, you know, if you could just give us some more insight into, uh,
David Hult: Rajat, this is David. You know, there was a few things that we think about their mix of luxury, over 60% the name in the marketplace that they have, and the scale that they have in the market was most interesting to us, along with the quality people and tenure that they have. So we think we align philosophically and how to run the business. The best part about this, in any transaction, there's always opportunities to improve. There's opportunities to improve in our same store, there's opportunity to improve with any acquisition that we have. We'll work with the team over time, to look for efficiencies to improve upon the business.
You know what? We should expect to see as the acquisition gets integrated further and have a follow-up.
Rosette, this is David. Um,
You know, there, there was a few things that we think about their mix of luxury over 60%.
The name in The Marketplace that they have in the scale that they have in the market was most interesting to us, uh, along with the quality people and tenure that they have. So we think we aligned philosophically and how to run the business. The best part about this uh in any transaction. There's always opportunities to improve, there's opportunities to improve in our same store. There's opportunity to improve with any acquisition that we have.
David Hult: But this was a strategic market for us, it's a defensive position. New England isn't a growth market, but it's a very stable market, it performs well on a downturn. And with the luxury mix and the presence in this market, with the level of service that they offer, we think this creates great stability for Asbury over time. Understood.
Um, we'll work with the team over time to look for efficiencies to improve upon the business. But this was a strategic market for us, it's a defensive position. New England is in a growth Market, but it's a very stable Market it performs well in a downturn and with the luxury mix and the presence in this market, with the level of service that they offer, we think this creates great stability for raspberry over time.
Rajat Gupta: I just had a follow-up on parts and services into the second half. You know, we're going to start running into some tougher comparisons when it comes to warranty, you know, specifically recall work later this year. Curious, you know, if you think you could maintain, you know, the mid-single-digit type growth cadence here as we go to the next couple quarters, you know, do you feel comfortable offsetting, you know, any of the warranty, the tougher warranty comes with more customer pay work here later this year. Just curious to get your thoughts on the cadence.
Understood. Uh, I just had a follow up on Parks and services, uh, into the second half. Um, you know, we we're going to start running into some tougher comparisons, uh, when it comes to warranty, you know, specifically, we call work, uh, later this year.
Um, curious, you know if you think you could maintain.
Dan Clara: Morning, Rajat. This is Dan. Yes, I feel comfortable with the with the mid single digits that we have been discussing as we move into the second half of the year. And, you know, we have The throughput in the stores, obviously the bay utilization, we have opportunity to grow that as well. We feel comfortable. that measurement and continue to have. forward as well.
You know the mid single digit type, uh growth Cadence here, uh, as you go to the next couple quarters, you know, do you feel comfortable, uh all setting um, you know, any of the warranty, uh to the tougher warranty comes with more customer pay work here, uh later this year just use to get your thoughts on the Cadence there. Thanks.
David Hult: Rajat, this is David, I'll just jump on that too. It's kind of tough looking at year over year with the CDK issue last year. You know, so far against our peers, you know, our warranty growth was about half of our peers. Warranty isn't something that you sell, it's something that you do based upon, you know, what's going on with the product. You know, mix-wise we're similar. You know, I can only think when we're off that much year over year, we must have just done a better job last year closing warranty. But to your point, going into the second half of the year, you know, we're definitely going to have some headwinds on the warranty side.
Good morning Raad. This is Dan. Uh, yes, we feel comfortable with the uh, um with the mid single digits that we have been discussing. Um, as we move into the second half of the year and um, you know, we we have uh, the the throughput in the stores, um, obviously the the bay utilization, uh, we have opportunity to grow that as well. Uh, so we feel comfortable uh with with that measurement and and continue to have and push forward as we go into the second half.
The result, this is David. I'll just jump on that too. It it's kind of tough. Looking at year-over-year with the cdk issue last year, you know so far against our peers, you know, our warranty growth was about half of our peers.
Warranty isn't something that you sell it's something that you do based upon. You know, what's going on with the product?
David Hult: But we're convinced that CP will continue to be stable. And the Chamber's organization just does a fantastic job with fixed as well. So we're very optimistic about parts and service in the second half of the year with to your point a question mark on warranty. That's helpful. Just one clarification, are the warranty margins higher than customer paid for Asbury? I know it's hard to come here, but I'm curious if that's the case for you as well. Yeah, it varies slightly, but overall it runs higher on warranty than it does CP, the margin. Understood. Great.
You know, mix wise, we're similar, you know, I can only think when we're off that much year-over-year, we must have just done a better job last year, closing warranty. Uh but to your point going into the second half of the year, you know we're definitely going to have some headwinds on the warranty side but we're convinced uh that CP will will continue to be stable and the chamber's organized organization just does a fantastic job with fixed as well.
Um so we're very optimistic about parts and service and the second half of the year with to your point of question mark on warranty.
That's helpful. Just one clarification: are the warranty margins higher than customer pay for Asbury? I know it's retired at some years, but I'm curious if that's the case for you as well.
It varies slightly, but overall it runs higher on warranty than it does on CP margin.
Rajat Gupta: Thanks for taking the question. All the best.
Operator: Thank you. As a reminder, there's star one on your telephone keypad if you would like to ask a question.
Understood great. Thank thanks for taking the question and good luck.
Thank you.
Ryan Sigdahl: Our next question is from Ryan Sigdahl with Craig Hallam Capital Group. Please proceed. Hey, good morning, guys. Want to move over to used GPUs. Nice, really strong in the quarter, I guess, given the same sort of sales performance, it appears Asbury continues to stick with the profitability over volume.
As a reminder, this star 1 on your telephone keypad if you would like to ask a question. Our next question is from Ryan seagull with Craig Callum Capital group, please proceed.
Hey, good morning, guys.
Dan Clara: But can you talk through kind of the strategy, how you think about the second half, and if there's any change Yeah, good morning, Ryan, Dan, our, our strategy remains the same. As you know, we are facing the lack of supply from the used car inventory in relation to the pandemic. And I don't need to walk you through it, but lease turn-ins, et cetera, that all took place during the pandemic. So with that thought in mind, our plan stays the same, maximizing gross profit rather than chasing the volume. But as we stated at the beginning of the call, this is something that we assess.
Um, want to move over to used gpus. Uh, nice really strong in the quarter, I guess. Given the same sort of sales performance, it appears as very continues to stick with the profitability, over volume. But can you talk through kind of the strategy? How you think? Well, the second half and uh if there's any change there,
Yeah, good morning, Ryan. It's, uh, Dan, um, our, um, our strategy. Uh,
Remains the Same. Um, as you know, we are facing the, uh, uh, lack of, uh, Supply from a used car inventory, in relation to, uh, the pandemic. Uh,
Dan Clara: on a continuous basis, and we're ready to adjust as soon as we see the market shift. more availability.
And, you know, I don't need to walk you through it, but let's at least Tern Inn Etc that all took place during the pandemic. So we with that, um, thought in mind, um, our our plan stays the same, uh, maximizing, uh, gross profit rather than chasing the volume. But as, um, as we've stated at the beginning of the call, this is something that we assess, um, on a, um, on, on a, on a continuous basis.
David Hult: Ryan, I would jump on and say, you know, if we can see the rest of this year, the pool is just, you know, very shallow, but I think we're at our low point, to Dan's point about talking about the COVID peak. It starts to improve in 26 with, you know, off-lease vehicles, and that'll vary a little bit depending upon lease penetration and groups and how much access they have. So 26, 27, certainly get back to normal, and I think you'll start to see increases mid-26 and beyond.
And we're ready to adjust as soon as we see the market shifting, uh, and more availability of inventory Ryan. I I would jump on and say, you know, if we, we can see the rest of this year, um, the the pool is just, you know, very shallow, but I think we're at our low point to Dan's point about talking about the co Peak.
Um, it starts to improve in 26 with, you know, Off Lease vehicles.
Uh and that'll vary a little bit depending upon lease penetration and groups and how how much access they have so 2627 uh uh certainly get back to normal and and I think you'll start to see increases uh mid 26 and Beyond.
Ryan Sigdahl: Helpful. Then just progress on Techeon. Good to see Kuhn's conversion completed a little ahead of expectation there.
Ryan Sigdahl: Multi-part question here, I guess, as it relates to Techeon. But one, anything surprising you thus far post that conversion with Kuhn's? Two? Can you quantify what the implementation costs for Techeon were in the quarter? I mean, you had really nice SG&A leverage, especially comparing to peers in the quarter, even considering that.
Helpful. Uh, then just progress on Tech On. Good to see Coons' conversion completed a little ahead of expectations there. Multi-part question here, I guess, as it relates to Tech On about 1, anything surprising you thus far?
post that conversion with coons to
Ryan Sigdahl: But if you're able to quantify, and then the last part would just be the conversion timeline for the remaining SG&As.
David Hult: Ryan, I'll start and then Michael can jump in on the cost-related stuff. You know, one of the reasons we chose to go with Techeon was the simplicity of the software and not having as many bolt-ons as we have. We see the benefits and efficiencies with that in making it easier for our teammates to work with the clients. But changing a DMS is like, you know, heart transplant. It's the one thing that dealerships never want to go through. And even with planning and execution, you're still going to have a lot of snafus, and we had that throughout the quarter.
Uh, can you quantify what the implementation costs for techon were in the quarter? I mean, you had really nice sgna leverage, especially comparing to peers in the quarter um even considering that but if you're able to quantify and then the last part would just be the conversion timeline for the remaining Asbury source.
Ryan, I'll start, and then Michael can jump in on the costs-related stuff.
You know, one of the reasons we chose to go with Tech On was the simplicity of the software and not having as many bolt-ons as we have.
David Hult: Inconsistency with software applications, stuff going down at moments in time, things missing. It's just normal through it. So, you know, to the Koons folks' credit, it was a frustrating quarter for them having to go through that. The stores that we originally piloted last year are all the way through that and really starting to see the efficiencies of the software. And when we're fully converted, which will hopefully be in 27, is when we really recognize the SG&A benefits, but also operating efficiencies. Positive feedback from some of the employees with less greens to utilize. Some of the feedback that we get from leadership, you know, the software is a little bit like a Ferrari.
Um, we see the benefits and efficiencies with that, making it easier for our teammates to work with the clients. But changing a DMS is like, you know, a heart transplant. It's the one thing that dealerships never want to go through, and even with planning and execution, you're still going to have a lot of snafus. And we had that throughout the quarter.
Uh, inconsistency, with software applications stuff going down at moments, in times things, missing, it's just normal, uh, through it. So, you know, to the coons, folks credit it was a, it was a frustrating quarter for them having to go through that. Um, the stores that we originally piloted last year, are, are all the way through that. And really starting to see the initial efficiencies of the software,
And when we're fully converted, which will hopefully be in 2027.
David Hult: It's got more to it than what we're used to, so we're finding new things every day about it. So, it's going to take us a while to become proficient on the software and work through the kinks of normal DMS conversions. But we're very happy and pleased with the progress, and quite honestly, how resilient the Kuhns team was working through it in the quarter was just inspiring for us to see.
Uh is when we really recognize the sgna benefits but also operating efficiencies uh we're positive feedback from some of the employees with less greens to utilize uh some of the feedback that we get from leadership, you know the software is a little bit like a Ferrari. It's got more to it than what we're used to so we're finding new things every day.
Michael Welch: And on the cost front, it's about $2 million in cost in the quarter. About half of that is, I'll call it, duplication and implementation costs with Techion. And the other half, because we're a public company, we have to go through a little bit of pain and aggravation of testing the control environment. And so we're paying outside resources to kind of work through the audit side of SOX controls with the software. And so about a million of implementation and duplicated DMS costs and about a million of third-party audit costs.
Day about it. So it's going to take us a while to become proficient on the software and, and work through the Kinks of normal DMS conversions. Um, but we're very happy and pleased with the progress in quite honestly, how resilient the Coon team was working through it in the quarter, uh, was was just uh, it was inspiring for us to see
You know the cost front, it's about millions in cost in the quarter about half of that is I'll call it, you know, duplication and implementation costs with techon.
Aggravation of testing.
Control environment. And so we have, you know, we're paying outside resources, to kind of work through the audit side of um, socks controls with the software. And so, you know, about a million of implementation um, and duplicated, um, DMS costs at about a million of third-party audit cost.
Ryan Sigdahl: Thanks, guys. Appreciate it. Good luck.
David Whiston: Thanks, Ryan. Our next question is from David Whiston with Morningstar Equity Research. Please proceed. Thanks, good morning. I was curious how, I'm sure your Toyota Lexus inventory is lean, but is it leaner than it normally would be due to tariffs slowing production out of Japan? Morning, David. This is Dan. No, it's, it's lean. But we have not seen a negative effect on, you know, being leaner than what we're used to operating. As you know, we've been operating under that single-digit to low-double-digit DSI for quite a while, and it's all about the turn. And I feel like our stores are doing a pretty good job.
Thanks guys. Appreciate it. Good luck.
Thanks man.
Our next question is from David Woodston with the Morning Star Equity Research. Please proceed.
Thanks. Good morning. I was curious how um, I'm sure your Toyota Lexus inventory is lean, but is it is it leaner than it normally would be due to uh, tariffs slowing production out of Japan?
Morning David. This is Dan know. It's uh, it's lean. Um, but it it we have not seen a uh, negative effect on, you know, being leaner than what we're used to operating. And and as you know, uh we've been operating on under that uh, single digit to low double digit, DSi for quite a while and uh, it's all about the turn. Um and and I feel like our stores are doing a pretty good job with that.
Dan Clara: All right, thanks.
Dan Clara: And on the EV tax credit in your EV inventory, do you expect the OEMs post-September 30, once the credit's gone, to be very aggressive on trying to pressure you on allocation? You know, this is something that. You have been able to monitor and see coming for a while. I think some of the OEMs have done a very good job of planning accordingly and the number of EVs, whether they are in production or allocation or even on the dealer lots, has been dwindling down. So I don't expect a tremendous amount of push because they have been preparing for it.
All right. Thanks and on uh the EV tax credit and your EV inventory. Do you expect the oems post September 30th? Once the credits gone to be very aggressive on on trying to pressure you on allocation
Dan Clara: At the end of the day, we are good partners. We are always going to make the best decision. We're going to make sure that we return the right level of return of investment to our shareholders, but we're going to be true partners and support our OEM. But like I stated before, they've been planning accordingly. We've seen the DSI go down in the And we're monitoring that closely on a day-to-day basis to make sure that we retail the EVs that we have on the ground before that September 30th.
Um, you know, this is, uh, something that you, you, you have been able to Monitor and see coming, uh, for, for a while. Um, I, I think, uh, some of the, uh, oems have done a, a, very good job of planting accordingly. And the, the, uh, the number, um, of EVS, whether they are in production or allocation or, you know, even on the dealer, Lots has been dwindling down. Uh, so I I, I I, I don't expect a tremendous amount of push because they have been preparing for it. Um, and, you know, listen at the end of the day, um we we're good partners. We are always going to make the best decision uh to uh to make sure that we that we returned the the right level of uh of Return of investment to our shareholders. But we're going to be truth partners and support our oems. Uh but like I stated before, I think they've been planning accordingly. We've seen the DSi go down in the EVS. Uh and we're monitoring that closely.
I want a day-to-day basis to make sure that we retell the EVS that we have on the ground before that September 30th date.
David Hult: Okay, and just one last question on your geographic mix. With Herb Chambers, really the one major part of the country you're not in is California. I know historically you haven't wanted to be there, but are you perhaps thinking more about the west coast now that you've got the northeast? David, this is David. I'll take that question. We don't, you know, based upon The franchise laws in the different states and the economics in California, we just see there's better investments and better returns in other states. So, you know, you can never say never, but for the near term, you know, we divested our two stores in California.
Okay, and, uh, just 1 last question on your Geographic, mix with, with Herb Chambers. Really, the 1, major part of the country you're not in is, is California. I know. Historically. You haven't wanted to be there, but are you perhaps thinking more about the West Coast? Now that you've got the Northeast?
Uh David, this is David. I I'll take that question. Um, we we don't you know, based upon
The franchise laws and the different states and the economics in California.
We just see there's better Investments and better returns in other states.
David Hult: I think we'll stay outside of California and focus on the markets that we're in. As a footprint now, we're actually in the states that we want to be in and don't want to leave any of the states that we're in currently. That's not the plan anyhow. But you know, we'll look at things as they come. Size and scale matter to us to a certain degree. Buying a store in a smaller state that has 30 or 40 million in revenue per rooftop is just something that doesn't interest us. We try and look at 10-year economic outlooks of markets that we're in.
So, you know, you can never say, never, but for the near-term, you know, we divested our 2 stores in California. I think we'll stay outside of California and focus on the markets that we're in, as a, uh, footprint. Now, we're actually in the states that we want to be in. Uh, and don't want to leave any of the states that were in currently or that's not the plan anyhow. Um but you know we'll look at things as they come.
Size and scale matter to us to a certain degree, buying a store in a smaller state that has 30 or 40 million in Revenue. Per rooftop is just something that doesn't interest us.
David Hult: what the franchise laws are and all that kind of stuff. And we think that's what helps our portfolio keep the SG&A as tight as it is. We're not hyper-focused on growth as a top-line revenue growth, but really being strategic about the capital allocation, where we're buying stores, what our returns are for our shareholders, and making sure that we're doing it thoughtfully and building to the future. You know, while we talk about the headwind of TCA and what it meant in EPS, I think $0.43 or so in the quarter, when you look at slide 19 of our IR deck, when you get out to $28 and $29, you're talking $4.50 to $5.50 per share before we sell a car.
Um, we try to look at 10-year economic outlooks of markets that we're in.
What the franchise laws are, and all that kind of stuff. Uh, and we think that's what helps our portfolio keep the SG&A as tight as it is.
Um, we're not hyper focused on growth as it is top line, revenue growth but really being strategic about the capital allocation where we're buying stores, what our returns are for our shareholders and making sure that we're doing a thoughtfully and building to the Future. And, you know, while we talk about the headwind of TCA, in what it meant to an EPS, I think 43 cents or so in, in the, in the quarter
David Hult: So while the next year, year and a half is tough on us on EPS, you start to look out a few years, we really look like a solid company. And then you add in the concept of fully being on TechEon and the benefits of SG&A. So the next six or seven months might be bumpy as we settle into tariffs and what happens there and stabilizing day supply. But we think the future is really bright, and we're optimistic about it and excited for the future.
David Hult: But for now, California is not on the list, and it's really focusing on the markets we're in.
Look out a few years. Uh, we really look like a solid company and then you add in the concept of fully being on techion and the benefits of sgna. So the next 6 or 7 months might be bumpy as we settle into tariffs and what happens there and uh, stabilizing day supply. But we think the future is really bright and we're optimistic about it and, uh, excited for the future. But for now California is, is is not on the list and it's really focusing on the markets we're in.
Bret Jordan: All right, thank you very much. Thank you.
All right. Thank you very much.
Michael Welch: Our next question is from Bret Jordan with Jeffreys. Please proceed. Hey, good morning. On slide 19, I guess you're pending full visibility in the tariff impact for the estimate reviews. Is there meaningful exposure on the parts side where you've written warranties that might see a higher parts cost than expected? Or is most of that in labor or just too small in the total TCA portfolio to really make a difference in the next several years? Yeah, I mean, it's a good point. We try to bake in inflation into our estimates for what we price the F&I contracts at.
Thank you.
Our next question is from Brett Jordan with Jefferies. Please proceed.
Hey, good morning on on slide, 19. I guess you're pending full visibility in the Tariff impact for the estimate reviews is there meaningful exposure on the part side where you've written warranties that might see a higher parts cost than expected or as most of that in labor or just too small and the total for TCA portfolio to really make a difference in the next several years.
Michael Welch: So they're somewhat baked in there, but if you had a meaningful increase on the parts side, to your point, labor is the biggest component of that. And so it'd have a small impact on the claims, but not a huge impact.
Michael Welch: On the 26 through 29, what we're really trying to figure out there is where do we think SAR shakes out. That's the big driver of the TCA runoff. And when kind of that deferral hits you is when that SAR rebounds. And so once we figure out kind of a better forecast for SAR over the next couple of years, we'll come back and update those numbers for those SAR projections.
Yeah, I mean it's it's a good point. Um, we try to bake in inflation, into our into our estimates, for what we price, the F&I contracts at. So they're, you know, they're somewhat baked in there, but if you had a meaningful increase on the parts side to your point, um, labor is the biggest component of that and so we'd have a, a small impact on the claims, but not a huge impact. Um, on the 26th, through 29th, what we're really trying to figure out there is where do we think SAR shakes out? That's the Big Driver.
The TCA runoff.
Um, and when kind of that deferral, hit hits you is when that SAR rebounds. And so once we figure out kind of a better forecast for saw over the next couple years, we'll come back and update those numbers.
Michael Welch: And Bret, just to jump on that real quick, if you don't mind, when we acquired TCA, their AM Best rating was an A-, we've improved it to an A rating. So we're real happy with the way we're managing the portfolio and loss ratios. And so we're very optimistic about the future for TCA, regardless of tariffs. Yeah, great. Thank you.
Dan Clara: And then a follow-up on regional dispersion, I guess. You called out the Western stores having 2x the company average in parts and service growth. Is there anything else sort of interesting from a regional performance, either on units or... puts and takes geographically. Now, Bret, this is Dan, by the way. No, I don't think that there is anything else interesting. I'll just expand on the double-digit growth in the West. And we've been talking about this for the last 12, 18 months. Been a lot of focus on the integration of our West stores and really putting the processes and procedures in place to maximize the opportunity on a day-to-day basis, but more importantly, to enhance the guest experience through technology, even though we know that the employees in the front lines are the ones that create the experience.
For the Tsar projections, and and Brad, Brad just to jump on that real quick. If you don't mind when we acquired, uh, TCA their am best rating was an A minus. We've improved it to an a rating. Um, so we're real happy. With the way we're managing the portfolio and loss ratios and so we're we're very optimistic about the future for TCA regardless of tariffs.
Yeah. Alright, thank you. And then I follow up on Regional dispersion. I guess you called out the western stores. Having 2x the company average in parts and service growth. Is there anything else sort of interesting from a regional performance either on units or you know,
You know, puts and takes, um, geographically.
No, you know, the, uh, Brett. This is Dan, by the way. No, I don't think that there's anything else interesting. I'll just expand on the double-digit growth in the West. And we've been talking about this for the last, uh, I don't know, 12 to 18 months. It's been a lot of focus on the integration of our West stores and really, um,
David Hult: I would just add to that, you know, I would say more than geographical, brand mix matters. All brands are cyclical. So depending upon your portfolio, it can be a tailwind or a headwind based on what you have. But things are pretty stable. And I think everything is really, the market's kind of sitting still waiting to see where the tariffs shake up, what the manufacturers end up doing with pricing, and, you know, we'll make that one-time adjustment and move on. The one thing that's proven true about this industry, because I know there's a lot of negative talk about the second half of the year, what's going to happen with tariffs and margins and all that kind of stuff.
Putting the processes and procedures in place to, uh, uh, maximize the opportunity on a day-to-day basis, but more importantly, to enhance the guest experience through technology. Even though we know that the, the, uh, the employees on the front lines are the ones that create the experience.
David Hult: You know, the public auto space has been public for 27, 28 years now. There's been a lot of negativity over time with it. And as far as everyone looking for the headwinds going forward, one thing that's held true, especially through the recession in 2008 and 2009, this is a resilient business model. And it's an accordion effect with its expense control, and it always finds a way to perform and continue to go on. The transportation retail business is strong. It's not going to go anywhere. In this business model, not just ours, but our peers in the private cap space will certainly adapt and come out on the other side of this just as strong as they did before.
I would just add to that, um, you know, I would say more than geographical brand mix matters. All brands are cyclical, so depending upon your portfolio, it can be a tailwind or a headwind based on what you have. But things are pretty stable, and I think everything is really the market's kind of sitting still waiting to see where the tariffs shake up, what the manufacturers end up doing with pricing, um, and you know, we'll make that one-time adjustment and move on. The one thing that's proven true about this industry, because I know there's a lot of negative talk about the second half of the year, what's going to happen with tariffs and margins and all that kind of stuff?
You know, the the public auto space has been public well for 27/28 years now. There's been a lot of negativity over time with it. And as far as everyone looking for the headwinds going forward, 1 thing that holds true and especially through the recession in 08 and 09, this is a resilient business model uh and it's an accordion effect with it. It's an expense control. Uh and it always finds a way to perform and continue to go on the transportation. Retail business is strong, it's not going to go anywhere uh in this.
Business model, not just ours, but our peers in the private capital space, will certainly adapt and come out on the other side of this just as strong as they did before.
David Hult: Great, thank you. Thank you.
Great. Thank you.
Operator: We have reached the end of our question and answer session.
Thank you.
David Hult: I would like to turn the conference back over to David Hult for closing remarks. Thank you.
We have reached the end of our question and answer session. I would like to turn the conference back over to David Holt for closing remarks.
David Hult: This concludes our call today. We appreciate everyone's participation and look forward to speaking with you after our third quarter. Have a great day. Thank you.
Operator: This will conclude today's conference. You may disconnect your lines at this time and thank you for your participation.
Thank you. Uh, this concludes our call today, we appreciate it once participation and look forward to speaking with you, after third quarter, have a great day.