Q1 2026 Asbury Automotive Group Inc Earnings Call

April 28, 2026

Operator: Greetings, and welcome to the Asbury Automotive Group Q1 2026 earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press *0 on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Chris Reeves, Vice President of Finance and Treasurer. Thank you, sir. You may begin.

Speaker #2: A brief question-and-answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad.

Speaker #2: As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Chris Reeves, Vice President of Finance and Treasurer.

Speaker #2: Thank you, sir. You may begin. Thanks, operator, and good morning. As noted, today's call is being recorded and will be available for replay later this afternoon.

Chris Reeves: Thanks, operator, and good morning. As noted, today's call is being recorded and will be available for replay later this afternoon. Welcome to the Asbury Automotive Group's Q1 2026 Earnings Call. The press release detailing Asbury's Q1 results was issued earlier this morning and is posted on our website at investors.asburyauto.com. Participating with me today are David Hult, our President and Chief Executive Officer; Daniel 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. Before we begin, we must remind you that the discussion during the call today is likely to contain forward-looking statements.

Speaker #2: Welcome to the Asbury Automotive Group's first quarter 2026 earnings call. The press release detailing Asbury's first quarter results was issued earlier this morning and is posted on our website at investors.asburyauto.com.

Speaker #2: 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.

Speaker #2: 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 begin, we must remind you that the discussion during the call today is likely to contain forward-looking statements.

Chris Reeves: 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 our filings with the SEC from time to time, including our Form 10-K for the year ended December 31st, 2025, any subsequently filed quarterly reports on Form 10-Q, and our earnings release issued earlier today. We expressly disclaim any responsibility to update forward-looking statements. In addition, certain non-GAAP financial measures as defined under SEC rules may be discussed on this call. As required by applicable SEC rules, we provide reconciliations of any such non-GAAP financial measures to the most directly comparable GAAP measures on our website. Comparisons will be made on a year-over-year basis unless we indicate otherwise.

Chris Reeves: 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 our filings with the SEC from time to time, including our Form 10-K for the year ended 31st December 2025, any subsequently filed quarterly reports on Form 10-Q, and our earnings release issued earlier today. We expressly disclaim any responsibility to update forward-looking statements. In addition, certain non-GAAP financial measures as defined under SEC rules may be discussed on this call. As required by applicable SEC rules, we provide reconciliations of any such non-GAAP financial measures to the most directly comparable GAAP measures on our website. Comparisons will be made on a year-over-year basis unless we indicate otherwise.

Speaker #2: Forward-looking statements are statements other than those which are historical in nature which may forecasts, and current expectations each of which are subject to significant uncertainties.

Speaker #2: 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-end in December 31st, 2025, any subsequently filed quarterly reports on Form 10-Q, and our earnings release issued earlier today.

Speaker #2: We expressly disclaim any responsibility to update forward-looking statements. In addition, certain non-GAAP financial measures as defined under SEC rules may be discussed on this call.

Speaker #2: 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 #2: Comparisons will be made on a year-over-year basis unless we indicate otherwise. We have also posted and updated investor presentation on our website investors.asburyauto.com highlighting our first quarter results.

Chris Reeves: We have also posted an updated investor presentation on our website, investors.asburyauto.com, highlighting our Q1 results. It is my pleasure to now hand the call over to our CEO, David Hult. David.

Speaker #2: It is my pleasure to now hand the call over to our CEO, David Hult. David?

David Hult: Thank you, Chris, good morning, everyone. Welcome to our Q1 earnings call. Our Q1 results highlighted efforts to transform our business by optimizing our portfolio and successfully migrating to Tekion. Today, over 50% of our stores are running on Tekion. We remain on track and anticipate to be fully converted by the fall of this year. After which time, we expect to begin fully realizing the cost and efficiency benefits enabled by the new technology platform. The Q1 and Q2 of this year represent the peak in terms of number of stores making the transition. As a result, costs related to integration and temporary disruption to store operations will also remain elevated as team members become fully acclimated to the new technology. Michael will provide additional color behind the transition and its impact on our financial performance.

Speaker #3: Thank you, Chris. And good morning, everyone. Welcome to our first quarter earnings call. Our first-quarter results highlighted efforts to transform our business by optimizing our portfolio and successfully migrating to Tekion.

Speaker #3: Today, over 50% of our stores are running on Tekion. We remain on track and anticipate to be fully converted by the fall of this year.

Speaker #3: After which time, we expect to begin fully realizing the cost and efficiency benefits enabled by the new technology platform. The first and second quarter of this year represent the peak in terms of number of stores making the transition.

Speaker #3: As a result, costs related to integration and temporary disruption to store operations will also remain elevated as team members become fully acclimated to the new technology.

Speaker #3: Michael will provide additional color behind the transition and its impact on our financial performance. The first quarter also showcased a number of capital allocations decisions which ASBURY which position ASBURY for future success.

David Hult: The first quarter also showcased a number of capital allocation decisions which position Asbury for future success, while also returning capital to our shareholders. We divested 10 dealerships and a collision center at attractive multiples, representing approximately $600 million in annualized revenue. $147 million of the proceeds went towards repurchasing 678,000 shares of our stock, with the rest directed towards reducing our debt. In our view, our trading price undervalues the earning potential of the company, and we took advantage of this price-to-value dislocation to accelerate our repurchase activity. Moving on to our Q1 2026 operational performance. Our results reflect the expected decrease in volumes as consumer demand moderated from last year's tariff-driven spike in sales. More challenging weather was also a factor, as was the temporary disruption for the stores going through the Tekion conversion.

Speaker #3: While also returning capital to our shareholders, we divested 10 dealerships and a collision center at attractive multiples, representing approximately $600 million in annualized revenue.

Speaker #3: 147 million of the proceeds went towards repurchasing 678,000 shares of our stock. With the rest directed towards reducing our debt. In our view, our trading price undervalues the earning potential of the company.

Speaker #3: And we took advantage of this price-to-value dislocation to accelerate our repurchase activity. Moving on to our first quarter 2026 operational performance. Our results reflect the expected decrease in volumes as consumer demand moderated from last year's tariff-driven spike in sales.

Speaker #3: More challenging weather was also a factor, as was the temporary disruption for the stores going through the Tekion conversion. While new vehicle volumes were down, gross profit on a per-unit basis held up well.

David Hult: While new vehicle volumes were down, gross profit on a per unit basis held up well. On an all-store basis, new vehicle PVRs were down just $73 sequentially and $177 on a year-over-year basis, an indication profitability is beginning to approach normalized levels. Similarly, used vehicle PVRs on an all-store basis was $1,847, which is up sequentially 5% and 16% year-over-year as the team continues to execute our strategy to maximize per unit profitability. Parts and service had a more challenging quarter, driven by a variety of factors, including weather, a more cautious consumer, and temporary disruption from our DMS transition. That said, we still expect fixed operations gross profit to grow at mid-single digit rate over time.

Speaker #3: On an all-store basis, new vehicle PVRs were down just 73 dollars sequentially and 177 on a year-over-year basis. An indication profitability is beginning to approach normalized levels.

Speaker #3: Similarly, used vehicle PVRs on an all-store basis was 1,847 dollars. Which is up sequentially 5% and 16% year-over-year as the team continues to execute our strategy to maximize per-unit profitability.

Speaker #3: Parts and service had a more challenging quarter driven by driven by a variety of factors including weather, a more cautious consumer, and temporary disruption from our DMS transition.

Speaker #3: That said, we still expect fixed operations gross profit to grow at mid-single-digit rate over time. And now for our consolidated results for the first quarter.

David Hult: Now for our consolidated results for Q1. We generated $4.1 billion in revenue, had a gross profit of $727 million, a gross profit margin of 17.7%, an expansion of 22 basis points. We delivered an adjusted operating margin of 5%. Our adjusted earnings per share was $5.37, and our adjusted EBITDA was $207 million. Before I hand the call over to our incoming Chief Executive Officer, Daniel Clara, I wanna take a moment to thank our team members for helping to make Asbury Automotive the company that it is today. Together, we have transformed our organization from a regional player to one with national scale in highly desirable markets, a balanced portfolio, and a leader in technology-focused investments.

Speaker #3: We generated $4.1 billion in revenue, had a gross profit of $727 million, a gross profit margin of 17.7%, and an expansion of 22 basis points.

Speaker #3: We delivered an adjusted operating margin of 5%. Our adjusted earnings per share was $5.37, and our adjusted EBITDA was 207 million. Before I hand the call over to our incoming chief executive officer, Dan Clara, I want to take a moment to thank our team members for helping to make ASBURY AUTOMOTIVE the company that it is today.

Speaker #3: Together, we have transformed our organization from a regional player to one with national scale in highly desirable markets. A balanced portfolio and a leader in technology-focused investments.

David Hult: It has been an honor and a privilege to serve as a steward of this business for the past eight and a half years, and I know our best days are ahead with Daniel Clara running the company. Daniel Clara, I will hand things over to you to discuss our operational performance in more detail.

Speaker #3: It has been an honor and a privilege to serve as the steward of this business for the past eight and a half years. And I know our best days are ahead with Dan running the company.

Speaker #3: Dan, I will hand things over to you to discuss our operational performance in more detail.

Daniel Clara: Good morning, everyone. Thank you, David, for the kind words. I feel I can speak for everyone here in saying that Asbury would not be as strong as it is today without your vision for growth in seeing the potential in this company. We all wish you the best in your next role as Executive Chairman. Now, moving on to the quarter, I would also like to thank the team members for handling the challenges that were thrown at them this quarter, including severe winter weather in nearly all our markets and across multiple weekends. Our teams have been working diligently to make the transition to Tekion a smooth process, and we are pleased with the early progress our stores are making. Changing the DMS is a complex endeavor for any dealership group, let alone one of our size.

Speaker #4: Good morning, everyone. Thank you, David, for the kind words. I feel I can speak for everyone here in saying that ASBURY would not be as strong as it is today without your vision for growth and seeing the potential in this company.

Speaker #4: We all wish you the best in your next role as executive chairman. And now, moving on to the quarter. I would also like to thank the team members for handling the challenges that were thrown at them this quarter.

Speaker #4: Including severe winter weather in nearly all our markets and across multiple weekends. Our teams have been working diligently to make the transition to Tekion a smooth process.

Speaker #4: And we are pleased with the early progress our stores are making. Changing the DMS is a complex endeavor for any dealership group. Let alone one of our size.

Daniel Clara: It is necessary in order to elevate the guest experience and enhance our capabilities for strong operational performance. As an example, we converted the Koons dealerships last summer, and they are starting to show the power of the software. For that specific group in March, we saw gross dollars per technician up 21% year over year and average productivity per service advisor up 16%. We are seeing efficiencies extend beyond the service day as support costs in the stores decreased by 5% at the same time. Now I'm going to provide some updates on our same-store performance, which includes dealerships in TCA on a year-over-year basis, unless stated otherwise. Starting with new vehicles, same-store revenue year over year was down 9%.

Speaker #4: But it is necessary in order to elevate the guest experience and enhance our capabilities for strong operational performance. As an example, we converted the Kuhn's dealerships last summer and they are starting to show the power of the software.

Speaker #4: For that specific group in March, we saw a gross dollars per technician of 21% year-over-year and average productivity per service advisor of 16%. We are seeing efficiencies, extend beyond the service day, as support costs in the stores decrease by 5% at the same time.

Speaker #4: And now, I am going to provide some updates on our same-store performance, which includes dealerships and TCA. On a year-over-year basis, on the stated otherwise.

Speaker #4: Starting with new vehicles. Same-store revenue year-over-year was down 9%. While we believe the winter the winter weather impacted sales activity, we are also monitoring consumer behavior in light of ongoing geopolitical events.

Daniel Clara: While we believe the winter weather impacted sales activity, we are also monitoring consumer behavior in light of ongoing geopolitical events. New gross profit per vehicle was $3,061, as luxury maintained GPUs in line with the prior year and import and domestic moderated as expected. On an all-store basis, which includes the positive impact of the Chambers platform, new gross profit per unit was $3,271, only down $177 year over year. Across all brands, our same-store new day supply was a healthy 54 days at the end of March, which we believe support resilient gross profit per unit. Turning to used vehicles. Q1 total used gross profit was up 1% sequentially.

Speaker #4: New gross profit per vehicle was 3,061 dollars. As luxury maintained GPUs in line with the prior year, and import and domestic moderated as expected.

Speaker #4: On an all-store basis, which includes the positive impact of the CHAMPS platform, new gross profit per unit was $3,271, only down $177 year-over-year.

Speaker #4: Across all brands, our same-store new day supply was a healthy 54 days at the end of March, which we which we believe support resilient gross profits per unit.

Speaker #4: Turning to used vehicles. First quarter total used gross profit was up 1% sequentially. Used retail gross profit per unit was up 12% at 1,828 dollars.

Daniel Clara: Used retail gross profit per unit was up 12% at $1,828, a $201 increase over the prior year, and a $79 increase over our reported Q4 2025 number. Our efforts in used continue to pay off. This represented our second consecutive quarter of progress in growing GPUs. We have seen sequential increases in GPUs in 6 out of the last 7 quarters, thanks to our teams executing more consistently. We anticipate the pool of used vehicles will increase through the year, aided by lease return activity, which can give us the opportunity to increase volume and maintain this level of PVR. Finally, our same-store used DSI was 30 days at the end of the quarter, down from 35 days at the end of the Q4. Shifting to F&I.

Speaker #4: A 201-dollar increase over the prior year. And a 79-dollar increase over our reported fourth quarter 2025 number. Our efforts in use continue to pay off.

Speaker #4: This represented our second consecutive quarter of progress in growing GPUs. We have seen sequential increases in GPUs in six out of the last seven quarters thanks to our team's executing more consistently.

Speaker #4: We anticipate the pool of used vehicles will increase through the year, aided by lease return activity. Which can give us the opportunity to increase volume and maintain this level of PVR.

Speaker #4: Finally, our same-store used ESI was 30 days at the end of the quarter, down from 35 days and the at the end of the fourth quarter.

Speaker #4: Shifting to F&I, we earned an F&I PVR of $2,307. The non-cash deferral impact of TCA was $45. So, without the year-over-year impact, the PVR would have been $2,351.

Daniel Clara: We earned an F&I PVR of $2,307. The non-cash deferral impact of TCA was $45. Without the year-over-year impact, the PVR would have been $2,351. We are on track to implement TCA in the Chambers by year-end, which will complete our rollout across all our platforms. Finally, in Q1, our total front-end yield per vehicle was $4,806. On an all store basis, our front-end yield was up $70 year-over-year at $4,921. Moving to parts and service. Our same-store parts and service gross profit was down slightly year-over-year due to slowdowns associated with the winter storms.

Speaker #4: We are on track to implement TCA in the chamber stores by year-end, which will complete our rollout across all our platforms. And finally, in the first quarter, our total front-end yield per vehicle was 4,806 dollars.

Speaker #4: On an all-store basis, our front-end yield was up 70 dollars year-over-year at 4,921 dollars. Now, moving to parts and service. Our same-store parts and service gross profit was down slightly year-over-year due to slowdowns associated with the winter storms.

Daniel Clara: In addition, it is also important to note that when we convert stores to Tekion, there is a short-term effect of adjusting to the new software at the store level. We believe it takes about 4 to 6 months to overcome the muscle memory of the legacy software and start to see efficiencies take hold like those I mentioned earlier. Now, going back to the quarter's results, customer pay gross profit was up 1%, with warranty gross profit higher by 3%. During the month of March, we generated 4% growth for both customer pay and warranty grosses. Which was encouraging to see. April to date is trending similar to March. Overall, we believe our stores are well-positioned for the extended period of growth within parts and service, supported by the aging car park and increased vehicle complexity.

Speaker #4: In addition, it is also important to note that when we convert stores to Tekion, there is a short-term effect of adjusting to the new software at the store level.

Speaker #4: We believe it takes about four to six months to overcome the muscle memory of the legacy software. And start to see efficiencies take hold like those I mentioned earlier.

Speaker #4: Now, going back to the quarter's results, customer pay gross profit was up 1%, with warranty gross profit higher by 3%. During the month of March, we generated 4% growth for both customer pay and warranty grosses.

Speaker #4: Which was encouraging to see. April to date is trending similar to March. Overall, we believe our stores are well positioned for the extended period of growth within parts and service supporting supported by the aging car park and increased vehicle complexity.

Daniel Clara: Before I pass the call to Michael, I want to thank the team again for your hard work to deliver a guest-centric experience and striving for improvement to unlock further performance. With that, I will now hand the call over to Michael to discuss our financial performance. Michael?

Speaker #4: Before I pass the call to Michael, I want to thank the team again for your hard work to deliver a guest-centric experience. And striving for improvement to unlock further performance.

Speaker #4: And with that, I will now hand the call over to Michael to discuss our financial performance. Michael?

Michael Welch: Thank you, Dan, good morning to our team members, analysts, investors, and other participants on the call. For our financial performance in Q1, adjusted net income was $102 million. Adjusted EPS was $5.37 in Q1. In addition, the non-cash deferral headwind due to TCA this quarter was $0.26 per share. Our adjusted EPS would have been $5.63 without the deferral impact. Adjusted net income for Q1 2026 excludes net of tax, net gain on divestitures of $94 million, $5 million related to Tekion implementation expenses, $3 million of weather-related losses, and $1 million related to the duplicate DMS-related expenses. In our consolidated results, we estimate that the weather impacted gross profit by $19 million and EPS by $0.56.

Speaker #3: Thank you, Dan. And good morning to our team members, analysts, investors, and other participants on the call. For our financial performance in the first quarter, adjusted net income was $102 million.

Speaker #3: Adjusted EPS was 5 dollars and 37 cents for the quarter. In addition, the non-cash deferral headwind due to TCA this quarter was 26 cents per share.

Speaker #3: Our adjusted EPS would have been 5 dollars and 63 cents without the deferral impact. Adjusted net income for the first quarter of 2026 excludes net of tax net gain on investors of 94 million dollars.

Speaker #3: 5 million dollars related to Tekion implementation expenses. 3 million dollars of weather-related losses. And 1 million dollars related to the duplicate DMS-related expenses. In our consolidated results, we estimate that the weather-impacted gross profit by 19 million dollars and EPS by 56 cents.

Michael Welch: As stated in our press release this morning, during the quarter, we divested 10 dealerships and terminated 7 franchises, which included exiting the Alfa Romeo and Maserati brands. Combined, these stores generated an estimated annualized revenue of $625 million. Adjusted SG&A as a percentage of gross profit on same store basis came in at 66.9%, which includes $2 million related to legal expenses for a specific matter. In March, we saw adjusted same store SG&A in the low 60s. We believe the SG&A number would have been more solidly within our expectations for mid-60s range without the severe weather headwinds. As Dan mentioned, there are some frictional costs associated with changing our DMS that will take time to work out.

Speaker #3: As stated in our press release this morning, during the quarter, we divested 10 dealerships and terminated 7 franchises. Which included exiting the Afro Mayo and Maserati brands.

Speaker #3: Combined, these stores generated an estimated annualized revenue of 625 million dollars. Adjusted SG&A is a percentage of gross profit on same-store basis came in at 66.9%.

Speaker #3: Which includes 2 million dollars related to legal expenses for a specific matter. In March, we saw adjusted same-store SG&A in the low 60s. So we believe the SG&A number would have been more sidely within our expectations for mid-60s range.

Speaker #3: Without the severe weather headwinds. As Dan mentioned, there are some frictional costs associated with changing our DMS that will take time to work out.

Michael Welch: In the short term, the stores are slightly less efficient in the first 2 months of operating in the new DMS. In months 4 to 6, we see the stores become more efficient. It is encouraging to see our team members leaning into the tool and embracing the operational improvements the new platform can provide. Overall, we believe any short-term headwinds are outweighed by the benefits to come. Before I move on, I will note that the one-time implementation cost at the stores and the cost of duplicate software have been adjusted out of our non-GAAP SG&A numbers, as shown in our press release this morning. The adjusted tax rate for the quarter was 25.1%. We also estimate the full year 2026 effective tax rate to be approximately 25%.

Speaker #3: In the short term, the stores are slightly less efficient in the first two months of operating the new in the new DMS. In months four to six, we see the stores become more efficient is encouraging to see our team members lean into the tool and embracing the operational improvements the new platform can provide.

Speaker #3: Overall, we believe any short-term headwinds are outweighed by the benefits to come. Before I move on, I will note that the one-time implementation cost at the stores and the cost of duplicate software have been adjusted out of our non-GAAP SG&A numbers as shown in our press release this morning.

Speaker #3: Next, the adjusted tax rate for the quarter was 25.1%. We also estimate the full year 2026 effective tax rate to be 20 to be approximately 25%.

Michael Welch: TCA generated $15 million of pre-tax income for Q1. The negative non-cash deferral impact for the quarter was -$7 million. We generated $166 million of adjusted operating cash flow during the quarter. Excluding real estate purchases, we spent $46 million on capital expenditures in Q1 and still anticipate approximately $250 million of CapEx spend for both 2026 and 2027. Adjusted free cash flow was $120 million for Q1. We ended the quarter with $1.2 billion in 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. Our transaction-adjusted net leverage ratio was 3.2x at the end of Q1.

Speaker #3: TCA generated $15 million of pre-tax income in the first quarter. The negative non-cash deferral impact for the quarter was $7 million. We generated $166 million of adjusted operating cash flow during the quarter.

Speaker #3: Excluding real estate purchases, we spent 46 million dollars on capital expenditures in the first quarter and still anticipate approximately 250 million dollars in CAPEX spent for both 2026 and 2027.

Speaker #3: Adjusted free cash flow was $120 million for the first quarter. At the end of the quarter, we had $1.2 billion in liquidity, comprised of $4 million in offset accounts, availability on both our use line and revolving credit facility, and cash, excluding cash for Total Care Auto.

Speaker #3: Our transaction-adjusted net leverage ratio was 3.2 times at the end of the first quarter. As David mentioned, we took opportunities to optimize our portfolio through strategic transactions.

Michael Welch: As David mentioned, we took opportunities to optimize our portfolio through strategic transactions. Our divestitures in the quarter also reduced our CapEx burden, further allowing us to deploy cash to higher return options. The proceeds of the divestitures, combined with the robust cash flow in our business, allowed us to balance our capital allocation priorities, both reducing our debt level and repurchasing 678,000 shares. Our diluted share count is approximately 18.6 million shares before adjusting for any future buybacks. Finally, before we open to Q&A, I would like to thank David for his years of valuable leadership. David guided Asbury through a new level of growth and instilled a team focus and guest-centric culture that makes Asbury what it is today. With that, this concludes our prepared remarks. We'll now turn the call over to the operator and take your questions. Operator?

Speaker #3: Our divestitures in the quarter also reduced our CAPEX burden, further allowing us to deploy cash to higher-return options. The proceeds of the divestitures, combined with the robust cash flow in our business, allowed us to balance our capital allocation priorities.

Speaker #3: Both reducing our debt level and repurchasing 678,000 shares. Our diluted share count is approximately 18.6 million shares before adjusting for any future buybacks. And finally, before we open to Q&A, I would like to thank David for his years of valuable leadership.

Speaker #3: David guided Asbury through a new level of growth and instilled the team focus and guest-centric culture that makes Asbury what it is today. And with that, this concludes our prepared remarks.

Speaker #3: We will now turn the call over to the operator and take your questions. Operator?

Operator: Thank you. We will now be conducting a question and answer session. Thank you. Our first question comes from the line of Jeff Lick with Stephens. Please proceed with your question.

Speaker #4: 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.

Speaker #4: A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue.

Speaker #4: For participants using speaker equipment, it may be necessary to pick up your hands up before pressing the star keys. One moment, please, while we pull for questions.

Speaker #4: Thank you. Our first question comes from a line of Jeff Lick with Stevens. Please proceed with your question.

Jeff Lick: Good morning. Thanks for taking my question. David, just wanna extend my thanks, and you'll be missed. Since we've got you, I was wondering if, you know, look, Q1 was obviously a pretty noisy quarter on a variety of fronts, weather being, you know, one of the most. I wonder if you can just give a state of the union of kinda where we are for yourselves and in the industry in Q2. You know, just thinking about. You know, new and then new has some implications for used, and then obviously service and parts was a little lumpy. I mean, you did mention it was up in March.

Speaker #5: good morning. Thanks for taking my question and, David, just want to extend my, thanks and, you'll be missed. but since we've got you, I was wondering if, you know, look, one queue is obviously a pretty noisy quarter and overall a variety of fronts, weather, being, you know, one of the most.

Speaker #5: I wonder if you can maybe just give a, a state-of-the-union of kind of where we are, for, for yourselves and in the industry in two queues, you know, just thinking about, you know, new and then new has some implications for used and then obviously service and parts was a little lumpy.

Speaker #5: I mean, you did mention it was up in March, but, you know, just kind of where do you think things stand now that the, tax refund season's over and, you know, obviously we're not going to be getting, blizzards anymore the rest of this year?

Jeff Lick: You know, just kind of where do you think things stand now that the tax refund season's over and, you know, obviously we're not going to be getting blizzards anymore the rest of this year?

David Hult: Sure, Jeff Lick, I'll take a shot and Daniel Clara can jump in. You know, January and February were really rough for us from a weather perspective, and we got far behind the eight ball at that point. Before the weather started hitting in mid-January, we were actually pacing well the first half of January, then once we got hit with all the weather, we kinda didn't recover. March was a good sign for us. Last March and April were extremely strong with the tariff presales, for lack of a better term. But we really bounced back. To Michael Welch's comment, you know, being in the low 60s for SG&A from March was a telltale sign for us. We see the same going into April.

Speaker #3: Sure, Jeff. I'll, I'll take a shot and, and Dan can jump in. You know, January and February were really rough for us from a weather perspective, and we got far behind the eight-ball at that point.

Speaker #3: Before the weather started hitting in mid-January, we were actually pacing well the first half of January. And then once we got hit with all the weather, we kind of didn't recover.

Speaker #3: March was a good sign for us. Last March and April were extremely strong with the tariff pre-sales, for lack of a better term. But we really bounced back.

Speaker #3: And to Michael's comment, you know, being in the low 60s for SG&A from March, it was a telltale sign for us. We see the same going into April.

Daniel Clara: Very difficult to predict much beyond that with what's going on with the war and gasoline prices and other things and how long that lingers. One would think the longer that lingers, the more impactful that's gonna be on our business. We're definitely feeling the slowdown. It's not all the same by brand. We're still seeing a slowdown in new car sales into April as well. You know, just take top level, we're essentially back about 4,300 units or so in the quarter on new on a same store basis. You know, roughly you're gonna take in 2,300 to 2,500 trade-ins on those 4,000, and you're gonna retail 80% of those cars. There's a chunk of pre-owned that we normally have internally to sell that we don't have.

Speaker #3: It's very difficult to predict much beyond that with what's going on with the war and gasoline prices and other things, and how long that lingers.

Speaker #3: One would think the longer that lingers, the more impactful that's going to be on our business. we're definitely feeling the slowdown. It's not all the same by brand.

Speaker #3: but we're still seeing slowdown in new car sales into April as well. And, you know, just you take top-level, we were essentially back about 4,300 units or so in the quarter on new on the same store basis.

Speaker #3: You know, roughly, you're going to take in 23 to 2,500 trade-ins on those 4,000, and you're going to retail 80% of those cars. So there's a chunk of pre-owned that we normally have internally to sell that we don't have.

David Hult: It'll be a balancing act the next few quarters if new doesn't pop back where we're gonna source vehicles. I think parts and services is gonna bounce back nicely and continue to grow as the year goes on. It does take us 4 to 6 months with Tekion to get the muscle memory right in the stores. It doesn't matter the market or the brand, it's just human behavior takes time. Once you get past that 6-month window, you can really start to see some efficiencies as to why, you know, we would make this change in the DMSs. We do believe it makes our folks more efficient and more productive while certainly lowering our costs at the same time. I don't know if there's anything you wanna add. No, I think you covered it well. Nothing to add.

Speaker #3: So it'll be a balancing act the next few quarters. If new doesn't pop back, where we're going to source, ce, vehicles. but I think parts and services is going to bounce back nicely.

Speaker #3: and continue to grow as the year goes on. it does take us four to six months with Tekion to get the muscle memory right in the stores.

Speaker #3: It doesn't matter the market or the brand. It's just human behavior takes time. but once you get past that six-month window, you can really start to see some efficiencies.

Speaker #3: As to why, you know, we would make this change in the DMSs. We do believe it makes our folks more efficient and more productive, while certainly lowering our costs at the same time.

Speaker #3: And I don't know if there's anyone to add. I think you covered it well. Nothing to add.

Jeff Lick: Then just a quick follow-up for Dan maybe is, you know, I wonder if you could just give us one thing with Tekion where you look at it and say, you know, it manifests itself in, you know, financial benefit, where you say, You know what? We're making the right decision here. Yeah, it's, it might be a little noisy for four to six months, but, you know, when you, when you start to look at our P&L a year or two years from now, we made the right decision. I was wondering if there's one thing you could highlight.

Speaker #5: And then just a quick follow-up for Dan, maybe, is, you know, as you wonder if you could just give us one thing with Tekion where you look at it and say, you know, and it manifests itself in, you know, financial, benefit, where you say, you know what?

Speaker #5: We're making the right decision here. Yeah, it's it might be a little noisy for four to six months, but, you know, when you when you start to look at our P&L a year or two years from now, we made the right decision.

Speaker #5: I was wondering if there's one thing you could highlight.

Daniel Clara: I think, Jeff, good morning. I think I covered just 1 example of several that we're seeing earlier today. When you think about the efficiencies that the new software brings, when you look at the gross dollars per technician being up 21% at Koons and the average productivity per service advisor up 16%, you add the fact that support cost has also decreased, it's a pretty nice mix and aligned with what we expected. To put icing on the cake, the guest experience is definitely improved upon by the ease of using the technology, the ability to enhance how fast a guest can be served.

Speaker #3: I think, Jeff, good morning. I think I covered it. Just one example of several that we're seeing from earlier today: when you think about the efficiencies that the new software brings—when you look at the gross dollars per technician being up 21% at Kuhn's, and the average productivity per service advisor up 16%—and then you add the fact that support cost has also decreased, it's a pretty nice mix.

Speaker #3: And, aligned with what we expected. and then to put icing on the cake, the guest experience is definitely improved upon. by the ease of using the technology, the ability to enhance, how fast a guest can be served.

Daniel Clara: We believe that it definitely gives us a competitive advantage that we need for the future, and it is definitely the right thing to do.

Speaker #3: so we believe that, it definitely gives us a competitive advantage that we need for the future. And it is definitely the right thing to do.

Jeff Lick: Well, thanks very much and I'll let someone else jump in.

Speaker #5: Thanks very much. And I'll, let someone else jump in.

Daniel Clara: Thank you.

Speaker #3: Thank you.

Operator: Our next question comes from the line of Rajat Gupta with JPMorgan. Please proceed with your question.

Speaker #4: Our next question comes from a line of Rajat Gupta with JPMorgan. Please proceed with your question.

Rajat Gupta: Great, thanks for taking the questions. David, best of luck and hope to catch up at some point again. I want to just follow up on some of the Q1 results, especially around the new car units and even used car. You know, of 11% same store decline, and the 12% in new, is there any way to break up how much of it was weather, how much of it was just the Tekion productivity, and then how much of it was market? Any way to parse that out would be helpful. I have a quick follow-up on SG&A.

Speaker #6: Great, thanks for taking the questions. And then, David, best of luck, and hope to catch up at some point again. I wanted to just follow up on some of the first-quarter results.

Speaker #6: especially around the new car units and even used car. You know, of the 11% same-store decline, and the 12% in news, is there any way to break up how much of it was weather, how much of it was just the Tekion productivity?

Speaker #6: and then how much of it was market? any way to parse that out, would be helpful. and I have a quick, follow-up, on SG&A.

Daniel Clara: Yeah, Rajat, good morning. This is Dan. I'll start it. When you look at the weather impact, I am talking about from a same store basis, we believe the snow closure in Q1 affected us somewhere in the 500 car range and similarly in used car volume. Then when you go down to the fixed revenue as well, obviously that had a tremendous impact somewhere on the same store basis, somewhere around a $13 million impact. It was a significant impact. As you know, when we have weather-related issues, it is not just the day that we are closed, it is the days leading up to with all the media frenzy that happens and the days after the fact, recovering.

Speaker #3: Yeah. Rajat, good morning. This is Dan. I'll start it. on the when you look at the, weather impact, I'm talking about from a same-store basis, we believe the snow closure in Q1, affected us somewhere in the, 500-car range.

Speaker #3: And, similarly, in, used car volume. and then when you when you go down to the, to the fixed revenue as well, obviously, that, that had a, a tremendous impact.

Speaker #3: somewhere on a same-store basis, somewhere around a $13 million impact. So it was significant impact. And as you know, when we have weather-related issues, it's not just the day that we're closed.

Speaker #3: It's the days leading up to, with all the media frenzy that happens. And the days after the fact, recovering. David was in the, in, in, in the Northeast at that time.

Daniel Clara: David was in the Northeast at that time. As you know, the Northeast was hit pretty severely, and there were piles and piles of snow. It was definitely a big impact. Glad that it's behind us and glad that March showed that we are directionally correct and glad that April is similar to March so that we can continue to build on the momentum.

Speaker #3: And as you know, the Northeast was hit pretty severely. and there were piles and piles of snow. So it was, it was definitely a big impact.

Speaker #3: But glad that it's behind us. And, glad that, March, showed that we are directionally correct. And, glad that April is, similar to March so that we can continue to build on the momentum.

Rajat Gupta: How much, how much do you think you lost due to, like, just the Tekion rollout in Q1? You know, because, you know, you'll probably close the store for, like, a day and, you know, like the Mondays. I'm curious if that had any meaningful impact on the units. I know it probably impacted services, but anything on the units that you could flag?

Speaker #6: Got it. And how much, how much do you think you lost due to, like, just the, the Tekion rollout in one Q? You know, because, you know, you'll probably close the store for, like, a day and, you know, like, the Mondays.

Speaker #6: I'm curious if that had any meaningful impact on the units. I know it probably impacted services, but anything on the units that you could, you know, flag?

Daniel Clara: Yeah, on the. I don't have the exact number. Michael, I don't know. We have not shared that number. You bring up an excellent point because when we roll out the Tekion stores, we go through the conversion Saturday and Sunday, and we close operations on that Monday. That is definitely a day that we lose from being able to serve our guests. Then Tuesday we reopen. Again, that's a completely new system. We're much slower than what we used to be until we develop that muscle memory that, like I explained earlier, it takes between 4 to 6 months to get back to the efficiency levels.

Speaker #3: So yeah, on, on the, I don't have the exact number. Michael, I don't know. We have not shared that number. but on you bring up an excellent point because when we rolled out the Tekion stores, we go through the conversion Saturday and Sunday.

Speaker #3: And we closed operations on that Monday. so that is definitely a, a day that we lose, from being able to serve our guests. and then Tuesday, we reopened.

Speaker #3: But again, that's, a completely new system. We're much slower than what we're used to be until we developed that muscle memory that, like I explained earlier, it takes between four to six months, to get back to the efficiency levels.

Rajat Gupta: Got it. Got it. Just to clarify Michael's comment on SG&A on the call, on the prepared remarks. I think you mentioned mid-60s excluding the weather headwinds. Just wanna make sure we heard that correctly. Is it mid-60s even excluding some of the productivity losses from the DMS transition? I'm curious, like, what's a good steady state number post Tekion, you know. If it did not have weather, if it did not have DMS transition, what would have been a good steady state SG&A to gross number in the quarter?

Speaker #6: Got it. Got it. And just to clarify in Mike's comments on SG&A, on the call, on the prepared remarks, I think you mentioned mid-60s.

Speaker #6: Excluding the weather headwinds, just want to make sure we heard that correctly. And is it mid-60s even excluding some of the productivity losses from the DMS transition?

Speaker #6: I'm curious, like, what's a good steady-state number, both Tekion, you know, if you did not have weather, if you did not have DMS transition, what's what would have been a good steady-state SG&A to gross number in the quarter?

Michael Welch: Yeah, I think, you know, based on the March results that we saw that were in the low 60s, I think mid-60s, without the weather would have been the right number for Q1. We're still comfortable in that mid-60s range, going forward. Then some point in H2, as we start to see the Tekion efficiencies come through, don't know if that's Q4 or where that shakes out, but sometime we'll start seeing, you know, an approach toward the mid-60s as we get the Tekion efficiencies running through the system.

Speaker #5: Yeah. I think, you know, mi based on the March results that we saw that were in the low 60s, I think mid-60s, without the weather, would have been the right number for the first quarter.

Speaker #5: So, we're still comfortable in that mid-60s range going forward. And then at some point in the back half of the year, as we start to see the Tekion efficiencies come through—I don't know if that's fourth quarter or where that shakes out—but at some time, we'll start seeing, you know, an approach toward the mid-60s after we get the Tekion efficiencies.

Speaker #5: running through the system.

Rajat Gupta: Got it. Got it. Just a final one on buybacks. You know, given the fact that you're ramping up buybacks here, while EBITDA is coming down, I'm curious, is this just you taking a view on the benefits of, you know, the Tekion rollout and the benefits you might see into 2027 and beyond, that's giving you that confidence, given like the cyclical backdrop still looks a bit choppy here. Curious, like, just the thinking around, you know, the buybacks ramping up. Thanks.

Speaker #6: Got it. Got it. Just a final one on, on buybacks. you know, you know, given the fact that you're ramping up buybacks here, while EBITDA is coming down, I'm curious, is this just, you know, is this is this you, you taking a view, on the benefits, of, you know, the Tekion rollout and the benefits you might see?

Speaker #6: Into '27 and beyond, what's giving you that confidence, given, like, the cyclical backdrop still looks a bit choppy here? So, curious, just thinking around, you know, the buybacks ramping up.

Speaker #6: Thanks.

Michael Welch: Couple things in there. In the first quarter, you know, we disposed of the stores, we used those proceeds to buy additional shares in the quarter. Also, you know, as the share price continued to dislocate and get to, you know, low levels and attractive prices for us, we took a view that we need to take advantage of that stock price. We do think the back half of this year and into 2027, the EBITDA comes up dramatically with the Tekion rollout behind us. We're kinda trying to balance the levered ratio and the share buybacks. If the share price is low, we're gonna, you know, we're gonna lean in a little bit on share buybacks.

Speaker #5: So a couple of things in there. In the first quarter, you know, we disposed of the stores. And so we used those proceeds to, to buy additional shares in the quarter.

Speaker #5: But also, you know, as the share price continued to dislocate and, get to, you know, low levels and attractive, prices for us, we took a view that we needed to take advantage of that s that stock price.

Speaker #5: We do think the back half of this year and into 27, the EBITDA comes up dramatically with the Tekion rollout behind us. And so we're, we're kind of trying to balance, the leverage ratio and the share buybacks.

Speaker #5: And if the share price is low, we're going to, you know, we're going to lean in a little bit, a little bit on share buybacks.

Rajat Gupta: Understood. Great. Thanks. Thanks for taking the questions, and good luck in Q.

Speaker #6: Understood. Great. Thanks. Thanks for taking the questions and getting back into it.

Operator: As a reminder, if you would like to ask a question, press star one on your telephone keypad. Our next question comes from the line of Glenn Chin with Seaport Research. Please proceed with your question.

Speaker #1: As a reminder, if you would like to ask a question, press star one on your telephone keypad. Our next question comes from line of Glenn Chen with Seaport Research.

Speaker #1: Please proceed with your question.

Operator 2: Good morning. Thank you. Just another follow-on related to Tekion. Can you just confirm for us sort of the contour of the Tekion impact throughout the year? Do the costs and inefficiencies from the transition peak in Q2?

Glenn Chin: Good morning. Thank you. Just another follow-on related to Tekion. Can you just confirm for us sort of the contour of the Tekion impact throughout the year? Do the costs and inefficiencies from the transition peak in Q2?

Speaker #7: good morning. Thank you. just another follow-on, related to Tekion. Can, can you just confirm for us, sort of the contour of the Tekion impact throughout the year?

Speaker #7: Do the costs and inefficiencies from the transition peak in Q2?

Michael Welch: No. If you think about just the stack-up effect, we have Q1 was pretty heavy rollouts. Q2 has a decent amount of rollouts, and then we go kind of handle the rest in Q3. Just the stack of all the stores, if you think about that, you know, 4 to 6-month window, it'll probably peak in Q3. At some point, you know, call it sometime in Q4, we should be able to flip over the, you know, where we have more stores that are past the 4 to 6 months. I would say the peak of it's gonna be, you know, very late Q2 into Q3 is kind of where the peak will be.

Speaker #5: No. So if you think about just the stackup effect, we have first quarter was pretty heavy rollouts. Two Q has a decent amount of rollouts.

Speaker #5: And then we go kind of handle the West in Q3. And so just the stack of all the stores, if you think about that as, you know, a four- to six-month window, it'll probably peak in Q3.

Speaker #5: at some point, you know, call it sometime in four Q, we should be able to flip over the, you know, where we have more stores that are past the four to six months.

Speaker #5: But I would say the peak of it's going to be, you know, very late Q2 into Q3 is kind of where the peak will be.

Operator 2: Okay, very good. I understood that you're going to adjust out sort of the explicit costs from Tekion. Those timeline around those, Michael, is also same?

Glenn Chin: Okay, very good. I understood that you're going to adjust out sort of the explicit costs from Tekion. Those timeline around those, Michael, is also same?

Speaker #7: Okay, very good. And then, understood that you're going to adjust out sort of the explicit cost from Tekion. The timeline around those, Michael, is also the same?

Michael Welch: Yeah.

Operator 2: Is that different?

Glenn Chin: Is that different?

Speaker #5: Yeah. To.

Speaker #7: Or is that different?

Michael Welch: No, it should be similar, you know, Q2 and Q3. Q2 probably has a few less stores in it, and Q3 has a few more. Just from an implementation cost perspective, you know, it’ll be in a similar ballpark to Q1, but maybe a little lighter in Q1 and similar in Q3, when you compare it to Q1.

Speaker #5: No. It should be similar. You know, two Q and three Q, two Q probably is a few less stores in it. And three Q has a few more.

Speaker #5: So just from an implementation cost perspective, you know, it'll be in a similar ballpark to one Q, but maybe a little lighter in one Q and similar in three Q, when you compare it to, to one Q.

Operator 2: Okay, very good. I think, Daniel Clara, you mentioned in your prepared remarks as well as last quarter, just hesitation around the consumer with respect to parts and service. Any further elaboration on that, if you will?

Glenn Chin: Okay, very good. I think, Daniel Clara, you mentioned in your prepared remarks as well as last quarter, just hesitation around the consumer with respect to parts and service. Any further elaboration on that, if you will?

Speaker #7: Okay. Very good. A-and then I think, Dan, you mentioned in your prepared remarks as well as last quarter, just hesitation around the consumer with respect to parts and service?

Speaker #7: Can you give just any further elaboration on that, if you will?

Daniel Clara: Yeah, Glenn, good morning. You know, we saw a pullback, as you mentioned, in Q4. Going into Q1, there's a lot of uncertainties going on out there. I would say that it is somewhat consistent. You know, keep in mind, there's a new war that has started, that is with oil prices at an all-time high, is just keeping people on more of the defensive side of it. Again, when I go back into my remarks earlier today, it's encouraging to see what we saw in April, customer pay up, and seeing that same trend going into April. I'm sorry, in March going into April.

Speaker #4: Yeah, Glenn, good morning. You know, we saw a pullback, as you mentioned, in Q4. Going into Q1, there’s a lot of — there’s a lot of uncertainties going on out there.

Speaker #4: So I would say that it is somewhat consistent, but, you know, there's keep in mind, there's a, a, a, a new war that has started.

Speaker #4: That is with oil prices at an all-time high. It's just keeping people on more of the defensive side of it. But again, when I go back into my remarks earlier today, it was encouraging to see what we saw in April, customer pay up, and seeing that same trend going into April.

Speaker #4: I'm sorry, in March going into April.

Operator 2: Okay. Very good. Thank you. That's it for me. David, Romesh, good luck with everything, and your new position.

Glenn Chin: Okay. Very good. Thank you. That's it for me. David, Romesh, good luck with everything, and your new position.

Speaker #7: Okay, very good. Thank you. That's it for me. David, well, I miss you. Good luck with everything and your new position.

Daniel Clara: Thank you.

Speaker #4: Thank you.

Operator: Our next question comes from the line of Alexander Perry with Bank of America. Please proceed with your question.

Speaker #1: Our next question comes from the line of Alex Perry with Bank of America. Please proceed with your question.

Alexander Perry: Hi. Thanks for taking my questions here. I guess just first, I wanted to double-click a little bit more on sort of the current state of demand with where gas prices have gone and just the impact to consumer confidence. On the new vehicle side, you know, when did you start to see the slowdown? Is that more sort of an April comment? Is that, you know, just on new? Are you seeing any impact to mix yet in terms of the mix of vehicles that consumers are buying? What are you sort of seeing on used?

Speaker #8: Hi, thanks for taking my questions here. I guess just first, I wanted to double-click a little bit more on the current state of demand, with where gas prices have gone, and just the impact on consumer confidence.

Speaker #8: on the new vehicle side, you know, when did you start to see the slowdown? Is that more sort of an April comment? And is that per you know, just on, on new, are you seeing any impact to mix yet in terms of the mix of vehicles that consumers are buying?

Speaker #8: And, and what are you sort of seeing on used?

Daniel Clara: On the new car, you know, it really goes back to I mentioned this on Q4. We didn't really get the pop, for lack of a better term, that we get in December. January, as David mentioned earlier today, H1 of January before we got hit with the weather, we were pacing okay, then we just never recovered from the weather. From a new car perspective, I will tell you that really after the weather never recovered. February about the same. March, the same trend continued. From a mix, you know, typically, when you see gas prices hit the levels where we are right now, it usually takes five to six months for consumers to start really changing their buying habits.

Speaker #4: Yeah. on the, on. The new car, you know, it, it, it really goes back to what I mentioned this on the fourth quarter, there was we didn't really get the, the pop, for lack of a better term, that we get in December.

Speaker #4: January as David mentioned earlier today, the first half of January, before we got hit with the weather, we were pacing, okay. and then we just never recovered from the weather.

Speaker #4: So from a new car perspective, I will tell you that really after the weather, we never recovered. February about the same. In March, the same trend continued.

Speaker #4: from a mix, you know, typically when you see gas prices, hit the levels where we are right now, it usually takes five to six months for consumers to start really changing their buying habits.

Daniel Clara: We have not seen that. What I mean by that is a consumer that is gonna trade in a Chevrolet Tahoe for a Honda Civic or what have you. We have not seen that. The longer the war goes, I think the closer we're gonna be getting to see a shift in consumer behavior. We're not there yet. From a used car standpoint, you know, the demand of used cars is there, especially with the difference in the cost of sale between a new and used car. When you factor in all the items that have gone up, insurance rates, the average cost of maintaining a car. When you look at all that, the demand is definitely there for used cars.

Speaker #4: We have not seen that. And what I mean by that is a consumer that is going to trade in a Chevy Tahoe for a Honda Civic or what have you.

Speaker #4: We have not seen that. But the longer the war goes, I think the closer we're going to be getting to see a shift in consumer behavior.

Speaker #4: But we're not there yet. And from a used car standpoint, you know, the, the demand of used cars is there. especially with the, the difference in the, in the cost of sale between a new and used car.

Speaker #4: when you factor in all the, the, the, the, the, items that have gone up, insurance rates, the average cost of a of a of maintaining a car, when you look at all that, the demand is definitely there for used cars.

Daniel Clara: We strategically have made the decision to not chase the volume and to maximize the gross profit. As we showed in Q4, we were heading gross profit. Q1, you know, when you look at March again, even though we were backwards in volume, our gross profit was ahead year over year for used cars. We believe strongly that that is the right strategy to continue to execute. As the availability of used cars become readily available as we move throughout the year, then we can pull that lever while still protecting the margins that we have delivered over the last few quarters.

Speaker #4: We strategically have made the decision to not chase the volume, and to maximize the gross profit. And as we showed in Q4, we were heading gross profit.

Speaker #4: Q1, you know, when you look at March again, even though we were backwards in volume, our gross profit was ahead year over year for used cars.

Speaker #4: so we believe strongly that that is the right strategy to continue to monit to, to execute. And as the availability of used cars become, readily available, as we move throughout the year, then we can pull that lever while still protecting the margins that we have delivered over the last two quarters.

Alexander Perry: Gotcha. Gotcha. That makes a lot of sense. I guess I just wanted to ask a little bit more on the, you know, parts and service trend. If we think about comps from here, I think you mentioned them, you know, rebounding, you know, earlier in the call. Is that primarily a factor of, you know, just getting past the weather impact? Is there something you're seeing in terms of, you know, sort of, you know, delayed effect from people that would've came in in Q1, you know, starting to come in? Like, can you just maybe talk about how you, how you think about the parts and services and what sort of drives that rebound?

Speaker #8: Gotcha, gotcha. That makes a lot of sense. And then, I guess I just wanted to ask a little bit more on the parts and service trend.

Speaker #8: i-if we think about comps from here, I think you mentioned them, you know, rebounding, you know, earlier in the call. I-is that primarily a factor of, you know, just getting past the weather impact?

Speaker #8: Is there something you're seeing in terms of, you know, sort of, you know, delayed effect from people that would have come in the first quarter, you know, starting to come in?

Speaker #8: Like, can you just maybe talk about how you how you think about the, the parts and services and, and what sort of drives that

Daniel Clara: You know, the parts and service, we've always been saying mid-single digits. We've developed a very strategic plan to go and grow our fixed operations, meaning parts and service. No different than what we've done with used cars, it's about the execution. When you think about, and you can see it on the IR deck, the average miles coming through our shop are continuing to be in the 70,000 mile range. That gives us a lot of stability that we are retaining the guests, and obviously, that, you know, that we have the opportunity to continue to maintain those cars for those customers.

Speaker #4: Yeah. You know, the parts and service—we've always been saying mid-single digits. We have a, we've developed a very strategic plan to go and grow our fixed operations, meaning parts and service.

Speaker #4: And no different than what we've done with used cars. it's about the execution. when you think about and you can see it on the IR deck, the average miles coming through our shop are continue to be in that 70,000-mile range.

Speaker #4: So that gives us, a lot of, a lot of stability. that we are retaining the guest, and obviously, that, you know, the, the we had the opportunity to continue to maintain those cars for those c for those customers.

Daniel Clara: The last factor that I see tremendous potential is growing the CP RO count and really focusing on what we call the cycle time. How fast can we serve our guests? Which is also one of the benefits that I mentioned earlier of going to Tekion. The faster we get that guest in and out, the higher the retention and the higher propensity for that customer to come back and do business with us, and the more throughput that we can push through our service departments.

Speaker #4: And the last factor that, that I see tremendous potential is growing the CPRO count. and really focusing on what we call the cycle time.

Speaker #4: How fast can we serve our guest? which is also one of the benefits that I mentioned earlier, of going to Techyacht. The faster we get that guest in and out, the, the higher the retention and the higher propensity for that customer to come back and do business with us.

Speaker #4: And the more throughput that we can push through our service departments.

Alexander Perry: Perfect. That's really helpful. Best of luck going forward.

Speaker #8: Perfect. That's really helpful. Best of luck going forward.

Daniel Clara: Thank you.

Operator: Our next question comes from the line of John Babcock with Barclays. Please proceed with your question.

Speaker #4: Thank you.

Speaker #1: Our next question comes from the line of John Babcock with Barclays. Please proceed with your question.

John Babcock: Corinan, thanks for taking my questions. I guess just first of all, I was wondering if you could talk about Herb Chambers, how the integration is going there, and if there's anything new to share on that front. Then also, if you can just remind us, you know, when you're planning on implementing Tekion into that business.

Speaker #5: Hey, Quentin. Thanks for taking my questions. I, I guess just first of all, I, I was wondering if you could talk about Herb Chambers, how the integration is going there, and if there's anything new to share on that front.

Speaker #5: And then also, if you can just remind us, you know, when you're planning on implementing Techyacht into that business.

Daniel Clara: Herb Chambers integration is going well. We are very happy with the talent, the people. We got some great team members, great stores. What they have built together is impressive and now is up to all of us to work together as a team to take it to the next to the next level. Tekion rollout at Chambers started last month. We've already converted, I think we have 22 stores, 22 or 24 stores. Call it in the 20 range. With the rest of the stores, I think we have 8 more that are gonna be converting in the month of May or June, I'm sorry, in the month of June. By June, Chambers will be completely converted to Tekion.

Speaker #4: Yeah. Her, Herb Chambers integration is, is going well. We, we're very happy with the, the talent, the people. We got some great team members, great stores.

Speaker #4: And what they have built together is impressive. And now, it is up to all of us to work together as a team to take it to the next—to the next level.

Speaker #4: Techyacht rollout at Chambers started, last month. we've already converted, I think we have 22 stores 22 or 24 stores, call it in the in the 20 range.

Speaker #4: With the rest of the stores, I think we have eight more that are going to be converting in the month of May or June.

Speaker #4: I'm sorry. In the month of June—so by June, Chambers will be completely converted to Techyacht.

John Babcock: Okay. Thanks for that. The next question just on PVRs, because you do break it out across luxury imports and also domestic. It seems like quarter-over-quarter there was pretty good stability in luxury and imports, but domestic was down a decent bit. Is there anything we should take note of from those trends or?

Speaker #5: Okay, thanks for that. And the next question, just on GPUs, because you do break it out across luxury, imports, and also domestic. And it seemed like, quarter over quarter, there was pretty good stability in luxury and imports, but domestic was down a decent bit.

Speaker #5: Is there anything we should take note of from those trends, or?

Daniel Clara: listen, the biggest impact that I'm seeing on domestic side is we still have the headwind of Stellantis. We are well aware of it. We're focusing on performing better with Stellantis, getting that inventory turned and maximizing the gross profit. It really, the biggest impact in the domestic was our Stellantis stores.

Speaker #4: the, listen, the, the biggest impact that I'm seeing on domestic side is, we still have the, the headwind of, Stellantis. we are well aware of it.

Speaker #4: We're focusing on, performing better with Stellantis, getting that inventory turned and maximizing the gross profit. But it, it really the, the biggest impact in the, domestic was, our Stellantis stores.

John Babcock: Okay. Fair enough. Well.

Daniel Clara: Yeah.

John Babcock: Just my last question, just, was wondering if you could share how much, if any, shares you've bought back in April?

Speaker #5: Okay, very helpful. And then just my last question—just was wondering if you could share how much, if any, shares you've bought back in April?

Michael Welch: Yeah, any shares we would've bought back in April, would've been disclosed as part of the press release. We did our, you know, we did our share buybacks, early on in the quarter, took advantage of some share prices then. All those shares were kind of purchased, January through March.

Speaker #4: yeah. We any shares we would have bought back in April, would have been disclosed as far as the press release. so we did, you know, we did our share buybacks.

Speaker #4: Early on in the quarter, took advantage of some share prices then. And so all those shares were kind of purchased January through March.

John Babcock: Okay. Sounds good. Thank you.

Speaker #5: Okay. Sounds good. Thank you.

Operator: A final reminder, if you would like to ask a question, press star one on your telephone keypad. Our next question comes from the line of Bret Jordan with Jefferies. Please proceed with your question.

Speaker #1: A final reminder, if you would like to ask a question, press star one on your telephone keypad. Our next question comes from a line of Brett Jordan with Jefferies.

Bret Jordan: Hey, good morning. On the Stellantis, are you seeing any improvement in the trend? I mean, it seems as if maybe they're making some product adjustments or maybe pricing adjustments. Are you seeing any traction there or is it pretty much the same?

Speaker #1: Please proceed with your question.

Speaker #6: Hey. Good morning. On the Stellantis, are you seeing any improvement in the trend? I mean, it seems as if maybe they're making some product adjustments or maybe pricing adjustments.

Speaker #6: Are you seeing any traction there, or is it pretty much the same?

Daniel Clara: From a high level, there are changes being made that make total sense, and it is a step in the right direction. You know, it's a double-edged sword because when they make those changes, I'll give you an example, they adjust the pricing for the new models coming in, well, we still have the same model that is a year older that is more expensive than the new model coming in. That is where there is some pressure to the margins to be able to make sure that we liquidate that old inventory in, under the old pricing structure to make room for the, for the new decisions that the management team is making.

Speaker #4: From a high level, there are changes being made that may make total sense, and it is a step in the right direction. But, you know, it's a double-edged sword, because when they make those changes—I'll give you an example.

Speaker #4: They adjust the pricing for the new models coming in. Well, we still have the same model that is a year older that is more expensive than the new model coming in.

Speaker #4: and so that is where there is some, pressure to the margins to be able to make sure that we liquidate that old inventory in under the old pricing structure to make, room for the for the new decisions that, the management team is making.

Bret Jordan: Okay. I guess on the parts and service side of the business, you had a pretty hard warranty comp year-over-year. Could you sort of talk about, you know, what you're seeing? Are there any major warranty programs that are popping up that might give you some tailwinds in volumes in the balance of this year?

Speaker #6: Okay. And then I guess on the parts and service side of the business, you had a pretty hard warranty comp year over year.

Speaker #6: Could you, sort of, talk about, you know, what you're seeing? Are there any major warranty programs that are popping up that might give you some tailwinds and, and volumes in the balance of this year?

Daniel Clara: Yeah, we had some big warranty comps. I'll tell you one of the, I wouldn't say surprises, but one of the, I guess, obstacles that we faced is one of our import OEMs had a major decrease in warranty issues last quarter. Which, you know, obviously, warranty is something that we don't control. We happily service the customers when they come in, but it's really outside of our control. Moving forward, we've seen some of the domestics that have issued some recalls and some additional warranty work, but it's hard to tell. Like I said, warranty is important, I pay attention to it, but I cannot control it. That's why our focus is always on the customer pay.

Speaker #4: Yeah. We had some big warranty comps. I'll tell you one of the I don't want to say surprises, but one of the, I guess, obstacles that we faced is one of our, import OEMs had a major, decrease in warranty, issues last quarter.

Speaker #4: which, you know, obviously, warranty is something that we don't control. so we happily service the customers when they come in. but it's, it's really outside of our control.

Speaker #4: Moving forward, we've seen some of the domestics, that have, issued, some recalls. And some additional warranty work. But it's hard to tell, like I said, I warranty is important.

Speaker #4: I pay attention to it, but I cannot control it. That's why our focus is always on the customer pay. w-we'll just, happy, happily serve the guests, when the OEMs, have any warranty issues.

Daniel Clara: We'll just happily serve the guest when the OEMs have any warranty issues.

Bret Jordan: Great. Thank you.

Daniel Clara: Mm-hmm.

Speaker #6: Great. Thank you.

Operator: Our next question comes from the line of Ryan Sigdahl, Craig-Hallum. Please proceed with your question.

Speaker #4: Mm-hmm.

Speaker #1: Our next question comes from the line of Ryan Sigdahl with Craig Hallum. Please proceed with your question.

Matthew De-Allie: Hey, thanks. This is Matthew De-Allie on for Ryan. Just wanna go back to the new GPUs, maybe putting a finer point there. You know, we've talked in the past about settling out in that 2,500 to 3,000 range. You're at 3,271. Feels like inventory's pretty rational and you're certainly getting the benefit of the Herb Chambers mix. I mean, at this point, is there any reason why GPUs can't settle out near the higher end of that range? You know, if you have any expectation for new GPUs for 2026, whether it's a year-end number or quarter-over-quarter decline to the rest of the year, that'd be great.

Speaker #7: Hey. Thanks. This is Matthew Robb on for Ryan. Just want to go back to the new GPUs, maybe putting a finer point there. You know, we-we've talked in the past about settling out in that 2,500 to, to 3,000 range.

Speaker #7: You're at 3,271. Feels like inventory is pretty rational, and you're certainly getting the benefit of the Herb Chambers mix. I mean, at this point, is there any reason why GPUs can't settle out near the higher end of that range?

Speaker #7: And, you know, if you have any expectation for a new GPUs for '26, whether it's a year-end number or quarter over quarter decline, through the rest of the year, that'd be great.

Daniel Clara: Yeah, Matt, thank you. Great question. I agree with you. I think, you know, for the last several quarters we've been talking about 2,500 or 3,000. We believe now that that number is moderating and it is closer to that 3,000 range. To your point, excellent question.

Speaker #4: Yeah. Matt, thank you. Great question. and, I agree with you. I think, you know, for, for the last several quarters, we've been talking about 2,500 or 3,000.

Speaker #4: we believe now that that number, is moderating, and it is, closer to that 3,000 range. so to your point, excellent question.

Matthew De-Allie: Thank you.

Speaker #7: Thank you.

Operator: We have no further questions at this time. Mr. Hall, I'd like to turn the floor back over to you for closing comments.

Speaker #1: We have no further questions at this time. Mr. Hall, I'd like to turn the floor back over to you for closing comments.

David Hult: Thank you, operator. We appreciate everyone joining our Q1 earnings call, and the team here looks forward to discussing our Q2 results in the future. Have a great day.

Speaker #4: Thank you, operator. We appreciate everyone joining our first quarter earnings call. The team here looks forward to discussing our second quarter results in the future.

Speaker #4: Have a great day.

Operator: Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a wonderful day.

Speaker #1: Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation and have a wonderful day.

Q1 2026 Asbury Automotive Group Inc Earnings Call

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