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Earnings call: Asbury Automotive announced a 16% year-over-year revenue growth

EditorLina Guerrero
Published 10/30/2024, 04:25 PM
© Reuters.
ABG
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Asbury (NYSE:ABG) Automotive Group, Inc. (NYSE: ABG) has reported a robust third-quarter performance for 2024, with a significant revenue increase despite facing operational challenges. The company announced a 16% year-over-year revenue growth, reaching $4.2 billion, and an adjusted earnings per share (EPS) of $6.35.

However, the quarter's profitability was affected by Hurricane Helene and stop sale orders for certain Toyota (NYSE:TM), Lexus, and BMW (ETR:BMWG) models, which impacted EPS by an estimated $0.39 to $0.43. Used vehicle profitability saw improvement, but new vehicle gross profit per unit experienced a decline. Asbury Automotive also continued its share repurchase program, buying back 400,000 shares for $89 million in the quarter.

Key Takeaways

  • Asbury Automotive Group reported $4.2 billion in Q3 2024 revenue, a 16% increase year-over-year.
  • Adjusted EPS was $6.35, affected by Hurricane Helene and stop sale orders for certain vehicle models.
  • The company repurchased 400,000 shares for $89 million in the quarter.
  • Used vehicle profitability improved, while new vehicle gross profit per unit declined.
  • The parts and service segment showed growth, despite hurricane disruptions.
  • Clicklane sales increased by 13%, with new unit sales up 20% year-over-year.

Company Outlook

  • The fourth quarter will see the launch of a pilot program with Tekion across four stores.
  • The management aims to maintain SG&A as a percentage of gross profit in the mid-60s for Q4.
  • Full-year pre-tax income estimates for TCA are between $70 million and $80 million.
  • The company plans to prioritize gross profit over volume in its used car business.

Bearish Highlights

  • Hurricane Helene and stop sale orders significantly affected sales, particularly in Florida.
  • New vehicle gross profit per unit faced challenges due to issues with Stellantis (NYSE:STLA).
  • The company is exposed to higher stop sale percentages due to its heavy Lexus and Toyota brand mix.

Bullish Highlights

  • Service customer pay labor gross profit for Western stores grew by 22% year-over-year.
  • Parts and service operations are expected to benefit from upcoming warranty fixes.
  • The company ended Q3 with a strong liquidity position of $768 million.

Misses

  • The estimated EPS was negatively impacted by $0.39 to $0.43 due to the hurricane and stop sales.
  • Same-store used vehicle sales declined by 6%, partly due to the hurricanes and stop sales.

Q&A Highlights

  • The company is enhancing trade-ins and inventory acquisition strategies while awaiting inventory level stabilization.
  • The Tekion platform rollout is expected to improve productivity and reduce SG&A costs in the long term.
  • Challenges in the F&I segment are expected in 2025 and 2026, with a turnaround anticipated in 2027.
  • Electric vehicle sales currently represent 6% to 7% of total sales, with expectations to stabilize by 2030.

Asbury Automotive Group, Inc. (NYSE: ABG) remains cautiously optimistic as it navigates through the challenges of market disruptions and focuses on strategic initiatives to bolster its operations. The company's resilience in the face of adversity and its commitment to improving profitability while managing capital allocation effectively positions it for future growth. The next earnings discussion is scheduled for early 2025, where further insights into the company's performance and strategies will be shared.

InvestingPro Insights

Asbury Automotive Group's (NYSE: ABG) robust third-quarter performance aligns with several key metrics and insights from InvestingPro. The company's revenue growth of 16% year-over-year to $4.2 billion is reflected in InvestingPro data, which shows a revenue growth of 12.24% over the last twelve months as of Q3 2024, and an even stronger quarterly revenue growth of 15.56% in Q3 2024.

Despite the challenges faced, including Hurricane Helene and stop sale orders, Asbury's financial health appears solid. The company's market capitalization stands at $4.65 billion, indicating its significant presence in the automotive retail sector. Moreover, with a P/E ratio of 8.52 (adjusted for the last twelve months), the stock appears to be trading at a relatively attractive valuation compared to the broader market.

InvestingPro Tips highlight that Asbury has been profitable over the last twelve months, which is consistent with the company's reported adjusted EPS of $6.35 for Q3 2024. Additionally, analysts predict that the company will remain profitable this year, suggesting confidence in Asbury's ability to navigate current market challenges.

The company's focus on share repurchases, as mentioned in the article, is interesting when considered alongside the InvestingPro Tip that Asbury does not pay a dividend to shareholders. This suggests that the company prioritizes returning value to shareholders through stock buybacks rather than dividend payments.

It's worth noting that InvestingPro offers 6 additional tips for Asbury Automotive Group, providing investors with a more comprehensive analysis of the company's financial position and market performance.

While the article discusses improvements in used vehicle profitability, an InvestingPro Tip cautions that Asbury suffers from weak gross profit margins. This is reflected in the gross profit margin of 17.41% for the last twelve months as of Q3 2024, which investors may want to monitor closely.

As Asbury continues to navigate market challenges and focus on strategic initiatives, these InvestingPro insights provide valuable context for understanding the company's financial position and potential future performance.

Full transcript - Asbury Automotive Group Inc (ABG) Q3 2024:

Operator: Greetings, and welcome to the Asbury Automotive Group Third Quarter 2024 Earnings Call. [Operator Instruction] 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.

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 Asbury Automotive Group's third quarter 2024 earnings call. The press release detailing Asbury's third quarter results was issued earlier this morning and is posted on our website at investors.asburyauto.com. Participating with me today are David Hult, our President and Chief Executive Officer; Dan Clara, our Senior Vice President of Operations; and Michael Welch, our Senior Vice President and Chief Financial Officer. 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. Forward-looking statements are statements other than those which are historical in nature, which may include financial projections forecast 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 2023, any subsequently filed quarterly reports on Form 10-Q and our earnings release issued earlier today. We expressly disclaim any responsibility to update forward-looking statements. 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. We have also posted an updated investor presentation on our website, investors.asburyauto.com, highlighting our third quarter results. 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 third quarter earnings call. As I look at our results and set them against some of the unique challenges we faced in the quarter, I'm really pleased with our overall performance and credit the team for their ongoing resiliency, in particular, those individuals and their families impacted by both Hurricane Helene and Milton. Operationally, we saw sequential quarterly growth in used vehicle profitability, and the pace of gross profit decline for new vehicles has started to moderate, a notable achievement given our exposure to Stellantis. Stellantis in particular, continues to be a headwind for our business. To give you some context, our 20 Stellantis locations are seeing year-over-year new volume declines of 30%, with gross profit per vehicle down over 53% from Q3 of 2023. Encouragingly, however, we've recently seen them take a more aggressive stance on incentives, which we hope will begin to resolve some of the excess inventory challenges. Our SG&A as a percentage of gross profit improved quarter-over-quarter, showing that our efforts to take costs out of the business is gaining traction. And finally, our parts and service business continues to show healthy growth. For the quarter, we delivered adjusted earnings per share of $6.35, but as I mentioned at the start of the call, several unique events had a meaningful impact on our performance. Hurricane Helene affected store operations in Florida, Georgia and South Carolina, and the extended stop sale order for certain Toyota, Lexus and BMW models impacted volumes on some of our most profitable and in-demand vehicles. Excluding the negative effects from these two items, we estimate our adjusted earnings per share for the third quarter would have been between $6.74 and $6.78 per share. With Hurricane Helene, stores in the path of the storm closed their doors early or opened later after the storm passed. Most importantly, however, all of our team members were safe, although many incurred damage to their homes and property. Temporary store closures and reduced customer traffic in the days leading up to the storm and immediately afterwards resulted in fewer new and used unit sales, along with lost business in fixed operations. All told, we estimate the impact of the storm on earnings per share to be between $0.07 and $0.09 per share. The various stop sale orders were even more impactful to our quarterly results. The Lexus TX and Toyota Grand Highlander models have been popular vehicles with healthy gross profit margins. Based on our pre-stop sale trends for these models and for our BMWs, we estimate that this resulted in nearly 1,200 fewer new units sold for the quarter. The estimated negative impact to our third quarter earnings per share was between $0.32 and $0.34 per share. As it relates to Hurricane Milton, while we're still assessing the operation and financial effects from this fourth quarter event, we believe the magnitude of the impact to our business will be greater than Hurricane Helene. The size and path of the storm placed it over a larger section of our store footprint and the damage to our dealership locations was more extensive. A higher number of stores closed for longer compared to Helene. Several locations experienced flooding, parcel loss of vehicle inventories and extended power outages. Other locations had varying degrees of wind and water damage, preventing them from reopening in a timely manner. Separate from the hurricane, we are also working to better understand the fourth quarter impact on all the various stop sale orders. This is inclusive of the ongoing stop sale for certain Toyota, Lexus and BMW models, along with the recent Honda (NYSE:HMC) stop sale order for several of their more popular models. We will provide additional details during our fourth quarter earnings call. Now, for our consolidated results for the third quarter. We generated $4.2 billion in revenue, up 16% year-over-year. Had a gross profit of $718 million, up 7%, and a gross profit margin of 16.9%. Our same-store adjusted SG&A as a percentage of gross profit was 63.8% and 64.4% on an adjusted all-store basis. We delivered adjusted operating margin of 5.6%. Our adjusted earnings per share was $6.35, and our adjusted EBITDA was $233 million. During the quarter, we repurchased nearly 400,000 shares for $89 million, bringing our year-to-date total through October 28 to approximately 830,000 shares for $183 million. In the third quarter, we divested one Chevrolet and one Honda store as part of our ongoing efforts to optimize our portfolio. And finally, in the fourth quarter, we launched our long-awaited pilot with Tekion in four stores in our shared service center. Now, before I hand the call over to Dan, I want to say thank you again to our team members for delivering another solid performance. Given our heavy presence in Florida and the Southeast, the recent storms have had major impacts to our team members and the communities in which they serve. Their dedication to getting our stores back up and running is just a small part of the overall recovery effort, and I couldn't be more proud of them. Now, Dan will discuss our operational performance. Dan?

Dan Clara: Thank you, David, and good morning, everyone. First, I would also like to say how grateful I am of our team members. Our team members rose to the occasion through major storms to deliver the most guest-centric experience in automotive retail. Thank you. Now, moving to same-store performance year-over-year, which includes dealerships in TCA unless stated otherwise. Starting with new vehicles, same-store revenue was flat year-over-year with strong performance from Ford (NYSE:F), Mercedes Benz (ETR:MBGn) and Hyundai (OTC:HYMTF) to name a few, offset by the challenges we saw in Stellantis plus the impact of stop sales affecting volume for certain in-demand Toyota, Lexus and BMW models. Toyota and Lexus represent 30% of our new vehicle revenue and are great partners with terrific brands. Unfortunately, this stop sale led to a meaningful impact on our unit volume and gross profit per unit. And as it relates to Stellantis, while it is early days, we are encouraged by changes we have seen lately on incentivizing their product. New average gross profit per vehicle was $3,512 as we moderated sequential GPU decline better than we anticipated. Our same-store new day supply was 63 days at the end of September, with wide variation among brands. Turning to used vehicles. Third quarter unit volume decreased 6% year-over-year and used retail gross profit per unit was $1,566. On a quarter-over-quarter basis, used gross profit per unit slightly increased. As we mentioned in the prior quarter, we have assessed the balance of volume and gross profit. And until the pool of used vehicles gets back to more historical levels, we will prioritize unit profitability over chasing volume. We will continue to evaluate our approach and adjust to market conditions. Our same-store used day supply was 38 days at the end of the quarter. Shifting to F&I. We earned an F&I PVR of $2,111 in the quarter, our results holding in line with the second quarter of 2024. As we expected, the deferred revenue headwind of TCA contributed to nearly half of the year-over-year decrease. It was $51 of the $108 decrease in the same-store F&I PVR number year-over-year. We view this headwind to be more impactful throughout 2025 and into 2026. Michael will provide more details on these factors for TCA. In the third quarter, our total front-end yield per vehicle was $4,743, and it was encouraging to see total front-end margin stabilizing given headwinds from some brands this quarter. Moving to parts and service. As David noted, we were pleased with the progress of our parts and service business. Our same-store parts and service gross profit was up 4%, even with hurricane disruptions in several markets. For the quarter, we earned a gross profit margin of 56.8%, an expansion of 144 basis-points versus prior year quarter, driven by margin increases in our customer pay operations and revenue mix. I'd like to provide further visibility on the progress being made in our fixed operations. At a store-level within the customer pay bucket this quarter, same-store customer pay service sales revenue was up 11% and same-store parts customer pay revenue was up 4%. And now shifting to our gross profit performance within fixed operations. Our largest portion and most profitable piece of the business, customer pay, generated gross profit growth of 8%. In warranty, we were up 14%. The smaller units of the business, wholesale parts and collision were down 2% and 10%, respectively. These are lower-margin profile businesses and that mix impact contributed to the overall fixed operations margin expansion. I am especially pleased with the progress and momentum of our Western stores this year, with a 22% growth in service customer pay labor gross profit year-over-year. And finally, we retailed approximately 13,000 sales through Clicklane in the quarter, a 13% increase over last year. We were especially encouraged by the performance in new units, a differentiating factor for us with approximately 6,400 units sold, a 20% increase year-over-year. Thank you, leaders and team members for helping make the car-buying experience in-store and online more transparent and easier for our guests. I will now hand the call over to Michael to discuss our financial performance. Michael?

Michael Welch: Thank you, Dan. I would also like to give my thanks to our team members for their perseverance and performance through the hurdles we faced this quarter. I will now walk us through a more detailed financial overview of the quarter. Overall, adjusted net income was $126 million and adjusted EPS was $6.35 for the quarter. However, as David mentioned in his opening remarks, we estimate our adjusted earnings per share for the third quarter would have been $6.74 to $6.78 per share when excluding the impact from the storm and various stop sales. Adjusted net income for the third quarter of 2024 excludes net of tax. Net gain on divestitures of $3 million and losses related to the hail damage of $2 million. Adjusted net income for the third quarter 2023 excludes net of tax of $3 million gain on the sale of real estate and $1 million of professional fees related to the acquisition of the Jim Koons Automotive Companies. Adjusted net income -- adjusted SG&A as a percentage of gross profit came in at 64.4%, a sequential improvement over the second quarter. Despite the headwinds of certain brand performances and lower vehicle grosses, we are encouraged by the efforts of our team to contain cost. We anticipate SG&A on a percentage basis to be in the mid-60%s for the fourth quarter, given the anticipated impact from Hurricane Milton and the ongoing stop sale activity. The adjusted tax rate for the quarter was 25.4% and we anticipate the full year adjusted tax rate to be approximately 25.3%. TCA generated $18 million of pre-tax income in the third quarter and $59 million year-to-date. We anticipate full year results to be between $70 million and $80 million on a pre-tax basis. We plan to offer TCA across the Florida and Koons markets next year and have outlined the puts and takes for the TCA pre-tax income estimates for the next few years in the presentation posted this morning on our website. We generated $487 million of adjusted operating cash flow year-to-date. Excluding real estate purchases, we spent $105 million on capital expenditures year-to-date, and we anticipate to end the year between $180 million and $200 million. Free cash flow was $383 million year-to-date. We ended the quarter with $768 million of liquidity comprised of floor plan offset accounts, availability on both our used and revolving credit facility and cash excluding cash of Total Care Auto. Our transaction adjusted net leverage ratio was 2.9 times at the end of September, which reflects our strategic deployment of capital in the quarter to share buybacks. We continue to seek and create opportunities with our rigorous capital allocation approach across share buybacks, M&A and organic investments. In closing, thank you team members once again for delivering strong results to support our missions to be the most guest centric automotive retailer. This concludes our prepared remarks. 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. [Operator Instructions] Our first question comes from John Murphy with Bank of America. Please proceed with your question.

John Murphy: Good morning, guys. It's really good quarter in the face of a lot of adversity here. David, just first on the Stellantis impact, I mean, it sounds like in the Stellantis stores, you're starting to manage this better with some help from the factory. But as you think it's sort of the spillover to the pricing environment and the risk it's creating to new GPUs, how do you think about that? So far, it doesn't seem like it's really had any significant impact on their overall market, but just curious how you think about that.

David Hult: John, I'll give you my thoughts and I'm sure Dan will jump in. A lot of it when you think about incentives, we all think of the traditional methods. In the last quarter, everyone had high day supplies to Stellantis, including our peers, and they came out with coupon incentives, which were basically put on taking more inventory. Our stores chose not to, for the most part, take more inventory because we were already at a high day supply. So, for the quarter, we were at a competitive disadvantage because a lot of our competitors that chose to take more inventory had more coupons to use. So that put pressure on our volumes and it put pressure on our margins as well. It still is impacting early in the fourth quarter with the coupon concept, but they're also engaging with other incentives that we think will help. But over the last 12 months, they've also eliminated a lot of their entry-level models and they probably haven't been, from my perspective, building vehicles with the right content that has been able to move the product faster. They're a good company. They're going to figure it out. It's just taking them a little time with the management changes and other things that they've had. And we're unique in the sense that our size of 153 rooftops, 20 Stellantis stores, unfortunately has a material impact on our business. Dan, I don't know if there's anything you want to add to that.

Dan Clara: Yeah, I'll just -- good morning, John. I'll just add that lately to what David mentioned, the new incentives that we're seeing is when they become -- when they put money that can be used for a better transactional price for the guest, the response that we're starting to see is slightly better from the guest. And so therefore, it is allowing us to move some of the units. In addition to that, just as of last week, end of last week, they announced some special interest rates starting in November. So it's like I stated, it's early in its days, but we're excited with what we're seeing.

John Murphy: Okay. And then just a follow-up to that on the GPU at $3,512, it's better than people have been fearing better than we were estimating. And in the face of what you just talked about on the Stellantis side, it's pretty remarkable. How do you think about this going forward? It seems like it's a little stickier in the $3,000 to $3,500 range as opposed to the $2,500 range that people ultimately think it might settle into.

David Hult: Yeah. I would say, again, when you look at the peer group, you really have to break down the brand mix. 30% of our revenue is Toyota and Lexus, very low day supply. So, those are very high margins. Mercedes, obviously, had a good quarter as well. And then when you look at our segments broken down, luxury, import, domestic, luxury held up the best. And even when we were showing backwards in units with on the domestic side, 100% of those units being backwards was solely Stellantis. We were up with the other brands. Dan, anything you want to add as far as the margin?

Dan Clara: Well, I would just say too that even on the other domestics, when you look at our other domestic partners, margins are holding pretty steadily there as well. So, we're encouraged by what we're seeing there, but I think a lot of it is also our portfolio mix that is definitely contributing to what David stated of the $3,500 GPU.

John Murphy: And then just one last one on the parts and service. I mean, stop sales are negative short run, but probably provide a pretty good warranty parts and service bump on the other side. How do you think about that and how fast does that potential benefit come through?

David Hult: Dan?

Dan Clara: I'll start and then David, I'm sure will add anything that I forget. So John, we have -- there are several stop sales going on right now, as I'm sure you're aware of. Some of them, they're fixes. Toyota and Lexus just announced that there is a fix that is available for the Highlander and also for the TX. And the warranty reimbursement rates that we're getting, some of those are paying 3.1 hours and then there's going to be some nice gross profit margin that we should see from the parts side of the equation as well. It really depends to your question of how soon we're going to see it. It really depends on the availability of the parts when the recall notices are sent to the consumer as to when they're going to be available to come into our shops. We have the throughput. We're ready to serve our guests, but I would expect that we're going to see that -- definitely started in Q4, but I would expect for it to move into Q1 of 2025 as well as we complete all the recalls.

David Hult: Yeah, I would say -- agree with Dan, we'll get a little bit of a tailwind from the warranty with Toyota and Lexus, but the Honda stop sale, that just came out last week, I believe, and they don't have a fix yet. So, it's too early to predict what kind of impact that will have.

John Murphy: Great. Thank you, guys.

David Hult: Thank you, John.

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

Rajat Gupta: Great. Good morning. Thanks for taking the questions. Just on the stop sales impact, if I look at the impact from the stop sale in the hurricane, it seems like it turned out to be much higher than maybe what some of your peers might have experienced. Was there something to do with the fact that because you were more exposed to the hurricanes, it made it harder for you to just get those fixes done and get those cars out the door late in September, or is there anything else you would flag on just the magnitude of the impact from the stop sales? And I had a follow-up on the used car business.

David Hult: Rajat, I'm going to hand that to Michael, but I'll start by saying the fix for the Toyota and Lexus did not come in the third quarter. It's literally coming right now. So, even into the fourth quarter, it's at the end of October before we're starting to see it. So, we haven't even started performing the fixes yet, but we're about to. But in the third quarter, hurricane aside, there wasn't a fix and there wasn't parts available to address them in true stop sale. You obviously can't sell the vehicles either.

Michael Welch: Yeah. So, on the hurricane, because we had exposure in Florida, Atlanta and up into Greenville, we got hit in multiple markets and that just shut down the business from a customer perspective in closing the stores across multiple markets for us. And so that's -- the impact of that was mainly just those stores impacted, and it was so late in the quarter, there's not really a way to recover from a sales perspective and there was very little damage on that storm in those specific markets. So, you don't have that recovery demand. When we get to the fourth quarter and get to Milton, there is some flooding and some things there that will probably provide some benefit on sales in the fourth quarter. On the stop sale for us, we're just a higher percentage Lexus and Toyota than most of the groups. And so, we just took the new vehicle sales, the used vehicles that would have gone with that from a trading perspective and then we just kind of fed that down the income statement. So, you get the internal gross profit from those used vehicles and then you have the SG&A flow through. So, the majority of that is the reason we're higher is just our exposure to Lexus versus the rest of the peer space.

David Hult: And, Rajat, we just took the run rate of those models prior to the stop sale and just assume the same going through it. And in reality, it would have been higher because you're coming into that selling summer season, so to speak. So, from our perspective, we think we took a conservative approach.

Rajat Gupta: Understood. That's helpful. And just on the used car business, the 6% same-store decline, I'm sure like some of that was impacted by the hurricane and also the stop sales of the stores for the trade-ins, but just curious how we should think about recovery in that business here, fourth quarter perhaps next year, especially in light of the off-lease shortages that we might start to see? And anything else you might be doing to turn around the operations there? Thanks.

David Hult: Sure. I'll start and then Dan can jump in. Last quarter, I said we're still assessing whether we're going to chase volume or go back to gross profit. We decided to go back to gross profit and not chase volume. Based on the peers that have, I think, announced already, most of them, I think there was only one better than us so far, as far as being backwards in unit sales. So, we improved our margin quarter-over-quarter. We lost sales with the hurricane. We were able to maintain margin, not as much as we wanted, but I think until the pool becomes normal again with the off-lease cars and everything coming, which is still a year away, I don't think it makes sense for us to chase volume because we have expenses with every car that we sell. And from our perspective, we would rather be more conservative on the unit sales and focus more on the gross profit. Dan, any thoughts?

Dan Clara: Yeah. Rajat, I agree with David. And just to expand on your question about what else are we doing focusing on this side of the business. We, as you all know, we make our highest margin on trade-ins and acquisitions that we do with our local customers. Really trying to stay away from auctions and what have you because the one that wins that car is the one that is holding the hand at the end of the bidding process and usually brings you a very low margin. So, we have processes in place to increase and continue to work on capturing the trades, acquiring inventory through the service department. We also have the loaner car pool that we can utilize when those cars are available to come out, and just trying to maximize our margin as we move forward. And when the availability of inventory comes back, like I stated on the call, then we will assess if it is the right time to get more aggressive on the volume side of it.

Rajat Gupta: Understood. That's very clear. Thanks for all the color and good luck.

David Hult: Thank you, Rajat.

Operator: Our next question comes from Jeff Lick with Stephens. Please proceed with your question.

Jeff Lick: Great. Congrats guys. That was a very impressive quarter given what you were up against this quarter. I was curious with respect to your SG&A percent of gross at 64.4%, that's the best amongst your peers. Could you talk about where you think that could go and also highlight the impact of how your test and potential rollout of Tekion may disproportionately influence this going forward?

Michael Welch: Yeah, Jeff, thank you. On the SG&A side, we still have the declining new vehicle PVRs that will put a little bit of pressure on that number over the next year, but the things we're doing with the Tekion launch and rolling that out in '25 and '26, we think that will give us the opportunity in the long-term to pull that number down as we become more productive with our employees and we just don't have as many bolt-ons. There will be a little bit of cost in '25 and '26 if we do the rollouts just in terms of transitioning from CDK to Tekion, but not much in the way -- there's just a little bit of overlap cost there. But we really see the benefits kind of late '26 into '27 from an SG&A perspective. Hopefully be able to pull that number back below back into the 50%s once we get those things rolled out.

Jeff Lick: And then just a quick one on F&I. GPU F&I came in at $2,141, which is stronger than us in the Street estimated. Given you guys have been guiding the TCU -- or TCA would have a negative impact short-term, is that still the case or would this $2,140 level kind of be the base from what you're going to grow off of?

Michael Welch: So, I'll answer the TCA thing and then let Dan weigh-in on just the operational side at the store level. TCA in '25 and '26 will have a more meaningful impact and lower that -- overall consolidated PVR just because we'll take the headwind from TCA deferral as we continue the deferral impact of the stores we've already rolled out, but then also roll out our large market in Florida and the Koons market. So, '25 and '26 will be the hefty years for an F&I PVR perspective.

David Hult: And specifically, we think the second half of '25 will be a really sizable hit into '26, and then '27 should start to become a tailwind for us, where it goes the opposite direction. Dan?

Dan Clara: From an operational standpoint, nothing has really changed. We continue to focus on the bottom 20% of our stores, continue to train them, coach them, make sure that we provide a great guest experience during the final process of purchasing a car.

Jeff Lick: Awesome. Well, congrats, and look forward to catching up here in a bit.

David Hult: Thank you.

Operator: Our next question comes from Ryan Sigdahl with Craig-Hallum Capital Group. Please proceed with your question.

Ryan Sigdahl: Hey, good morning, guys. Looking at Slide 14, helpful from a breakout mix standpoint of what EVs are versus ICE. Curious what the sales breakdown would be.

David Hult: Dan, you get that?

Dan Clara: Yeah, just give me one second here. Good morning, Ryan. I can give you some color. I don't have the sales breakdown percentage-wise. I can certainly give that to you later, but I do have the -- I'd like to give you some color on some of the GPUs, if that's okay with you. From an EV standpoint, I break it down by brand and I'm going to start with luxury, then I'm going to move on to the imports and domestic. But on the luxury side of it, we're seeing GPUs holding on pretty good with BMW and Lexus. And I'll just give you a specific example. So, one of our partners, we run about a $3,500 front-end GPU and in EVs, that number is in the $2,800 range. But then when we go into some of our domestics, we're starting to see a little bit of a steeper decline in GPUs. And in some cases, that number is a negative number in the front-end of the EVs. From an import standpoint, it's a mix throughout all of them. So, when we look at, for example, Nissan (OTC:NSANY) is pretty flat compared to the ICE versus EVs. And we do have some of them that are substantially different specifically if we look at some of the GPUs in looking here in my chart, so just bear with me, at Nissan -- I'm sorry, at Hyundai and also Honda, we see a drop. But overall, the EV, we are seeing a negative impact to the PVR and I would have to get back to you on the exact numbers breakdown from a sales perspective because I don't have that readily available.

Ryan Sigdahl: Helpful. You answered my second question. I was going to move into the GPUs and how that compared. Instead, I will ask about Hurricane impact. Have you seen any positive externalities thinking pricing, used vehicle pricing, GPUs, demand, insurance proceeds coming in, et cetera?

Dan Clara: Yeah, we have. Go ahead, David.

David Hult: Go ahead. No, you go.

Dan Clara: No, you go ahead.

David Hult: Yeah. I would just say, there was certainly more vehicles lost in Milton. So, there should be some tailwind in the fourth quarter with replacement vehicles, certainly on the western side of Florida.

Michael Welch: And from an insurance perspective, we'll have the insurance claim related to the property damage and the inventory damage that will settle pretty quickly. And as you know, BI claims with the insurance companies just take a while and so I wouldn't expect any BI recovery until mid '25 or later.

Ryan Sigdahl: Very good. Thanks guys.

David Hult: Thank you.

Operator: [Operator Instructions] Our next question comes from Bret Jordan with Jefferies. Please proceed with your question.

Bret Jordan: Hey, good morning, guys.

David Hult: Good morning.

Bret Jordan: On that service slide that breaks out the repair order by powertrain, do you think that BEV premium is something that's sustainable or is this sort of working the bugs out of new technology and that will revert lower as these units get a little bit more seasoned?

David Hult: Bret, this is David, and Dan can jump in. I think logically, you're correct. I think there's going to be a few more years of higher dollars on BEVs. And as you get probably closer to 2030, a lot of the kinks should get worked out as you move forward. There's just a lot of technology in these vehicles and you add wind, weather and cold, it just creates a lot of disruption. So, I think in the near-term, it's good. And when you look at the car park that's out there and the age of the car park and one of the slides shows that we're averaging over 71,000 miles coming through our service drive. So, we're not just servicing during the warranty period, 71,000 is well above it. So, we're doing a good job at retaining them. We look at the next six to 10 years is pretty strong in parts and service between the mix of all the different products. And we still believe with the BEVs as they continue to come to market, retention numbers are only going to go up. Frequency should come down over time, but we think the dollars and margins will stay higher. Dan, anything you want to add?

Dan Clara: No, I have nothing to add.

Bret Jordan: Okay. And then, a question on Collision. Obviously, that's been soft, I think, across for everybody. Is that something that's secular? Is there a real structural change in collision demand or is this tied to something shorter-term?

David Hult: That's -- we're all scratching our head on that one, Bret. It doesn't matter the market, it doesn't matter that the state, everywhere is experiencing less year-over-year. There's more total losses because the claims are higher and there's more technology in these cars, so the dollar values are higher. So, we're seeing more total losses year-over-year. But not only does it affect our collision business, it affects our parts business because we're obviously not wholesaling as many parts because our competitors are also not seeing the business either. I'm curious to see how this turns out over time, but it's been a trend all year and it hasn't really changed at all. Dan?

Bret Jordan: Okay. Great. I guess question on [indiscernible] parts and service, traffic versus ticket just as a housekeeping of that plus four, I guess how much was car count?

Dan Clara: So Bret, this is Dan. And from -- if we look at customer pay count specifically, luxury was up 9%, the import up 1%, total was up 3% from a customer pay count.

Bret Jordan: Great. Thank you.

Dan Clara: You're welcome.

Operator: Our next question comes from David Whiston with Morningstar. Please proceed with your question.

David Whiston: Thanks. Good morning. Just curious if -- especially for the domestic and import brands, if negative equity is at all a concern for you either right now or in 2025?

Dan Clara: Good morning, David. This is Dan. Yes, it is. We're definitely seeing our fair share of consumers that are in a negative equity situation. And obviously, it is requiring in a lot of cases more money down as a down payment to offset some of that. So definitely a slight concern as we move forward.

David Whiston: Are you seeing it more with one particular customer brand set like import versus domestic?

Dan Clara: Yeah, I mean, we definitely see it a little bit more with domestic, but I will tell you that nobody has been protected. We see it in every -- in luxury, we see it in the imports, within domestics, but more heavily weighted into the domestic side of the business.

David Hult: One thing I would add, credit scores have been resilient, they've held up well. Lending has been strong for us. So, we don't see any headwind at this point holding us back from being able to acquire loans for our consumers.

David Whiston: Okay. And on your balance sheet, your leverage ratio is near the high-end of your target range, profits that are normalizing post chip shortage. I mean, do you feel the need to pay down some debt before doing more M&A or can you go either way?

Michael Welch: No. I mean this quarter, we saw an opportunity to deploy some capital to share buybacks. And so, we elected to buy those shares and the leverage ticked up a little bit. We do think in the future, we can continue to -- the cash we generate, we can deploy towards the net leverage and look for those opportunities as they come okay.

David Whiston: Okay. Thank you.

David Hult: Thank you.

Operator: There are no further questions at this time. I would now like to turn the floor back over to David Hult for closing comments.

Dan Clara: David, before you close, do you mind if I jump in? I have the numbers for Ryan on the EV sales. It's between 6% to 7% of our total sales.

David Hult: Okay. Thank you. So, this concludes today's call. We appreciate your participation today and look forward to discussing the fourth quarter early in '25. Have a great day. Thank you.

Operator: This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.

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