ABG - Earnings call transcript Q2 2018 | Asbury Automotive Group, Inc.

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Operator

Good day and welcome to the Asbury Automotive Group Q2 2018 earnings call. Today's conference is being recorded. At this time I would like to turn the conference over to Mr. Matt Pettoni. Please go ahead sir.

Matt Pettoni

morning good and operator everyone. Thanks Automotive Welcome call. quarter earnings second to Asbury XXXX Group's Today's be and later recorded call being is will today. available replay for earlier The results posted Asbury's detailing our this issued on asburyauto.com. press is morning at second website and release was quarter David are Vice Executive President Senior our President of and Senior Vice Operations; and Chief today Officer; us and Hartman, Officer. John with Hult, Participating our Financial our President Chief Sean Goodman will our of for remarks, we available the follow-up open any up I have. conclusion will questions call questions and the be might for later At you

I discussion begin, to today we contain must the likely Before remind you the is during that forward-looking statements. call

differ those forward-looking the by from Forward-looking statements to those and subject statements. than historical may in uncertainties which statements other materially are nature. All are suggested significant statements results are actual

see regarding cause disclaim risks year certain differ, earnings earlier reports and our Form XX-K expressly the today. results for forward-looking to to release Form issued any time-to-time, statements. filed XX-Q, our ended our XXXX, of update with information including that any filings the actual subsequently We For may December, the on responsibility from SEC quarterly please

certain non-GAAP may discussed as this defined financial under be SEC call. rules, measures, on addition, In

the rules, SEC over As David? required hand of directly non-GAAP any to such measures Hult. provide by applicable our David to GAAP on call we my our to is pleasure reconciliations measures financial CEO, comparable most the website. It

David Hult

welcome morning to XXXX and second Good call. Matt. everyone you, Thank our earnings quarter

second pleased We our with quarter performance. are very

over adjusted During this year's $X.XX, last we adjusted EPS a of EPS. increase record achieved quarter, XX%

unchanged. remains for plan XXXX Our

service, management, cars, control, of to the the deploy while specifically capital returns. F&I the and continue will parts that business aspects expense We we focus continuing highest towards intelligently overall on can used and to

which This acquired the revenue. of million stores annual quarter, market, should Atlanta two approximately combined generate $XXX in we

the to omnichannel through call and I will our returned share building hand our we now performance. We Sean our Sean? to capabilities. investments discuss our shareholders in million financial repurchases over also to $XX continued

Sean Goodman

Thank you, David and good morning everyone. to

of second settlements and quarter or gain pretax charges an adjusted $XXX,XXX investments on for per pretax gain XX record of share ASC $XXX,XXX, by pretax and for compared $X.XX the with a our approximately the $X.XX or on SG&A revenue QX XX points to basis Note on impacted businesses. X%; of for percentage approximately a and income $X.X for gross increased X%; another by our XXXX last $X.XX. that lower The impact the as services or share revenue second was reduce Asbury of excluded profit $XXX,XXX legal estate-related increased do adjust Accounting million of XXX per earnings standard earnings marked prior impact basis XX margin XX% QX than and XXX. parts higher in year; net to ASC per Net per ASC not profit In share year; to record $X.XX. of points was per adjusted last reduce earnings by by XX.X%; net to $XX.X million; cash by by adjusted XX% F&I quarter, adjusted share. points to margin share was quarter of income X.X% adjusted and real of the million, performance second The gross was basis XXX XXXX no flows. revenue we once recognition by results again Overall, adjusted $X.XX increased than $X.XX. a to by $X.X year the There normalize increased was share. operating impact earnings XX.X% by improved gross per profit gross of

XXXX. of from down for tax Our second was the XX.X% second quarter XXXX, rate of in XX.X% quarter effective the

performance SG&A to points of is was continued over very a profit year. last XX.X%, XX pleasing investment. of Turning our This percentage basis a the gross an for expenses. considering improvement quarter omnichannel as

capabilities. As profit previously access first noted, of during for XXXX, percentage omnichannel prior million than SG&A in which the of XXXX the XX gross year. of points a as investing are we half is in was $XX XX%, better basis

to continue the We to XX% target full XX% year XXXX. for

our hand million performance. walk the have John? is like floating through $XXX lines, debt $XX in interest in prior $XX is $X increases the a Despite deployed liquidity the in on by This X.X the associated dealerships store our around that total cost over of we million in revenue. the this floor million generate John floor two and X.X XXXX, respect a million A all expense we this hailstorms second credit by would stock, Irving, excess floor on our cash, available acquired of of Texas. to the of recognized $XX revolving that a plan incumbent expenditures, at with driven million to second real that times. Plano, also our our $XXX $X recognized to During cost in the Honda at LIBOR damaged stores times $XXX,XXX that quarter approximately capital to our annual million. rate. used reminder the of increased in We plan capital debt $X has call At operating billion us ended fixed a in our line, we we hit two With interest available quarter. we available quarter, $X.X inventory. estate inventory in million our accounts, quarter stood with hailstorm a leverage $XXX due ratio year other From and approximately we quarter, repurchasing reduction days, at expect rate leverage plan experienced rate. of an now to located our end we a quarter, Note perspective, vehicle on to net Texas. the million in offset I ratio common while spent million over to quarter and

John Hartman

My you, the performance XXXX. to remarks pertain Thank Sean. our of to quarter compared will same-store second

at was million was unit to above on SAAR for money. XX lower certain flat underperformed was domestic SAAR a strong incentive coupled points our were in grow this basis basis lower dollars. Looking targets last brands, retail XX points able margins reduction year, X%. our the incentive was incentive import thereby new missing margins The margin Overall new environment, quarter decrease new flat to with which X.X% for available In in because focus than $XX.X at SAAR were we the we X.X%, last in aggressive and retail sales we Domestic quarter. car vehicles, year. due quarter or down while also than some our last

both While both by our we line and import were our margins to luxury able down, and basis domestic grow by XX points. X% margins were

to from Our days quarter days total new vehicle prior by reduced We was two supply the days. inventory year our $XXX XX million.

Turning to used vehicle increased sales a unit over our comparable X% in used vehicles, XXXX. strong X%

of X.X% points margin and prior profit quarter lower XX down last XX than points gross from basis year. basis was Our

Our used a vehicle at inventory of $XXX million XX-day is supply.

quarter. profit X% profit team $XX Total $X,XXX by by Turning F&I to gross increased our continues deliver prior strong vehicle to per increased year gross from to and results. F&I,

PVR As revenue the impacted the standard. Sean $XX of vehicle was in by the adoption profit by our adversely new per accounting This mentioned gross vehicle. his F&I recognition per remarks, decreased

and service. parts to Turning

some flat a revenue decline year with X% This remained service parts to warranty improved to service the want increase a take and in used increase XX% parts was a give within gross quarter. customer by our of to X%. pay. vehicle I compared update Our profit progress and initiatives. sales achieved of The caused X% despite increased to our you omnichannel prior an reconditioning and the in work moment on

increased and are entire digital of company XX on track year-over-year. our sales in supports sales digital XX% the by the months. stores program Our Stores brand within we the to currently centralized this certified during participating next XX% team onboard quarter

online converted sales X,XXX over vehicle tool sales quarter. PUSHSTART in the Our

We XX,XXX for were the continue quarter, and parts in XX% online approaching the the year, digital up grow now scheduling appointments online to appointments and prior traffic from per week. tool service our

are employees that and to our Chevrolet all continue to field and in of omnichannel appreciation to and growth our teammates performance. who we've our our produce our center express dealerships best-in-class would able Toyota new Nalley about we all conclusion, In at the been excited like are support sincere Nalley discipline. maintain to we We welcome and our our SG&A pleased in

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

Operator

Nelson. Thank you. floor comes [Operator At open for the Instructions] this first time, questions. Our Rick from we question will

Rick Nelson

follow-up morning. Thanks. of quarter like a I'd That was XX really Nice basis to on the points. standout Good the in quarter. SG&A.

with were margin You this confronted pressure. GPU

sustainable? SG&A to speak If leverage, that drivers to are you if levels could now you think these the

Sean Goodman

Sean. its Rick, Hey

in making this Regarding year SG&A, investments the omnichannel. that are we very of conscious we are

this in As been about I And $XX in it's we've during in said spend. conscious very and XXXX. focused cost remarks, mind, our million the SG&A with

the attention-to-detail personnel very to costs thoughtful scheduled the We've data-orientated to our costs, the we've organization. are and able in We in lean we're of way done and which during is nature relates in manage that and cost-conscious SG&A We of our to quarter. our those XX% very that and SG&A vast estimate a SG&A around majority manage spend. disciplined we've been operating been variable very staffing

management to one point operations. can't overall the is the item, of it but So, specific

Rick Nelson

timeline you'll leverage to those Okay. of think These there investments to investments? is omnichannel a $XX million, when start you

Sean Goodman

-- benefits that that's from year We leverage will months, to XX through. before digital see of from are And within said there's we our remarks, team running. those period But already take becomes the we this his we starting the not to in we're coming that and leverage up these SG&A. The should time starting So, investments. able to of the a our as started then of are of investments. previous but months. reasons rollout another to get spend the the John start year. see XX benefits more And even of already that coming one XX the some to And rollout in sales

David Hult

and I top of lowering jump have. not into future. on, just that And overall of was to in it's the departments. expenses certainly seeing the coming our the with that, very we're this in And to pleased just say while sales, per higher transaction, results the forward rate traffic goal look early but all would Rick, and we that on we're And the conversion

Rick Nelson

color. that for Thanks

two ask, quarter. could you acquired I Finally stores if this

the your comment you that acquisitions there are and seeing appetite you If versus stock for buybacks. on could out valuations

Sean Goodman

I'll I'll up. let Rick, David and start Hey finish its Sean.

look a Just the we of return own factors at thoughts own its thresholds risk its on quantitative and factors. of needs at and both that couple each risk qualitative stand acquisitions. the of to for how generally from look on depend look each the at and We on We project on it the project project project.

which is than investment in Atlanta cognizant situation, turnaround a the our share of or require a buybacks will what these higher well we example, have return investments We're stable always one two our for existing So, investments. alternative as that stores we represent, an of consider stores. when in

two know, David, these a given them, stores, we would if for you turnaround higher don't So, situation expect I to--. the return. for want

David Hult

summed very the stated, higher return, I Every stands excited its No, and acquisitions that up look the two certainly we it at on higher we these for look differently future and deal as well. you in are Sean would what say risk certainly We is the for. it about And see own. them. the

Rick Nelson

in of valuations the coming down are there is looking at of out minds, there, are And meeting guess, of they that more or are pricing? I you a terms the

David Hult

and I of are don't We're how driven of driven. out all about I at up. excited lot see very think looked it. brand a Rick. look market still think and some prices and that very out and some geographic there's bit certainly there, we thoughtful down, activity In there I at. a the going they activity coming lot disciplined a but cases We're we've M&A little what in of is there's conversation,

we're create buying our we and it's we on. pace something. what If the we is out of not think and we to for good a So, don't keep moving for great shareholders asset are just return, and sake like doing our a just going there

Rick Nelson

good lot a and luck. Thanks you. Got

David Hult

Rick. Thanks

Sean Goodman

Thank you.

Operator

comes of Jordan question next Our from Jefferies. Bret

Bret Jordan

Hey good morning guys.

David Hult

Good morning.

Bret Jordan

particular you quarter? about change bit Could aggressively -- either or along did cadence involved it as in players was talk time more little went guess I as incentive the a the progressed quarter

David Hult

it say stable. was I Yes, would fairly

and the bit midline compared import and where the domestic off kind little to were they luxury -- a April. up of most it in of kicked One in But started through imports June brands the stable of quarter. were

Bret Jordan

of measure two talked the then of maybe that's that three how or road, that as want might look done by, And down we great. the on we Okay, metrics be think you success omnichannel we the but to initiative? as I scheduling further online, generation to what about grade the online? want do top set are forward lead You service being that mean

David Hult

-- convenient found at XX,XXX. of gone to is easiest higher a Yes, have like way years I the much standpoint; service we've lead in from think the feel would being We say that no to generate service do an customers differently our in fast, a XXX not traffic From than to and for from ability It's that. airline mix it online. converting that to depends And easy, volume we online booking we've do a and perspective, it almost that ticket week we three rates level appointments do so to that. offer. the and is the you all consistent

spending see are those lot doing with order, do-it-yourselfers better with sales way. and CSI repair dollars that our that the we more online actually more a part are We're per also seeing the As we customers is transactions increasing now.

So, doing streams, and conversion really lower excuse while competitive be rates the costs to at me, avenue it optimize streams revenue or how can for and all seeing we the it's future. -- looking our our

Bret Jordan

you I anecdotally a that think? have to pay, -- growth customer question, sort gain And number share you feeling on guess in of that's that as Okay. that you service how at your look X% do Is markets? a growth in compared

David Hult

in. the We above think within compete pacing we currently or that probably we're at average markets

ability our have issues. Our is biggest good within this don't brick-and-mortar investments; news lies CapEx technicians. any acquire stated I've have growth the to before, for we opportunity we don't

We to that have capacity we bring technicians. sense issues in the need on more

Bret Jordan

Okay. All you. Thank right.

David Hult

you. Thank

Operator

James of from comes question Edge. Albertine next Consumer Our

James Albertine

you I morning. wanted and a Thank Great. question to ask good first.

handful initiatives, us of business here items versus omnichannel think are gurus help I side. the cars.com, leaving in where I'm As maybe bullet and it of more you management as going just more to of mean outside build about laying versus in-house a do sense it on holistically thinking where makes thinking you and outside are on you build the sense to in building it you third-parties? can experts? point to well invest dealer resources car But internally advertising. think to the you makes perhaps sense

John Hartman

is This John.

use you our providers in. still you We marketing I do lowers think team. a your But I you need the I those of combination get overall lot can third-party to better a to leads of more times. in-house think with And do result both. a think a digital expense do bring need can it and to we in house, lot

James Albertine

you areas? certain in-house help more, us little bit you just going you it are is where a discipline can further? that Can Or in articulate triangulate

John Hartman

we as Well, the of teams far SEO the digital with and and lot markets SEM maintenance work do the in-house. as a

James Albertine

tax should timeframe before expect -- consolidated to about do margins perspective? you the said I Chevrolet But heard those correctly. an in to think what you behind follow-up try if negative? sounds revenue or a Toyota that PBT I in really like want much think further -- as to EBIT it? $XXX stores those you and of say It are you how And profit on approximate Understood. stores or Are start and million bookend earlier turnaround a question to M&A. And from I your the they kind just

David Hult

at stores those Sure, store neither not We by stores was them. profitable, much. were -- both into looked coming

in seeing schedule the speak, year. We're about one so of stores. is a truly for year actually seeing stabilizing this we the But first results operation ahead standpoint. your and second be of the to The have in better people turnaround, about the on. hopes from right would getting the early on grow the gains and you talk dramatic both than to high ability fairly two and them When anticipated stores percent bus,

James Albertine

again Thanks best and quarter. of next Understood. luck

David Hult

you. Thank

Operator

Our question comes Murphy John Bank from of next America. of

John Murphy

guys. morning Good

so a understand this there, we person the sale volume more as actual outline savings Just culmination the can a of PUSHSTART savings versus a over at you dealership time to see sort might be of as first coming PUSHSTART ongoing of about through cost just what program if and maybe or of can and we up an process we question and maybe the sort illustrate a think SG&A growth.

John Hartman

John; Hey, this John. is

are time. the environment in their the consumer think then the really of stores just day of the are And on I interact. we it's to conscious basically in, very And lets want their how at the process consumers time, our changed. has with PUSHSTART interact they end

interact to to deliver them medium. it's and in So, environment and preferred in product us it consumer we're digital the make a living their trying with more for easy we're to much

David Hult

on consumers Let if that F&I. are doing add The to mind. you own me don't their

Route API lenders. We a have X direct with and

more there creating is staff turnover this in thing able approach application; all So, productivity they are service for F&I what signing as the look soon out own, is we stuff are the their team transactions with uploading their our of which well. And the per By we and and is of down we're at road, their between some with to DMV the doing our our any less loan trade except struggle really increasing the we it and only be doing, level Very cost we're on the employee. offer. and they're people doing their savings that per And and information. they stores us online our way documents competitors that this is we'll stores turnover. employee, we're one creating off differentiator lowering

for win company employee bringing win-win we're because for the it's costs a a it's down. and So, our the

John Murphy

making decent cost up versus is ongoing right mean that you and has of else now, I time million a a of this there's system say over $XX you're number way everything personnel a it pushing upfront a less F&I but you're sales is about becomes operating along more So, the process that lose and fair versus store in amount the it through pretty in talking efficient digitally the commission to transaction investment dramatic? including hands.

go -- So, the or dramatically up should over profitability should say on transaction each I time. materially

David Hult

Correct.

John Murphy

whether Thank dealer as ramping captured then of the the lot direct to returns resold a Okay, that's or second are a question, get There's debate at CPOs grounding lease and you. up. helpful. And consumer. they

processing at up ramping your actually lease them Just little curious as what capturing far or them grounding into a and dealers a your we auction. experience level are has and you're putting so you're bit higher your been if returns how and you see if inventory them, more punting into them

Just trying you how are that's with you to understand dealing how benefiting it? and

David Hult

continued increase, cars Well, low opportunity preowned a to have sourcing vehicles. great the creates high quality, off-lease for mileage

So, many as them consumers. we can to the re-retail and to grab try basically we as

and taking back not vehicles many taking are We as auction; to as these to trying retail them possible. we're

John Murphy

vehicle grosses pricing, going pretty given And on up putting what's you're those? used with on good

John Hartman

down. up far later pretty I Overall, focusing good on model they off-lease our as a place our vehicles. are because we're We're on as think vehicles those decent cost used. margin drive margins are But in bringing Obviously that of sale goes.

John Murphy

a bit there's having kind of pricing or like pricing holistic Okay. where average there's I'm or there to to seeing price industry, something just signs a on I is Is that strong, the more just benefit deals improve basis pricing get a belief it curious yet with X%, And early a mix consistent industry. we same-store weakness. selling of your you're are pretty the deteriorating, up dramatically to then the appears be of reasonably underlying the X% mix up yet give on is environment, lastly on basis mean of in some seems done?

John Hartman

the the market Well, about the dictates talking if price of you're specifically, vehicle. used

margins our focus acquisition So, our and costs to to try costs our we reconditioning on really high. keep

John Murphy

the the or new there's vehicle like price mix in average it on looks selling waning yet improving. But strength side, the ATP is

get on done? you more the So, or deals are to up an give is aggressiveness there having to side automaker

David Hult

producing jump this speaking, many. as they it not generally I in. down little quite is by David. levels much mean The are a question is are I'll varies John, industry brand. so bit;

any I and brands their stepped have keep We up as and you there. incentives still backed going effect know, need very have high still see for brands so their little out the unfortunately, off incentives the cause to competitive some right materially need, ball Some don't see now. bit on speak. rolling, But to it where anything a incentives. We there's

John Murphy

one are roundabout at just On that then guys reconditioning, and And housekeeping. you XXX% a through parts Okay. looks booking It gross service? it's last profit like there.

David Hult

is, yes. It

John Murphy

you Thank much very Great. guys.

David Hult

Thank you.

Operator

Armintas comes question next Stanley. from of Morgan Our Sinkevicius

Armintas Sinkevicius

Thank quarter at, you used? are prices, Can were same-store question. taking volumes, a for been least we on margins you versus about strength our my headwinds estimates. there the instance, -- strong with at when CarMax look gross particularly Used you this seeing Because that sales transaction basis. car talk there's some for

I'm what that seeing you in So, curious market. are

John Hartman

We've couple in on And enterprise our change a really used you we vehicles. have if quarters ago, a focused did remember, software.

So, software. I think And the with adapted, team general. sales on -- over really we've a in gotten used has better that we've time vehicle focus had

drive goes, people model of advantages we opportunity is vehicles CarMax service we've have out new initiatives our the a trade franchise of as far got car so we stores have to being a one the We've vehicles. trade got to service through lot an that coming of a of drive, that lot As get the vehicles.

a in field. So, the really a been job and focus it's by team decent the just

Armintas Sinkevicius

and I then about abilities? slide logistics ship in said noticed of you the slide there was transportation can some one talk your you that deck And Can anywhere.

John Hartman

a funny priced said we think minutes to The our thing I on a cars and couple market. I it vehicle pre-owned just ago,

the car vehicle come travel the some somebody used if way we wants it all if can cars We've a get at So, anywhere. shipped shipped. the U.S. to it's right the people will price. over and car right ship But quite

Armintas Sinkevicius

one last then And for me.

and targets, turning versus through so July Your how far? year ago a out is your July trends

David Hult

July is expected. started It off as pretty well.

Armintas Sinkevicius

you so Thank right. All much.

David Hult

Thank you.

Operator

next Research. Our comes question Wolfe from of Christopher Bottiglieri

Christopher Bottiglieri

questions. the taking Thank you for

start So, last on up to question I to follow used the wanted with. on

half the back broadly thinking compares reason last any How more what Or in did maybe the you [Indiscernible] looking in given versus asking? are there you You at from half I'm trajectory half? about QX? think first two have pretty Is easy year. to

John Hartman

I think the as vehicle it. far sales, as stay focused we'll used on

think got decent up some quarter in and quarter we've against I four. three we're comparables

I changing. it see So, don't

Christopher Bottiglieri

Got you.

know talk Okay. a I about anecdotally seeing but more signs. there what small want it's I if are like to broadly segment, you're wholesale? in some

You then two, Maybe there has small had been some changes there. in And iterating I previously Are one, you. driving as are been guess, just to the losses you profitability? now say that. would differently technology industry that trade-ins, profits. start I the like cetera? incrementally in you segment, think increased terms of doing what you about mobile-to-mobile platforms et and stuff different any Thank that's using

John Hartman

it enterprise technology in has the wholesale properly. just is cars and really Well, obviously about appraisal appraising an -- it's really our the tool

be If it's appraise it's wholesale going If to going a it as we a retail such. such. you vehicle, to vehicle, know be appraise it we as

the appraisal cars process really try the wholesale we The in to the -- hold them and sharp and just disposing the being quickly like then not onto them. it's and market So, being quickly. knowing retail, vehicles, just turn

Christopher Bottiglieri

Got you.

question on it then me. high for Then Okay. that's one imports, level

market some obviously So, right there weak now. in the

continue bound one, for And be? F&I at looking creep side, two, think the your given segment rest the maybe way in this You're there read the Have import could just Or to business? of a to we you across profit to a been there about how way Is we import your what of consolidated, used and think to new that? segment? have terms strong. weakness lower then What you gross pretty Is with? the on for the start I could particularly, should able the fundamentals offset look guess on lower. those about just

David Hult

diversity model. our I the would say it talks of to

predominantly group an far affect F&I, us to our I it in would are and of operating top and company, margin. parts import of service, performance brand it's but ride as And so because as the our used. yet you think we think peer would We tend more,

do parts trade brands some them and with customers of midline lot and also the pretty well have import We customers in. customers volume a pretty we be import midline Which appreciate well. as tend service also those strong relationship. some good as again, And certainly have to where

good margin the as a we don't car the total there's that where parts F&I much and others of pre-owned. as might and We we holistic and in So, doing is because probably approach, yields, service sweat ecosystem new kind look what works. out are there our at

Christopher Bottiglieri

you. Got

Okay, helpful. you time. the Thank for

David Hult

much. Thank concludes you a call. today's discussion. day. great We your very all This you. Thank appreciate in Have today's participation

Operator

you, concludes Thank This gentlemen. great day. of a rest and ladies your conference. Have today's

Asbury Automotive (ABG) 24 Jul 182018 Q2 Earnings call transcript