ABG - Earnings call transcript Q1 2019 | Asbury Automotive Group, Inc.

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Operator

Good day and welcome to the Asbury Automotive Group Q1 2019 Earnings Call. Today’s conference is being recorded. At this time, I would like to turn the conference over to Matt Pettoni. Please go ahead, sir.

Matt Pettoni

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

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

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

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

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

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

David Hult

quarter to first Welcome morning XXXX call. Matt, Thanks everyone. our earnings good

possible same for as efficiently over adjusted operating business focused year. effectively are of future. During as Strategically, on we this $X.XX, a first quarter, last the while XX% time increase record EPS achieved the quarter our investing at and we

the retail executing make to vision company. most to good on our continue We guest-centric automotive progress be

operate, on is processes staffing, training technology. stores the including the Our experience our unparalleled utilization transforming of creating and guest way by focus an

car online that allow new and would our a seamless together piloting technology, experience between and the guests transition guests We a of interactions. time pilot can a At for at their car our enhance with purchase shopping fraction processes store, traditional that save in dealership. store a take are based innovative time, typically now

have on receiving convenience, track of their In also soon, to speed, self-service car guest the of and we feedback the excellent we introduced have service kiosk the are the process. and progress transparency lane take online addition, perfect Very in through will the process This status reducing service enhancing time inbound stores. both guest and and while of of the or further transparency holistic out the calls. experience, at across roll to the some number time business will our transformation repair our ability same

the excited to hand business. potential We’re our over Sean now call discuss I financial about to the will performance. our for Sean?

Sean Goodman

morning good everyone. and David, you, Thank

prior income from equivalent a there for adjusted by increased XXXX, The compared adjusted $X.XX. by the $X.X points improved profit margin increased per XX.X% XXXX share. basis XX margin operations earnings were quarter of X.X%, increased for first gross income first of share basis fixed was was as of million operating $X.XX QX marked Net no points XX% XX adjusted performance percentage gross with share XX.X%, by write-off of to by adjusted the quarter first to In per assets adjusted revenue by points of to by increased and XX%. Overall increased to adjustments. last X%, profit year. quarter, a higher per than XXX another SG&A earnings record year gross basis X%,

quarter to of Our effective in XXXX. XX.X% rate first was tax the XX.X%, compared

lower to tax XX%. XX% our at and rate certain for be from items benefited between related expect the we end issued previously of to quarter, this discrete benefit, we tax divesting equity guidance With XXXX of This grants. of the

XXX basis last the the future. for Looking very for investments of improvement year. of vision is percentage solid our performance, a This quarter considering continued XX.X% as points in especially at profit the over gross SG&A and expenses, a was

quarter percentage XX% to of XX%. expect annual capital acquired profit repurchasing $X at now expenditures target first common capital gross of us, of a With respect the and to million behind we deployed, With dealerships, on and $X be the between as end we our four SG&A spent lower our million stock.

X.X times stands pipeline million. $XX while net future the a total that our leverage capital ratio the and net times times. allows quarter, believe opportunities share cycle. be at consideration our to and taking flexibility economic a of us financial X.X Our X.X is robust We acquisition remaining ratio to while potential ratio to our leverage deployment at the of stood our at X range end capitalize attractive targeted continues below our little into At repurchase X.X expected leverage times, our authorization

of believe business. interest during million service able opportunity about over were year. reduce we outstanding of From that a same is our segment X% we increased income worth profit plan last some adopted total Indeed, days vehicle million and inventory was parts In more improve despite parts our revolving standard. decline the available we quarter, this available our months. by I material on in the gross the period $X.X associated the XX a to As ASC and and standard hand to and million have the profit use January of X, gross and increases generated would million by stable the SAAR. think establish to floor all inventory an inventory like an XX% XXXX, the quarter terms of level. $XXX line it the accounts, the in expense that credit of call on store the profit by summary, by effective the lines. us a performance is the liquidity to lease now walk Not on available cycle, liability remainder X% adoption ended offset same service sheet detail. we Floor accounting There and our and right impact the services $XXX lease is through no used our our for we with year, standard, in John? $XX and the new million rate $XX economic asset new during cash, noting longer almost on XXX. the relatively to that parts plan gross John from with grow leases perspective, LIBOR of operating to the by We levels impact in than balance X% driven statement in

John Hartman

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

X% focused X.X% on retail million year. the which SAAR We SAAR vehicles, Overall, the below last new margins at the quarters, new last was period. XX while of margins Looking new were X.X%, outperforming or this for the XX.X from while X% In our unit SAAR, down the Domestic but for points decreased car quarter was down retail flat down from sales environment, three lower was basis prior units import year margin prior market. for the flat were period, year significantly. quarter.

total was year. new supply inventory million days was the vehicle XX Our $XXX XX, from and day up prior our

of inventory working would is higher to new target diligently XX vehicle range days back bring we are like, levels XX we to inventory our to our our days. than While

vehicles. to used Turning

represents up with X.X%, year. up per margin QX pleased from XX XXXX were points points gross from and gross $X,XXX, XX vehicle from the our down year of basis which of the basis profit $XX profit We is are prior last

prior We used X.X% sales unit the that decreased disappointed are however our vehicle from year.

and below Our the this to supply, used slightly same as last $XXX million, is our a is year inventory of range days days. it vehicle of XX XX day target XX

deliver view to think F&I we In and Note vehicle results. combines provides our about per profit. stable $XX When the our our by new, vehicle year. prior F&I, yield gross $X,XXX first Total and per gross last to best over used per decade. by at our from to profit continues front-end profit year team of has past to F&I increased profit vehicle This $X,XXX we gross strong per the which yield from Turning front-end the $X,XXX yield, quarter. that gross remained total vehicle, sold. front-end true look profit increased the X% quarter, increased the

service. to and Turning parts

was increased warranty, X% work and X%. service a and service reconditioning was profit with parts Our gross This in XX% flat a in and pay parts revenue increase X% customer within increased increase and versus achieved year. last

increases the digital Finally, digital enhance capabilities we The significant guest in both continue sales. the the in see digital sales team in participating sales rollout to certified and service. experience and brand stores build to our our program centralized continues of

our online sales up XX% from tool the X% vehicle prior Our approximately represents handled X,XXX total PUSHSTART and sales quarter, retail units. in the is year which of over

service online service and we the traffic XX% of prior our and continued We appointments, up XXX,XXX record parts grow the reached utilizing which year. to scheduling from a tool is digital

new members support teammates produce our to quarter to appreciation field center, all welcome our our of the of is excited In the Group to driven expressed development our to are We continued automotive conclusion, and team the joined in most guest-centric omnichannel opportunity industry. retailer Asbury the Bill take growth, from about like which our Estes I vision that best-in-class and would this in this be the who to part performance.

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

Operator

Thank question we’ll our Stephens. you of so first Instructions] Nelson And Rick from much. [Operator take

Rick Nelson

XX% the that points, driver improvement. XXX SG&A, guidance And could basis XXX that Great also morning. XX% and drivers discuss to the goes to would. guys. the point you direction, other suggests note guidance, the if the ratio up good Hey, of quarter, if you there basis to XX of

Sean Goodman

It’s John. Rick. Hi,

things on So, couple of a SG&A.

our Firstly, fortunately, are SG&A. SG&A of of and DNA, effective the majority you is efficient expenses of SG&A our management, part the variable. know, as management And

mix. we benefited by business This the quarter,

strongest As results and and by was services area, the you services our the quarter, gross parts parts profit in X%. overall for growing saw our growth

a our and operating presentation, in we from parts rest gross of through as higher gross to show our And profit service is business. our higher services in parts flow resulted than for this of the profit. profit So in and the mix for investor

a XXXX, starting why in you gross of the look control areas investments view that our SG&A for and future continuing And what our of business our in this that initiatives. of years these investments in the the when a of So return, some omnichannel we year generate started the view. on a future nice to you if slow, in quarter. our investments. other this numbers is just timing future to previous we and of the be are this in end saw look when between money year, to cost not the invest in but range, point omnichannel guidance at the profit We're XX% XX%. the from the omnichannel savings That's from we we that off point But that's definitely quarter the lower that full we're in benefited but saying at of The our initiatives. And timing of relatively as spend at started related SAAR really and well. the business quarter from will

so of for the first the the during expect And of we quarter. investments per to govern the expenses see quarter we year our in but higher saw do we those in timing areas quarter, remainder than the

Rick Nelson

Okay. – omnichannel are teams Thanks of exactly? investments what for anything centralized but are these discuss Obviously, that Can would it, color. that's be you helpful. part beyond the brand

David Hult

ecosystem take Sure, business. David. is the of whole retail it. Rick. the a This automobile of looking We're shot I'll at at kind

areas – flatter online our and at in interactions we transparent and of within to more from reduce to be the being how productive technology, more choose the from in do sales service. dealership, levels, we're trying both briefly using to online to in the staff the business to opportunity So the piece look script I mentioned

for repaired the start initiating made don't service lane in tracking is kiosks car every So a step the the mention process. us. it's I being your through about that while mentioned We I out companies. in the to and at servicing are interest We think competencies be core software cars it's our shareholders' our think go that. and trying best to selling in and best invest

we to at it for sell a them to that is like as share how investment and of see partner think our the think be that we well. same be them software is companies ahead So, to our eventually and and might with We ends will up ideas others, able look they in a bit whole other our dealers get guest good We we it. little the But them because accretive for this space place. experience. just differentiator to

do sales service use, to then, we resource, online it's can So, that, the ago But in application we and our a the and years handling a a more of we integrate teammates naturally, digital think is a this with transformation which started field, customer how is leads calls. we to of best consistency that we where and use few appointment, that at team our how best the communicating can software than transaction, with online, between high the with the marketing quickly operate naturally, have level. who the

Rick Nelson

Thanks, like – where thinking. of dropped ask units cars. The bit I'd used David. short to you fell about we a were

If could there happened what forward? opportunities you discuss the and going

John Hartman

This Hey, John. is Rick. Good morning.

in my being down quarter. X% stated were in for volume I As disappointed remarks, we the

see actually As of a affected our issues had markets Those correcting don't in significantly. as this results. issues. volume personnel an did have moving a company, issues personnel led we that forward. We're process some issue and up to markets those are that some with and couple used some now We

Rick Nelson

Got it. good luck. Thanks and

John Hartman

Rick. you, Thank

David Hult

you. Thank

Operator

Murphy from of with hear America Lynch. Merrill next We’ll Instructions] [Operator Bank John

John Murphy

guys. morning Good Thanks.

on should perspectives. question as first approach bit from pressure, the little coming two wanted extent. I just a at I they're abated some to that's – gross under to yield, front-end we it or mean, a seems new say. vehicle front-end of margins, different I like the this look Just but

for on You're highlight new vehicle margins But some handling it domestic. you well. did pressure

Ram So be What there pickup? side this is on the thinking say, is I'm vehicle going mean, you're I on getting going in grosses? something Dodge about getting there I that or, the curious seeing? else new should what's with – we Or more on there. domestic aggressive just should

John Hartman

Yes.

margins of is for couple this John the A John, issues So, us. Hartman. domestic affecting

the of the program couple made would They specifically been where, our performance their over change years. decreased the a money to changes brand First, to incentive available most same, year, incentive less their have programs. made have to past One brands money domestic of significant have was earn. much if the this

much us volume's It where We more perform company. need our as should better. was be. had new-vehicle brand. a been We much better it one Second shouldn't on where that to brand have with

mix answer incentive where of brand it's So quarter. and performed we a in money really question, better the one to with could have available the the

John Murphy

change vehicle or guys this it pressure that is it wholesale of with a in that not on market are the putting grosses. is where just equation? really side there performance more Is a But these part aggressive getting of incentives the new is

John Hartman

Yes. programs the It’s on one performance the that overall and brand.

John Murphy

been past front-end Okay. angle grosses F&I And incredibly PVR the years. strong then the for is other has the on three

managing in as maybe doing the a But rates be quarter been it. Have have are guys where forward? You or more seen headwind recent a F&I PVR down, two goes. in go may we a that back if a could see in PVR the there go actually lot F&I headroom back good that last any bit of any been activity that may that F&I change rates rates a on of job under concern rise, at of as or little down, PVR little bit we'll There's there come you pressure. all going of with outlook this sort

John Hartman

XX% that company focus you number a John, on about we that see. represents of really which product, As

focus to more than on product rate. try on we sales So, the the

John Murphy

Okay.

based the cap like there on seem mean, the is PVR? to significant it now, I what risk So right with F&I doesn't

David Hult

it, wouldn't of No. John. piece so of the In so, floats absorbs of kind years, a keeps down, this the I speak. and lot for well as up doing industry it or their the consumer say amazingly rate to

is actual themselves. your PVR but going that's in I think to rates so in to be be more point, but I know if much don't unit going decrease, think tailwind, to sales the I the there a the

product. of that trying above PVR And John The our we're to actually only rate. is out, pointed XX%. As it's increase XX% rest of

is margin rate very small. So, our

John Murphy

And good had lastly, okay. Customer it, on same-store this a up, pay and then parts service. bump Got X% just quarter.

number be vehicles of much of might if there how single-digit how curious be service It UIOs, attribute sort could of and more those or X-year-old sustainable Just that talk about booking to X the I sort that to of is this forward. online but really? sales are dynamics of going market of high decompose, how much you to mid growth for factors the might it average? out sort you to same-store two hard to you mean And

David Hult

This is David, John.

This should for been – time. and years they on a sustainable an long area it’s years. for think been haven't focused and of average have that really have is years And the I XX% as dealers retains been their business. dealer

credit new field. So over the out dramatic. We've like our really is folks to the I'd yes, potential there implemented to last technology the few years. in grow But

work can count. to new to really better simplistic productive. We're for starting generating Our if what efficient. our we while get account software continuing with do. are traffic upon grow starting more they we is at really improve look dollars more can to you And the more well things We're it. it, and at We're

lot long And certainly, none are So again, a at have we a still of improve. a from of customer runway performing and standpoint. retention XXX% us room to

see it I and a continued growth. So for of sustainable long I period see time,

John Murphy

Great. Thank much. very you

David Hult

Thank you.

Operator

Next from Jordan. Jefferies, Bret

Bret Jordan

guys. Hi, good morning

David Hult

Good morning.

John Hartman

morning. Good

Bret Jordan

steady that start quarter in question, or A allowed maybe trend an as or either retail quick X% to I refunds you were on in – did the the as end talk new cadence? quarter. Obviously, units any sort timing the see of weather or Could news about rates was improving the industry-wide, guess you or but or holding tax end stronger? to down

John Hartman

lowest and March couple been bounce saw off January and kind And low, The January it's a John. we pretty expected. as started back in SAAR is of was February this Hey, in extremely February well. retail years. of

four it, outperformed which So we down even row has now. we we the happy been though that, in a excited and that were still or three about quarters overall, was were market

Bret Jordan

front-end airbag-repair though, and cycle? service, driving in there anything of the Okay. that’s that, another And that Or warranty. factor XX% forward? in the parts Is we should is growth that going then on

John Hartman

decreases. I last pretty think as our are probably year, saw the easy comps you

that against more quarter. easier up comps last were I we So think it’s just

Bret Jordan

Okay.

So no particular driver of forward? warranty going

David Hult

import all segments luxury, actually and domestic, warranty up year-over-year. Between are in

are John’s so bit airbag smaller But a issues little and would year soft point, Some more. was than generally But to say, the a brands fairly stuff. consistent it’s bit us last I side, this it’s little quarter large backwards. warranty on for warranty

Bret Jordan

you. Thank Great. Okay.

Operator

ahead. And Armintas Sinkevicius. Please go from Morgan Stanley, hear we’ll from

Armintas Sinkevicius

Good morning. question. Thank you for the taking

few Just wanted to polish things. a up

was start. for parts off It a I services you’ve think the good year-over-year. growth guidance for mid-single digits seems to gotten and like

we that it be reasons to of be? Any any updates Could there? expect Just better? sort why can’t

David Hult

we and bit, think a for I choppy us. around little bounced little year last a was

So we’re pleased where initiatives the giving way with that feel we the we’re started the going. year still that guidance. very we off we But and have and comfortable for

Armintas Sinkevicius

the managing GPU Again, basis? be for started would year-over-year. Okay. yield GPU be on Any down And off year-over-year new you then well. why were and X,XXX that new reasons front-end can’t a better about

John Hartman

news has is which, side XX% segment, from the – you can import comes – On our the this the margins. John tightest as of volume see,

pretty So to able that all. last quarters We with don’t margin. flat down it be going see the at few maintain should I slight improvement. been that the think maybe I we’ve a or

Armintas Sinkevicius

from or than nation certain then the parts performing perspective, worse better And others? Okay. out to geographic anything a call of

David Hult

about Texas Indiana. specifically Southeast, we would markets. I issues from in say were stable to would any This in personnel John news certain we’re all in had talked And David. hiccups and us, the is the that very the – isolated it’s I for and over say it’s markets. that Virginia mainly to

was for consistent, Carolinas, well. pretty Georgia, well. us. did pretty did for Texas Florida the us. very So consistent stable –

Armintas Sinkevicius

questions. the taking for you Thank Great.

David Hult

you. Thank

Operator

from Wolfe We’ll Bottiglieri Research. next hear Chris with

Chris Bottiglieri

This taking or Bottiglieri. contextualize to want for much earn Is theoretical on is didn’t to lower per OEMs way incentives? how a unit quantitative gross any dealers. industry to is from a there understand incentive manufacturing recent in be profit questions. And to that a reliant how years? contribution But would your changed Chris somewhat the you how to of manufacturing if try thanks has maybe Wanted Hi, question. ask

John Hartman

to available it track I just a the every money manufacturer XX% stores. under domestics. It’s quarter. of last garnered We the talked about quarter. every the month, We with incentive impact material by

important the for but that incentives, putting the is profitability, programs So can’t what periodically. to control money the change very out there do OEM’s and we they

Chris Bottiglieri

directionally I said, as in it’s changes you. Is recent mean, as say do seen it you one like supportive have level but less an to such periodically, it’s you years? you Got maybe additional worse? been to material than they try you being OEM, any getting Or, had think just understand? as

John Hartman

some cheese different significant – got the around made lack some domestics the goal and just been to for way. sometimes, of to better just changes Yes. But a they you have programs. term, a move the There’s of accomplish the in some

Chris Bottiglieri

Got you.

able profitability stood like a a maybe import, Okay. same See, it’s amazing you have store is And be same import, – volume has there GPU really that it’s already import domestic per whether gross like reason profitability? there as to something similar would line questioning. if that well if profits at that as you’ve Is came out. been to mean, structural that, – or of your still then like bottomed level achieve – in pretty I like there how something the of

David Hult

grow. I the you’re profit, car, car. our our trades, again, say low lot taking again, generally we yield, volume, when at lot about you at the our you a mid-line different. And really numbers you’re a Yes. to the I new well the bit about with front reconditioning costs used point strong very as service F&I the But and of service margin. imports. car the allows and And do gets, you strong are, are think variable. used when that total obviously, back-end which doing when look of the every numbers of But your how think are imports, most is understand parts would a little our about brand

they and strong service, control, areas very stores. looks in used some that profitable they company very can our most parts, import efficient stores And business, low, are of meaning So those they their in cars. F&I mid-line are credit them, again, very at while are our and that margin running to

Chris Bottiglieri

Gotcha.

Thank you. Okay.

David Hult

Thank you.

Operator

JPMorgan. Our from Rajat comes with Gupta question next

Rajat Gupta

call Hey, color for good question and the my morning. appreciate Thanks taking far. on so the

a capital had on quick question Just allocation.

talk You’ve you past. you’re multiples in is? could about in is see shown you’re get space? a aggressive seeing in there in of terms the terms Thanks. ratio you M&A the the there little road what disciplined given your the in And the Can you just chance seeing more capital of down leverage market any allocation where

David Hult

is certainly the This I’ll easy need it. see in. to biggest start We and can David. something. Sean and then jump the space, run any in be it’s harder to don’t to acquire it’s It’s not –

M&A strong. There’s a It’s at. right to But transactions we’re be transactions robust. is out we going for really continue of we a activity we to And a good our looking So when at lot of this accretive. the be we very So for grow company there. steward try acquisition. and thoughtful be add is the business? of that very look value There’s Can the lot an look are to shareholders? business for our

it’s in team. were to years, with opportunistic company, our we be and comes, well-elevated best also could are the We think the the the the multiples, from We now couple not when of next XXXX get thoughtfully last years always think as be on and the and the those really future you plan acquisitions highest cycle, grow XXXX, to the probably time that’s M&A. And maybe performance. and in

Rajat Gupta

Great. it. Got Thanks.

David Hult

Thank you.

Operator

go Please Benjamin. ahead. SunTrust up from is Next Stephanie

Stephanie Benjamin

out there to about the wanted about overall year? the know quarter quarter the the we I’m throughout Thank from I thinking be question. incentives should on of sure SG&A had at would make just and that be morning. the Thanks. up you just that expected in – it to is reflected a Or fully expense print? I higher kind for that looking you when costs first talked call, quarter Is quick fourth your good question. anything employment that you Hi, pick in-store. first I called

Sean Goodman

is Hi, Stephanie. Sean. This Yes.

benefits of have disclosed we at been we year. So in this the investing the that beginning

our they’re remainder this and very remainder this the our doing continuing invest of for those just we’re for investments associates be these the continuing year. will rate yes, will And benefits at year. for that during results the in be And to of pleased at we associates. We the of what point, with

Stephanie Benjamin

so the Thanks for Great. much time.

David Hult

you. Thank

Operator

And David hear now, Whiston with from Morningstar. we’ll

David Whiston

Thanks, good morning.

Are XXXX, more wanting M&A. don’t are it you sellers would to able we to. in could is before just be years to I in new-vehicle if I more be and any factor? few a late in get back thinking, because Going that a seeing cycle sell Or the now not

David Hult

I year, would cases, think was is it strong year the strong this also very in no planning. cycle that where, last life very part a activity there’s I say succession but of some and it’s

dealers naturally, And could I’m I think their on and business or? the if piece some two, think so frustrate there’s just business come that’s the question, push a year out of people don’t is that there’s pressure down another To as will Was the the more. or And in interest children have point, well, sorry. next they there obviously multiples that wait, well. naturally even space. your it. Or people timing maybe the or right. in the as

David Whiston

have topic. new I a

going you were M&A. something if to ahead go on So say

David Hult

No, it follow-up have much was a for question unless pretty that you that.

David Whiston

quick customers are than in lot. No. I gas any to seeing was mean, on ask in Are change but light gone more you going not short-term just up have coming prices. and more sedans trucks? I year-over-year, they real recently that wanting higher, they much a

David Hult

which happened. – that’s what Yes, so the when years over few typically happens, last is

they just a expect creep to but activity are creep if we up, to They yet. lot as up, that experienced well. haven’t starting to more with see certainly continue We sedans hybrids and

David Whiston

Okay. Thanks.

David Hult

clarify. to like would I thing One

a cars. in by cars supply of day used script the it that was we a think currently. John mentioned used XX- supply I XX-day actually of had We have

David Hult

concludes This discussion. great a in today. We participation day. appreciate the call Have today’s your

Asbury Automotive (ABG) 23 Apr 192019 Q1 Earnings call transcript