Asbury Automotive Group(US:ABG)2020-07-28 20:05Financial Data and Key Metrics Changes - The company achieved record second quarter results with an adjusted EPS of $2.52, up 6% from the prior year despite a 20% decrease in revenue and an 18% decrease in gross profit due to COVID-19 impacts [8][14][15] - Operating margin reached a record 5.7%, with SG&A as a percentage of gross profit decreasing to 62.7%, down 530 basis points from the prior year [8][14][15] - Gross margin expanded by 40 basis points to 16.8% driven by proactive inventory management [14] Business Line Data and Key Metrics Changes - New vehicle sales volume decreased by 23% year-over-year, but gross profit per vehicle increased by $436, or 30% [11] - Used vehicle gross profit margin was 7.5%, up 30 basis points, with gross profit per vehicle at $1,690 [12] - Parts and service revenue decreased but rebounded in June, ending flat in gross profit compared to the prior year [13] Market Data and Key Metrics Changes - The SAAR (Seasonally Adjusted Annual Rate) for the quarter dropped 34% to 11.3 million units [8] - The company noted that the retail SAAR was down 24% for the quarter, indicating a challenging market environment [11] Company Strategy and Development Direction - The company is focused on deleveraging and enhancing its omnichannel tools to become the most guest-centric automotive retailer [10] - The Park Place acquisition is on track to close in late August under more flexible financing terms, which is expected to enhance the company's market position [10][17] - The company aims to refine its omnichannel strategy, with 20% of used vehicle purchases completed online [9] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in navigating the current environment and anticipates inventory normalization by September [20] - The company expects SG&A as a percentage of gross profit to be in the mid to high 60s for the full year 2020, indicating a return to more typical expense levels as the market stabilizes [15][22] - Management remains cautious about the future, particularly regarding potential impacts from the pandemic in the fall [25] Other Important Information - The company ended the quarter with approximately $747 million in liquidity, including $613 million in cash [16] - The net leverage ratio stood at 1.5 times, well below the target leverage of 3.0 times, providing flexibility for acquisitions [17] Q&A Session Summary Question: Inventory normalization timeline and GPU sustainability - Management believes inventory normalization will begin around September, with GPUs expected to remain high in the near term [20][21] Question: SG&A to gross profit ratio sustainability - Management indicated that while the current SG&A ratio is low, some expenses will return as the environment normalizes [22][23] Question: Outlook for parts and service growth - Management expects incremental growth in parts and service, excluding collision, which has been lagging [25] Question: Impact of COVID-19 on Florida operations - Management reported no material impact on Florida operations despite the pandemic, indicating strong performance [28] Question: Industry consolidation and acquisition considerations - Management does not foresee significant consolidation due to franchise agreements and market dynamics [30][31] Question: Digital initiatives and omnichannel strategy - Management is focused on enhancing digital capabilities and believes online transactions can reduce SG&A over time [34][35] Question: Used vehicle pricing dynamics - Management noted strong used vehicle pricing due to supply constraints and pent-up demand, but future pricing trends remain uncertain [40][84]