AutoNation(AN) - 2020 Q2 - Earnings Call Transcript

Financial Data and Key Metrics Changes - AutoNation reported an adjusted EPS from continuing operations of $1.41, an increase of 18% compared to the prior year [7][12] - Adjusted net income from continuing operations was $124 million, up from $108 million in Q2 2019 [12] - Same-store revenue decreased by $726 million or 14% year-over-year due to the pandemic [13] - Adjusted SG&A as a percentage of gross profit was 68.2%, a 330 basis point decrease compared to the previous year [14][15] Business Line Data and Key Metrics Changes - Same-store retail unit sales for new vehicles dropped 50% in April but recovered to only down 13% in June compared to last year [7][8] - Same-store used vehicle retail unit volume was down approximately 60% in April but increased by 14% in June [8] - Same-store variable PVRs increased by $585 or 16% year-over-year, while same-store used units declined only 3% [13] Market Data and Key Metrics Changes - New vehicle inventory was down 26,000 units or 41% compared to last year due to manufacturer plant closures [8] - The company had a total liquidity of approximately $1.6 billion at the end of June, up from $1.2 billion at the end of Q1 [16] Company Strategy and Development Direction - AutoNation plans to build at least 20 additional AutoNation USA stores over the next three years to capture a larger share of the used vehicle market [11] - The company is focusing on digital capabilities and has invested in tools like Customer 360 and equity mining to enhance customer engagement [9][56] - The strategy includes maintaining SG&A below 69% of gross profit in the long term [10][14] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the recovery of demand for personal mobility despite ongoing COVID-19 challenges [41][42] - The company anticipates that new vehicle margins will normalize as inventory levels recover [13] - Management highlighted the importance of digital engagement and the shift in consumer behavior towards online transactions [9][80] Other Important Information - The company did not repurchase any shares during the quarter due to uncertainties from the pandemic but has $139 million available for future repurchases [16] - AutoNation's cash balance at the end of the quarter was $257 million, reflecting strong liquidity management [16] Q&A Session Summary Question: Update on AutoNation USA stores and growth acceleration - Management confirmed that pilot stores are profitable and investment per store will be reduced by 20% to 25% due to refined processes [21][22] Question: M&A and online efforts with automakers - Management noted that while there are still challenges, larger partners like AutoNation can grow without the constraints previously anticipated by automakers [26][28] Question: SG&A opportunities with online sales - Management acknowledged that while they aim to remain below 69% SG&A, there is potential for further reductions as digital sales increase [30][31] Question: Performance in June and service operations - June was a strong month with SG&A below 68%, and customer care operations are gradually improving [35][38] Question: COVID-19 impact in hotspot markets - Management reported no significant change in customer behavior in hotspot markets, with continued demand for personal mobility [41][42] Question: Digital initiatives and sales penetration - Digital sales increased significantly during the pandemic, moving from the low 30s to the low 40s percentage of total sales [80] Question: F&I product penetration and digital sales - Management indicated that while in-store penetration of F&I products is strong, digital adoption is still a work in progress [82] Question: Strategy around AutoNation branded parts - AutoNation branded parts have been successful, particularly for reconditioning, while collision parts faced challenges due to reduced driving [86] Question: Competitive landscape in used vehicle market - Management believes that larger, trusted brands will capture more market share in the used vehicle space, consolidating around reputable players [88][89]