Asbury Automotive Group(US:ABG)2023-07-25 18:39Financial Data and Key Metrics Changes - The company reported $3.7 billion in revenue with a gross profit margin of 19.1% for Q2 2023, adjusted SG&A as a percentage of gross profit was 57%, leading to an adjusted operating margin of 7.8% [6][14] - Adjusted EBITDA was $307 million, and adjusted EPS was $8.95, reflecting strong financial performance [6][14] - Adjusted net income for Q2 2023 was $188 million, excluding certain gains and losses, which decreased diluted EPS by $0.40 [14][15] Business Line Data and Key Metrics Changes - New vehicle revenue grew 8% year-over-year, with an average gross profit per vehicle of $4,832 and a gross margin of 9.5% [8][9] - Used retail revenue and unit volume decreased by 15% compared to the prior year, with a gross profit per vehicle of $2,085 [8][9] - Parts and Service revenue increased by 6%, with customer pay revenue also growing by 6% [9][10] Market Data and Key Metrics Changes - The average age of cars in the market is 12.5 years, the highest ever, which supports growth in parts and service business [6][10] - Clicklane achieved a record of over 11,400 vehicles sold in Q2, a 74% increase year-over-year, generating $500 million in revenue [11][12] Company Strategy and Development Direction - The company aims to be the most guest-centric automotive retailer, focusing on profitability and capital deployment through share buybacks and acquisitions [5][6] - There is a strong emphasis on integrating over 50 acquired stores while maintaining operational efficiency [7][14] - The company is actively pursuing acquisitions that will be accretive, with a focus on portfolio management and brand mix [25] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the future of automotive retail, citing the aging vehicle fleet and the transition to EVs as growth drivers [6][10] - The company anticipates mid- to high single-digit growth in parts and service due to pent-up demand and the increasing complexity of vehicles [33][34] Other Important Information - The company repurchased 960,000 shares for $190 million in Q2 2023, reflecting strong cash flow from operations [5][16] - The effective tax rate for Q2 2023 was 24.8%, consistent with the previous year [15] Q&A Session Summary Question: What drove the leverage in SG&A growth? - Management indicated that healthy margins helped keep SG&A in check, with opportunities for further expense reduction in the next 12 to 18 months [20] Question: Can you discuss GPU trends and any weak spots in profitability? - Management noted that domestic vehicle supply is returning to normal levels, and they expect to maintain gross profit per transaction [22] Question: What are the criteria for acquisition targets? - The company is focused on portfolio management and is in discussions for acquisitions that meet their criteria [25] Question: What is the expectation for EV service work and capital investment? - Significant training and infrastructure investment are required for EV service, and there is still pent-up demand for traditional service work [28][29] Question: How is the company managing floor plan interest expense? - The company is using excess cash to offset floor plan balances, effectively mitigating interest expenses [35] Question: What is the impact of EVs on GPU and inventory? - Management indicated that gross profits for EVs are comparable to internal combustion vehicles, with inventory management being crucial [40] Question: What caused the deceleration in parts and service growth? - The deceleration was primarily due to operational integration challenges from recent acquisitions, which are expected to improve over time [43]