Asbury Automotive Group, Inc. (NYSE:ABG) Q1 2024 Earnings Call Transcript April 25, 2024
Asbury Automotive Group, Inc. misses on earnings expectations. Reported EPS is $7.21 EPS, expectations were $7.78. ABG isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Greetings and welcome to the Asbury Automotive Group First Quarter 2024 Earnings Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator instructions]. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Chris Reeves, VP of Finance and Investor Relations. Please go ahead.
Chris Reeves: Thanks, operator, and good morning. As noted, today’s call is being recorded and will be available for replay later this afternoon. Welcome to Asbury Automotive Group’s first quarter 2024 earnings call. The press release detailing Asbury’s first quarter results was issued earlier this morning and is posted on our website at investors.asburyauto.com. Participating with me today are David Hult, our President and Chief Executive Officer, Dan Clara, our Senior Vice President of Operations, and Michael Welch, our Senior Vice President and Chief Financial Officer. At the conclusion of our remarks, we will open up the call for questions, and we will be available later for any follow-up questions. Before we begin, we must remind you that the discussion during the call today is likely to contain forward-looking statements.
Forward-looking statements are statements other than those which are historical in nature, which may include financial projections, forecasts, and current expectations, each of which are subject to significant uncertainties. For information regarding certain of the risks that may cause actual results to differ materially from these statements, please see our filings with the SEC from time to time, including our Form 10-K for the year ended December 2023, any subsequently filed quarterly reports on Form 10-Q, and our earnings release issued earlier today. We expressly disclaim any responsibility to update forward-looking statements. In addition, certain non-GAAP financial measures, as defined under SEC rules, may be discussed on this call. As required by applicable SEC rules, we provide reconciliations of any such non-GAAP financial measures to the most directly comparable GAAP measures on our website.
We have also posted an updated investor presentation on our website, investors.asburyauto.com, highlighting our first quarter results. It is my pleasure to now hand the call over to our CEO, David Hult. David?
David Hult: Thank you, Chris. Good morning, everyone. Welcome to our first quarter earnings call. I want to start by saying I am proud of the hardworking efforts of our team members who delivered our first ever quarter of more than $4 billion in revenue. As we continue to progress along our growth strategy, it is important to reflect on the performance of all of our team members, leaders, and platforms that are powering our path forward, including our first fully operational quarter with our new team members from the Coons Group. Thank you all very much. In our second quarter, 2023 earnings release, we said there would be integration-related headwinds to our parts and service business that would extend into the third and fourth quarter before improving in Q1 of 2024.
This quarter’s performance shows we are progressing and expect this portion of the business to grow at mid-single digits or higher through year-end. In the fourth quarter earnings call, we discussed our commitment to a more aggressive stance in our pre-owned sourcing. We maintained same-store PVRs quarter over quarter and increased same-store unit volume by more than 9% or 2,700 units versus the fourth quarter of 2023. Now for our consolidated results for the first quarter, we generated $4.2 billion in revenue at a gross profit margin of 17.9%. And our SG&A as a percentage of gross profit was 62.5%. We delivered an operating margin of 6.3%. Our earnings per share was $7.21 and our EBITDA was $259 million. As part of our multi-year capital allocation plan, we repurchased 240,000 shares for $50 million in the first quarter.
We continue to be opportunistic with our capital deployment, prioritizing the most strategic and accretive use of capital. We continuously evaluate the performance of our portfolio, making acquisitions or divestitures where it makes the most sense. We divested a Lexus store in Delaware during the first quarter per our OEM framework agreement. And we will monitor opportunities to make other changes to the portfolio throughout the year. Looking ahead, there are factors like our brand mix that may influence our volumes on new and lead to near-term headwinds on performance. We are still in a tight market when it comes to sourcing quality used vehicles efficiently and we will continue to prioritize profitable growth. I’d also like to highlight that we published our corporate responsibility report this month.
We invite you to read it if you haven’t already. Now, before I hand the call over to Dan, I want to say thank you again to our team members as together we strive to be the most gas-centric automotive retailer. Now Dan will discuss our operational performance. Dan?
Daniel Clara: Thank you, David, and good morning, everyone. I’ll join David in also thanking our team members, driving our strong results and delivering a best-in-class experience. Now, moving to same-store performance, which includes dealerships and TCA, unless stated otherwise, starting with new vehicles. Overall, we were pleased with our new vehicle PBR performance given current market conditions. Same-store revenue decreased 1% and new unit volume was flat the prior year. New average gross profit per vehicle was $3,988 and a new vehicle gross margin was 7.8%. Our same-store new day supply was 53 days at the end of March, compared to 43 days at the end of the fourth quarter, a trend consistent with industry-wide growth in inventory.
We continue to manage to an appropriate day supply in volume in new cars, given our brand mix. Turning to used vehicles, used retail revenue decreased 4% for the quarter as we expected due to lower cost of sale. Unit volume, while down less than 2% year-over-year, increased on a sequential basis, as David mentioned earlier. Used retail gross profit per vehicle was $1,647, roughly in line with the fourth quarter of 2023. We appreciate the progress of the team’s performance on volume and gross profit in such a challenging environment. Our same-store used DSI was 25 days supply. We still view 2024 as a challenging year to acquire pre-owned vehicles until supply returns. Shifting to F&I, we delivered an F&I PBR of $2,218 in the quarter, holding resilient amidst continued pressure on consumer payments.
On a consolidated all-store basis, our PBR was $2,259. The deferred revenue headwind of TCA contributed $67 of the $85 decrease in consolidated F&I PBR number year-over-year. And we anticipate this headwind to be impactful throughout 2024. In the first quarter, our total front-end yield per vehicle was $5,080. Moving to parts and service, our parts and service gross profit grew 6%, and we earned a gross profit margin of 56.9%, an expansion of 213 basis points versus prior year first quarter, despite weather issues in several of our markets. The last several quarters, as we mentioned, were impacted by integration efforts, and it is encouraging to see our fixed operation business returning to growth. The hard work of our teammates and leaders is paying off, and we expect even better performance in the quarters ahead.
Finally, on a same-store basis, we retailed 10,832 units through ClickLane, or about 16% of overall units. New vehicle represented 5,186 of these units, a 14% increase in new volume over first quarter last year, and those vehicles are making up a larger portion of ClickLane transactions versus the first quarter of 2023. Consistent with recent trends, over 90% of customers are new customers to Asbury, and we remain committed to this key, differentiating omni-channel tool. I will now hand the call over to Michael to discuss our financial performance. Michael?
Michael Welch: Thank you, Dan. To our investors, analysts, team members, and other participants on our call, good morning. I would like to provide some financial highlights for our company. For additional details on our financial performance for the quarter, please see our financial supplement in our press release today, and our investor presentation on our website. Overall, net income was $147.1 million, and EPS was $7.21 for the quarter. There were no non-gap adjustments to net income for the first quarter of 2024 or 2023. SG&A’s percentage of gross profit came in at 62.5% versus 61% in the fourth quarter of 2023. Driven by higher service loaner costs, elevated advertising expenses, and several Q1-specific costs, namely share-based compensation.
For the year, we expect SG&A’s percentage of gross profit to be in the low 60s. Tax rate for the quarter was 24.9%, and we estimate our tax rate for the full year 2024 to be approximately 25%. TCA generated $19.5 million of pre-tax income in the first quarter, and we anticipate full year results to be between $30 and $45 million on a pre-tax basis. We plan to offer TCA across our remaining stores in Florida and Coons later this year. For the quarter, we generated $209 million of adjusted operating cash flow, a portion of which was used for our previously mentioned share repurchase activity. Excluding real estate purchases, we spent $26 million on capital expenditures in the first quarter, and we anticipate full year spend to be $200 to $225 million, free cash flows of $183 million for the quarter.
We ended the quarter with $712 million of liquidity comprised of floor plan offset accounts, availability on both our use line and revolving credit facility, and cash, excluding cash at total per item. While we will continue to use our floor plan offset account to manage interest expense, we expect floor plan costs to remain relatively flat. Through the years, we’ve balanced the impact of rising inventory levels with the opportunity cost of deploying the cash to more creative activities. Our pro forma adjusted net leverage was 2.6 times at the end of March, and we will continue to be opportunistic in our capital allocation approach across share buybacks, M&A, and organic investment opportunities. Finally, I would like to join David and Dan as we thank our valued team members and leaders for a strong quarter and start to the year.
Thank you. This concludes our prepared remarks. We will now turn the call over to the operator and take your questions. Operator?
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