ASBURY AUTOMOTIVE GROUP INC Q4 FY2024 earnings call

Management Statement and Operational Highlights

• New Vehicles: Volume growth driven by luxury brands and certain domestic brands. Day supply at 47 days.
• Used Vehicles: Prioritized profitability over volume due to supply challenges; volume flat but gross profit per unit increased.
• Parts and Service: Strong results with Customer Pay up 13% and warranty up 26%; gross profit margin expanded.
• Cost Discipline: SG&A costs as a percent of gross profit fell for the second consecutive quarter to 63% adjusted. A 4-store pilot with Tekion went live, showing potential to simplify guest experience and reduce costs.
• Consolidated Results: Record revenue, gross profit, and adjusted EBITDA; same-store adjusted operating margin at 6%.

Segment Performance

• New Vehicles: Same-store new vehicle volume up 7% year-over-year and 12% sequentially. Same-store revenue up 8% year-over-year, units up 7%. New average gross profit per vehicle was $3,661. Same-store new day supply was 47 days at the end of December.
• Used Vehicles: Overall volume was essentially flat, but gross profit per unit increased for the second consecutive quarter. Same-store used DSI was 37 days at the end of the quarter.
• Parts and Service: Same-store parts and service gross profit was up 11%. Customer Pay segment was up 13%, warranty up 26%, while wholesale parts and collision were down 5% and 6% respectively. Gross profit margin for the quarter was 57.9%, an expansion of 224 basis points.
• Consolidated: Generated a record $4.5 billion in revenue, up 18% year-over-year. Gross profit was $750 million, up 11%, with a gross profit margin of 16.6%. Adjusted SG&A as a percent of gross profit was 63%. Adjusted earnings per share was $7.26, and adjusted EBITDA was $254 million.

Guidance

• New Vehicle GP: Expect new vehicle gross profit per vehicle to be in the $2,500 to $3,000 range in 2025.
• TCA: Anticipate 2025 TCA pre-tax income to be approximately $8 million, with a non-cash deferral hit. Rollouts in Florida Q1 and Koons Q2, impacting earnings.
• CapEx: Anticipate ~$250 million in CapEx spend for 2025 and 2026 depending on timing of investments.

Risks

• Inventory Challenges: Persist throughout 2025, affecting used vehicle pricing.
• Stellantis Performance: Material headwind in Q4 due to inventory and incentive issues; improvement needed for positive impact.
• Weather Impact: January weather affected showroom traffic and business.
• TCA Rollouts: Deferral headwinds due to roll-out cadence and volume growth.

Q: Good morning, guys. A lot of good data points to ask questions about here, but I just -- David, just wanted to focus on GPUs. Obviously, you got the seasonal benefit sequentially here, but I don't know if you can tease out how much of that is the seasonality and how much of this strength in new GPU specifically is a result of the market kind of bottoming out here on pricing and GPUs and maybe we're seeing much more resilience than I think people were fearing. So I mean, how do you think about that? How much was seasonality? How much it is reaching this leveling-off point?

A: Yeah. Thanks, John. It's a great question, and obviously, it's complicated to answer. You look at our day supply, we're on a 49 day supply and new. Within that, we have some brands that have a seven day supply and some that have almost a 90-day supply. What I would tell you and I'll speak specifically to Asbury and reference the past for this, everyone's focused on 2019 numbers and kind of comparing off of that, I've stated it before, I'll state it again, Asbury is a different company today than in '19. Our model mix is different, our brand mix is different, and we're in different markets. Almost all the acquisitions we've made over the years, in the last five years, their GPUs were accretive to what Asbury was doing. So I think we'll always stay above that number for lack of a better term. As we enter into this year, I think we had the biggest impact with Stellantis based on our size and the number of rooftops we have. It was still a huge material hit to us in the fourth quarter, would have been significantly better if they just performed average for us. We do believe that they're going to get their act together and improve, which should actually give us a little bit of a tailwind in the future when that happens, it's not there yet. But it's just -- all brands are not floating the same and it's difficult to predict what the future is going to be. We're being optimistic with some of the brands that we have. Toyota and Lexus have a very low day supply, a good gross profit, but so do a lot of other brands. And we have some import brands that were up 40% year-over-year in the quarter. And some that were backwards 2%. So, it's really mixed right now. And I think there has to be a lot of work put into each of our peers and looking at the brand segments and what they have to really calculate what the future holds. But as we sit here today, we think we're entering a more stable market. I mean, with the new administration, it's a little bit more pro-business with the shift from EVs coming back to ICE, we see these are all benefits. And again, we're in a situation where the average age of the car is 12.5 years to 13 years old. And you can see in our slide deck, the average miles on a car that we're servicing is over 71,000 now. It keeps creeping up and we have some stores over 90, which means we're doing a great job at retaining them after the warranty is over. So we're optimistic about '25. There will certainly be some headwinds coming our way for sure. We're excited that every month we get closer to Stellantis fixing the issues, which will have an impact on our business.

Q: Good morning, guys. A lot of good data points to ask questions about here, but I just -- David, just wanted to focus on GPUs. Obviously, you got the seasonal benefit sequentially here, but I don't know if you can tease out how much of that is the seasonality and how much of this strength in new GPU specifically is a result of the market kind of bottoming out here on pricing and GPUs and maybe we're seeing much more resilience than I think people were fearing. So I mean, how do you think about that? How much was seasonality? How much it is reaching this leveling-off point?

A: Yeah. Thanks, John. It's a great question, and obviously, it's complicated to answer. You look at our day supply, we're on a 49 day supply and new. Within that, we have some brands that have a seven day supply and some that have almost a 90-day supply. What I would tell you and I'll speak specifically to Asbury and reference the past for this, everyone's focused on 2019 numbers and kind of comparing off of that, I've stated it before, I'll state it again, Asbury is a different company today than in '19. Our model mix is different, our brand mix is different, and we're in different markets. Almost all the acquisitions we've made over the years, in the last five years, their GPUs were accretive to what Asbury was doing. So I think we'll always stay above that number for lack of a better term. As we enter into this year, I think we had the biggest impact with Stellantis based on our size and the number of rooftops we have. It was still a huge material hit to us in the fourth quarter, would have been significantly better if they just performed average for us. We do believe that they're going to get their act together and improve, which should actually give us a little bit of a tailwind in the future when that happens, it's not there yet. But it's just -- all brands are not floating the same and it's difficult to predict what the future is going to be. We're being optimistic with some of the brands that we have. Toyota and Lexus have a very low day supply, a good gross profit, but so do a lot of other brands. And we have some import brands that were up 40% year-over-year in the quarter. And some that were backwards 2%. So, it's really mixed right now. And I think there has to be a lot of work put into each of our peers and looking at the brand segments and what they have to really calculate what the future holds. But as we sit here today, we think we're entering a more stable market. I mean, with the new administration, it's a little bit more pro-business with the shift from EVs coming back to ICE, we see these are all benefits. And again, we're in a situation where the average age of the car is 12.5 years to 13 years old. And you can see in our slide deck, the average miles on a car that we're servicing is over 71,000 now. It keeps creeping up and we have some stores over 90, which means we're doing a great job at retaining them after the warranty is over. So we're optimistic about '25. There will certainly be some headwinds coming our way for sure. We're excited that every month we get closer to Stellantis fixing the issues, which will have an impact on our business.

Q: Good morning, guys. A lot of good data points to ask questions about here, but I just -- David, just wanted to focus on GPUs. Obviously, you got the seasonal benefit sequentially here, but I don't know if you can tease out how much of that is the seasonality and how much of this strength in new GPU specifically is a result of the market kind of bottoming out here on pricing and GPUs and maybe we're seeing much more resilience than I think people were fearing. So I mean, how do you think about that? How much was seasonality? How much it is reaching this leveling-off point?

A: Yeah. Thanks, John. It's a great question, and obviously, it's complicated to answer. You look at our day supply, we're on a 49 day supply and new. Within that, we have some brands that have a seven day supply and some that have almost a 90-day supply. What I would tell you and I'll speak specifically to Asbury and reference the past for this, everyone's focused on 2019 numbers and kind of comparing off of that, I've stated it before, I'll state it again, Asbury is a different company today than in '19. Our model mix is different, our brand mix is different, and we're in different markets. Almost all the acquisitions we've made over the years, in the last five years, their GPUs were accretive to what Asbury was doing. So I think we'll always stay above that number for lack of a better term. As we enter into this year, I think we had the biggest impact with Stellantis based on our size and the number of rooftops we have. It was still a huge material hit to us in the fourth quarter, would have been significantly better if they just performed average for us. We do believe that they're going to get their act together and improve, which should actually give us a little bit of a tailwind in the future when that happens, it's not there yet. But it's just -- all brands are not floating the same and it's difficult to predict what the future is going to be. We're being optimistic with some of the brands that we have. Toyota and Lexus have a very low day supply, a good gross profit, but so do a lot of other brands. And we have some import brands that were up 40% year-over-year in the quarter. And some that were backwards 2%. So, it's really mixed right now. And I think there has to be a lot of work put into each of our peers and looking at the brand segments and what they have to really calculate what the future holds. But as we sit here today, we think we're entering a more stable market. I mean, with the new administration, it's a little bit more pro-business with the shift from EVs coming back to ICE, we see these are all benefits. And again, we're in a situation where the average age of the car is 12.5 years to 13 years old. And you can see in our slide deck, the average miles on a car that we're servicing is over 71,000 now. It keeps creeping up and we have some stores over 90, which means we're doing a great job at retaining them after the warranty is over. So we're optimistic about '25. There will certainly be some headwinds coming our way for sure. We're excited that every month we get closer to Stellantis fixing the issues, which will have an impact on our business.