Asbury Automotive Group, Inc. Q3 FY2025 earnings call

Management Statement and Operational Highlights

• Acquisition of the Chambers Group has had a positive impact on operating metrics; integration is ongoing.
• Transition to Tekion is transforming sales and service delivery; litigation with CDK allows migration to new BMS.
• Q3 results: Record revenue of $4.8 billion, gross profit of $803 million (16.7% margin), adjusted operating margin 5.5%, adjusted EPS $7.17, adjusted EBITDA $261 million.
• Divested 4 stores in July with annualized revenue of $300 million; resumed share repurchases, buying back $50 million in Q3.
• Same-store SG&A as a percentage of gross profit was 63.6% in Q3, a decrease of 32 basis points; parts and service gross profit up 7%.
• Chambers platform lifted PVRs for new and used vehicles, even with partial quarter performance.

Segment Performance

• New Vehicles: Same-store revenue up 8% year-over-year and units up 7%; EV volume doubled from Q2 to Q3, with EV average gross profit per vehicle lower than hybrid/combustible; same-store new day supply was 58 days at end of September, 1 day less than Q2.
• Used Vehicles: Unit volume down 4% year-over-year; used retail GPU $1,551; sourced over 85% of used vehicles from internal channels (largely customer trade-ins); same-store DSI 35 days; performance in used vehicles seen as biggest opportunity to improve execution.
• Parts and Service: Same-store parts and service gross profit up 7% year-over-year; gross profit margin 58.8% (expanded 172 basis points); customer pay gross profit up 8%, warranty gross profit up ~7% (combined up 8%); fixed absorption rate over 100%.

Guidance

• Q4 new GPUs expected to hold up well, especially in the luxury season; Chambers acquisition is accretive to new GPUs.
• TCA estimate revised due to SAAR change; now expects less deferred revenue impact over the next several years.
• Anticipate approximately $175 million of CapEx spend in 2025; free cash flow $438 million through the first 3 quarters of 2025, $50 million higher than 2024.
• Focus on delevering the balance sheet, optimizing portfolio, and being opportunistic with share repurchases.

Risks

• Forward-looking statements subject to significant uncertainties; risks detailed in SEC filings.
• Macroeconomic challenges affecting consumer affordability could impact results.
• Tekion rollout may have transition-related expenses that could affect financials.

Question and Answer

Q: Jeffrey Lick from Stephens Inc. asks about new GPUs in Q4 and Chambers impact on new GPUs.

A: David Hult states the fourth quarter is typically strong for luxury, especially in December, and Chambers has been accretive to new GPUs.

Q: Ryan Sigdahl from Craig-Hallum Capital Group asks about TCA outlook and SG&A leverage.

A: Michael Welch discusses TCA revised SAAR assumption and notes SG&A levels should be maintainable based on gross profit expectations.

Q: Rajat Gupta from JPMorgan asks about acquisitions net of divestitures and capital allocation.

A: Michael Welch and David Hult discuss acquisition EBITDA and state capital allocation priorities include delevering and opportunistic share repurchases.

Q: Bret Jordan from Jefferies asks about luxury trends and parts/service growth.

A: David Hult and Paul Whatley discuss luxury performance remaining strong and parts/service growth driven by traffic and warranty.

Q: Glenn Chin from Seaport Research Partners asks about Tekion rollout update and savings.

A: David Hult talks about Tekion rollout progress, adoption challenges for legacy DMS users, and expected savings post-rollout.

Q: David Whiston from Morningstar asks about used vehicle marketing.

A: Paul Whatley and David Hult discuss used vehicle marketing tools like Clicklane and balancing volume with profitability considering market conditions.