ASBURY AUTOMOTIVE GROUP INC Q3 FY2026 earnings call

• Technology Platform Conversion: Completed the rollout of the 'Techia' DMS platform across all active stores, including a record 47 store conversions in Q3. Early data from mature Techia stores (Georgia/Kuhn's) shows Customer Pay GP growth of 7% vs. flat company average, Total Fixed GP growth of 5% vs. -2%, and improved efficiency metrics (Units/Salesperson +4%, GP/Technician +9%).
• Used Vehicle Momentum: Used retail volume increased 4.5% sequentially. Strategy shifted in May to prioritize profitable volume growth over pure margin protection. Inventory position is healthy at 41-day supply.
• New Vehicle Performance: Same-store new units down 8% YoY, largely due to the lapping of federal/state EV tax credits expiring in 2025 (EV volume accounted for ~5% of the decline). Inventory well-managed at 53-day supply.
• Operational Efficiency & SG&A: Adjusted SG&A as a percentage of gross profit was 67.4%. Management expects SG&A leverage to improve significantly as Techia 'muscle memory' develops, targeting the low 60s range by end of 2027.
• Regulatory Update: The FTC administrative proceeding against the company was dismissed in early October, confirming compliance of F&I sales practices.
• Total Care Auto (TCA): Rollout completed to all dealerships. TCA generated $5 million pre-tax income in Q3 (vs $14 million prior year) due to non-cash deferrals. Management is evaluating whether to keep TCA in-house or spin it out.

The transcript does not provide a breakdown of financial performance by specific product segments (e.g., New Vehicles, Used Vehicles) in terms of absolute revenue contribution percentages. However, it provides operational highlights for key business areas on a same-store basis: New vehicle gross profit per retail unit (PVR) was $2,949 (down 6% sequentially); Used vehicle retail gross profit grew 3% year-over-year with PVR up 10% to $1,777; Customer pay revenue increased 2% while gross profit remained flat; Warranty gross profit decreased 1%; and F&I PVR was $2,177 reported ($2,453 excluding non-cash TCA deferral).

• SG&A Leverage: Targeting an adjusted SG&A as a percentage of gross profit in the low 60s by the end of 2027. Expectation is for improvement in Q4 2026, with full benefits realized in H1 2027 as Techia adoption matures.
• Net Leverage: Priority to bring transaction-adjusted net leverage below 3.0x, targeting achievement by mid-2027. Current leverage stands at 3.5x.
• Capital Allocation: Priorities are debt reduction, followed by share buybacks and tuck-in acquisitions once leverage targets are met.
• Full Year CapEx: Updated view for 2026 is approximately $275 million.
• 2027 Outlook: Expected mid-single-digit growth in fixed operations; New vehicle PVR expected to remain in the $2,750–$3,000 range; Used vehicle PVR expected around $1,750; F&I face headwinds from TCA deferrals but core store-level performance remains strong.

• Implementation Drag: The Techia DMS rollout creates temporary inefficiencies ('loss of muscle memory'), impacting traffic and margins in newly converted stores for approximately six months.
• Consumer Affordability & Negative Equity: Rising interest rates and negative equity on pandemic-era loans are impacting consumer purchasing power, particularly for subprime borrowers or those with high loan-to-value ratios.
• EV Market Volatility: Sharp declines in EV volume due to the expiration of tax credits create volatility in new vehicle unit sales and mix.
• OEM Pressures: Continued headwinds from domestic OEMs (Stellantis) and import brands (Hyundai) regarding pricing and profitability.
• Competitive Landscape: Potential loss of service share to cheaper independents if affordability constraints persist, though management notes no significant increase in declined work orders yet.

Q: Analyst asked for detailed breakdown of Techia-enabled stores vs. non-enabled stores regarding productivity and SG&A impact.

A: Management highlighted that mature Techia stores (6+ months) show ~9% increase in ROs/advisor/day, high single-digit to low double-digit growth in dollars/technician, and mid-single-digit improvement in units/salesperson. SG&A % of GP improved by ~329 bps in these markets compared to the rest of the company, driven by both gross profit growth and cost efficiencies. Full benefits from the Q3 batch will take another 6 months to materialize.

Q: Analyst asked about the strategic future of Total Care Auto (TCA), specifically if Asbury should keep it in-house or spin it out.

A: Management expressed strong support for TCA’s cash flow generation and lack of capex requirements. However, they are currently in a valuation phase assessing three options: keeping it in-house, growing it through external channels, or spinning it out to remove accounting noise. No decision has been made yet.

Q: Analyst asked about consumer behavior shifts, specifically trade-downs from ICE to hybrids and any service deferrals due to affordability.

A: Management noted consumers are trading large SUVs/V8s for hybrid SUVs to save on fuel costs. Regarding service, there has been no significant increase in declined work orders or evidence of deferred maintenance, suggesting demand remains resilient despite affordability pressures.

Q: Analyst asked about the impact of the FTC dock fee ruling on Asbury’s business and used vehicle volumes.

A: Management stated the ruling leveled the playing field, benefiting compliant companies like Asbury which have always included fees in advertised prices. They do not expect dock fees to decrease and view transparency as positive for customer experience. Used volumes were not negatively impacted by this regulatory change.

Q: Analyst asked for clarity on the timeline for SG&A improvements and potential for sub-60% ratios post-2027.

A: Management confirmed the goal is low 60s by end of 2027. They indicated that achieving sub-60% SG&A would depend on the successful deployment of digital vehicle transactions and AI automation, which is a longer-term initiative likely not to yield results until 2028-2029.