- Revenue: $6.48 billion, nearly identical to the first quarter, but a 6% decrease from 2023.
- Gross Profit: $1.2 billion, 18% of revenue, decreased 3% sequentially.
- Adjusted SG&A: $782 million, relatively stable compared to $786 million in the first quarter.
- Adjusted Operating Income: $319 million, just under 5% of revenue.
- Adjusted Net Income: $163 million, compared to $285 million a year ago.
- Adjusted EPS: $3.99 for the quarter.
- New Vehicle Sales: Down 2% for the quarter; import brands grew by 6%.
- Used Vehicle Sales: Decreased by 8% year-over-year on a same-store basis; total units down 5%.
- AN USA Stores: Four new stores opened to date.
- Customer Financial Services (CFS): Products sold per unit sale dropped approximately 10% from last year.
- AutoNation Finance (ANF): Originated over $240 million of loans during the quarter; portfolio balance now exceeds $700 million.
- After Sales Growth: Tracking around 10% growth through May; ended flat due to the outage.
- Gross Margin (After Sales): Increased by 60 basis points to 48% for the quarter.
- Technician Workforce: Increased by 3% from a year ago.
- Share Repurchases: $350 million of AutoNation shares purchased, reducing share count by more than 5% since the beginning of the year.
- New Vehicle Inventory Levels: 47,000 units at the end of June, representing 67 days of sales.
- Used Vehicle Inventory Levels: 30,000 units at the end of June, representing 34 days of sales.
- Adjusted Free Cash Flow: $519 million for the first half of the year.
- Leverage: 2.5 times EBITDA, in line with the 2 times to 3 times EBITDA long-term target.
Release Date: July 31, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- New unit sales increased by 5% in April and May.
- Margins for new vehicles are stabilizing, with a modest decline in the second quarter.
- Customer Financial Services (CFS) continued to deliver strong performance, with AutoNation Finance originating over $240 million in loans during the quarter.
- After sales delivered a positive mix shift, resulting in a year-over-year 60 basis point increase in gross margin to 48%.
- The company increased its technician workforce by 3% in a competitive labor market.
Negative Points
- The CDK outage significantly impacted business processes, leading to a $1.55 per share adverse effect on second-quarter results.
- Total used vehicle sales for the quarter decreased by 8% year-over-year on a same-store basis.
- Gross profit decreased by 3% on a sequential basis due to the productivity drag from the outage.
- Floorplan interest expense increased by $21 million from a year ago, reflecting higher inventory levels and interest rates.
- Adjusted net income dropped to $163 million from $285 million a year ago, partly due to the CDK outage.
Q & A Highlights
Q: What was the reaction of your sales staff to the $43 million compensation paid despite the CDK disruption?
A: Michael Manley, CEO: The reaction was very positive. There was significant concern among staff about the impact on their pay and families. The compensation was seen as a strong gesture of support from the organization, which was crucial for both sales executives and technicians. It was a necessary investment to maintain morale and retention in a competitive labor market.
Q: How do you view capital allocation in light of potential acquisitions and the growth of AutoNation USA stores?
A: Michael Manley, CEO: Our approach to capital allocation remains focused on delivering the best returns for shareholders. While asset prices are normalizing and becoming more attractive, we will continue to balance returning capital to shareholders with growth opportunities through M&A and organic expansion. The allocation may shift based on attractive opportunities, but our fundamental strategy remains unchanged.
Q: Can you provide more details on the 9% same-store growth in parts and services for April and May?
A: Michael Manley, CEO: The growth was driven by increased capacity and improved service effectiveness. We focused on penetrating the vehicle park and improving revenue per repair order through better customer communication and technology. July has shown strong recovery in aftersales, and we expect continued positive performance for the remainder of the year.
Q: How has the CDK outage influenced your long-term thinking around IT systems and redundancy?
A: Michael Manley, CEO: We are reviewing which systems had the biggest impact and are considering investments in backup systems to mitigate future disruptions. While the outage was significant, we are focusing on areas like CRM and cybersecurity to ensure continuity and productivity. We aim to strike a balance between necessary investments and the likelihood of such events.
Q: What are your expectations for SG&A normalization in Q3?
A: Thomas Szlosek, CFO: SG&A spend was stable from Q1 to Q2, but the percentage of SG&A to gross profit was distorted by the outage. We expect elevated percentages for most of July but anticipate normalization as we move into August. We continue to focus on productivity and cost management to improve the ratio.
Q: Have you revised your internal expectations for PVRs as the market normalizes?
A: Michael Manley, CEO: We expect some continued moderation in PVRs but not to the extent anticipated earlier in the year. The mix of vehicles, including lower-margin BEVs, will influence PVRs. However, we are seeing stabilization and do not expect significant declines.
Q: How does the stability in used vehicle profits influence your plans for AutoNation USA store expansion?
A: Michael Manley, CEO: We are comfortable with a more paced approach to opening new stores, aiming for four to five additional stores this year. This allows us to better operationalize and source inventory for these locations. We are focused on maintaining a balanced growth strategy.
Q: What is your view on vehicle affordability and the state of the consumer?
A: Michael Manley, CEO: Affordability remains a concern, with consumers managing to monthly budgets. We are seeing mix shifts in used vehicles and increased leasing from OEMs to address affordability. There are signs of pressure on consumers, but we believe there is still pent-up demand for new vehicles that will be released with appropriate pricing.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
