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AutoNation(AN) - 2024 Q2 - Earnings Call Transcript
ANAutoNation(AN)2024-07-31 16:32
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Financial Data and Key Metrics Changes - Total revenue for Q2 2024 was 6.48billion,nearlyidenticaltoQ1despitetheCDKoutage,butdecreased66.48 billion, nearly identical to Q1 despite the CDK outage, but decreased 6% year-over-year due to normalization in vehicle selling prices [16][19] - Gross profit was 1.2 billion, representing 18% of revenue, and decreased 3% sequentially, reflecting productivity drag from the outage [17] - Adjusted net income was 163million,downfrom163 million, down from 285 million a year ago, with adjusted EPS at 3.99forthequarter[19]BusinessLineDataandKeyMetricsChanges−Newvehiclesalesweredown23.99 for the quarter [19] Business Line Data and Key Metrics Changes - New vehicle sales were down 2% for the quarter, with margins stabilizing at 3,108, a decline of 220duringtheperiod[10][20]−Usedvehiclesalesdecreasedby8220 during the period [10][20] - Used vehicle sales decreased by 8% year-over-year on a same-store basis, with average selling prices moderating by 5% [22][23] - Customer Financial Services (CFS) saw a 10% drop in products sold per unit, but AN Finance originated over 240 million in loans, almost four times higher than the same quarter in 2023 [12][25] Market Data and Key Metrics Changes - New vehicle inventory levels were at 47,000 units at the end of June, representing 67 days of sales, up from 44 days at the end of Q1 [21] - Used vehicle inventory levels were at 30,000 units at the end of June, down 15% from a year ago, representing 34 days of sales [23] - The demand for lower-priced used vehicles remained strong, with total unit sales of vehicles priced under 20,000increasingby420,000 increasing by 4% from a year ago [22] Company Strategy and Development Direction - The company aims to regain market share in the second half of the year, focusing on improving used vehicle sales and inventory turnover [15][31] - There is a commitment to enhancing the CFS model, which is expected to create long-term value despite short-term impacts on profitability [12][25] - The company plans to continue its capital allocation strategy, balancing share repurchases and potential acquisitions as market conditions normalize [29][38] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about vehicle demand and supply dynamics, expecting to recover any lost market share [30] - The operational impact of the CDK outage is now behind the company, and there is a focus on rebuilding momentum lost during the outage [71] - There are concerns about consumer affordability due to high vehicle prices and interest rates, but management believes there is still pent-up demand for new vehicles [68] Other Important Information - The company manually processed close to 60,000 repair orders during the CDK outage, which significantly slowed operations [9] - The technician workforce increased by 3% from a year ago, highlighting efforts to improve service effectiveness and retention [13] Q&A Session Summary Question: Reaction to 43 million paid during CDK disruption - Management noted significant gratitude and recognition from employees for the support provided during the outage [34][35] Question: Capital allocation strategy moving forward - Management emphasized a consistent approach to capital allocation focused on shareholder returns, with potential shifts based on market conditions [37][39] Question: Breakdown of parts and services growth - The 9% same-store growth in parts and services was attributed to increased service effectiveness and a focus on customer communication [42][43] Question: Long-term IT strategy post-CDK outage - Management is considering investments in redundancy and cybersecurity to mitigate future risks and improve operational continuity [46][49] Question: SG&A normalization expectations - Management expects SG&A percentages to remain elevated temporarily but anticipates improvements as productivity returns [54][56] Question: Outlook on PVRs and market dynamics - Management discussed ongoing internal discussions about PVRs, indicating moderation but not at the previously anticipated pace [58][62] Question: Stability in used vehicle profits and AutoNation USA growth - Management plans to pace the opening of new AutoNation USA stores, focusing on operational capacity and inventory sourcing [64][66] Question: Consumer affordability and auto credit concerns - Management acknowledged affordability challenges for consumers but noted manageable delinquency rates and a potential increase in leasing options [68][70]