AutoNation(AN) - 2024 Q4 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Total revenue for Q4 2024 was $7.2 billion, an increase of 7% year-over-year, and 8% on a same-store basis [28] - Gross profit was$ 1.24 billion, up 5% sequentially and 3% year-over-year on a same-store basis [29] - Adjusted net income was $199 million, compared to$ 216 million a year ago, with adjusted EPS at $4.97, five cents below Q4 2023 [33] Business Line Data and Key Metrics Changes - New vehicle sales saw a 12% same-store unit volume growth, with domestic segment sales up 17% and premium luxury segment sales up 12% [21][22] - Used vehicle gross profit increased by 14% year-over-year, driven by improved inventory management [22] - AutoNation Finance originated$ 1.1 billion in loans during 2024, with a portfolio now exceeding $1.1 billion and a delinquency rate of less than 3% [12][48] Market Data and Key Metrics Changes - Hybrid vehicle sales increased approximately 50% year-over-year, representing nearly 20% of unit sales, while battery electric vehicle sales rose over 25% [36] - New vehicle inventory at year-end was below 43,000 units, down from 46,000 units at the end of Q3 2024 [38] - After-sales gross profit increased by more than 5% year-over-year, achieving record gross profit for both Q4 and the full year [24][51] Company Strategy and Development Direction - The company plans to continue focusing on after-sales growth, technician recruitment, and retention, as well as enhancing customer financial services [65] - Capital allocation will prioritize high-return opportunities, including share repurchases and potential M&A activities [145][150] - The company divested eight stores that did not fit its model, allowing for capital redeployment into share repurchases [17][26] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about pent-up demand for new vehicles and anticipated moderate unit growth in early 2025, with expectations for stabilization in unit profitability [62][63] - The company expects continued resilience in customer financial services volumes and profitability, alongside a stable used car market [64] - Management acknowledged uncertainties in the economic environment and geopolitical factors but emphasized the company's ability to deliver strong results across various conditions [61][66] Other Important Information - The company repurchased approximately$ 100 million of shares during Q4 2024, bringing total share repurchases for the year to $460 million, representing a 7% reduction in shares outstanding [26][59] - AutoNation was recognized by Fortune magazine as one of the world's most admired companies for the eighth consecutive year [18] Q&A Session Summary Question: Impact of post-election consumer sentiment on sales - Management noted improved consumer sentiment post-election and expected this trend to continue into early 2025, with a strong exit rate in new vehicle sales [72][75] Question: OEMs' approach to EV inventory - Management indicated that OEMs are adjusting their strategies regarding EVs and hybrids, balancing inventory levels while recognizing the growing demand for hybrids [78][81] Question: Funding needs for AutoNation Finance - Management discussed the expected increase in nonrecourse financing for AutoNation Finance, projecting a growth in funding levels as the portfolio matures [94][97] Question: After-sales growth expectations - Management highlighted the focus on technician recruitment and the potential for mid-single-digit growth in after-sales, emphasizing the importance of customer retention [100][106] Question: SG&A improvements and future expectations - Management indicated that SG&A as a percentage of gross profit improved in Q4 2024, with expectations for modest improvements in 2025 as the company continues to drive growth [114][118] Question: Used vehicle margin stabilization - Management acknowledged that while used vehicle margins have moderated, they expect opportunities for growth in dollar terms rather than percentage terms due to market dynamics [132][134] Question: Collision business recovery - Management anticipated a seasonal recovery in the collision business as they move into spring, despite challenges faced in the previous year [138][140] Question: Capital allocation strategy - Management reiterated that capital allocation decisions will focus on maximizing shareholder returns, balancing between share repurchases and potential acquisitions [144][150]