管理層發言
Greetings, and welcome to the Asbury Automotive Group Second Quarter 2026 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief Q&A session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Chris Reeves, Vice President of Finance and Investor Relations.
Thank you.
You may begin.
Thanks, operator, and good morning. As noted, today's call is being recorded and will be available for replay later this afternoon. Welcome to Asbury Automotive Group's second quarter 2026 earnings call. The press release detailing Asbury's second quarter results issued earlier this morning and is posted on our website at investors.asburyauto.com. Participating with me today are Daniel Clara, our President and Chief Executive Officer, and Michael D. Welch, our Senior Vice President and Chief Financial Officer. At the conclusion of our remarks, we will open the call for questions and will be available later today for any follow-up questions. Before we begin, we must remind you that the discussion during the call today is likely to contain forward-looking statements. Forward-looking statements are statements other than those which are historical in nature, which may include financial projections, forecasts and current expectations, each of which is subject to significant uncertainties. For information regarding certain of the risks that may cause actual results to differ materially from these statements, please see our filings with the SEC from time to time, including our Form 10-Ks for the year ended 12/31/2025 and any subsequently filed quarterly reports on Form 10-Q and our earnings release issued earlier today. We expressly disclaim any responsibility to update forward-looking statements. In addition, certain non-GAAP financial measures as defined under SEC rules may be discussed on this call. As required by applicable SEC rules, we provide reconciliations of any such non-GAAP financial measures to the most directly comparable GAAP measures on our website. Comparisons will be made on a year-over-year basis unless we indicate otherwise. We have also posted an updated investor presentation on our website investors.asburyauto.com highlighting our second quarter results. It is my pleasure to now hand the call over to our President and CEO, Daniel Clara. Daniel?
Thank you, Chris, and good morning, everyone. Welcome to our second quarter earnings call. I want to begin my first earnings call as Asbury's CEO by thanking our team members across the country for the work they do every day to serve our guests and support one another. Your commitment, resilience, and focus on continuous improvement are what make this company strong. As we noted in our prior quarter commentary, 2026 is a year of transition for Asbury as we finalize the rollout of Tekion across our store base. We are focused on growth through operational improvements, and continue our balanced approach to capital allocation. Our results continue to reflect the investment associated with completing the Tekion rollout while simultaneously operating our legacy systems. This investment positions us to capture meaningful operating efficiencies as we anticipate completion of the rollout by October of this year. Rolling out a new DMS at this scale is a significant undertaking, and I am proud of our team members' commitment to making this transition successful. Crossing the 70% implementation milestone is important because an increasing percentage of our store base is now positioned to benefit from a common operating platform. Importantly, the operational improvements we are seeing are not isolated. Markets that have been on Tekion the longest continue to demonstrate better productivity, stronger customer pay performance, higher technician efficiency, and improving sales effectiveness. For example, our Koons, Georgia, and Florida markets have at least five months post-conversion under their belts. Just looking at the month of June, those stores grew average units per salesperson by 12% and increased the dollars per technician by 10%. These are just a few of the operating metrics we expected to improve as stores mature on the platform. Our strategic initiatives, which I will refer to as our five pillars, are focused on increasing new vehicle market share, reestablishing consistent growth in customer pay gross profit, driving profitable volume growth in used vehicles, managing SG&A, and leveraging technology. A successful migration to Tekion remains a top priority as we approach our final remaining stores. Collectively, these pillars are not a change in direction. They represent a sharpened way of executing the priorities that will drive growth and returns for our shareholders. On the capital allocation front, we continue deploying capital into our own shares because we believe our stock represents an attractive long-term investment while maintaining ample liquidity and flexibility. In the first two quarters combined, we have repurchased 7% of our 2025 ending share count. Michael will provide additional details on our approach to capital allocation. Now I will speak to our operational results on a same-store basis, unless otherwise noted. Starting with new vehicles. New units were down 6%. New PVRs were $2.9 thousand on a same-store basis and $3.12 thousand on an all-store basis, with flattening sequential declines indicating we are near normalized levels. We ended the quarter with new day supply of 53 days, a healthy level that supports stabilizing PVR. Next, turning to used vehicles. We earned a used retail PVR of $1.93 thousand, a sequential increase of 5% on effectively the same-store volume as the first quarter. Our used vehicle strategy is already producing sequential improvement while positioning us for higher volume over time. As a reminder, our used vehicle strategy has been on maintaining discipline rather than chasing volume for volume's sake, with an emphasis on maximizing gross profit. In May, we began shifting our approach toward driving higher used vehicle volume while still maintaining healthy PVRs. We are beginning to see positive results from this strategy. As we continue deploying this used vehicle strategy across the organization, I expect to see increased used vehicle volume as we move into the fourth quarter of 2026. We are also continuing to invest in our appraisal and pricing tools while maintaining discipline in our sourcing of vehicles from consumers, off-lease channels, along with strategic acquisitions through the auctions. Finally, we ended the quarter with a 37-day supply. Moving to F&I. We earned an F&I PVR of $2.21 thousand. And finally, in the second quarter, our total front-end yield per vehicle was $4.7 thousand. Next, on parts and service. Our customer pay business was flat year over year, and our overall parts and service gross profit was slightly down. As I mentioned earlier, it takes five to six months to see operational improvements from our DMS change. A large number of transition stores are still within this window, and we expect a return to normalized growth levels in the coming quarters. We did see better traction in June, where total same-store fixed gross profit was up 4%. Now I would like to quickly talk about continued focus on operational efficiency. Along with growing gross profit, cost discipline remains a top priority, and we measure ourselves on how well we can manage expenses in order to drive a strong operating margin. Our same-store adjusted SG&A as a percentage of gross profit was 65.3% in the quarter. Once all stores are converted to Tekion and we begin to gain all its efficiency, we believe our SG&A can get to the low 60% range by the end of 2027. We also continue to invest in AI across every department in the company. Whether in operations or support, we have seen meaningful opportunities to improve efficiency, assist our team members and enhance the guest experience. As we enter the second half of the year, we have greater visibility into the completion of our technology rollout, encouraging operational trends in our mature Tekion markets, a healthy balance sheet, meaningful liquidity, and significant flexibility to continue investing in our business while returning capital to our shareholders. We believe the foundation we are building today positions us very well for long-term value creation. And with that, I will now pass the call to Michael to discuss our financial results for the quarter. Michael?
Thank you, Daniel, and good morning, everybody. I will start with our high-level financial results for the second quarter. We generated $4.4 billion in revenue, earned a gross profit of $753 million and a gross profit margin of 17.2%, and we delivered an adjusted operating margin of 5.3%. Our adjusted net income was $125 million. Our adjusted EBITDA was $235 million, and adjusted EPS was $6.82 for the quarter. In addition, the noncash deferral headwind due to TCA this Q2 was $0.66 per share. Our adjusted EPS would have been $7.48 without the deferral impact. Adjusted net income for the second quarter of 2026 excludes non-tax items: $4 million related to Tekion implementation expenses, $3 million of noncash asset impairments, $2 million of weather-related losses, and $1 million related to duplicate DMS-related expenses. Adjusted SG&A as a percentage of gross profit on an all-store basis came in at 66%, in line with our expectations and a 260-basis-point improvement over the first quarter of this year. We expect gradual improvement throughout the year in our SG&A leverage. There are some frictional costs for our Tekion rollout not associated with the one-time implementation duplicative costs that are short term in nature and ease over time as the stores become more proficient with the technology, as Daniel mentioned. With 30% of our store base remaining to be rolled out as of today, the third quarter will be a little heavier lift compared to the second quarter in order to complete the rollout. We have already transitioned 13 stores in July, and we see a path to start realizing some of the cost savings in late 2026 and into 2027. Next, the adjusted tax rate for the quarter was 24.3%, an upside to our initial forecast. We expect the effective tax rate to be approximately 25% for the remainder of the year. DCA generated $5 million of pretax income in the second quarter. The negative noncash deferral impact for the quarter net of tax is about $12 million. We anticipate implementing TCA to the Chambers stores in the second half of this year to complete the rollout to the company. We generated $305 million of adjusted operating cash flow year to date. Excluding real estate purchases, we spent $117 million on capital expenditures in the first half of the year and still anticipate approximately $250 million in CapEx spend for the full year 2026. Adjusted free cash flow was $188 million through the end of June. We ended the quarter with $966 million of liquidity, comprised of floor plan offset accounts, availability on both our used line and revolving credit facility, and cash excluding Total Care Auto. Our transaction-adjusted net leverage ratio was 3.4x at the end of the second quarter. As Dan mentioned, we took the opportunity to lean more heavily into buybacks during the quarter, purchasing 668 thousand shares for $131 million. On a year-to-date basis, we have bought back 1.35 million shares for $278 million. We made the strategic decision to temporarily take on higher leverage given the valuation of our shares and the performance outlook of our business. Our target of 3.0x is still a priority for us, and we plan to reach it in early to mid-2027. And with that, this concludes our prepared remarks. I will now turn the call over to the operator and take your questions. Operator.
分析師問答
Thank you. We will now be conducting a Q&A session. If you would like to ask a question, please press 1 on your telephone keypad. You may press 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions. Our first question comes from Jeffrey Lick with Stephens Inc. Please proceed with your question.
Congrats on the Tekion progress. Daniel or Michael, I was wondering if you would start off with just talking about how you compare to Q1, what has changed and what has evolved? And if you could build into that the -6% in same-store new, maybe just drill down into what parts of that are Tekion related versus other types of market factors and whatnot?
Yeah. I think things have changed a little bit. The first quarter had the noise from the weather in January and February. So this is kind of a, I will call it, a normal quarter in terms of weather-related impacts. We saw a little bit of a decline in new vehicle PVR, so that is, as expected. We still think $3 thousand is probably the right long-term number. So we saw a little bit of a decline there, but nothing out of the ordinary. And then on SG&A, with the higher unit gross profit this quarter, and a little bit of an improvement on some of the stores that are in that five to six month window, we saw the SG&A come down, at 66%. So those are big ones. Fixed ops, we still have a lot of stores in the heart of the Tekion transition, so we are seeing the impact on fixed ops still, but expect more positive results. As we mentioned, we saw 4% growth in June. And so we expect to see continued improvement on fixed ops going forward this year. But, again, we are right at the heart of the Tekion rollout phase right now.
Jeffrey, just to add to Michael's comment too. On the new-car side, down 6% to your point, what percentage of that is Tekion, and what could be some market conditions or OEM mix. From a Tekion conversion, as I stated last quarter, it is still - we do not see the immediate impact that we see with customer-pay technicians on the muscle memory, but there is still an adaptation period for sales managers and salespeople on just the basic blocking and tackling of Internet leads, follow-up, etcetera. It is not so much about they do not know what to do; of course they do. It is more about just learning the new system and navigating through it. So we see a little bit of a dip in sales when we install a new store, but it is a much faster recovery than we do in the fixed side. On the other side of the equation, we had an impact still on the Stellantis portfolio, which is down 28% over last quarter. We are starting to see improvements on the inventory mix of those stores, but as you know, that takes time for it to really replace the old high-priced inventory with the new inventory that is coming in. And then the last one that I will mention is also in some of the imports. We have seen a pretty significant drop in volume, some of it having to do with the rush that there was last year to buy some of the EVs due to incentives going away.
And then just a quick follow-up on used: the used grew or shrank faster—you call it, same-store down 14% versus same-store down 6% for new. A lot of us tend to use that ratio of, hey, your trade-ins or your inventory availability should maybe grow at the same rate or shrink at the same rate as new. There is a bit of a spread there. I am assuming there is— you alluded to it in the call or your prepared remarks about Tekion. Maybe you can just kind of reconcile that for us and then talk about how the new strategy of ramping up volume a little bit is helping that.
Absolutely. Part of it, to your point, is you sell less new cars, you are going to take in less trades, and so some of that is part of it. But the biggest impact is just the slow but very methodical and strategic approach to moving from a strategy where we were not chasing volume and were maximizing gross profit to a strategy where we are going to go more aggressively after the volume while maintaining healthy PVRs. That has to be done in a very slow methodical approach because, let's not forget that September is right around the corner. We all know what happens to used car valuations when September comes. So going in and aggressively acquiring inventory just to hit a top-line volume number and then having to offload aged inventory come September, October, does not make sense. So the approach that we have taken is strategically acquiring inventory. We bought approximately 6.5 thousand cars from auction last quarter. You can see the impact in our days of supply from 30 to 37 days. We still have healthy inventory—70% of our inventory is less than 30 days. So we are starting to see the improvements. You look at the impact that additional inventory is having on our internal gross profit; it is having a nice impact there. As we continue to execute on this methodical approach, I feel comfortable that by the time we go into the fourth quarter, you will start to see the increase in volume year over year.
Our next question comes from Rajat Gupta with JPMorgan. Please proceed with your question.
Great. Thanks for taking the question. Just wanted to follow up on the SG&A comments and some of the Koons and Florida stores on Tekion. Given those stores have had a bit of a longer period of seasoning with Tekion, are you able to share what the SG&A-to-gross is for those stores versus pre-Tekion? Any directional color on that would be helpful. And then just to clarify, you are suggesting that SG&A to gross will continue to decline in Q3 and Q4. Just wanted to clarify that, and I have a quick follow-up.
Yeah. I will let Daniel hit a few of the detailed numbers, but I do not have the SG&A by store in front of me. Just as a reminder, the Koons stores have been on Tekion for about a year. They are the most seasoned of the stores. The Atlanta stores went on in December, so they are just hitting that six-month mark at the very end of the quarter. And then the Florida stores went on in January and February, so they are really in that right-at-the-end-of-quarter five-month mark. So I will say, of those three buckets that we gave you, one is seasoned well past the time frame and the others just hit the end of that time frame at the end of the quarter. From an SG&A perspective, next quarter is a pretty heavy quarter for implementations, but we still think we will be able to shrink the SG&A percentage of gross in the third quarter. Then you will see continued gradual decline in the fourth quarter and then on into 2027. We think we can get to that low-sixties number toward the end of 2027. So you will see steady decline each quarter as we go through from an SG&A perspective.
Rajat, good morning. I will share a little more information. I cannot stress enough how excited we are that 70% of our stores have already converted to Tekion. We believe this investment will deliver meaningful long-term value, not just by enhancing the guest experience but also making us a lot more efficient. From a units per sales manager perspective, I will focus on Koons: quarter over quarter, they increased productivity 14.2%. Another number: units per F&I manager at Koons increased 15.2% quarter over quarter. So we are seeing healthy efficiencies coming from both the variable and the fixed side. We are excited to finish the conversion and have all the stores operating under one DMS so that we can gain the efficiencies and get back to normalized growth levels.
Got it. That is helpful color. And then just to follow up on the parts and service comments: I appreciate the comment on June, the plus 4%. Is it safe to assume that the third quarter should be at least at or above 4% given the run rate? And then just zooming out, is it still safe to assume that the normalized growth rate is mid single-digit for this business? We have been hearing data points that labor rates may be peaking and that consumers are downshifting a bit given affordability concerns. Curious to get your thoughts on that and obviously the third quarter. Thanks.
I will start on the service part and then Michael can jump in as well. On the expectation for Q3: I shared the month of June at 4% and July is tracking very similar to June. So it is encouraging to see that consistency. As we move into the third quarter, we believe low- to mid-single-digit growth in customer pay is achievable. On the broader parts and service question about normalized growth: we have not seen much of the pressure you described from consumers downshifting. One of the benefits of rolling out a new DMS is the ability to adjust labor rates as needed. Our approach is not about maximizing the ticket with a customer we only see once; it is about growing the customer pay account and retention, so we can have sustainable growth. We have been able to adjust labor rates as we roll out Tekion, and we see that as an additional benefit of the new DMS. When I say adjusting labor rates, it is not about just increasing rates; it is about providing good value for our guests while delivering a great experience and encouraging repeat business. So there is some pressure on the consumer, but it has not been impactful to our service drives.
Our next question comes from Alexander Perry with Bank of America. Please proceed with your question.
Hi. Thanks for taking my questions. I guess, starting on used, I wanted to dig in a little more on your thoughts around the used vehicle procurement environment and how that should impact volumes and GPUs in the back half. Obviously, you have the shift in strategy internally, but with a lot of off-lease supply coming into the market, maybe you could talk about how that may impact GPUs and volumes in the back half? Thanks.
Good morning, Alexander. Our approach to moving away from not chasing volume was well thought out, trying to time with the market as lease returns were going to come back in because we know the one thing you are guaranteed when you buy at the auction is you are often the last person standing, which means you pay the most for that car. Realizing the margins we expect is tougher when you are the last person standing at the auction. As lease turn-ins come in, it gives us the ability to increase inventory, turn it faster, and acquire at a better price point than if we went to auctions. That is one of the benefits of being a franchise dealer; those lease returns come to us and we get first refusal. There are quite a few electric vehicles coming off lease now. We did not plan for cash prices to be where they are, but it is a nice mix because we are seeing those cars coming in and being retailed in the used car market. I do not see a negative impact to gross profit. Keep in mind that as we get more aggressive on volume, there will be pressure on margins, but we will still run a healthy PVR. As I mentioned last quarter, we did stress analysis: for every additional roughly 500 used cars we sell, we have the ability to drop about $200 to $250 per car in gross, so we are managing that accordingly to make sure we get the best return for our shareholders.
That is incredibly helpful. Really good color. Shifting to new, could you talk about performance by segment, especially luxury versus non-luxury, and expectations as we trend through the balance of the year for luxury versus non-luxury?
In the second quarter, luxury was down 10% in volume on a same-store basis, imports were flat on a same-store unit basis, and domestic was down 16% same-store. Luxury typically has stronger activity at the tail end of Q3 and into Q4, and I do not see any major concerns in the luxury market. Brands like Lexus, BMW, and Mercedes are performing well. There is a nice influx of inventory coming in and I expect the third quarter to continue to perform as usual for luxury. For imports, we are seeing a little margin compression in some OEMs, but Toyota remains at about 12 to 15 days supply and is positioned for healthy margins. I think imports have stabilized and I do not expect much fluctuation from recent levels.
Our next question comes from Robert Sol-Szyszka with UBS. Please proceed with your question.
Hey, guys. Thanks for taking my question. On the pace of the Tekion rollout: you are now at 70% of stores. That is up from over 50% mentioned on the Q1 call and more than 25% in Q4. You added about 20% of total stores in the quarter. Was there a slight slowdown from the Q1 pace? Any reason for that slowdown or is that in line with your internal rollout plan and expectations? I understand you have another roughly 30% between now and October.
That was the plan all along. We rolled out Herb Chambers in March and April. As part of the Herb Chambers rollout, we also implemented some standard processes and changes in our shared service center. There was a lot of change for that group, so we took the month of May pretty much off from rolling out stores to help that group absorb the change. That was strategic to support that transition, and then we kicked the rollout back off in June and July.
Super helpful. One follow-up: you mentioned double-digit efficiency per technician in Tekion markets. If completion goes as planned, all else equal in parts and service, do you see double-digit revenue growth there as stacks get rolled on? And what exactly is driving the efficiency per technician within your DMS system to get to that double-digit level?
I will start and Michael can add. Our guidance remains single-digit growth in fixed operations and customer pay. The efficiency drivers are significant: with legacy DMS systems, technicians and advisors often have multiple logins and have to jump between systems and bolt-on tools. Tekion provides one ecosystem where communication flows from the advisor to the technician and to parts and back, all within one platform. That reduced switching and friction improves efficiency. We are seeing dollars per technician improvements as I cited earlier. Having one ecosystem also makes it easier to share photos and videos and present information faster to the guest. The faster we present recommendations, the higher the propensity for the guest to approve additional services, which increases dollars per repair order and dollars per technician.
Our next question comes from Daniela Heigen with Morgan Stanley. Please proceed with your question.
Hi, everyone. Thanks for taking my question. I wanted to double-click on the used vehicle strategy evolution. You talked a bit about sourcing and off-lease volumes improving. Are you feeling impacts from increased competition from used car retailers becoming more price competitive?
I have not seen or felt that impact. One additional advantage we have is our fleet of loaner cars. When those are retired, we sell many of them into our used inventory, and the vast majority are sold as certified. That gives us differentiation as a franchise dealer and helps defend our margins. Overall, I have not seen margin pressure from other used-car competitors.
Got it. Also, where do things stand regarding the FTC pricing rules? Any remaining exposure or have you seen a change in competitive dynamics on advertised pricing versus a year ago?
We have always conducted business in a legal and ethical way, so there has been no change from our perspective. I think at the market level it puts everyone on a level playing field, and it is well received as the right thing to do for the industry and for the consumer.
Our next question comes from John Babcock with Barclays. Please proceed with your question.
Hey, good morning, and thanks for taking my question. I wanted to hit parts and service. The margin has been quite good for the last year or so. How much more can you squeeze out of that, especially if you see a reversal on warranty which seems to be growing at low single digits? Also, on the slide deck you show dollars per repair order for plug-in hybrids and battery EVs. How should we think about gross margins for those—are they necessarily higher?
I think gross margins will try to hold where they are. The caveat is as we increase used vehicle volume, because used cars increase gross profit but not necessarily revenue in the same way, that will have a meaningful positive impact on gross margin percentage. As we crank up used volume in Q4 and into 2027, that will help margin. For parts and service, it's effectively gross profit focused, and increasing used will help the consolidated margin percent.
On the dollars per RO for EVs: we are averaging about $350 or more higher than the average internal combustion engine vehicle right now. Margins are probably similar across the buckets; it's just the amount of work required for early-stage EV repairs is higher. Over time, as technology matures, those differentials may come more in line, but currently there is more early-stage work with these new technologies.
Thanks. My last question is on M&A. I know you talked about pulling back this year given leverage—you're at 3.4x now, slightly above target. Dealers say the M&A market looks good. How are you thinking about M&A for the balance of the year?
We review deals that are out there and we evaluated a few during the quarter. But our priorities are clear: complete the Tekion rollout and improve operations in same stores. Herb Chambers will be moving toward same-store status in the fourth quarter, and we continue to analyze opportunities, but those two priorities are where our focus is right now.
We have shifted to a more balanced approach between share buybacks and acquisitions, along with delevering. Given recent share prices, it has been hard to justify an acquisition versus buying back our own shares. At current pricing, buybacks represent a better return for shareholders than the acquisitions we've seen. If prices normalize, that equation may change.
Our next question comes from David Whiston with Morningstar. Please proceed with your question.
Thanks. Good morning. I was curious on negative equity. Has that become more of a problem this year than last year as used vehicle pricing has come down a little? Is it a pressure point in certain light truck segments?
David, for as long as I've been in the industry, negative equity has been part of the business. I have not seen an uptick outside of normal averages. There will always be one-off scenarios with significant negative equity, but nothing outside of what averages have been historically.
Our next question comes from Ryan Sigdahl with Craig Hallum Capital Group. Please proceed with your question.
When I look at Total Care Auto and your slide on the accounting noncash deferral: last quarter you were expecting a negative impact, now it is less negative and currently a headwind was $0.66. What changed there? And for the out-years, is it reasonable to assume we stay positive or was this just a temporary deferral as you focus on other things?
It is primarily volume-driven. SAAR and used volume were lower than we anticipated, which reduced the negative deferral impact on TCA for this quarter. As we crank up used vehicle volume in Q4 and into next year, we expect to return to a negative deferral position at some point. Also, we will roll out Tekion to the Chambers stores later this year, which will affect the deferral. We are waiting for better visibility on SAAR for 2027 and beyond before updating out-year guidance. Right now, the lesser deferral impact is just due to lower volume than we anticipated.
We have reached the end of our Q&A. I would now like to turn the floor back over to Daniel Clara for closing comments.
Thank you for joining our second quarter earnings call. We look forward to seeing you in the third quarter.
This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.