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Date
Tuesday, July 29, 2025 at 2:00 p.m. ET
Call participants
President and Chief Executive Officer — David Hult
Chief Operating Officer — Dan Clara
Senior Vice President and Chief Financial Officer — Michael Welch
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Takeaways
Revenue— $4.4 billion in revenue for Q2 2025, with new vehicle same-store revenue growth of 9% year over year and same-store units up 7% year over year.
Gross profit— $752 million in gross profit for Q2 2025, resulting in a gross profit margin of 17.2%.
Adjusted operating margin— 5.8%, supported by improvements in operating efficiency and SG&A control.
Adjusted earnings per share (EPS)— Adjusted earnings per share was $7.43 for Q2 2025, including a $0.43 per-share non-cash deferral headwind from TCA.
Adjusted EBITDA— Adjusted EBITDA was $256 million for Q2 2025.
SG&A as percentage of gross profit— 63.2% on a same-store adjusted basis for Q2 2025, representing over 100 basis points of year-over-year improvement in same-store adjusted SG&A as a percentage of gross profit, with a sequential improvement.
New vehicle gross profit per unit— $3,611 for Q2 2025, with management citing resilience and an outlook for normalization toward $2,500-$3,000 new vehicle gross profit per unit over time.
Used vehicle unit volume— Used vehicle unit volume was down 4% year over year for Q2 2025, while used retail gross profit per unit increased to $1,729, marking four sequential quarters of growth in used retail gross profit per unit.
Parts and service performance— Same-store gross profit was up 7% for Q2 2025, gross profit margin at 59.2% (up 53 basis points), and fixed absorption rate exceeding 100%.
Customer pay and warranty gross profit— Customer pay gross profit was up 7% for Q2 2025, warranty gross profit was up 16% year over year, with combined growth of 9% year over year in customer pay and warranty gross profit.
F&I per vehicle retail (PVR)— $2,096 F&I PVR for Q2 2025; TCA deferred revenue impact reduced same-store F&I PVR by $161 year over year.
Adjusted net income— Adjusted net income was $146 million for Q2 2025. Adjusted tax rate was 25%, set to rise to 25.5% for Q3 and Q4 2025 following the Chambers acquisition.
Adjusted operating cash flow— $334 million in adjusted operating cash flow year-to-date; $275 million in free cash flow through 2025.
Capital expenditures— $60 million in capital expenditures through June 2025, with anticipated CapEx of approximately $250 million in both 2025 and 2026, subject to tariff-related adjustments.
Liquidity— $1.1 billion of liquidity at Q2 2025 quarter end, including floor plan offset accounts, credit facility availability, and cash (excluding TCA cash).
Net leverage— Transaction-adjusted net leverage ratio of 2.46x for Q2 2025; management anticipates exceeding the target range post-acquisition and expects to return below the higher end of its target leverage ratio range by mid to late 2026.
Herb Chambers acquisition— Closed July 21; $750 million attributed to Blue Sky in the Herb Chambers Automotive Group acquisition closed on July 21, 2025 and $610 million to real estate and improvements related to the acquisition closed on July 21, 2025, increasing revolver capacity to $925 million upon completion of the acquisition in July 2025 and new vehicle floor plan facility increased to $2.25 billion upon completion of the acquisition in Q3 2025.
Divestitures— Nine stores sold since the start of the second quarter, representing $619 million in annualized revenue from nine divested stores, with $252 million in net proceeds deployed to leverage reduction.
Techeon implementation— Kuhn stores now fully converted; $2 million in quarterly costs ($1 million implementation/duplication, $1 million audit-related), with full company conversion targeted for 2027.
Clicklane digital retail— Over 9,500 retail sales in Q2 2025, with 46% of units sold via the platform were new units.
TCA financials— Generated $7 million in pretax income for Q2 2025; negative non-cash deferral impact of $11 million.
Summary
Asbury Automotive Group(ABG 0.65%) delivered year-over-year revenue and gross profit growth, driven by new vehicle sales and stable parts and service operations, while maintaining disciplined SG&A cost control despite ongoing Techeon platform investments. Integration of the Herb Chambers acquisition, completed on July 21, 2025, expanded the company’s geographic presence in New England and reshaped its leverage and capital structure, with revised credit facility terms and planned priority on debt reduction. Management underscored continued focus on profitability over volume in used vehicles given constrained supply, and affirmed a positive long-term view for the service business due to aging vehicle demographics and technological complexity. The company divested nine stores to optimize its portfolio and applied proceeds directly to lower its net leverage. Capital expenditures and free cash flow projections were highlighted as subject to change based on future tariff impacts and evolving market conditions.
Chief Operating Officer Dan Clara emphasized, “Same-store new day supply was fifty-nine days at the end of June,” reflecting inventory management through ongoing market volatility.
CEO David Hult stated, “we still see those metrics trending back towards the $2,500 to $3,000 range over time (as discussed on the earnings call),” clarifying margin normalization expectations.
Chief Financial Officer Michael Welch discussed TCA exposure to tariffs, stating, “labor is the biggest component of that. And so it would have a small impact on the claims, but not a huge impact,” and noted that future deferral timing for TCA depends on SAAR recovery, with the company indicating that periods beyond 2025 have not been updated due to uncertainty around tariffs.
Management confirmed the strategic goal of returning to the preferred leverage range “over the next twelve to eighteen months as we work to integrate the acquisition and focus on our migration to Techeon.”
Industry glossary
Blue Sky: Intangible value assigned to an acquired dealership group, typically reflecting goodwill and brand equity above the value of tangible assets.
Techeon: Dealer Management System (DMS) software platform implemented to streamline sales, service, and accounting processes across stores.
TCA: Total Care Auto, Asbury’s finance and insurance platform with deferred revenue and service contract elements.
SAAR: Seasonally Adjusted Annual Rate, an industry metric estimating total annualized vehicle sales based on monthly data.
GPU: Gross Profit per Unit, a per-vehicle sales profitability metric cited for both new and used vehicles.
Fixed absorption: Ratio indicating what percentage of a store’s overhead expenses are covered by parts and service gross profit.
PVR: Per Vehicle Retail, typically refers to F&I profit per retail unit sold.
DSI: Days Supply of Inventory, referencing how long current inventory would last at present sales rates.
F&I: Finance and Insurance, dealership revenue stream from arranging finance/insurance and selling aftermarket products.
Clicklane: Asbury’s online/digital retail platform allowing customers to purchase vehicles digitally.
Full Conference Call Transcript
Chris Reeves: 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 2025 earnings call. The press release detailing Asbury’s second quarter results was issued earlier this morning and is posted on our website at investors.asburyauto.com. Participating with me today are David Hult, our President and Chief Executive Officer, Dan Clara, our Chief Operating Officer, and Michael Welch, our Senior Vice President and Chief Financial Officer. At the conclusion of our remarks, we will open up the call for questions and will be available later 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 are 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 12/31/2024, 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 update on our website investors.asburyauto.com highlighting our second quarter results. It is now my pleasure to hand the call over to our CEO, David Hult. David?
David Hult: Welcome to our second quarter earnings call. This is an exciting time for Asbury Automotive Group, Inc. And I want to begin my remarks by thanking our team members who make it all possible through their hard work and approach to execution that has helped us consistently lead the pack in operating efficiency. I would also like to formally welcome the more than 2,000 team members from Herb Chambers. And finally, I want to personally thank Herb Chambers for the opportunity to be a steward of his business.
We look forward to a bright future together and we are eager to partner with the Herb Chambers team members to continue growing our presence in the New England market with a high level of service. Shifting to our operational performance, we continue to see strong demand in the second quarter as consumers weighed the decision to buy ahead of potentially higher prices. But we did see the start decline as the quarter went on. We believe the outlook for the second half of the year will be heavily dependent on how various tariff decisions make their way to consumer level pricing.
While new vehicle GPUs have been resilient year to date, we still see those metrics trending back towards the $2,500 to $3,000 range over time, with optimism that we end up more towards that $3,000 level. Used vehicle profitability has remained strong, supported by a constrained supply environment. Based on the limited pool of used vehicles, we have chosen to focus on gross profit, but we will continually evaluate that approach based on how the used vehicle market evolves. Our parts and service business continued to deliver stable, consistent growth with same-store gross profit up 7% for the quarter.
We are continuing to invest in tools and technology that will enable our fixed operations business to operate more efficiently and deliver an even better guest experience. Our transition to Techeon is part of that investment, and we are happy to report that our Kuhn stores are now 100% converted to the new DMS. As I mentioned at the start of the call, it’s been an exciting but busy time for Asbury Automotive Group, Inc. Our near-term focus will be ensuring all of our critical initiatives are executed at the highest level possible. I could not wrap up my comments about our operational performance without commending the team for their focus on running the business efficiently.
Our same-store adjusted SG&A as a percentage of gross profit was 63.2% for the quarter, an improvement of over 100 basis points from 2024, and a sequential improvement from 2025. It is important to note that we still see opportunity to further reduce our SG&A profile over time. Our ability to grow the company through transformative acquisitions while maintaining our operating margin profile is a point of pride for us. But it’s just one element of our broader approach to strategically managing our portfolio and deploying capital to its highest and best use. In the second quarter, and through July 28, we divested nine stores as part of an ongoing capital allocation in our effort to optimize our portfolio.
The proceeds from these transactions helped to offset some of our investment in Herb Chambers. And we anticipate prioritizing leverage reduction over the next twelve to eighteen months as we work to integrate the acquisition and focus on our migration to Techeon. That said, share repurchases are an important component of our capital allocation strategy, and we will be opportunistic in our share buybacks even as we work to reduce our leverage ratio. And now for our consolidated results for the second quarter. We generated $4.4 billion in revenue, at a gross profit of $752 million, and a gross profit margin of 17.2%. We delivered an adjusted operating margin of 5.8%.
Our adjusted earnings per share was $7.43, and our adjusted EBITDA was $256 million. Before I pass to Dan, I want to once again acknowledge our team members for their focus and dedication to the business. Your commitment every day puts us on the path to be the most guest-centric automotive retailer. And we are optimistic about the future. Now Dan will discuss our operational performance. Dan?
Dan Clara: Thank you, David, and good morning, everyone. I am going to provide some updates on our same-store performance, which includes dealerships and TCA on a year-over-year basis unless stated otherwise. Starting with new vehicles, same-store revenue was up 9% year over year, and units were up 7%. New average gross profit per vehicle was $3,611. Brand unit performance varied widely depending on availability or potential for tariff impact. Our volume for Stellantis was up 15.6% this quarter compared to national sales down 11.5%. Across all brands, our same-store new day supply was fifty-nine days at the end of June. Turning to used vehicles, second-quarter unit volume was down 4% year over year.
Used retail gross profit per unit was $1,729, which marks the fourth quarter of sequential growth. We continue to monitor conditions on a market-by-market basis for deploying our approach to pre-owned. And we still plan to prioritize unit profitability at this point of the used car supply cycle. Our same-store used day supply of inventory was thirty-seven days at the end of the quarter. Shifting to F&I, we earned an F&I PBR of $2,096. The deferred revenue headwind of TCA was a $161 decrease in the same-store F&I PBR number year over year.
As a reminder, we are planning the TCA rollout to the Kuhn stores in the fourth quarter of this year, following the recent completion of the Techeon conversion at those stores. The timing of this TCA rollout changes the magnitude of the deferral headwind we had estimated at the start of the year. Michael later will walk you through additional details regarding TCA. In the second quarter, our total front-end yield per vehicle was $4,861. Moving to parts and service, as David mentioned earlier, our same-store parts service gross profit was up 7% in the quarter. We generated a gross profit margin of 59.2%, an expansion of 53 basis points.
In addition, our fixed absorption rate was over 100%, an important benchmark for the strength of the business. When looking at our customer pay and warranty performance, customer pay gross profit was up 7%, with warranty gross profit higher by 16%, or 9% on a combined basis. In our Western stores, we grew 15% on this combined metric. We continue to be bullish on the long-term trajectory of our parts and service business. We believe the continually aging car park and the increasing complexity of modern vehicles mean our stores are well-positioned to capture future service growth. The average age of a passenger car on the road is 14.5 years old, and the average truck is nearly twelve years old.
Additionally, recent and upcoming models have more technology and innovative powertrains, which should create opportunity for our service departments for years to come. And finally, on an all-store basis, we retailed over 9,500 sales through Clicklane in the second quarter. 46% of these sales were new units. Before I pass the call, I would like to once again thank our team members for their commitment to service and to be the most guest-centric automotive retailer. I will now hand the call over to Michael to discuss our financial performance. Michael?
Michael Welch: Thank you, Dan. To our investors, analysts, team members, and other participants on the call, thank you for joining us this morning. And now on to our financial performance. For the second quarter, adjusted net income was $146 million, and adjusted EPS was $7.43 for the quarter. In addition, the noncash deferral headwind due to TCA this quarter was $0.43 per share. Adjusted net income for the second quarter 2025 excludes net of tax, $4 million of cyber insurance recovery proceeds, $4 million related to the gain on divestitures, and $2 million of professional fees related to the acquisition of Herb Chambers. SG&A came in at 63.6%, noting that the Techeon implementation costs are beginning to impact our P&L.
We still anticipate 2025 SG&A in the mid-sixties, caveating that we are monitoring tariff and trade developments. While we see additional expenses for Techeon rollout and legal fees, we still are optimistic there are opportunities to lower SG&A in the future. The adjusted tax rate for the quarter was 25%. Following the Chambers acquisition, we estimate the third and fourth quarter effective tax rate to be 25.5%. TCA generated $7 million of pretax income in the second quarter. The negative noncash deferral impact for the quarter was $11 million or $0.43 on an EPS basis. As Dan mentioned, we now anticipate offering TCA in the Kuhn stores in early Q4.
The updated schedule of the rollouts along with the lower SAAR projection versus our original estimate will affect the timing of the deferrals in future periods. We have outlined our timeline and estimated impact on 2025 EPS on Slide 19 of the presentation, posted to our website this morning. The periods beyond 2025 have not been updated due to uncertainty around tariffs. Now moving back to our results, we generated $334 million of adjusted operating cash flow through 2025. Excluding real estate purchases, we spent $60 million on capital expenditures through June. We anticipate approximately $250 million in CapEx spend both 2025 and 2026.
However, this is dependent on the impact and duration of tariff policies with adjustment to spending as appropriate. Free cash flow was $275 million through 2025. We ended Q2 with $1.1 billion of liquidity comprised of floor plan offset accounts, availability on both our used line and revolving credit facility, and cash excluding cash at Total Care Auto. Our transaction adjusted net leverage ratio was 2.46 times at the end of June. Following the Chambers acquisition, we anticipate that this ratio will be above our target range. We will work down our leverage over the next twelve to eighteen months and expect to be below the higher end of our range in mid to late 2026.
On July 21, we closed on the acquisition of Herb Chambers Automotive Group. Of this amount, $750 million represented Blue Sky, and $610 million was real estate and improvements. Please refer to slide 32 in our investor deck and the Form 8-K filed this morning for more information on the pro forma financials. Upon completion of the deal, with our amended credit agreement, our revolver capacity increased to $925 million and our new vehicle floor plan facility to $2.25 billion. This deal was financed through a combination of our credit facility funding, proceeds from a new mortgage facility, and cash.
As noted in our release this morning, we divested nine stores with annualized revenue of $619 million since the start of the second quarter. This was done as part of our portfolio optimization strategy, and it allowed us to use the net proceeds of $252 million towards reducing our leverage. Before we take questions, I want to thank our team members. We appreciate and recognize your efforts and performance. With that, this concludes our prepared remarks. We will now turn the call over to the operator and take your questions. Operator?
Operator: Thank you. Star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. And for participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment while we poll for questions. Our first question is from Jeff Lick with Stephens. Please proceed.
Jeff Lick: Good morning, guys. Congrats on a great quarter and congrats on the acquisition. I know that means a lot to you, David. Your New England roots up here. I just want to wonder if you could just walk through as the quarter progressed, you know, kind of the cadence of GPU and also units and just, you know, where do you see things standing now as we are into the first month of Q3?
Dan Clara: Morning, Jeff. This is Dan. So as the quarter progressed, we saw the GPUs started stronger in the first part of the quarter. As the SAAR started to level off, as David mentioned in his remarks at the beginning of the call, we started to see adjustment into the GPUs as well. I will tell you that as things move forward, the situation is still pretty fluid. There have been, as you know, a few agreements that have been reached with Japan and the European Union, but still trying to see where things are going to fall and how the OEMs will react.
But back to the comment that David stated earlier, we still have belief that those GPUs fall into the $2,500 to $3,000 range.
Jeff Lick: And that’s that range you’ve given, that’s inclusive of any, say, new kind of dealer invoice to MSRP adjustments and relationships?
Dan Clara: Yeah. It’s, you know, it’s again, it’s hard to tell where the product’s going to fall for a lack of a better term until we start to see how they’re adjusting. I will tell you there’s been a few OEMs domestic, and some of the luxury imports that have slightly adjusted invoice, but it’s still too early to tell to see what the final impact is going to be.
Jeff Lick: And is it your thinking that, you know, most likely all of the kind of major adjustments, if there are any, will really kind of accompany 2026 model year changeover?
David Hult: Oh, yes. I think yes. The 2026 model, you know, when you think about the OEMs going through the transition right now, and this has been going on since the end of the first quarter. They’ve had plenty of time to strategize, think about it, and make the necessary adjustments that are going to come down the pipeline. But you also have to think about that anything that has to do from a production standpoint, it takes time to really adjust the parts and the suppliers and what have you. So I do expect that in the 2026 model, there will be the adjustments necessary to adjust the tariff.
But it will take some time when it comes down to the packages and the options that might be available to adjust that accordingly with the suppliers.
Jeff Lick: Awesome. Well, thanks very much for taking the question, and best of luck in Q3.
David Hult: Thank you.
Operator: Our next question is from Federico Morende with Bank of America. Please proceed.
Federico Morende: Good morning, guys. So, yeah, the solid SG&A performance during the quarter, and I was wondering can you talk more about the initiatives that are allowing the SG&A to remain under control?
Michael Welch: Yeah. I mean, the main one is just focusing on that productivity per employee. We just try to make sure we maintain that discipline on the headcount and gain the productivity for the employee side. That’s the big one because most of our expenses are compensation. Then also looking at the different outside services that we use and making sure we’re getting a good return for that investment. The one piece in that number that, you know, we still have in there is, you know, there’s a couple million dollars of Techeon conversion cost in there. So that number would have been even lower if we wouldn’t have the, you know, the kind of Techeon conversion cost in that mix.
Federico Morende: Thank you. And if we assume that in the second half volumes for new vehicles will be lower, due to higher prices, and so consumers won’t buy vehicles. I would assume that it will be harder to leverage your SG&A. So how would you plan to offset the lower SG&A absorption?
Michael Welch: Again, that productivity per employee is key. A lot of our costs are commission-based, and they adjust with the, you know, either a downturn in volume or PVRs. So that cost discipline is key, but that’s also why we kind of said, you know, mid-sixties. To your point, it will be a little tough to keep that lower number if PVR drops off significantly or the volume drops off. But that discipline on productivity is kind of the key to keeping that number as low as possible.
Federico Morende: Thank you very much.
Operator: Our next question is from Rajat Gupta with JPMorgan. Please proceed.
Rajat Gupta: Great. Thanks for taking the question. I just had one first one on just the Herb Chambers acquisition. You know, you’ve had them under the hood for a couple of weeks. It looks like the SG&A to gross profile for Herb Chambers is slightly better than, you know, the legacy Asbury business. I’m curious, you know, have you been able to, you know, given the couple of weeks you’ve had, any incremental opportunities do you see, you know, to improve, like, just metrics at the store? You know, other areas around services or used cars?
That you see you can bridge the gap to, you know, versus like, versus Asbury orders versus, like, border industrial period, you know, that have better metrics. Just curious, you know, if you could just give us some more insight into what we should expect to see as the acquisition gets integrated further.
David Hult: Rajat, this is David. You know, there were a few things that you when we think about their mix of luxury over 60%, the name in the marketplace that they have, and the scale that they have in the market was most interesting to us. Along with the quality people and tenure that they have. So we think we align philosophically in how to run the business. The best part about this, in any transaction, there’s always opportunities to improve. There’s opportunities to improve in our same store. There’s opportunity to improve with any acquisition that we have. We’ll work with the team over time to look for efficiencies to improve upon the business.
But this was a strategic market for us. It’s a defensive position. New England is not a growth market, but it’s a very stable market. It performs well in a downturn. And with the luxury mix and the presence in this market, with the level of service that they offer, we think this creates great stability for Asbury Automotive Group, Inc. over time.
Rajat Gupta: Understood. Just had a follow-up on parts and services into the second half. You know, we’re going to start running into some tougher comparisons. When it comes to warranty, you know, specifically recall work later this year. Curious, you know, if you think you could maintain, you know, the mid-single-digit type growth cadence here as we go through the next couple of quarters, you know, do you feel comfortable offsetting, you know, any of the warranty, the tougher warranty comes with more customer pay work here later this year. Just curious to get your thoughts on the cadence there. Thanks.
Dan Clara: Morning, Rajat. This is Dan. Yes. We feel comfortable with the mid-single digits that we have been discussing as we move into the second half of the year. And, you know, we have the throughput in the stores. Obviously, the bay utilization, we have opportunity to grow that as well. So we feel comfortable with that measurement and continue to have and push forward as we go into the second half.
David Hult: And Rajat, this is David. I’ll just jump on that too. It’s kind of tough looking at year over year with the CDK issue last year. You know, so far against our peers, you know, our warranty growth was about half of our peers. Warranty isn’t something that you sell. It’s something that you do based upon, you know, what’s going on with the product. You know, mix-wise, we’re similar. You know, I can only think when we’re off that much year over year. Must have just done a better job last year closing warranty. But to your point, going into the second half of the year, you know, we’re definitely going to have some headwinds on the warranty side.
But we’re convinced that CP will continue to be stable. And the Chambers organization just does a fantastic job with fixed as well. So we’re very optimistic about parts and service in the second half of the year. With your point of question mark on warranty.
Rajat Gupta: That’s helpful. Just one clarification. Are the warranty margins higher than customer pay for Asbury? I know it’s retired from peers, but curious if it’s the case for you as well.
David Hult: Yeah. It varies slightly, but overall, runs higher on warranty than it does CP, the margin.
Rajat Gupta: Understood. Great. Thanks for taking the questions, and good luck.
David Hult: Thank you.
Operator: Our next question is from Ryan Sigdahl with Craig Hallum Capital Group. Please proceed.
Ryan Sigdahl: Hey. Good morning, guys. Good morning. Good morning. Move over to used GPUs. Nice. Really strong in the quarter. I guess given the same-store sales performance, it appears Asbury continues to stick with the profitability over volume. But can you talk through kind of the strategy, how you think about the second half and, if there’s any change there?
Dan Clara: Yeah. Good morning, Ryan. It’s Dan. Our strategy remains the same. As you know, we are facing the lack of supply from a used car inventory in relation to the pandemic. And, you know, I don’t need to walk you through it, but less lease turn-ins, etcetera, that took place during the pandemic. So with that thought in mind, our plan stays the same, maximizing gross profit rather than chasing the volume. But as we’ve stated at the beginning of the call, this is something that we assess on a continuous basis. And we’re ready to adjust as soon as we see the market shifting and more availability of inventory.
David Hult: Ryan, I would jump on and say, you know, we can see the rest of this year. The pool is just, you know, very shallow, but I think we’re at our low point. To Dan’s point about talking about the COVID peak, it starts to improve in ’26 with, you know, off-lease vehicles. And that’ll vary a little bit depending upon lease penetration in groups and how much access they have. So 2026-2027 certainly get back to normal, and I think you’ll start to see increases mid-2026 and beyond.
Ryan Sigdahl: Helpful. Then just progress on Techeon. Good to see Kuhn’s conversion completed a little ahead of expectation there. Multi-part question here, I guess, as it relates to Techeon. But one, anything surprising you thus far post that conversion with Kuhn’s? Two, can you quantify what the implementation costs for Techeon were in the quarter? I mean, you had really nice SG&A leverage, especially comparing to peers in the quarter, even that. But if you’re able to quantify and then the last part would just be the conversion timeline for the remaining Asbury stores.
David Hult: Ryan, I’ll start, and then Michael can jump in on the cost-related stuff. You know, one of the reasons we chose to go with Techeon was the simplicity of the software and not having as many bolt-ons as we have. We see the benefits and efficiencies with that. And making it easier for our teammates to work with the clients. But changing a DMS is like, you know, a heart transplant. It’s the one thing that dealerships never want to go through. And even with planning and execution, you’re still going to have a lot of snafus, and we had that throughout the quarter. Inconsistency with software applications, stuff going down at moments in times, things missing.
It’s just normal, through it. So, you know, to the Kuhn’s folks’ credit, it was a frustrating quarter for them having to go through that. The stores that we originally piloted last year are all the way through that and really starting to see the efficiencies of the software. And when we’re fully converted, which will hopefully be in 2027, is when we really recognize the SG&A benefits. But also operating efficiencies. Positive feedback from some of the employees, less screens to utilize. Some of the feedback that we get from leadership, you know, the software is a little bit like a Ferrari.
It’s got more to it than what we’re used to, so we’re finding new things every day about it. So it’s going to take us a while to become proficient on the software and work through the kinks of normal DMS conversions. But we’re very happy and pleased with the progress. And, quite honestly, how resilient the Kuhn’s team was working through it in the quarter was just it was inspiring for us to see.
Michael Welch: On the cost front, it’s about $2 million in cost in the quarter. About half of that is, I’ll call it, you know, duplication and implementation cost with Techeon. And the other half, because we’re a public company, we have to go through a little bit of pain and aggravation of testing control environment. And so we have, you know, we’re paying outside resources to kind of work through the audit side of soft controls with the software. And so, you know, about a million of implementation and duplicated DMS cost and about a million of third-party audit cost.
Ryan Sigdahl: Thanks, guys. Appreciate it. Good luck.
David Hult: Thanks, Ryan.
Operator: Our next question is from David Whiston with Morningstar Equity Research. Please proceed.
David Whiston: Thanks. Good morning. Curious how, I’m sure your Toyota Lexus inventory is lean, but is it leaner than it normally would be due to tariffs, slowing production out of Japan?
Dan Clara: Good morning, David. This is Dan. No, it’s lean. But have not seen a negative effect on, you know, being leaner than what we’re used to operating. And as you know, we’ve been operating under that single-digit to low double-digit DSI for quite a while. And it’s all about the turn. And I feel like our stores are doing a pretty good job with that.
David Whiston: Alright. Thanks. And on the EV tax credit and your EV inventory, do you expect the OEMs post-September 30, once the credit’s gone, to…
Dan Clara: You know, this is something that you for a while. I think some of the OEMs have done a very good job of planning accordingly and that the number or, you know, even on the dealer lots, has been dwindling down. So I don’t expect a tremendous amount of push because they have been preparing for it. And, you know, listen. At the end of the day, we’re good partners. We are always going to make the best decision to make sure that we return the right level of return of investment to our shareholders. We’re going to be true partners and support our OEMs.
But like I stated before, they’ve been planning accordingly, we’ve seen the DSI go down in the EVs. And we’re monitoring that closely on a day-to-day basis to make sure that we retail the EVs that we have on the ground before that September 30 date.
David Whiston: Okay. And just one last question on your geographic mix. With Herb Chambers, really the one major part of the country you’re not in is California. I know historically, you haven’t wanted to be there, but are you perhaps thinking more about the West Coast now that you’ve got the Northeast?
David Hult: David, this is David. I’ll take that question. We don’t, you know, based upon the franchise laws in the different states and the economics in California, we just see there’s better investments and better returns in other states. So, you know, you can never say never, but for the near term, you know, we divested our two stores in California. I think we’ll stay outside of California and focus on the markets that we’re in. As a footprint now, we’re actually in the states that we want to be in and don’t want to leave any of the states that we’re in currently. That’s not the plan anyhow. But, you know, we’ll look at things as they come.
Size and scale matter to us to a certain degree. Buying a store in a smaller state that has $30 or $40 million in revenue per rooftop is just something that doesn’t interest us. We try and look at ten-year economic outlooks of markets that we’re in. What the franchise laws are, and all that kind of stuff. And we think that’s what helps our portfolio keep the SG&A as tight as it is. We’re not hyper-focused on growth as it top-line revenue growth. But really being strategic about the capital allocation, where we’re buying stores, what our returns are for our shareholders. And making sure that we’re doing it thoughtfully and building to the future.
And, you know, while we talk about the headwind of TCA, and what it meant to an EPS, I think 43¢ or so in the quarter. You know, when you look at slide 19 of our IR deck, when you get out to 2028 and 2029, you’re talking $4.50 to $5.50 per share before we sell a car. So while the next year, year and a half is tough on us on EPS, you start to look out a few years, we really look like a solid company. And then you add in the concept of fully being on Techeon and the benefits of SG&A.
So the next six or seven months might be bumpy as we settle into tariffs and what happens there and stabilizing day supply. But we think the future is really bright, and we’re optimistic about it and excited for the future. But for now, California is not on the list, and it’s really focusing on the markets we’re in.
David Whiston: Alright. Thank you very much.
David Hult: Thank you.
Operator: Our next question is from Bret Jordan with Jefferies. Please proceed.
Bret Jordan: Hey, good morning. On Slide 19, I guess, your pending full visibility in the tariff impact for the estimate reviews. Is there meaningful exposure on the parts side where you’ve written warranties that might see a higher parts cost than expected, or is most of that in labor or just too small and the total TCA portfolio to really make a difference in the next several years?
Michael Welch: Yeah. I mean, it’s a good point. We try to bake in inflation into our estimates for what we price the F&I contract at. So they’re, you know, they’re somewhat baked in there, but if you had a meaningful increase on the parts side, to your point, labor is the biggest component of that. And so it would have a small impact on the claims, but not a huge impact. On the 2026 through 2029, what we’re really trying to figure out there is where do we think SAAR shakes out. That’s the big driver of the TCA runoff. And when kind of that deferral hit hits you is when that SAAR rebounds.
And so once we figure out kind of a better forecast for SAAR over the next couple of years, we’ll come back and update those numbers for those SAAR projections.
David Hult: And, Bret, just to jump on that real quick, if you don’t mind. When we acquired TCA, their AM Best rating was an A-minus. We’ve improved it to an A rating. So we’re real happy with the way we’re managing the portfolio and loss ratios, and so we’re very optimistic about the future for TCA. Regardless of tariffs.
Bret Jordan: Yeah. Great. Thank you. And then a follow-up on regional dispersion, I guess. You called out the Western stores having 2x the company average in parts and service growth. Is there anything else sort of interesting from a regional performance either on units or, you know, puts and takes, geographically?
Dan Clara: No. You know, Bret, this is Dan, by the way. No. I don’t think that there’s anything else interesting. I’ll just expand on the double-digit growth in the West, and we’ve been talking about this for the last, I don’t know, twelve, eighteen months. Been a lot of focus on the integration of our West stores and really putting the processes and procedures in place to maximize the opportunity on a day-to-day basis, but more importantly to enhance the guest experience through technology even though we know that the employees in the front lines are the ones that create the experience.
David Hult: I would just add to that. You know, I would say more than geographical, brand mix matters. All brands are cyclical. So depending upon your portfolio, it can be a tailwind or a headwind based on what you have. But things are pretty stable, and I think everything is really the market’s kind of sitting still waiting to see where the tariffs shake up. What the manufacturers end up doing with pricing. And, you know, we’ll make that one-time adjustment and move on.
The one thing that’s proven true about this industry, because I know there’s a lot of negative talk about the second half of the year, what’s going to happen with tariffs and margins and all that kind of stuff. You know, the public auto space has been public for twenty-seven, twenty-eight years now. There’s been a lot of negativity over time with it. And as far as everyone looking for the headwinds going forward, one thing that’s held true, especially through the recession in ’08 and ’09, this is a resilient business model. And it’s an accordion effect with its an expense control and it always finds a way to perform and continue to go on.
The transportation retail business is strong. It’s not going to go anywhere. And this business model, not just ours, but our peers in the private cap space will certainly adapt and come out on the other side of this just as strong as they did before.
Bret Jordan: Great. Thank you.
David Hult: Thank you.
Operator: We have reached the end of our question and answer session. I would like to turn the conference back over to David Hult for closing remarks.
David Hult: Thank you. This concludes our call today. We appreciate everyone’s participation and look forward to speaking with you after our third quarter. Have a great day.
Operator: Thank you. This will conclude today’s conference. You may disconnect your lines at this time. And thank you for your participation.
