Asbury Automotive Group Inc Q4 FY2024 Earnings Call

Greetings, and welcome to Asbury Automotive Group Fourth Quarter 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Mr. Chris Reeves, Vice President of Finance and Treasurer. 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 fourth quarter 2024 earnings call. The press release detailing Asbury's fourth 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 Senior Vice President of Operations; 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-K for the year ended December 2023 and a 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 the 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. We have also posted an updated investor presentation on our website, investors.asburyauto.com, highlighting our fourth quarter results. Now, it is my pleasure to hand the call over to our CEO, David Hult. David?

Thank you, Chris, and good morning, everyone. Welcome to our fourth quarter earnings call. The performance of our business is a direct reflection of the efforts of our team members who come to work each and every day striving to improve the guest experience. Their hard work translated into strong results for the fourth quarter, and I couldn't be more proud of the team. After our recent election, we saw an increase in traffic and sales throughout Q4. Overall, volume for same-store new vehicle was up 7% year-over-year, 12% sequentially, and same-store gross profit per new vehicle was up $149 compared with the third quarter of 2024. In 2025, we expect new vehicle gross profit per vehicle somewhere in the $2,500 to $3,000 range. Our performance in used vehicles is consistent with our shift in strategy in mid-2024, prioritizing profitability over volume given the supply challenges in the used vehicle market. While overall volume was essentially flat, our gross profit per unit increased for the second quarter in a row. These results are particularly impressive when set against the backdrop of rising new vehicle incentives, which create headwinds on used vehicle pricing. We expect inventory challenges to persist throughout 2025. Shifting to our Parts and Service business. I couldn't be more proud of how the team came together to deliver outstanding results for the quarter. On a same-store basis, gross profit for our fixed operations business was up 11%, and the all-important Customer Pay segment was up 13%. Looking ahead, we remain confident in a mid-single-digit growth rate for customer pay is sustainable. In parallel with our operational success, we remain keenly focused on cost discipline. Our SG&A costs as a percent of gross profit fell for the second consecutive quarter, coming in at 63% on an adjusted basis. While we are proud of our results to make the business more efficient, our work here is not done. We continue to evaluate other opportunities to deliver a guest experience more efficiently. Our four-store pilot with Tekion went live in October, and we're encouraged by the early feedback from our operators. From sales to service, this new platform has the potential to simplify the guest experience, improve team member efficiency, all at a lower cost per transaction. Now for our consolidated results for the fourth quarter. We generated a record $4.5 billion in revenue, up 18% year-over-year, had a gross profit of $750 million, up 11%, and a gross profit margin of 16.6%. Our same-store adjusted SG&A as a percentage of gross profit was 62%, and it was 63% on an adjusted all-store basis. We delivered a same-store adjusted operating margin of 6% and an all-store adjusted operating margin of 5.7%. Our adjusted earnings per share was $7.26, and our adjusted EBITDA was $254 million. Finally, thank you to our team members who continue to deliver and find innovative solutions to make our company better. I'm excited about the momentum we've built heading into 2025. Now Dan will discuss our operational performance. Dan?

Thank you, David, and good morning, everyone. I would also like to thank our hardworking team members. You make a difference by providing a high level of service that powers our strong results. Thank you. Now, I'm going to give 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 8% year-over-year and units were up 7%, driven by strong performance from a number of our luxury brands as well as Hyundai, Kia, General Motors, and Ford. New average gross profit per vehicle was $3,661, a sequential increase from the last time we spoke and in line with the typical seasonality and strength of luxury brands in the fourth quarter. A broad solid performance across our portfolio helped overcome the pressure on gross per unit related to Stellantis, which was down substantially year-over-year. Our same-store new day supply was 47 days at the end of December. Turning to used vehicles. Fourth quarter unit volume was down slightly versus prior year results. Used retail gross per unit was $1,584, which was $19 higher than third quarter 2024. We believe in prioritizing unit profitability at this point for the used-car supply cycle. At the same time, we are monitoring market conditions that may shape our strategy within the pre-owned business. Our same-store used DSI was 37 day supply at the end of the quarter. Shifting to F&I. We earned an F&I per vehicle retail of $2,238, improving sequentially over the third quarter 2024. The deferred revenue headwind of TCA contributed $40 of the $72 decrease in the same-store F&I PVR year-over-year. For the past several quarters, we've discussed the timing of the rollout of Koons in Florida in the first half of 2025 and the impact it would have. Michael will walk you through the additional detail on the financial impact regarding TCA. In the third quarter, our total front-end yield per vehicle was $5,040, reflecting the healthy gross per unit in F&I PVR. Moving to Parts and Service. As David mentioned, our Parts and Service business excelled in the quarter. Our same-store parts and service gross profit was up 11%. For the quarter, we generated a gross profit margin of 57.9%, an expansion of 224 basis points. This expansion was driven by increased profitability of our higher margin segments, which contributed 124 basis points of the growth. In addition, I'd like to provide further visibility on the progress being made in our fixed operations by breaking out the components of our Parts and Service business. Our largest portion and most profitable piece of the business, Customer Pay, generated gross profit growth of 13%. In warranty, we were up 26%, driven by increased recalls. Wholesale parts and collision were down 5% and 6%, respectively. Our Western stores built upon their momentum in customer pay, posting a 21% growth in gross profit year-over-year, and we continue to see strong performance in our Eastern stores as well. And finally, we retailed approximately 12,000 sales through Clicklane in the fourth quarter, a 6% increase over last year. This brought our total units retailed to over 51,000 units for the year 2024, which is a 13% increase versus 2023. We sold approximately 6,200 new units, an 8% increase year-over-year. New vehicles made up 52% of our Clicklane sales. We view this ability to sell new as an important differentiating factor in the marketplace. I will close by once again expressing my gratitude for our hardworking team members as we focus our efforts to be the most guest-centric automotive retailer. I will now hand the call over to Michael to discuss our financial performance. Michael?

Thank you, Dan, and happy birthday. We are pleased with our fourth quarter results. Our teammates execute at a high level and prioritize our guests, which is a fantastic way to end the year and approach 2025. Now, I will discuss our financial performance for the quarter, as well as some figures for the full year. In the fourth quarter, adjusted net income was $143 million and adjusted EPS was $7.26. This adjusted net income excludes net of tax, $11 million of non-cash asset impairments, $5 million in losses related to Hurricane Milton, and $1 million of income from the termination of our franchise. Adjusted SG&A as a percentage of gross profit was 63%, showing improvement from the third quarter. We were happy with the team's discipline and ability to manage costs. We expect the SG&A percentage for 2025 to be in the mid-60s, considering the expected trend of new vehicle GPUs and our business investments. The adjusted tax rate for the quarter was 24.8%, and we estimate the full-year adjusted tax rate for 2025 to be 25.3%. TCA generated $20 million in pre-tax income in the fourth quarter and $79 million for the full year. The non-cash deferral effect for the year provided a benefit of $6 million or $0.22 per diluted share. We plan to launch TCA in our Florida market in Q1 and the Koons platform in Q2. These rollouts, along with the rising vehicle volume levels, may impact earnings negatively. We expect 2025 TCA pre-tax income to be around $8 million, factoring in a non-cash deferral loss of $62 million or $2.35 per diluted share. We anticipate a small deferral benefit in the first half of the year before a negative deferral impact after the Florida and Koons rollouts, with the highest deferral expected in 2026. We have estimated the EPS impact over the coming years on Slide 17 of the presentation available on our website. Additionally, we have provided an example of a single TCA product lifecycle and its cash and GAAP effects in the appendix for more detail. We hope this clarifies how the TCA deal impacts our finances. Back to our results, we achieved $688 million of adjusted operating cash flow for the full year 2024. Excluding real estate purchases, we invested $163 million in capital expenditures during 2024. We expect to spend about $250 million in CapEx for both 2025 and 2026, depending on the timing of several major projects and permitting. Free cash flow was $526 million for the year. We finished the quarter with $828 million in liquidity, which includes floorplan offset accounts, availability on our used line and revolving credit facility, and cash excluding what is held at Total Care Auto. Our transaction-adjusted net leverage ratio was 2.85 times at the end of December. Finally, effective capital allocation continues to be one of our highest priorities as we consistently assess opportunities for disciplined business growth. I want to express my gratitude again to all of our teammates for their contributions to our current and long-term success. This concludes our prepared remarks. We will now turn the call over to the operator to take your questions.

Thank you. At this time, we'll be conducting a question-and-answer session. Our first question comes from John Murphy with Bank of America. Please proceed with your question.

Good morning, everyone. There are many good data points to inquire about, but I wanted to focus on GPUs. You received a seasonal boost sequentially, but can you clarify how much of this is due to seasonality and how much of the strength in new GPUs is related to the market stabilizing on pricing? Are we observing more resilience than anticipated? How do you view this situation? What portion is seasonal, and how much signifies a leveling-off point?

Thank you, John, for the great question. It's a complex issue to address. Currently, we have a 49-day supply of inventory. Within that, some brands have a seven-day supply while others have nearly a 90-day supply. Specifically regarding Asbury, I want to emphasize that it operates differently today compared to 2019. Our model and brand mixes have changed, and we are in different markets. The acquisitions we've made in the past five years have proved profitable for Asbury. I believe we'll consistently maintain our performance above that benchmark. This year, Stellantis has had a significant impact on us given our size and number of locations. While we faced a considerable challenge in the fourth quarter, things could have been much better if their performance had been average. We anticipate that Stellantis will improve, which should benefit us in the future, although that improvement has yet to materialize. Nonetheless, not all brands are performing equally, making future predictions challenging. We're optimistic about some brands, such as Toyota and Lexus, which currently have a low supply and good profits; however, many other brands are in a mixed situation. Some import brands saw a 40% increase year-over-year this quarter, while others experienced a 2% decline. It's evident that we need to put in significant effort to assess our peers and the brand segments to understand the future landscape. As it stands, we believe we are heading into a more stable market. The new administration appears more supportive of business, especially with the shift from electric vehicles back to internal combustion engines, which we view as beneficial. Additionally, the average age of cars is currently between 12.5 to 13 years, and our service records show that vehicles we are servicing average over 71,000 miles, with some exceeding 90,000 miles, which indicates our success in retaining them post-warranty. We remain optimistic about 2025, though we are aware of potential challenges ahead. We are looking forward to the day when Stellantis resolves its issues, as that will positively impact our business.

That's very helpful. And then just a second question on Tekion in the 4-store test. You mentioned a couple of things, I'll paraphrase, efficiency has improved, consumer experience has improved and it's all at a lower cost. So I don't know, maybe you can maybe get into a little bit more specifics about like what the delta is versus your other DMS and what the potential savings are and then maybe business opportunity to drive top-line with Tekion?

I can share that without going into too much detail, switching from Tekion to CDK has significantly reduced our plug-on costs by about 70%. This also decreases the fees charged by the DMS for plug-ons. Another major benefit is that onboarding and training new staff with Tekion is much easier due to the user-friendly software design, enhancing our efficiency and transparency with customers. Even during the initial pilot phase, where challenges are expected, we saw an increase in productivity per employee across all stores, with varying degrees of improvement but overall positive signs. By the end of our full rollout on Tekion, projected in about a year and a half, we anticipate significant savings in SG&A costs due to the efficiencies gained from the software. Although it’s early days with just a four-store pilot, we’re optimistic based on the excellent feedback from our teams. Leaders have noted that onboarding a service advisor has improved from five days to just one day, thanks to the technology’s efficiency, which allows our staff to engage with guests more effectively. Overall, the transparency and efficiency improvements are set to enhance our service levels, and the ease of use will be a significant advantage for our team. Ultimately, we believe this software will boost our productivity and efficiency, enabling us to create a better customer experience.

I'm sorry if I could just sneak one in. You mentioned that sort of the Trump bump in showroom traffic and business just in general, a lot of concern that might burn-out over time and that might just be somewhat transitory, what are you seeing in January? I mean, maybe without even giving exact numbers, but just trying to understand if you're seeing that momentum continue into January.

January has been quite mixed, and its performance really varies by brand. Overall, this January has been tougher than most in the past four to five years due to adverse weather conditions. We've experienced multiple days of store closures in many states because of this weather, which will certainly affect our results. If we disregard those lost days, we're observing a modest increase compared to last year, though January is traditionally a slower month. However, we remain optimistic about the trends in parts, services, and sales so far. I don't anticipate a downturn due to the new administration; they appear to have a business-friendly agenda. Given the current average age of vehicles on the road, I would say this year has the potential to be strong, or at the very least, stable for us in the automotive sector.

Yeah. I guess you probably have a few more of those in front of you, at least in my opinion. Thank you very much, guys. Good quarter. Thank you.

Thank you.

Our next question comes from Rajat Gupta with J.P. Morgan. Please proceed with your question.

Great. Thanks for taking the question. Firstly, just on the SG&A. The 63% level was definitely a very solid number. I was curious if there's any way to unpack that a little bit. If you look at third quarter versus fourth quarter and your gross profit went up $40 million, SG&A went up $10 million, I'm assuming it's primarily given due to some of the CDK-related payments that you had to still make to your salesforce of the lost sales that you did not have to in the fourth quarter, but curious like if you could unpack that on what drove that sequential leverage? And then I just have a follow-up on TCA. Thanks.

Rajat, this is David. I'll start and then Michael can join in. We mentioned in the previous quarter that we are focusing on cost reductions, so part of what you're observing are those cost cuts, along with an increase in gross profit and the additional benefit we gain from each extra dollar. I should point out that Stellantis was a significant challenge for us in the fourth quarter, which adversely impacted our SG&A. Once Stellantis stabilizes, we see an opportunity to improve further. We have maintained a strong focus on cost discipline and believe our personnel expenses are at a reasonable level. There is also potential to enhance our efficiency per associate, which could lead to additional savings. Overall, we've been diligent about managing our operating costs conservatively. While we performed well this quarter, there remains considerable opportunity to achieve better results with a slightly different brand mix.

Yeah, Rajat. Your other question, the second quarter had the impact and a little bit in the third quarter for CDK, but not a whole lot. So really it's just the cost savings and the increase in both fixed ops and new vehicle margins that helped the number.

Got it. And just a follow-up on TCA. I mean, just looking at what you had provided us last quarter, looks like the deferral headwinds are a lot higher. Now for '25 and '26, curious what's driving that? Is it just a higher expectation for unit growth or just a rollout cadence, I don't know, higher claims, just curious why that drag is higher than what you had like three months ago. Thanks.

Yeah. So it's kind of a perfect storm of the roll-off of '18 and '19 from the legacy LHM stores is kind of at the end early this year. And as volume comes back up, we're kind of at the low point for the five-year kind of cumulative SAR. And so now you're adding that volume back. So yes, it's higher expectations on SAR and used vehicle growth, the ending of those good years from LHM and then Florida and Koons rolling on. And so you basically lose the good news from the old years and all you have is kind of the deferral hit for growing SAR, growing used cars and Florida and Koons coming fully on.

Got it. And just as a follow-up, just last one, the F&I numbers excluding like the headwind was pretty nice acceleration. Was that just mix or was there like penetration increase on contracts or like with the non-service contract more ancillary stuff, I'm just curious what drove that pretty solid number. Thanks.

Hey. Good morning, Rajat. We just continue to focus on our bottom 20%. We continue to focus on the training and believe that to the extent that we continue to make improvements there, the number moves. So, great job to the training team, great job to the field team, but this is history and we got to continue the trend.

And, Rajat, just to add on to that, I would say nothing has changed as far as the mix, it's still one-third finance reserve and two-thirds product sales. Probably with the lift in cost of sale a little bit and the down payments coming down a little bit, that gives you a little bit of a tailwind in your PVR.

Got it. Thanks. Congrats on a strong quarter.

Thank you.

Our next question is from Jeff Lick with Stephens. Please proceed with your question.

Hi, good morning everyone. Congratulations on a great quarter, and please extend my birthday wishes to Dan. I was curious about the excitement surrounding the SAAR environment for 2025, which seems to have been influenced by what took place in Q4. David, I understand that to increase unit sales, you'll need additional inventory. However, I'm interested in exploring the relationship between increasing inventory and the potential impact on GPUs, as the profitability of additional sales may not match that of previous ones. Could you share any insights on how building inventory might affect the GPU environment?

Jeff, you’re absolutely correct. There is a direct relationship at play. As day supply increases, margins tend to decrease. Many of the original equipment manufacturers (OEMs) are exhibiting more discipline compared to previous years, which is tightening things up, and that's positive. However, some OEMs have faced challenges because of this. In our case, even if we maintain a more disciplined approach to day supply and have lower day supply than the market, we are still affected because we need to remain competitive. The primary focus is achieving a balanced day supply in the markets where we operate, and we continuously engage with our OEM partners to optimize this. An excellent example of effective management of day supply over time is General Motors.

I guess just in a quick follow-up, David. I'd be curious, as you listen to all the questions and kind of parse through everything that's being written, as you look at 2025, what do you think is the thing that the investment community just underappreciates or maybe doesn't understand where there's the biggest chance for a variance relative to expectations in 2025?

Sure, it's always subjective. However, as an operator, you tend to be optimistic. There has been a decrease in the availability of used vehicles due to the impact of COVID, and we expect to see a benefit in 2026. Asbury faces challenges with TCA, but as shown in our investor presentation, we anticipate significant advantages in a few years that we believe will set us apart from our competitors. Regarding 2025, the demand remains strong, and there's considerable positive momentum with the new administration that we can sense in our markets. The average age of cars is increasing, benefiting our high-margin parts and service business. While revenue figures in parts and service are important, gross profit numbers should be the primary focus. We still have room to expand our fixed operations business. Like usual, many seem to be concerned about their sector and expect the worst, but I would suggest looking at the situation differently. With ongoing consolidation, particularly with EVs being delayed and the rising average age of vehicles, this market appears to be sustainable for a while. Of course, unforeseen events like a World War could disrupt this. Nevertheless, the industry outlook for 2025 is positive, and we are confident about what we've achieved and built. We believe Stellantis will eventually resolve its issues, and when it does, it will significantly benefit us.

Great. Well, impressive quarter and best of luck in 2025.

Thank you.

Our next question comes from Ryan Sigdahl with Craig-Hallum Capital Group. Please proceed with your question.

Good morning, everyone. There seems to be a lot of optimism regarding Q4 with improved trends, the shift from electric vehicles back to internal combustion engines, and other factors. The new vehicle GPU's gradual decline has slowed over the last two quarters, which was better than expected and has leveled off somewhat. I'm curious about your outlook for 2025; the contract rate you mentioned of 2,500 to 3,000 GPU suggests a significant acceleration in the GPU. What are you currently observing, and what might be driving that?

It's a valid point and a reasonable question. Based on recent trends, it may seem a bit extreme. We expect SAR to see slight growth this year. However, we can't predict inventory levels or builder activity beyond the next 45-60 days, and we are uncertain about how the fleet business will adjust to the new SAR figures. Currently, it seems like a cautious estimate, and any changes may occur later in the year rather than in the first half. The anticipated uplift in the fourth quarter is primarily driven by the luxury sector. Our market experiences seasonal fluctuations; January and November tend to be slow months, while March typically sees more activity, reflecting an inherent seasonality. In the near term, PVRs should remain stable, and gross per unit performance may hold up better, although it could adjust over time. We currently have a 40% import mix and a 30% domestic mix. Looking at our domestic PVR in the reports, the overall performance appears acceptable, although two out of three brands are performing well, with one brand negatively impacting the overall number. This presents an opportunity. As mentioned earlier, our recent acquisitions in the mountain states have led to higher GPUs compared to legacy Asbury, and we believe this trend will continue. To summarize, our initial comments for the first half of the year may have been overly optimistic, as we are trying to forecast outcomes that are uncertain. Michael, do you have anything you would like to add?

Yeah. I mean, to me that $2,500 to $3,000 is kind of where we think we end up as kind of the new normal. The question is, when is it, mid to late '25 or is it early '26, but that's more of a projection of where we think the PVR shake-out at for kind of that new normal.

So just to be clear, that is a new normal steady-state versus that's what you expect on average for the year?

Correct. That's where we end up at the end.

Got it.

Question mark on when that occurs during '25.

Yes, the average for the year will be higher since our current starting point is already above that.

Correct.

Very good. And then Stellantis, I know a lot of talk and don't want to get too specific on one OEM and what's going on, but it feels like they've made some nice improvements to help dealers out, getting a little more incentives, pricing help, etc., but it sounds like a pretty big headwind in Q4. So I guess given the changes that were made in the fall, what else needs to happen there, or I guess, was it just kind of churning through and cycling and getting those initiatives kind of running to get that in a better place?

Ryan, this is David. I'll start and then Dan can jump in. I would tell you they brought the inventory day supply down, which was way out of control, which is great, still too high, but a big improvement, but they had to throw a lot more incentives and we had the wrong inventory on the ground and not just us, our peers as well, competitors. So you had to work through a lot of selling the vehicles that really weren't the right vehicles for the market with heavy incentives. So it's still very low GPUs. As we move forward with better inventories more in the sense of the right models with the right equipment at the right price has the potential to help GPUs. So there's upside there with them bringing the right vehicles and right equipment with more gross because it will be higher demand. Fourth quarter was more about getting the inventories down and pushing through with the incentives, but really selling a lot of inventory that wasn't highly desirable to the consumer.

Bret, I apologize, Ryan. The only additional point I would make is that we encountered some restrictions regarding what could be ordered anytime we had an allocation. We are beginning to see those restrictions lifted, which enables us to order vehicles with the options that consumers prefer, resulting in quicker turnover. In the short term, as this change begins, we are optimistic. The overall sentiment from the operators at the Stellantis stores is that they feel a shift, though it's not going to occur overnight. Additionally, they have discontinued some products and models that provided quick volume, which led to a loss of market share with Stellantis. Discussions are ongoing about bringing those back, but that will take time. Essentially, we now need to fulfill everything that has been outlined by the Stellantis leadership team and execute effectively at the store level as things progress.

Helpful. Thanks, David, Michael, and happy birthday, Dan. That's it for us.

Thank you.

Thank you.

Our next question comes from Bret Jordan with Jefferies. Please proceed with your question.

Hey. Good morning, guys.

Good morning.

To flog Stellantis one more time, I guess following up on the last question, is it feel like the GPU is sort of bottomed here if their production mix is more in line with customer demand and volumes are coming down from an inventory standpoint, it's not continuing to step down, but kind of flatlining?

It's a great question. No way of knowing the future, but in my opinion, yes, I would say the fourth quarter was the low point in pushing through the inventory that was overpriced and really not as desirable. So, there should be some upside from there. Dan, do you...

I agree.

Okay. And then a question on the customer pay service, obviously, really strong. It doesn't appear you're driving that with promotions given the margins are strong, but sort of what do you attribute the strength in customer pay to, is it capacity expansion or somehow better reaching the customer post-warranty?

I'll start, good morning. This is Dan. I'll begin and then David can add anything I might have missed. We've discussed several times how the guest experience cycle begins with a proper multipoint inspection and the tools we implemented about a year ago in our Western stores, which were already in use in our legacy stores. A significant part of what you're observing is simply a more efficient method for inspecting vehicles and presenting recommended services to customers in a way that allows them to approve or decline those services easily. Additionally, the store level is performing well in customer retention, as David noted, with an average mileage of 71,000 miles. This indicates that they're successfully keeping customers after the warranty period. With this higher mileage, there are more maintenance needs and repairs that need attention. Therefore, it's a combination of training, effective tool execution, and ultimately providing a much more streamlined guest experience.

We've been fortunate in our hiring over the past year and a half, bringing great leadership into our Western stores. We have had strong leadership in our Eastern stores for some time, and the people involved truly make a difference in this business. The new leaders have significantly improved our results, and there's still good potential for growth. Overall, we saw a 5% increase in tech headcount this year, which benefits us, but there is still plenty of opportunity to expand without needing to add brick-and-mortar locations. It’s our responsibility to provide a higher level of service and improve our operations, and I believe we are making great progress in that area. You can see the positive impact our team has had out West.

Thank you.

Thank you.

Our next question comes from David Whiston with Morningstar. Please proceed with your question.

Thanks. Good morning. Just on the possibility of Trump tariff threats, the 25% and whatnot, I mean, as a dealer, you're the importer here, do you have any kind of contingency plan or have you had discussions with the OEMs on sharing the cost burden, or are you just going to have to either eat it or pass it all through to the consumer if it happens?

Yeah, David. This is David, and others can jump in. We haven't had any conversations with the manufacturers yet. I think it's too early to call. A lot of the products are made in the U.S. even on the import side. We have a healthy parts and service business with the average age of the car out there and the used car businesses out there as well. I think always at the end of the day, we fear something more than we should and it tends to work itself out. And I don't pretend to have any inside knowledge because I don't, but I assume this is going to be one. It's going to get worked out. I'm sure the administration understands how important the retail automotive space is to the GDP number.

Thank you. And on affordability post-election, have you noticed any kind of, I guess, reduction in consumers' concerns about affordability because they feel better post-election or is affordability still a really major problem for both new and used?

David, good morning. This is Dan. Back to David's comment, we did see an uptick after the election and it feels like the affordability is a question and issue is still up there, but the sentiment is much more positive and customers are, as we saw it, there was pent-up demand and it took place in the fourth quarter.

And David, I would add that in the fourth quarter, which is always strong for luxury, we had the chance for a better quarter than we achieved. However, we faced limitations due to product availability. Our luxury customers are resilient and can manage challenges from a down market or other issues. The demand was present, but in some instances, we simply didn't have the product to sell them, which created additional opportunities and positively impacted the margin, as evident in the luxury sector.

And what was the $11 million non-cash impairment for?

So each year, at the end of the year, we have to do our annual impairment test and go through some stores. And so we had some stores out west that we had some impairments on just as we went through kind of the cash flow model for those stores. So about five stores had impairments this year.

Thank you.

Thank you.

We've reached the end of the question-and-answer session. I'd now like to turn the call back over to David Hult for closing comments.

Thank you, operator. This concludes the call today. We appreciate your participation and look forward to discussing Q1 with you in the future. Have a great day.

This concludes today's conference. You may disconnect your lines at this time, and we thank you for your participation.