Asbury Automotive Group Inc Q1 FY2026 Earnings Call

Greetings, and welcome to the Asbury Automotive Group First Quarter 2026 Earnings Conference Call. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Chris Reeves, Vice President of Finance and Treasurer. Thank you, sir. 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 the Asbury Automotive Group's First Quarter 2026 Earnings Call. The press release detailing Asbury's first 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-K for the year ended December 31, 2025, 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 first quarter results. It is my pleasure to now hand the call over to our CEO, David Hult. David?

Thank you, Chris, and good morning, everyone. Welcome to our first quarter earnings call. Our first quarter results highlighted efforts to transform our business by optimizing our portfolio and successfully migrating to Tekion. Today, over 50% of our stores are running on Tekion. We remain on track and anticipate being fully converted by the fall of this year, after which time we expect to begin fully realizing the cost and efficiency benefits enabled by the new technology platform. The first and second quarters of this year represent a peak in terms of the number of stores making the transition. As a result, costs related to integration and temporary disruption in store operations will also remain elevated as team members become fully acclimated to the new technology. Michael will provide additional color behind the transition and its impact on our financial performance. The first quarter also showcased a number of capital allocation decisions which position Asbury for future success, while also returning capital to our shareholders. We divested 10 dealerships and a collision center at attractive multiples, representing approximately $600 million in annualized revenue. $147 million of the proceeds went towards repurchasing 678,000 shares of our stock, with the rest directed towards reducing our debt. In our view, our trading price undervalues the earning potential of the company, and we took advantage of this price-to-value dislocation to accelerate our repurchase activity. Moving on to our first quarter 2026 operational performance. Our results reflect the expected decrease in volumes as consumer demand moderated from last year's tariff-driven spike in sales. More challenging weather was also a factor as was the temporary disruption for the stores going through the Tekion conversion. While new vehicle volumes were down, gross profit on a per unit basis held up well. On an all-store basis, new vehicle PVRs were down just $73 sequentially, and $177 year-over-year, an indication profitability is beginning to approach normalized levels. Similarly, used vehicle PVRs on an all-store basis was $1,847, which is up sequentially 5% and 16% year-over-year as the team continues to execute our strategy to maximize per unit profitability. Parts and Service had a more challenging quarter, driven by a variety of factors, including weather, a more cautious consumer and temporary disruption from our DMS transition. That said, we still expect fixed operations gross profit to grow at mid-single-digit rates over time. And now for our consolidated results for the first quarter. We generated $4.1 billion in revenue at a gross profit of $727 million, a gross profit margin of 17.7% and an expansion of 22 basis points. We delivered an adjusted operating margin of 5%. Our adjusted earnings per share was $5.37, and our adjusted EBITDA was $207 million. Before I hand the call over to our incoming Chief Executive Officer, Dan Clara, I want to take a moment to thank our team members for helping to make Asbury Automotive the company that it is today. Together, we have transformed our organization from a regional player to one with national scale in highly desirable markets, a balanced portfolio and a leader in technology-focused investments. It has been an honor and a privilege to serve as a steward of this business for the past 8.5 years, and I know our best days are ahead with Dan running the company. Dan, I will hand things over to you to discuss our operational performance in more detail.

Good morning, everyone. Thank you, David, for the kind words. I feel I can speak for everyone here in saying that Asbury would not be as strong as it is today without your vision for growth and seeing the potential in this company. We all wish you the best in your next role as Executive Chairman. And now moving on to the quarter. I would also like to thank the team members for handling the challenges that were thrown at them this quarter, including severe winter weather in nearly all our markets and across multiple weekends. Our teams have been working diligently to make the transition to Tekion a smooth process and we are pleased with the early progress our stores are making. Changing the DMS is a complex endeavor for any dealer group, let alone one of our size, but it is necessary in order to elevate the guest experience and enhance our capabilities for strong operational performance. As an example, we converted the Koons dealerships last summer, and they are starting to show the power of the software. For that specific group in March, we saw gross dollars per technician up 21% year-over-year, and average productivity per service advisor up 16%. We are seeing efficiencies extend beyond the service day as support cost in the stores decreased by 5% at the same time. And now I'm going to provide some updates on our same-store performance, which includes leadership in TCA on a year-over-year basis unless stated otherwise. Starting with new vehicles. Same-store revenue year-over-year was down 9%. While we believe the winter weather impacted sales activity, we are also monitoring consumer behavior in light of ongoing geopolitical events. New gross profit per vehicle was $3,061 as luxury maintained GPUs in line with the prior year and import and domestic moderated as expected. On an all-store basis, which includes the positive impact of the Chambers platform, new gross profit per unit was $3,371, only down $177 year-over-year. Across all brands, our same-store new day supply was a healthy 54 days at the end of March, which we believe supports resilient gross profit per unit. Turning to used vehicles. First quarter total used gross profit was up 1% sequentially. Used retail gross profit per unit was up 12% at $1,828, a $201 increase over the prior year and a $79 increase over our reported fourth quarter 2025 number. Our efforts in used continue to pay off. This represented our second consecutive quarter of progress in growing GPUs. We have seen sequential increases in GPUs in six out of the last seven quarters, thanks to our teams executing more consistently. We anticipate the pool of used vehicles will increase through the year, aided by lease return activity, which can give us the opportunity to increase volume and maintain this level of performance. Finally, our same-store used DSI was 30 days at the end of the quarter, down from 35 days at the end of the fourth quarter. Shifting to F&I. We earned an F&I PVR of $2,307. The nonres deferral impact of TCA was $45 a unit—so without the year-over-year impact the PVR would have been $2,351. We are on track to implement TCA in the Timber stores by year-end, which will complete our rollout across all our platforms. And finally, in the first quarter, our total fund and yield per vehicle was $4,806. On an all-store basis, our front-end yield was up $70 year-over-year at $4,921. Now moving to Parts & Service. Our same-store Parts & Service gross profit was down slightly year-over-year due to slowdowns associated with the winter storms. In addition, it is also important to note that when we convert stores to Tekion, there is a short-term effect of adjusting to the new software at the store level. We believe it takes about 4 to 6 months to overcome the muscle memory of the legacy software and start to see efficiencies take hold, like those I mentioned earlier. Now going back to the quarter's results. Customer pay gross profit was up 1% with warranty gross profit higher by 3%. During the month of March, we generated 4% growth for both customer pay and warranty gross, which was encouraging to see. April to date is trending similar to March. Overall, we believe our stores are well positioned for the extended period of growth within parts and service supported by the aging car park and increased vehicle complexity. Before I pass the call to Michael, I want to thank the team again for your hard work to deliver a guest-centric experience and striving for improvement to unlock further performance. And with that, I will now hand the call over to Michael to discuss our financial performance. Michael?

Thank you, Dan, and good morning to our team members, analysts, investors and other participants on the call. Our financial performance in the first quarter: adjusted net income was $102 million. Adjusted EPS was $5.37 for the quarter. In addition, a noncash deferral headwind due to TCA this quarter was $0.26 per share. Our adjusted EPS would have been $5.63 without the deferral impact. Adjusted net income for the first quarter of 2026 excludes, net of tax, a net gain on divestitures of $94 million, $5 million related to Tekion implementation expenses, $3 million of weather-related losses and $1 million related to duplicate DMS related expenses. In our consolidated results, we estimate that the weather impacted gross profit by $19 million and EPS by $0.56. As stated in our press release this morning, during the quarter, we divested 10 dealerships and terminated 7 franchises, which included exiting the Alfa Romeo and Maserati brands. Combined, these stores generated an estimated annualized revenue of $625 million. Adjusted SG&A as a percentage of gross profit on a same-store basis came in at 66.9% which includes $2 million related to legal expenses for a specific matter. In March, we saw adjusted same-store SG&A in the low 60s. So we believe the SG&A number would have been more solidly within our expectations for the mid-60s range without the severe weather headwinds. As Dan mentioned, there is some frictional cost associated with changing our DMS that will take time to work out. In the short term, the stores are slightly less efficient than the first two months of operating in the new DMS. In months four to six, we see the stores become more efficient—it is encouraging to see our team members lean into the tool and embrace the operational improvement as the new platform can provide. Overall, we believe any short-term headwinds are outweighed by the benefits to come. Before I move on, I will note that the one-time implementation costs at the stores and the cost of duplicate software have been adjusted out of our non-GAAP SG&A numbers as shown in our press release this morning. Next, the adjusted tax rate for the quarter was 25.1%. We also estimate the full year 2026 effective tax rate to be approximately 25%. TCA generated $15 million of pretax income in the first quarter. The negative noncash deferral impact for the quarter was $7 million. We generated $166 million of adjusted operating cash flow during the quarter. Excluding real estate purchases, we spent $46 million on capital expenditures in the first quarter and still anticipate approximately $250 million of CapEx spend for both 2026 and 2027. Adjusted free cash flow was $120 million for the first quarter. We ended the quarter with $1.2 billion of liquidity comprised of floor plan offset accounts, availability on both our used line and revolving credit facility and cash, excluding cash of Total Care Auto. Our transaction-adjusted net leverage ratio was 3.2x at the end of the first quarter. As David mentioned, we took opportunities to optimize our portfolio through strategic transactions. Our divestitures in the quarter also reduced our CapEx burden, further allowing us to deploy cash to higher-return options. The proceeds of the divestitures combined with robust cash flow in our business allowed us to balance our capital allocation priorities, both reducing our debt level and repurchasing 678,000 shares. Our diluted share count is approximately 18.6 million shares before adjusting for any future buybacks. And finally, before we open the Q&A, I would like to thank David for his years of valuable leadership. David guided us very well through a new level of growth and is still the team-focused and guest-centric culture that makes Asbury what it is today. And with that, this concludes our prepared remarks. We will now turn the call over to the operator and take your questions.

Our first question comes from the line of Jeff Lick with Stephens.

David, just want to extend my thanks and you'll be missed. Since we've got you, I was wondering if—look, first quarter was obviously a pretty noisy quarter on a variety of fronts, weather being one of the most. I wonder if you can just give a state of the union of kind of where we are for yourselves and the industry in second quarter. Just thinking about new and then new has some implications for used. And then obviously, service and parts was a little lumpy. I mean you did mention it was up in March. But just kind of where do you think things stand now that the tax refund season is over? And obviously, we're not going to be getting this the rest of this year.

Sure, Jeff. I'll take a shot and Dan can jump in. January and February were really rough for us from a weather perspective and we went far behind the 8 ball at that point. Before the weather started hitting in mid-January, we were actually facing well the first half of January was okay. Once we got hit with all the weather, we kind of didn't recover. March was a good sign for us. Last March and April were extremely strong with the tariff pre-sales, for lack of a better term, but we really bounced back. And to Michael's comment, being in the low 60s for SG&A from March was a telltale sign for us. We see the same going into April. Very difficult to predict much beyond that with what's going on with the war in Ukraine, gasoline prices and other things and how long that lingers. One would think the longer that lingers, the more impactful that's going to be on our business. We're definitely feeling the slowdown. It's not all the same by brand, but we're still seeing a slowdown in new car sales into April as well. And just a top level, we were essentially back about 4,300 units or so in the quarter on new on a same-store basis. Roughly, when you take in 2,300 to 2,500 trade-ins on those 4,000 units, you're going to retail about 80% of those cars. So there's a chunk of preowned inventory that we normally have internally to sell that we don't have. So it will be a balancing act the next few quarters if new doesn't pop back as to where we're going to source vehicles. But I think Parts & Service is going to bounce back nicely and continue to grow as the year goes on. It does take us 4 to 6 months with Tekion to get the muscle memory right in the stores. It doesn't matter the market or the brand—it's just human behavior takes time. But once you get past that 4- to 6-month window, you can really start to see some efficiencies as to why we would make this change in the DMS. We do believe it makes our folks more efficient and more productive, while certainly lowering our costs at the same time. I don't know if there's anything you want to add.

I think you covered it all, nothing to add.

And then just a quick follow-up for Dan maybe—if you could just give us one thing with Tekion where you look at it and say it manifests itself in financial benefit, where you say, you know what, we're making the right decision here—yet it might be a little noisy for 4 to 6 months, but when you start to look at our P&L a year or two from now, we made the right decision. I was wondering if there's one thing you could highlight?

I think—Jeff, I think I covered it: just one example of several that we're seeing. When you think about the efficiencies that the new software brings, when you look at the gross dollars per technician being up 21% at Koons and the average productivity per service advisor, and then you add the fact that support cost has also decreased, it's a pretty nice mix and aligned with what we expected. And then to put icing on the cake, the guest experience is definitely improved by the ease of using the technology and the ability to enhance how fast guests can be served. So we believe that it definitely gives us a competitive advantage that we need for the future, and it is definitely the right thing to do.

Our next question comes from the line of Rajat Gupta with JPMorgan.

Great—and then David, best of luck and hope to catch up at some point again. I want to just follow up on some of the first quarter results, especially around the new car units and even used car of an 11% same-store decline and the 12% in use— is there any way to break up how much of it was weather? How much of it was just the Tekion productivity? And then how much of it was market? Any way to parse that out would be helpful. And I have a quick follow-up on SG&A.

Yes, Raj, this is Dan. I'll start it. When you look at the weather impact from a same-store basis, we believe the closures in Q1 affected us somewhere in the $50 million range on gross profit and similarly in U.S. core volume. And then when you go down to the fixed revenue, that had a significant impact—somewhere on a same-store basis around $13 million. So it was a significant impact. And as you know, when we have weather-related issues it's not just the days we're closed—it's the days leading up to with all the media mentions that happen and the days after the fact recovering. David was in the Northeast during that time, and the Northeast was hit pretty severely. So it was definitely a big impact. But glad that it's behind us and glad that March showed that we are directionally correct. And glad that April is similar to March so that we continue to build on the momentum.

Got it. And how much do you think you lost due to the Tekion rollout in Q1 because you'll probably close the store for like a day and then the Monday—I'm curious if that had any meaningful impact on the units. I know it probably impacted services, but anything on the units that you could flag?

Yes, you bring up an excellent point. When we roll out Tekion in stores, we do the conversion on a Saturday and Sunday, and we typically close operations on that Monday. So that is definitely a day that we lose from being able to serve our guests. Then Tuesday we reopen, but operations are much lower than what they used to be until we develop that muscle memory. It takes between 4 to 6 months to get back to prior efficiency levels.

Got it. Just to clarify on Mike's comments on SG&A in the prepared remarks, I think you mentioned mid-60s excluding the weather headwinds. I just want to make sure we heard that correctly. Is it mid-60s even excluding some of the productivity losses from the DMS transition? I'm curious what a good steady-state SG&A to gross number would be in the quarter if it did not have weather and did not have DMS transition?

Based on the March results that we saw, which were in the low 60s, I think mid-60s without the weather would have been the right number for the first quarter. So we're still comfortable in that mid-60s range going forward. Then at some point in the back half of the year, as we start to see the Tekion efficiencies come through, I don't know if that's fourth quarter or where that shakes out, you could start seeing an approach toward the mid-60s once Tekion efficiencies are running through the system.

Got it. Just a final one on buybacks. Given the fact that you're ramping up buybacks here while EBITDA is coming down, I'm curious: is this you taking a view on the benefits of the Tekion rollout and the benefits you might see into 2027 and beyond, that's giving you that confidence given the cyclical backdrop still looks a bit choppy? Curious about the thinking around the buybacks ramping up.

So a couple of things. In the first quarter, we disposed of stores and used those proceeds to buy additional shares in the quarter. Also, as the share price continues to be dislocated and at attractive prices for us, we took a view that we need to take advantage of that. We do think the back half of this year and into 2027, the EBITDA comes up dramatically with the Tekion rollout behind us. We're trying to balance the leverage ratio and share buybacks. If the share price is low, we're going to lean in a bit on share buybacks.

Our next question comes from the line of Glenn Chin with Seaport Research.

Just another follow-on related to Tekion: can you just confirm for us sort of the contour of the tuck-on impact throughout the year? Do the costs and inefficiencies from the transition peak in second quarter?

If you think about the stack-up effect, we had heavy rollouts in the first quarter. Second quarter has a decent amount of rollout and then we handle the West in the third quarter. So, if you think about that four- to six-month window, it will probably peak in the third quarter. At some point in the fourth quarter we should be able to flip over as more stores are past the four- to six-month window. I would say that the peak will be very late second quarter into third quarter.

Okay. And I understood that you're going to adjust out the explicit costs from Tekion—those timelines around those, Michael, are they similar?

Yes, it should be similar. Second and third quarter will have the bulk of the remaining implementation costs. Second quarter probably has a few fewer stores and third quarter a few more, so implementation costs will be in a similar ballpark to first quarter, maybe a little lighter in second and similar in third when compared to first quarter.

Very good. And then Dan, you mentioned in your prepared remarks as well as last quarter some hesitation around the consumer with respect to parts and service. Can you elaborate further on that?

Glenn, we saw the pullback in Q4 going into Q1—there's a lot of uncertainty out there. There's also the impact of higher oil prices keeping people on the defensive. But it's encouraging to see what we saw in March with customer pay up and the same trend going into April. Overall, our view is cautious but improving as we move past the weather and as customers return to normal maintenance patterns.

Okay. Very good. That's it for me. David, we'll miss you; good luck with everything and your new position.

Thank you.

Our next question comes from the line of Alex Perry with Bank of America.

I wanted to double-click a little bit more on current stated demand with where gas prices have gone and the impact on consumer confidence on the new vehicle side. When did you start to see the slowdown? Is that more of an April comment? Is it just on new? Are you seeing any impact to mix yet in terms of the vehicles consumers are buying? And what are you seeing in used?

On new cars, it really goes back to what we said in the fourth quarter. We didn't get the pop in December that we typically see. January—we were okay the first half—but then the weather hit and we never recovered. So post-weather, February and March were similar and the trend continued. As for mix, typically when gas prices are at current levels it takes five to six months for consumers to change buying habits. We have not seen a significant shift yet—i.e., a consumer trading a Chevy Tahoe for a Honda Civic. The longer the geopolitical uncertainty continues, the more likely we are to see shifts, but we're not there yet. From a used standpoint, demand for used cars remains strong given the gap in cost between new and used, and increased costs for insurance and maintenance. We have strategically chosen not to chase volume at the expense of margins; Q1 shows that even with lower volume, our used gross profit was ahead year-over-year. We believe that's the right strategy and as used supply increases through the year, we'll have the option to increase volume while protecting margins.

Got you. That makes sense. And then on the Parts & Service trend—if we think about comps from here, you mentioned a rebound. Is that primarily getting past the weather impact? Is there something you're seeing in terms of delayed effect from people that would have come in during Q1 starting to come in? Can you talk about how you think about Parts & Service and what drives that rebound?

Parts & Service—we've always talked about mid-single-digit growth. We've developed a strategic plan to grow fixed operations, similar to what we've done in used. It's about execution: retaining guests, increasing average miles coming through our shop (which are in the 70,000-mile range), growing the customer-pay count, and focusing on cycle time—how fast we can serve guests. Faster service improves retention and throughput. Tekion also helps by improving throughput and the guest experience, which should support growth in fixed operations over time.

Our next question comes from the line of John Babcock with Barclays.

I was wondering if you could talk about the Herb Chambers integration—how it's going—and if there's anything new to share on that front? Also, could you remind us when you're planning to implement Tekion into that business?

The Herb Chambers integration is going well. We're very happy with the talent and people; they've built great stores and now it's up to all of us to work together to take it to the next level. Tekion rollout at Chambers started last month. We've already converted some stores; I believe we have two stores converted and the rest are progressing. We have about eight more conversions planned in June, and by June Chambers should be completely converted to Tekion.

Okay. And one more: you break out GPUs across luxury, import and domestic. Quarter-over-quarter there seems to be stability in luxury and imports, but domestic was down. Is there anything we should take from that trend?

The biggest impact on domestic came from our Stellantis stores. We're aware of the headwind there; we're focused on performing better with Stellantis, getting that inventory turn and maximizing gross profit. So domestic moderation was largely driven by the Stellantis exposure.

Very helpful. And just my last question—could you share how much, if any, shares you bought back in April?

Any shares we would have bought back in April would have been disclosed as part of the press release. We did our share buyback early in the quarter and took advantage of some share prices then, so all those shares were purchased January through March.

Our next question comes from the line of Bret Jordan with Jefferies.

On the plants, are you seeing any improvement in the trend? It seems as if maybe they're making some product or pricing adjustments—are you seeing any traction there or is it pretty much the same?

From a high level, there are changes being made that make sense and are a step in the right direction. But it's a double-edged sword—when manufacturers adjust pricing for new models coming in, we may still have fairly expensive older model inventory that needs to be liquidated, which pressures margins. So there can be margin pressure as we work through older inventory to make room for new product and pricing decisions.

On the parts and service side you had a pretty hard warranty comp year-over-year. Are there any major warranty programs or recalls that might give you tailwinds in volumes in the balance of this year?

We did have some big warranty comps. One of our import OEMs had a decrease in warranty issues last quarter, which is outside of our control. Moving forward, we've seen some domestic recalls and additional warranty work, but it's hard to predict. Warranty is important but unpredictable, which is why we focus on customer pay when possible.

Our next question comes from the line of Matthew Raab on for Ryan at Craig-Hallum.

Just want to go back to new GPUs: we've talked in the past about settling out in that $2,500 to $3,000 range. You're at $3,271, and it feels like inventory is pretty rational and you're getting the benefit of the Herb Chambers mix. At this point, is there any reason why GPUs can't settle out near the higher end of that range? Do you have any expectation for new GPUs for 2026—whether it's a year-end number or quarter-over-quarter decline through the rest of the year?

Matt, great question. I agree: for the last several quarters we've talked about $2,500 to $3,000. We believe that number is moderating and is closer to about the $3,000 range now. So your point is well taken.

We have no further questions at this time. Mr. Hult, I'd like to turn the floor back over to you for closing comments.

Thank you, operator. We appreciate everyone joining our first quarter earnings call. The team here looks forward to discussing our second quarter results in the future. Have a great day.

Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a wonderful day.