DULUTH, Ga. -

Asbury Automotive Group announced its second-quarter results Tuesday, revealing that both used retail revenue and pre-owned sales soared by double digits during the period.

Other highlights of the quarter included a series of new acquisitions, as well as considerable growth in service department revenue from its dealerships during the second quarter.

During the company’s conference call Tuesday morning to discuss the Q2 company results, officials focused on double-digit sales growth and pre-owned department successes across the dealership group’s franchised network.

Actual used sales were up 22 percent year-over-year, coming in at 17,703, compared to 14,496 sold during Q2 of last year.

With total revenue increasing by 16 percent to $1.3 billion for Q2, used-vehicle retail revenue soared past 2012 levels by 25 percent with gross profit up 20 percent.

Total used vehicle retail revenues came in at $350.7 million, up from $270.6 million during the same period of 2012.

The company was making a bit more per used vehicle sale, as well, with same store revenue per used vehicle retailed coming in at $19,716, up 2 percent from Q2 2012’s tally of $19,288.

During the Q&A portion of the conference call, executive vice president and chief operating officer at Asbury Michael Kearney commented on how increasing used supply has contributed to used sales growth in Q2.

“The franchised dealers get approximately 30 to 35 percent of the total pre-owned cars that are sold in the country each year, and I think there is ample opportunity for us to continue to grow same-store pre-owned business,” Kearney said. “I think availability is the best its been in a while. There is a lot of product that’s out there. We grew our inventory I would say substantially in the last couple quarters, and that has also been reflected in sales. When we have this kind of broad-base inventory, we can attract more customers.

“The availability of product is better than it has been in quite a while, and we should all have some benefit from that,” he added.

Reasons Behind High Parts & Service Gross Margin

The company’s dealerships also saw growth in the F&I office as well as in the service department.

F&I revenues were up 27 percent from 2012 levels during Q2, while parts and service gross profit was up by 14 percent.

And reaching higher than normal, same store parts and service gross margins rose to come in at 61.3 percent during the second quarter.

This high number sparked intrest and questions during the conference call. In response,  Kearney cited a few factors behind the growth — directly tied to pre-owned success.

“With the incremental growth in the used-car part of our business, we generated a substantial increase in our reconditioning work, which is very high margin work in parts and services,” Kearney said.  

“We did experience some unexpected recall business at the end of the first quarter and throughout most of the second quarter, and a spike in warranty business was brought about by that, and that influenced margin also. And then we constantly work on our cost structure in those departments … those were the big drivers on the incremental margin that we saw in parts and services,” he continued.

Creating a perfect storm of sorts for Q2, the Asbury execs explained they don’t expect the parts and service gross margins to stay in the 60- to 61-percent range, which Craig Monaghan, Asbury's president and chief executive officer, called  “a high level to operate.”

“We have stayed in the north of 56-57 range, and I am quite comfortable with that range, but with the 61 percent, I think there are a lot of stars that aligned that contributed to that,” he added.  

Scott Krenz, senior vice president and chief financial officer also contributed Q2 parts and service success to the groups franchised dealers, noting, “A huge part of that (parts and service department success)  is the outstanding job that our people did with used cars.”

Outlook on Recent Acquisitions

Q2 for the company was also a big quarter for acquisitions, as it closed on the acquisition of three new-vehicle franchises in the Atlanta market (Hyundai, Kia, and Toyota) on July 22; accounting for approximately $115 million of annualized revenues, officials shared.

The company also spent $14 million to purchase two previously leased properties.

In response to a question during the conference call regarding expected performance from the new dealerships, Monaghan said, “We are very happy with what we have been able to do on the acquisition side. When you include the Bentley and Volkswagen store we acquired in December, we have picked up about a $150 million in incremental revenue in the past six to seven months.

“We feel good about that. We have been very fortunate with the sellers of these stores allowing us to get in there weeks ahead of time … so well before we close, we are putting in bigger pipes if we have to; T1 lines are going in; in some cases equipment goes in; training starts … so that when we hit a store and we close, that store converts immediately,” he continued.

Monaghan explained that with respect to returns from the news stores, “we expect the same returns from those stores that we get from the rest of our store. And we expect those returns very quickly.”

During the conference call, the execs were also asked if any future acquisitions were in the pipeline. Monaghan explained that nothing definite is on the horizon.  

“As far as the pipeline is concerned, finding new stores is a lot of work as you are well aware. It’s a great time to be in the retail automotive business; people are making a lot of money. As a result, we don’t find a lot of sellers that are willing to sell stores at prices that we think make sense, so we have got to go out and pound the pavement a little bit,” Monaghan said. “We are doing that, but it takes a lot of energy, and we will just have to see what comes. We are talking to people, but I would tell you there is nothing imminent at this point.”

Krenz added: “We did set a plan for three years, and you should know we are running ahead of the plan.”

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