Asbury Automotive Navigates Margins and M&A in Q1 2025 Earnings

Asbury Automotive Group (NYSE: ABG) delivered a mixed performance in its Q1 2025 earnings report, balancing operational challenges with strategic moves to fuel long-term growth. While net income dipped 10% year-over-year to $132 million, the company underscored its resilience through record parts & service revenue and a bold acquisition strategy.

Financial Performance: Headwinds and Highlights
The quarter’s top-line results were lackluster, with revenue slipping 1% to $4.1 billion compared to Q1 2024. Net income fell to $132 million, driven by margin pressures across new and used vehicle sales. Gross profit contracted 3% to $724 million, with margins narrowing by 40 basis points to 17.5%. However, the company’s adjusted EPS of $6.82—just 9% below prior-year levels—highlighted its ability to navigate one-time charges, including $11 million in asset impairments and $2 million in acquisition-related costs.

Operational Struggles: New vs. Used Vehicle Dynamics
New vehicle sales offered a glimmer of hope, with unit volume up 2% and revenue rising 4%, though gross profit plummeted 12%. Same-store new vehicle performance was stronger, with units up 4% and revenue growing 6%, yet margins still contracted. The used vehicle segment faced steeper declines: unit volume dropped 10%, and gross profit fell 14%, signaling ongoing industry-wide challenges in used inventory valuation and demand.

Parts & service, however, shone as a bright spot. Revenue held steady year-over-year but rose 2% on a same-store basis, with gross profit hitting a record $343 million. This segment’s 5% same-store gross profit growth underscores the sustainability of service revenue in a volatile market.

Strategic Moves: Acquisition-Driven Growth
Asbury’s most significant news was its agreement to acquire The Herb Chambers Automotive Group, a $3 billion revenue dealership chain. This marks its largest acquisition since 2021 and aligns with its strategy to grow through acquisitions. CEO David Hult emphasized the deal’s potential to expand Asbury’s footprint and leverage synergies, though integration risks remain.

The company also continued its disciplined approach to divestitures, offloading two dealerships in Q1 to reduce annualized revenue by $79 million. Cumulative divestitures in 2024 and 2025 have trimmed $304 million in annualized revenue—a move to focus on higher-margin locations.

Liquidity and Leverage: A Secure Foundation
Asbury maintained robust liquidity, with $964 million available as of March 31, including $204 million in cash. Its leverage ratio of 2.75x—below the 3.5x covenant threshold—signals financial flexibility to pursue acquisitions without overextending. Management reaffirmed its focus on capital allocation, prioritizing debt repayment and strategic investments over dividends.

Conclusion: Positioning for a Post-Tariff Landscape
Asbury’s Q1 results reflect the automotive retail sector’s broader struggles with margin compression, particularly in used vehicles. Yet, the company’s execution in parts & service and its aggressive M&A strategy position it to capitalize on long-term trends. With the Herb Chambers acquisition adding scale and the Clicklane digital platform enhancing customer engagement, Asbury is laying groundwork for recovery.

Crucially, its leverage ratio—well within target—provides a buffer against economic volatility. Investors should watch for execution risks in integrating the Herb Chambers deal and whether new vehicle margins stabilize. While Q1’s 10% net income decline is a near-term concern, the structural shift toward higher-margin service revenue and selective acquisitions suggest a path to outperform peers in the coming years. Asbury’s results are a reminder that automotive retail’s future hinges less on transaction volume and more on operational discipline and strategic foresight.