Asbury Hits $4.7B Q4 Revenue But 2026 Road Ahead Split in Two

Date of Call: Feb 5, 2026

Financials Results

• Revenue: $4.7B, a fourth quarter record
• EPS: $6.67 per adjusted diluted share, would have been $6.98 without a $0.31 TCA deferral impact
• Gross Margin: 17%, expanded 31 basis points
• Operating Margin: 5.4% adjusted operating margin

Guidance:

• SAAR forecast slightly lower for 2026, with first half expected to be more challenging and second half improving.
• Expect headwinds from paying for both DMS systems during the first half of 2026; savings from Tekion will offset costs in the second half.
• Targeting leverage below 3x by summer 2026, potentially accelerating through share repurchases.
• CapEx anticipated at approximately $250M for both 2026 and 2027.
• Forecast mid-single-digit growth for Parts & Service customer pay.
• Used vehicle sales strategy focuses on maximizing gross profit per unit, with increased volume expected in second half as lease turns come in.
• Parts & Service gross profit margin forecast to improve with Tekion efficiencies in 2027.
• Full-year 2026 effective tax rate estimated at approximately 25.5%.

Business Commentary:

Revenue and Gross Profit Growth:

• Asbury Automotive Group reported a record revenue of $4.7 billion for Q4 2025, with a 17% gross profit margin, expanding 31 basis points.
• The growth was driven by strategic acquisitions, divestitures, and operational efficiencies.

New and Used Vehicle Performance:

• New vehicle revenue was down 6% year-over-year due to a tough comparable from the previous year's post-election surge.
• Used vehicle gross profit rose 6% year-over-year, with retail PVRs up 18%, reflecting efforts to improve performance in a supply-constrained environment.

Capital Allocation and Leverage:

• The company achieved a leverage ratio of 3.2x, ahead of its forecast, and deployed $186 million in CapEx.
• Strategic divestitures of 4 stores generated $750 million in annualized revenue, aiding leverage reduction and providing flexibility for share repurchases.

Tekion Implementation and Efficiency:

• Asbury transitioned 15 additional stores onto Tekion during the quarter, with plans to complete the rollout by the third quarter of 2026.
• The implementation is expected to improve efficiency and cost control, with benefits anticipated to be realized in 2027.

Sentiment Analysis:

Overall Tone: Positive

• Statements include: '2025 was a productive year', 'we grew the size of our business', 'the composition of our portfolio continued to improve', 'we were ahead of where we thought we would be from a leverage perspective', 'I am proud of the team's efforts', 'I'm excited about the path ahead for 2026', 'we remain optimistic about the outlook', 'we are very confident that it is working', 'we think all this blocking and tackling...will pay dividends going into the future', 'we know the outcome will be very beneficial for Asbury'.

Q&A:

• Question from Jeffrey Lick (Stephens Inc.): Requested a road map for 2026, including lapping tariffs, EV credit, lease returns, and GPU normalization, with granularity on first and second half expectations.
  Response: Forecasting slightly lower SAAR; first half will be a struggle, second half should improve. Stellantis recovery expected to be a tailwind. Parts & Service outlook optimistic. Headwinds from paying for both DMS systems in first half; efficiencies from Tekion will benefit 2027.

• Question from Rajat Gupta (JPMorgan Chase & Co): Asked about Parts & Service customer pay growth weakness and outlook for 2026.
  Response: Not satisfied with customer pay growth; renewed strategy in fixed operations expects mid-single-digit growth. The pullback in consumer spending dollars in October/November was unexplained but rebounded in December/January.

• Question from Rajat Gupta (JPMorgan Chase & Co): Follow-up on leverage progress, timeline to below 3x, and free cash flow deployment priorities in 2026.
  Response: Goal is to get below 3x leverage by end of 2026, potentially by summer; will balance share repurchases based on share price. Free cash flow deployment will prioritize leverage reduction and opportunistic buybacks.

• Question from Glenn Chin (Seaport Research Partners): Clarified the path forward for Tekion, number of stores left, and extent of dual DMS expenses.
  Response: 125 stores remain, rollout to be completed by Q3 2026. Dual DMS costs will impact SG&A in first half 2026; savings from Tekion will offset in second half, with greater efficiencies in 2027.

• Question from John Babcock (Barclays Bank PLC): Asked if benefits are being seen in the first stores on Tekion.
  Response: Early adopting stores show benefits in efficiency, productivity, guest experience, and cost savings, confirming the expected advantages of the new DMS.

• Question from John Babcock (Barclays Bank PLC): Asked about the current demand environment for New and Used vehicles.
  Response: Demand was good in early January but impacted by severe weather. The pullback in October/November was not repeated initially in January.

• Question from Matthew Raab (Craig-Hallum): Asked about the slight increase in TCA SAAR assumptions and the current status of TCA rollout.
  Response: SAAR forecast bumped to 15.9% based on third-party assessments. TCA rollout to complete with Herb Chambers stores in late summer 2026.

• Question from Daniela Haigian (Morgan Stanley): Asked about assumptions on consumer affordability and credit availability, and their impact on Used vehicle sales for 2026.
  Response: Strategy remains not to chase volume but maximize gross profit per unit. Expect better inventory availability in second half from lease turns, enabling volume growth while maintaining discipline on gross profit.

• Question from Daniela Haigian (Morgan Stanley): Asked about EV inventory levels and outlook for 2026 following removal of tax credits.
  Response: Overall EV inventory is rightsized, with some pockets of excess like in Colorado. EV sales as a percentage of total are expected to continue declining from 2% in Q4 2025.

Contradiction Point 1

Target Timeline for Achieving Below 3x Leverage

The timeline for reducing leverage below 3x has shifted forward.

What's the update on the leverage target and timeline to reach below 3x? How should we think about free cash flow deployment priorities in 2026? - Rajat Gupta (JPMorgan Chase & Co)

2025Q4: Target to get below 3x leverage by summer (or end of year if share buybacks also executed). - Michael Welch(CFO)

What is the outlook for SG&A leverage relative to gross profit in Q4 and 2026? - Ryan Sigdahl (Craig-Hallum Capital Group LLC)

2025Q3: After the Tekion rollout (expected completion end of 2026), one-time costs will be excluded from adjusted results, and ongoing productivity gains from Tekion should drive SG&A reductions. - Michael Welch(CFO)

Contradiction Point 2

TCA EPS Accretion Timeline

The projected year for TCA EPS accretion has moved significantly later.

What drove the changes in SAAR assumptions for 2026 and 2027 and the noncash deferral increase through 2029, and what is TCA's current status? - Matthew Raab (Craig-Hallum)

2025Q4: TCA rollout to complete with Herb Chambers transition by late summer 2026. - Dan Clara(COO & CEO)

Can you explain the changes in the updated TCA outlook beyond the SAAR assumption, particularly the reduction in 2029 EPS accretion from $5.69 to $0.81? - Ryan Sigdahl (Craig-Hallum Capital Group LLC)

2025Q3: The $5 EPS target is now expected around 2030-2031, contingent on SAAR recovery to 17M+. - Michael Welch(CFO)

Contradiction Point 3

OEM Invoice Adjustment Timing and GPU Impact

Contradiction on when major OEM invoice adjustments occur relative to model year changes.

Where do you see further adjustments to new vehicle GPU coming from—inventory reaching 3 million units or Toyota adjusting pricing? - Jeffrey Lick (Stephens Inc.)

2025Q4: GPU forecast of $2,500–$3,000 based on brand mix... high day supply or stretched SAAR would pressure margins. Current high cost of sale ($52,000+) also pressures margins. - David Hult(CEO)

Walk through the GPU and unit cadence during the quarter and current Q3 status? Is the $2,500–$3,000 GPU range inclusive of new dealer invoice adjustments? Will major adjustments accompany the 2026 model year changeover? - Jeffrey Francis Lick (Stephens Inc.)

2025Q2: The $2,500–$3,000 range includes potential invoice adjustments, though final impacts are still uncertain. Most major OEM adjustments are expected with the 2026 model year, as production and supplier adjustments take time. - Daniel Clara(COO)

Contradiction Point 4

Tekion Rollout Benefits Realization Timeline

Contradiction on when full financial benefits of the Tekion system conversion are expected.

Could you outline the expected timeline for lease returns in 2025, including first-half and second-half details? - Jeffrey Lick (Stephens Inc.)

2025Q4: Heavy lifting on Tekion rollout to pay dividends in 2027. - David Hult(CEO)

What is the strategy for used vehicle gross profit versus volume in H2, and are there any changes? What progress has been made on Tekion conversion, and what are the Q2 implementation costs and timeline for remaining stores? - Ryan Ronald Sigdahl (Craig-Hallum Capital Group)

2025Q2: Tekion conversion is progressing with Koons stores now fully converted... full SG&A benefits expected after full conversion by 2027. - David W. Hult(CEO)

Contradiction Point 5

Herb Chambers Acquisition Closing Timeline

Contradiction on the expected closing quarter for the Herb Chambers acquisition.

What drove the slight changes in SAAR assumptions for 2026 and 2027 and the increased noncash deferral through 2029, and where does TCA stand today? - Matthew Raab (Craig-Hallum)

2025Q4: TCA rollout to complete with Herb Chambers transition by late summer 2026. - Dan Clara(COO & CEO)

With tariff uncertainty, are the Herb Chambers acquisition terms still in place, and what is the breakup fee? - Rajat Gupta (JPMorgan)

2025Q1: The company... has no intention of walking away from the deal, which is expected to close by the end of Q2. - David Hult(President & Director)