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Autonation (AN) Q2 Earnings call transcript Jul 31, 2024

AInvestWednesday, Jul 31, 2024 9:22 pm ET
2min read

AutoNation, a leading automotive retailer, recently held its second-quarter 2024 earnings call, highlighting the company's resilience and strategic adaptability in the face of challenges. The call, led by CEO Michael Manley and CFO Thomas Szlosek, provided valuable insights into AutoNation's operational performance, financial health, and strategic direction.

Operational Impact of CDK Outage

The call began with a discussion on the CDK outage, which significantly impacted AutoNation's business operations. The incident affected various business processes, including CRM deal processing, financial services, inventory management, and after-sales systems. The impact on the company's second-quarter results was estimated at approximately $1.55 per share, reflecting the lost revenue and margins during the outage.

Despite these challenges, AutoNation's management team showcased their agility in implementing interim solutions and restoring business functionality. Notably, the company manually processed close to 60,000 repair orders during the outage, demonstrating the team's commitment to maintaining productivity. Although the main functionality of CDK was restored in late June, ancillary integrations have only recently been restored.

Financial Performance and Strategic Focus

Despite the operational challenges, AutoNation reported a total revenue of $6.48 million in the second quarter, just slightly below the first quarter's figures. The revenue decrease was attributed to the CDK outage and the expected year-over-year normalization in vehicle selling prices. Gross profit for the quarter stood at $1.2 billion, representing 18% of revenue and a 3% decrease from the first quarter.

Margins stabilized in the new vehicle segment, with a decline of $220 per quarter. Used vehicle sales showed a decrease of 8% on a same-store basis and 5% on a total store basis. However, used car demand remains relatively strong, with total demand volume healthy. The pace of used car inventory sourcing slowed significantly in the second half of June but is now improving.

Customer Financial Services (CFS) continued to deliver, with a decrease in products sold per unit sale but an increase back to normalized levels throughout July. The company remains focused on driving penetration of automotive finance, with originations of over $240 million during the quarter. This strategic shift to a more profitable model is expected to create value for shareholders in the long term.

Looking Ahead

Despite the operational challenges, AutoNation is optimistic about its future prospects. New vehicle sales, which generate a small portion of the company's gross profit but start the flywheel for all other businesses, are showing encouraging signs of recovery. The company has acquired trade-ins and attached product penetration and finance offerings, leading to after-sales business growth.

AutoNation's focus on inventory management and technician development is also noteworthy. The company's total technician workforce increased by 3% from a year ago, highlighting its commitment to maintaining productivity and capacity utilization. The company's balance sheet and cash generation continue to provide optionality for capital deployment, with planned capital investments and share repurchases.

Conclusion

The AutoNation earnings call provided a comprehensive overview of the company's operational and financial performance during a challenging quarter. Despite the impact of the CDK outage, AutoNation showcased its resilience and strategic focus on growth areas, including new vehicle sales, used vehicle sales, and customer financial services. The company's commitment to technician development and inventory management is a testament to its long-term strategic vision.

As AutoNation moves forward, it will continue to face headwinds and tailwinds, but with a strong focus on operational excellence, strategic investments, and a customer-centric approach, it is well-positioned to navigate the dynamic automotive retail landscape.

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