AutoNation Inc.’s net income dropped 14 percent to $95.9 million in the first quarter, though total revenues rose 3.5 percent to $5.12 billion, the company said today.
Contributing to the decline were lower sales of new and used vehicles combined. Same-store sales in particular tumbled. Challenges in the Texas market, which suffered from cutbacks in the energy industry and a March hailstorm, also hurt profits for AutoNation, the country’s largest new-vehicle retailer.
AutoNation took a charge against first-quarter earnings of $3.6 million after taxes for those hail-related expenses in Texas, a state which represents about a quarter of its business. Net income also was hurt by another charge of $3.2 million after tax because of a change in how AutoNation expensed its stock-option compensation.
Despite the news, AutoNation shares gained 3 percent to close at $49.49 today.
Sales plateau
AutoNation CEO Mike Jackson said the industry continued to show signs of a sales plateau in the first quarter.
“Industry retail sales for the quarter were flat despite year over year manufacturer incentive increases of 14 percent, new vehicle sales lease penetration over 30 percent and high retail inventories,” Jackson said in a statement. “We still believe the industry will be above 17 million units for the year.”
Though retail sales may have been flat, total industry sales, including those to fleets, rose 3.3 percent during the first quarter, according to the Automotive News Data Center. In contrast, AutoNation reported new-vehicle retail unit sales of 79,007 vehicles in the quarter, up just 0.6 percent. On a same-store basis, AutoNation’s new-vehicle retail unit sales slipped 4.7 percent.
AutoNation reported used-vehicle retail unit sales of 58,103 during the quarter, down 0.9 percent. On a same-store basis, the company’s used-vehicle retail unit sales fell 6.7 percent.
During 2015, AutoNation acquired 22 stores, representing $1 billion in estimated annual revenue. In February 2016, the retailer closed on its biggest single deal in recent history: its October agreement to buy 12 stores in Texas from Allen Samuels Auto Group, representing a projected $800 million in annual revenue.
Segment results
Revenues rose in all of the company’s business lines during the first quarter.
Gross profit rose 3.3 percent overall on the strength of the parts-and-service and finance-and-insurance businesses. AutoNation set a new all-time record for finance-and-insurance gross profit on a per-vehicle basis at $1,627, up 7.5 percent. However, the company’s new- and used-vehicle business lines continued to suffer significant declines in gross profit.
During the quarter, AutoNation’s domestic-brand segment income dropped 2.4 percent to $77.4 million; import-brand segment income rose 1.5 percent to $76.1 million; and luxury-brand segment income dropped 12 percent to $83 million. The company defines segment income as operating income minus floorplan interest expenses.
In January, Jackson said that AutoNation was reducing its costs and its vehicle inventories in anticipation of slower sales growth. Those reductions started in the fourth quarter of 2015 and continued in the first quarter of 2016.
In addition, in the first quarter the company largely depleted the funds its board had authorized for stock buybacks, spending $371 million to repurchase 7.9 million shares. That left it with about $175 million authorized for share repurchases, and 103 million shares outstanding, as of April 21.
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