AutoNation Q2 profit slips 2.7% on lower unit sales
AutoNation Inc.’s net income dropped 2.7 percent to $112 million in the second quarter as it sold fewer vehicles and saw same-store gross profits from three of its four business operations fall.
Revenue rose 4.2 percent to $5.44 billion.
The nation’s largest new-vehicle retailer said its parts-and-service business posted a same-store gain in gross profits, in contrast to declines in its new-vehicle, used-vehicle and finance and insurance operations.
“We benefited from our opportunistic capital allocation strategy, including acquisitions and share repurchases, and we began to see the results of adjusting our cost structure and inventory levels to the current industry selling environment,” AutoNation CEO Mike Jackson said in a statement Friday. “We remain focused on our strategy to manage costs and reduce our inventory levels going forward, and we will continue to take advantage of capital allocation opportunities.”
AutoNation said it made progress during the quarter on reducing bloated inventory levels and expects inventory levels to “normalize” by the end of September. During the quarter, same-store new-vehicle days supply dropped to 70 days from 76 days at the end of the first quarter. The company’s target is to bring that down to the low- to mid-60 day range.
In January, Jackson said AutoNation would be reducing costs and vehicle inventory. Those reductions started in the fourth quarter of 2015 and continued into 2016.
The Takata airbag recall “continues to be disruptive to our business,” Jackson said.
At the end of June, roughly 20 percent of the retailer’s used-vehicle inventory -- about 6,900 units -- was grounded because of stop-sale orders. About three-quarters of those were related to the Takata recall, the company said.
“However, in the second half of the year, we anticipate improvement due to Takata airbag parts availability and compensation paid by certain manufacturers that will partially offset our costs,” Jackson said. The company expects that compensation of more than $3 million to cover about 60 percent of the used inventory that is on hold.
Jackson also criticized automakers for “irrational behavior in the marketplace,” particularly volume-based incentive programs for retailers. Despite industry retail sales being down in the second quarter, certain manufacturers -- in particular, Ford, Chrysler and Nissan -- set double-digit growth targets that were unattainable, AutoNation said. “Where we felt these targets were unreasonable, we did not pursue them,” the company said.
AutoNation’s new-vehicle sales rose 0.5 percent to 85,654 vehicles in the latest quarter. But same-store new-vehicle sales dropped 4.5 percent, worse than the 0.3 percent slide in total industry new light-vehicle sales, including fleet sales, according to the Automotive News Data Center.
Parts and service gains
Parts and service, the company’s main bright spot in the quarter, posted a 7.2 percent gain in gross profit, to $361.6 million, on a 7.3 percent rise in revenue, to $834.7 million. On a same-store basis, parts and service gross profits rose 2.8 percent on a 2.2 percent revenue increase.
AutoNation reported used-vehicle retail unit sales of 56,637 during the quarter, down 1.3 percent. On a same-store basis, the company’s used-vehicle retail unit sales fell 6.0 percent.
During the quarter, AutoNation’s domestic-brand segment income rose 0.8 percent; import-brand segment income fell 6.9 percent; and luxury-brand segment income dropped 1.6 percent.
In July, AutoNation completed the previously announced acquisitions of four dealerships in Westchester County, N.Y., and another store in Denver. The five stores are expected to contribute $300 million in additional annual revenue.
In addition, upon completion of certain facilities related to the New York dealerships, AutoNation said it will be awarded a Jaguar and a Land Rover franchise, which are expected to generate about $100 million in additional annual revenue when fully operational.
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