Asbury Automotive Group's acquisition appetite appears to be sated for the time being as the retailer concentrates on bringing 10 luxury dealerships in Texas into its fold and paying down debt.
The nation's seventh-largest dealership group is getting a head start on the debt repayment by exiting the Mississippi market and shedding some underperforming Nissan stores. It signed deals in the fourth quarter to sell five stores in Mississippi, including two Nissan dealerships, and another Nissan store in Atlanta.
That move followed Asbury's December announcement that it would buy 10 dealerships from Park Place Dealerships in Texas in a $1 billion all-cash deal. It also purchased a Chrysler-Dodge-Jeep-Ram store in Colorado in January.
"I don't think you'll see much [acquisition activity] in 2020, but our focus is really paying down debt," Asbury CEO David Hult told analysts on a conference call last week after Asbury reported higher fourth-quarter income and revenue. "Certainly soon after that, we'll be looking hard at the Colorado market and looking for opportunity."
Asbury called out a "midline import brand" for hurting results to the tune of 10 cents per share in the fourth quarter. Analysts told Automotive News that the brand was Nissan. Rick Nelson, an analyst with Stephens, estimated the Nissan hit to Asbury for the period at $1.9 million after taxes.
Hult did address the sale of the Nissan stores in the conference call last week.
"We look at it from a standpoint of our overall portfolio, and maybe we were too heavily invested in the brand," he said. "And this made more sense to divest."
When it reported third-quarter results in October, Asbury said its performance was hurt by 14 cents per share because of incentive changes at a single midline import brand, according to then-CFO Sean Goodman. Though Asbury declined to name the brand, analysts then also cited Nissan as the culprit.
Nissan stores accounted for 8 percent of Asbury's new-vehicle revenue in 2019. That's down from 11 percent in 2018, company reports indicate. In all, Asbury moved to drop four Nissan stores in 2019, after divesting another one in Houston during the second quarter.
Unpopular incentive programs and aging products are among the reasons Asbury and other public retailers have backed away from the Nissan brand in recent years.
Sonic Automotive sold one Nissan store in 2018 and two in 2014, leaving it with one remaining Nissan outlet. AutoNation Inc. has seven Nissan dealerships, down from 10 at the end of 2018. Nationwide, Nissan's market share has dropped 1.2 percentage points to 7.2 percent during the past two years, the lowest share for the brand since 2012, according to the Automotive News Data Center.
Divesting stores not only reduces Asbury's exposure to Nissan — it also generates cash as the retailer digests the Park Place acquisition and turns attention to its newest market, Colorado. The pending store sales will provide cash flow to help offset some of the costs incurred in the acquisition, Nelson of Stephens said.
The Park Place deal "is a whopper," he said. "It's $1.9 billion in revenue. There's a lot of benefits that are going to come with that, but they're going to fund that by taking on more debt."
According to documents filed with the SEC, Asbury is expanding its debt facility with Bank of America and other lenders. Nelson said proceeds from the Mississippi divestitures and income from the Park Place stores will position the company well to hit its targets. The Texas locations also will increase Asbury's luxury revenue mix to around 50 percent.
"They've got a nice, visible growth trajectory here as they realize the synergies with the acquisition," Nelson said. "They paid a big price for it, but I think it makes a lot of sense."
Melissa Burden contributed to this report.