Detailed Narrative
Tekion Rollout and Operational Efficiencies
Asbury has reached 70% completion of its Tekion DMS rollout, with full implementation expected by October 2026. This transition is a significant undertaking, but mature Tekion markets like Koons, Georgia, and Florida, with at least five months post-conversion, are already demonstrating improved productivity. Specifically, these stores saw a 12% increase in average units per salesperson and a 10% increase in dollar per technician in June. The company anticipates these efficiencies will contribute to achieving an SG&A to gross profit ratio in the low 60% range by the end of 2027.
Used Vehicle Strategy Shift
The company is strategically shifting its used vehicle approach from solely maximizing gross profit to driving higher volume while maintaining healthy PVRs. This methodical approach involves strategic inventory acquisition, including approximately 6,500 cars from auction last quarter, which increased day supply from 30 to 37 days. Management expects to see increased used vehicle volume by the fourth quarter of 2026, leveraging incoming off-lease vehicles and the benefits of being a franchise dealer for sourcing.
Capital Allocation and Share Buybacks
Asbury continues its balanced approach to capital allocation, deploying capital into share repurchases due to the attractive valuation of its stock. In the first half of 2026, the company repurchased 1.35 million shares for $278 million, representing 7% of its 2025 ending share count. This strategic decision temporarily increased the transaction adjusted net leverage ratio to 3.4x, though the company aims to return to its 3.0x target by early to mid-2027.
Parts & Service Performance
The customer pay business was flat year-over-year, and overall parts and service gross profit was slightly down in Q2, primarily due to the ongoing Tekion transition and the adaptation period for new stores. However, the company observed better traction in June, with total same-store fixed gross profit up 4%. Management expects a return to normalized growth levels in the coming quarters⏳, with a low to mid-single-digit growth achievable in Q3, as more stores mature on the Tekion platform.
New Vehicle Performance and Mix
New units were down 6% on a same-store basis, with new PVRs at $3,896 (same-store) and $3,124 (all-store). The decline was attributed to the adaptation period for sales teams on Tekion, inventory mix issues at Salento stores (down 28% last quarter), and a drop in import volume, partly due to last year's rush for EV incentives. Luxury volume was down 10%, imports flat, and domestic down 16% in Q2, with expectations for luxury to pick up in Q3/Q4.