Asbury Automotive Group Inc. is considering selling 10 other dealerships besides the Delaware Lexus store it divested during the first quarter, the company said in its first-quarter earnings report.
Asbury’s April 26 report filing said it held $242.7 million in assets for sale as of March 31: 10 franchised dealerships and a piece of unused real estate.
The group entered 2024 with another dealership asset for sale, Koons Lexus of Wilmington, which Asbury acquired in December as part of the $1.5 billion Jim Koons Dealerships deal. The quarterly report valued Koons Lexus as an $100.9 million asset. Asbury sold the store to MileOne Autogroup in March and reported $102 million in dealership divestiture revenue during the quarter.
“The carrying value of assets, net of liabilities sold, approximated the sales price,” Asbury wrote.
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Asbury didn’t provide valuations on the other dealerships or the real estate up for sale. However, Asbury described the $242.7 million portfolio as spanning $123.7 million worth of property and equipment, $31 million in franchise rights, $83.3 million in inventory, $300,000 of goodwill, $2.3 million of loaners and $2.1 million in “lease right-of-use assets.” After adjusting for lease liabilities, the collection was valued at $240.7 million net.
Asbury said it had no further comment on the divestitures.
“We will monitor opportunities to make other changes to the portfolio throughout the year,” CEO David Hult said of Asbury’s holdings during an earnings call Thursday. Acquisitions and divestitures are common among the large publicly traded dealership groups.
Hult said on the earnings call that Asbury sold Koons Lexus to comply with that brand’s franchise agreement. Lexus limits dealers — regardless of public or private status — to eight of its stores nationwide, Hult said. If Asbury had eight Lexus stores and buys a group with another one, “it’s always going to include a divestiture at some point in time,” he said. It’s Asbury’s decision, not Lexus’, which store is divested, he told Automotive News.
Hult said Asbury hadn’t reached a ceiling like that for any of its other brands. “Not even close,” he said.
However, Asbury might not have found anything to buy just yet this year, though Hult said it was open to opportunities. The group seeks to keep debt at 2.5 to 3 times earnings; at the end of the first quarter, its leverage stood at 2.6 times earnings.
“In the current market that we’re in, there’s certainly a lot of stores on the market from an M&A standpoint. But I think we really want to be extremely selective,” Hult said on the earnings call. “From an acquisition standpoint, it would have to be something that was for us and really interesting for us at this stage.”
Rather than growth, Asbury has been focused on shareholder returns “and how well we run our business,” Hult said.
The group said its own price-to-earnings ratio was low in relation to the company’s performance, “and generally, when you look at that, it seems like it’s a better return” to possibly consider buying back Asbury shares. Asbury’s stock price was 7.8 times diluted earnings per share on Jan. 2, the first trading day of the quarter, and 8.2 times earnings on March 28, the last trading day of the quarter, according to YCharts.
Lithia Motors CEO Bryan DeBoer made a similar point during a fourth-quarter earnings call Feb. 14. If it costs 10 times earnings to buy another location but seven times earnings to buy back Lithia stock, “we’re going to buy our shares back,” DeBoer said.
Asbury said it bought about 240,000 of its own shares for a combined $50 million during the first quarter. As of March 31, it had authorization to buy another $153 million.
Asbury started 2023 with just $29.1 million in assets for sale ($18.7 million after liabilities), consisting of one franchised dealership location and an unused real estate property, according to its annual report. The store was David McDavid Acura of Austin in Texas, which Asbury sold to Umansky Automotive in May. Asbury’s annual report said the deal produced a pretax gain of $13.5 million.
The annual report also noted $117.2 million in asset impairment charges, which it said “resulted from our annual franchise rights impairment tests and the classification of certain asset disposal groups as held for sale, which resulted in additional franchise rights and goodwill impairment charges.””
Asbury, of Duluth, Ga., ranks No. 5 on Automotive News‘ list of the top 150 dealership groups based in the U.S., with retail sales of 149,509 new vehicles in 2023.
Source: autonews.com