Asbury Automotive Balances Tekion Gains With Short-Term Pain

Asbury Automotive ((ABG)) has held its Q1 earnings call. Read on for the main highlights of the call.

Asbury Automotive’s latest earnings call struck a cautiously upbeat tone, balancing meaningful strategic progress against visible near-term headwinds. Management highlighted strong early wins from its Tekion system migration, solid per-unit profitability and robust cash generation, even as volumes softened, severe winter weather weighed on results and transition costs pressured margins.

Tekion Rollout Shows Early Productivity Wins

More than half of Asbury’s stores have migrated to the Tekion DMS, with full conversion planned by the fall. Management cited notable gains at Koons stores, including a 21% year-over-year increase in gross dollars per technician and a 16% productivity lift per service advisor, along with a 5% reduction in support costs at converted locations.

Portfolio Pruning and Aggressive Share Repurchases

The company continued to reshape its portfolio, divesting 10 dealerships and a collision center and terminating seven franchises, representing roughly $600–$625 million in annualized revenue. Proceeds were used to pay down debt and repurchase 678,000 shares for $147 million, underscoring a capital allocation strategy aimed at enhancing shareholder returns.

Solid Q1 Financial Performance Despite Headwinds

Asbury reported Q1 revenue of $4.1 billion and gross profit of $727 million, pushing gross margin to 17.7%, up 22 basis points. Adjusted operating margin reached 5%, with adjusted EBITDA of $207 million, adjusted net income of $102 million and adjusted EPS of $5.37, all achieved despite weather and transition pressures.

Used Vehicles Deliver Higher Margins and Leaner Inventory

Used vehicle profitability remained a bright spot, with all-store PVR at $1,847 and used retail gross profit per unit at $1,828, up 12% year-over-year and $79 sequentially. Same-store used days supply improved to 30 from 35 days, helping drive better throughput and supporting the stronger per-unit margins.

New Vehicle Profitability Holds Up as Supply Stays Healthy

New vehicle gross profit per unit remained resilient at $3,371, only $177 lower than a year ago and down just $73 sequentially. Same-store new day supply stood at a healthy 54 days, giving dealers flexibility to balance pricing and volume while preserving attractive per-unit economics.

Late-Quarter Strength in Parts and Service

Fixed operations showed improving momentum as the quarter progressed, with customer-pay gross profit up 1% and warranty gross profit up 3% overall. March performance accelerated to 4% growth in both categories, and early April trends were similar, reinforcing management’s view that service-related earnings can grow mid-single digits over time.

Strong Cash Flow and Ample Liquidity

The company generated $166 million of adjusted operating cash flow and $120 million of adjusted free cash flow in the quarter. Asbury ended Q1 with roughly $1.2 billion in liquidity and a transaction-adjusted net leverage ratio of 3.2x, providing financial flexibility to weather volatility while funding technology investments and strategic capital returns.

CapEx Discipline and De-Risking Through Divestitures

Q1 CapEx excluding real estate totaled $46 million, and management reaffirmed plans for about $250 million of CapEx in both 2026 and 2027. Recent divestitures are expected to lower future capital requirements on sold assets, allowing Asbury to redirect investment toward higher-return initiatives and reduce execution risk in its remaining footprint.

Volume Declines Reflect Softer Consumer Demand

Same-store new vehicle revenue fell 9% year-over-year, and management noted being behind by about 4,300 new units on a same-store basis. Executives pointed to a moderation in consumer demand after last year’s pull-forward, alongside broader macro and geopolitical uncertainties that are clouding near-term visibility.

Severe Weather Weighs on Q1 Earnings

Harsh winter storms disrupted operations across several markets, leading to closures, lost selling days and slower recovery in both sales and service. Management estimated the weather-related impact at $19 million in gross profit and roughly $0.56 per share in EPS, compounding existing volume and transition pressures early in the quarter.

Tekion Transition Brings Short-Term Disruption and Costs

The Tekion rollout is causing temporary inefficiencies, with weekend cutovers and a closed Monday for each conversion and a four- to six-month period for stores to regain full productivity. Q1 included $5 million of Tekion implementation expenses, $1 million of duplicate DMS costs and a noncash deferral-related headwind of $0.26 per share.

Near-Term Pressure in Parts and Service

Same-store Parts and Service gross profit was slightly down year-over-year as weather, more cautious consumers and DMS transition issues weighed on results. Warranty comparisons were also tough, creating a short-term drag on fixed operations even as underlying trends improved later in the quarter.

Higher SG&A Ratio Highlights Margin Pressure

Adjusted same-store SG&A rose to 66.9% of gross profit, including $2 million of legal expense, reflecting the combined impact of lower volumes, weather and Tekion-related disruption. Management said March SG&A moved into the low-60s and reiterated a mid-60s target range once transition headwinds ease, signaling room for margin recovery.

One-Off Gains Boost Reported Results

Adjusted results excluded a $94 million net gain from divestitures, along with $3 million of weather-related losses and other one-time items. These adjustments underscore that a portion of the reported strength in the quarter came from nonrecurring gains rather than purely from core operating performance.

Transition Friction Expected to Peak Later This Year

Management cautioned that the stack of Tekion conversions will likely peak in late Q2 into Q3, implying that operational friction and implementation costs could intensify before easing. The company believes the full benefit of the new platform will only become evident after this peak period, as stores move past the learning curve.

Macro Risks Pose Ongoing Demand Uncertainty

Executives flagged macroeconomic and geopolitical risks, including rising gasoline prices, as potential headwinds for future demand and vehicle mix. While near-term trends are manageable, management acknowledged limited visibility beyond the next few quarters and is planning for a more conservative demand backdrop.

Guidance Emphasizes Tekion Completion and Margin Normalization

Looking ahead, Asbury aims to complete the Tekion conversion by fall, with store-level disruption lasting four to six months and transition headwinds peaking in late Q2 and Q3 before benefits begin to flow. The company targets mid-single-digit growth in fixed-operations gross profit, same-store SG&A normalized in the mid-60s of gross profit, a roughly 25% tax rate and CapEx of about $250 million in both 2026 and 2027, supported by $1.2 billion in liquidity and balanced use of divestiture proceeds for debt reduction and opportunistic buybacks.

Asbury’s earnings call painted a picture of a dealer group in active transition, trading near-term pain for long-term efficiency and profitability gains. For investors, the story hinges on Tekion’s execution, the pace of SG&A normalization and how well the company can navigate softer demand and macro uncertainty while maintaining strong cash generation and disciplined capital allocation.