Asbury Automotive Group Q2 2026 Earnings Call Transcript

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Provided by Quartr
July 28, 2026

Key Takeaways

  • Positive Sentiment: Tekion rollout reached more than 70% of stores and is expected to be completed by October 2026. Mature locations are showing improved productivity, including double-digit gains in units per salesperson, F&I manager productivity, and dollars per technician.
  • Neutral Sentiment: Second-quarter revenue was $4.4 billion, with adjusted EPS of $6.82, or $7.48 excluding a $0.66 per-share non-cash TotalCare Auto deferral impact. Same-store new vehicle units declined 6%, while new-vehicle PBRs appeared to be approaching normalized levels.
  • Positive Sentiment: Management is shifting toward higher used-vehicle volume while maintaining healthy profitability; used retail PBR increased 5% sequentially to $1,927. Additional off-lease inventory and auction purchases are expected to support volume growth beginning in the fourth quarter.
  • Positive Sentiment: Parts and service results are expected to improve as more stores mature on Tekion, with total same-store fixed gross profit up 4% in June and low- to mid-single-digit customer-pay growth viewed as achievable in the third quarter.
  • Negative Sentiment: Asbury repurchased $278 million of shares year-to-date, reducing its ending-2025 share count by 7%, but transaction-adjusted net leverage rose to 3.4 times. Management expects to return to its 3.0-times leverage target in early to mid-2027, while the third quarter will carry heavier Tekion implementation costs.
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Earnings Conference Call
Asbury Automotive Group Q2 2026
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Operator

Greetings, and welcome to the Asbury Automotive Group Second Quarter 2026 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Chris Reeves, vice president of finance and investor relations. Thank you, sir. You may begin.

Chris Reeves
Chris Reeves
VP of Finance and Investor Relations at Asbury Automotive Group

Thanks, operator, good morning. As noted, today's call is being recorded and will be available for replay later this afternoon. Welcome to Asbury Automotive Group's second quarter 2026 earnings call. The press release detailing Asbury's second quarter results was issued earlier this morning and is posted on our website at investors.asburyauto.com. Participating with me today are Dan Clara, our president and chief executive officer, and Michael Welch, our senior vice president and chief financial officer. At the conclusion of our remarks, we will open the call up for questions and will be available later today for any follow-up questions. Before we begin, we must remind you that the discussion during the call today is likely to contain forward-looking statements. Forward-looking statements are statements other than those which are historical in nature, which may include financial projections, forecasts, and current expectations, each of which is subject to significant uncertainties.

Chris Reeves
Chris Reeves
VP of Finance and Investor Relations at Asbury Automotive Group

For information regarding certain of the risks that may cause actual results to differ materially from these statements, please see our filings with the SEC from time to time, including our Form 10-K for the year ended December 31st, 2025, and any subsequently filed quarterly reports on Form 10-Q, and our earnings release issued earlier today. We expressly disclaim any responsibility to update forward-looking statements. In addition, certain non-GAAP financial measures, as defined under SEC rules, may be discussed on this call. As required by applicable SEC rules, we provide reconciliations of any such non-GAAP financial measures to the most directly comparable GAAP measures on our website. Comparisons will be made on a year-over-year basis unless we indicate otherwise. We have also posted an updated investor presentation on our website, investors.asburyauto.com, highlighting our second quarter results.

Chris Reeves
Chris Reeves
VP of Finance and Investor Relations at Asbury Automotive Group

It is my pleasure to now hand the call over to our president and CEO, Dan Clara. Dan?

Dan Clara
Dan Clara
President and CEO at Asbury Automotive Group

Thank you, Chris, and good morning, everyone. Welcome to our second quarter earnings call. I want to begin my first earnings call as Asbury CEO by thanking our team members across the country for the work they do every day to serve our guests and support one another. Your commitment, resilience, and focus on continuous improvement are what makes this company strong. As we noted in our prior quarter commentary, 2026 is a year of transition for Asbury as we finalize the rollout of Tekion across our store base, focus on growth through operational improvements, and continue our balanced approach to capital allocation. Our results continue to reflect the investment associated with completing the Tekion rollout while simultaneously operating our legacy systems. This investment positions us to capture meaningful operating efficiencies as we anticipate completion of the rollout by October of this year.

Dan Clara
Dan Clara
President and CEO at Asbury Automotive Group

Rolling out a new DMS at this scale is a significant undertaking. I am proud of our team members' commitment to making this transition successful. Crossing the 70% implementation milestone is important because an increasing percentage of our store base is now positioned to benefit from a common operating platform. Importantly, the operational improvements we're seeing are not isolated. Markets that have been on Tekion the longest continue to demonstrate better productivity, stronger customer pay performance, higher technician efficiency, and improving sales effectiveness. For example, our Koons, Georgia, and Florida markets have at least five months post-conversion under their belts. Just looking at the month of June, those stores grew average units per salesperson by 12% and increased the dollars per technician by 10%. These are just a few of the operating metrics we expected to improve as stores mature on the platform.

Dan Clara
Dan Clara
President and CEO at Asbury Automotive Group

Our strategic initiatives, which I will refer to as our five pillars, are focused on increasing new vehicle market share, reestablishing consistent growth in customer pay gross profit, driving profitable volume growth in used vehicles, managing SG&A, and leveraging technology. A successful migration to Tekion remains a top priority as we approach our final remaining stores. Collectively, these pillars are not a change in direction. They represent a sharpened way of executing the priorities that will drive growth and returns for our shareholders. On the capital allocation front, we continue deploying capital into our own shares because we believe our stock represents an attractive long-term investment while maintaining ample liquidity and flexibility. In the first two quarters combined, we have repurchased 7% of our 2025 ending share count. Michael will provide additional details on our approach to capital allocation.

Dan Clara
Dan Clara
President and CEO at Asbury Automotive Group

Now, I will speak to our operational results on a same-store basis, unless otherwise noted. Starting with new vehicles. New units were down 6%. New PBRs were $2,896 on a same-store basis and $3,124 on an all-store basis. With flattening sequential declines indicating we are near normalized levels. We ended the quarter with a new day supply of 53 days, a healthy level that supports stabilizing PBR. Next, turning to used vehicles. We earned a used retail PBR of $1,927, a sequential increase of 5%, and effectively the same store volume as the first quarter. Our used vehicle strategy is already producing sequential improvement while positioning us for higher volume over time. As a reminder, our used vehicle strategy has been focused on maintaining discipline rather than chasing volume for volume's sake, with an emphasis on maximizing gross profit.

Dan Clara
Dan Clara
President and CEO at Asbury Automotive Group

In May, we began shifting our approach toward driving higher used vehicle volume while still maintaining healthy PBRs. We are beginning to see positive results from this strategy. As we continue deploying this used vehicle strategy across the organization, I expect to see increased used vehicle volume as we move into the fourth quarter of 2026. We're also continuing to invest in our appraisal and pricing tools while maintaining discipline in our sourcing of vehicles from consumers and off-lease channels, along with strategic acquisitions through the auctions. Finally, we ended the quarter with a 37-day supply. Moving to F&I. We earned an F&I PBR of $2,214. Finally, in the second quarter, our total front-end yield per vehicle was $4,698. Next, on parts and service. Our customer-pay business was flat year-over-year, and our overall parts and service gross profit was slightly down.

Dan Clara
Dan Clara
President and CEO at Asbury Automotive Group

As I mentioned earlier, it takes five to six months to see operational improvements from our DMS change. A large number of transition stores are still within this window, and we expect a return to normalized growth levels in the coming quarters. We did see better traction in June, where total same-store fixed gross profit was up 4%. Now, I'd like to quickly talk about continued focus on operational efficiency. Along with growing gross profit, cost discipline remains a top priority, and we measure ourselves on how well we contain expenses in order to drive a strong operating margin. Our same-store adjusted SG&A as a percentage of gross profit was 65.3% in the quarter. Once all stores are converted to Tekion and we begin to gain all its efficiencies, we believe our SG&A can get to the low 60% range by the end of 2027.

Dan Clara
Dan Clara
President and CEO at Asbury Automotive Group

We also continue to invest in AI across every department in the company. Whether in operations or support, we see meaningful opportunities to improve efficiency as our store team members and enhance the guest experience. As we enter the second half of the year, we have greater visibility into the completion of our technology rollout, encouraging operational trends in our mature Tekion markets, a healthy balance sheet, meaningful liquidity, and significant flexibility to continue investing in our business while returning capital to our shareholders. With that, I'll now pass the call to Michael to discuss our financial results for the quarter. Michael?

Michael Welch
Michael Welch
SVP and CFO at Asbury Automotive Group

Thank you, Dan, and good morning, everybody. I'll start with our high-level financial results for the second quarter. We generated $4.4 billion in revenue, earned a gross profit of $753 million and a gross profit margin of 17.2%, and we delivered an adjusted operating margin of 5.3%. Our adjusted net income was $125 million. Our adjusted EBITDA was $235 million, and adjusted EPS was $6.82 for the quarter. In addition, the non-cash deferral headwind due to TCA this quarter was $0.66 per share. Our adjusted EPS would have been $7.48 without the deferral impact. Adjusted net income for the second quarter of 2026 excludes net tax, $4 million related to Tekion implementation expenses, $3 million of non-cash asset impairments, $2 million of weather-related losses, and $1 million related to duplicate DMS-related expenses.

Michael Welch
Michael Welch
SVP and CFO at Asbury Automotive Group

Adjusted SG&A as a percentage of gross profit on an all-store basis came in at 66%, in line with our expectations and a 260 basis point improvement over the first quarter of this year. We expect gradual improvement throughout the year in our SG&A leverage. There are some frictional costs of our Tekion rollout not associated with the one-time implementation or duplicative costs that are short-term in nature that ease over time as the stores become more proficient with the technology, as Dan mentioned. With 30% of our store base remaining to be rolled out as of today, the third quarter will be a little heavier lift compared to the second quarter in order to complete the rollout. We have already transitioned 13 stores in July. We see a path to start realizing some of the cost savings in late 2026 and into 2027.

Michael Welch
Michael Welch
SVP and CFO at Asbury Automotive Group

The adjusted tax rate for the quarter was 24.3%, an upside to our initial forecast. We expect the effective tax rate to be approximately 25% for the remainder of the year. TCA generated $5 million of pre-tax income in the second quarter. The negative non-cash deferral impact for the quarter net of tax, about $12 million. We anticipate implementing TCA to the Chambers stores in the second half of this year to complete the rollout to the company. We generated $305 million of adjusted operating cash flow year-to-date. Excluding real estate purchases, we spent $117 million on capital expenditures in the first half of the year and still anticipate approximately $250 million in CapEx spend for the full year 2026. Adjusted free cash flow was $188 million through the end of June.

Michael Welch
Michael Welch
SVP and CFO at Asbury Automotive Group

We ended the quarter with $966 million of liquidity comprised of floor plan offset accounts, availability on both our use line and revolving credit facility; and cash, excluding cash at TotalCare Auto. Our transaction-adjusted net leverage ratio was 3.4x at the end of the second quarter. As Dan mentioned, we took the opportunity to lean more heavily into buybacks during the quarter, purchasing 668,000 shares for $131 million. On a year-to-date basis, we have bought back 1.35 million shares for $278 million. We made the strategic decision for temporarily higher leverage given the valuation of our shares and the performance outlook of our business. Our target of 3.0x is still a priority for us, and we plan to reach it in early- to mid-2027. With that, this concludes our prepared remarks. We'll now turn the call over to the operator and take your questions. Operator?

Operator

Thank you. We will now be conducting a question-and-answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate that your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions. Our first question comes from Jeff Lick with Stephens Inc. Please proceed with your question.

Jeff Lick
Jeff Lick
Analyst at Stephens Inc.

Good morning. Thanks for taking my question. Congrats on the Tekion progress. Dan or Michael, I was wondering if you'd start off with, Can you just talk about, compared to Q1, what's changed and what's evolved? If you could build into that the negative 6% in same-store new. Maybe just drill down into what parts of that are kind of Tekion-related versus other types of market factors and whatnot.

Michael Welch
Michael Welch
SVP and CFO at Asbury Automotive Group

I think the things that changed a little bit: the first quarter had the noise from the weather in January and February; this is kind of a, I'll call it a normal quarter in terms of weather-related and those impacts. You saw a little bit of a decline in new vehicle PBR. As expected, we still think $3,000 is probably the right long-term number. We saw a little bit of a decline there, but nothing out of the ordinary. Then on SG&A, with the higher gross profits this quarter and a little bit of an improvement on some of the stores that kind of are in that five- to six-month window, we saw the SG&A come down to 66%. Those are the big ones.

Michael Welch
Michael Welch
SVP and CFO at Asbury Automotive Group

Fixed ops, we still have a lot of stores at the heart of the Tekion transition, so we're seeing the impact on fixed ops still. Expect more positive results than we saw in June. We talked about the 4% growth in June. We expect to see continued improvement on fixed ops going forward this year. Again, we're right at the heart of the Tekion rollout phase right now.

Dan Clara
Dan Clara
President and CEO at Asbury Automotive Group

Jeff, just to add to Michael's comment too. On the new car side, down 6%—to your point, what percentage of that is Tekion, and what could be some market conditions or OEM mix? From a Tekion conversion, as I stated last quarter, we don't see the immediate impact that we see with customer pay or technicians on the muscle memory, but there is still an adaptation period for sales managers and salespeople on just the basic blocking and tackling of internet leads, follow-up, etc. It is not so much about them knowing what to do. Of course, they do. It is more about just learning the new system and navigating through it. We see a little bit of a dip in sales when we install a new store, but it is a much faster recovery than we do on the fixed side.

Dan Clara
Dan Clara
President and CEO at Asbury Automotive Group

On the other side of the equation, too, we had an impact on the Stellantis stores, down 28% over last quarter. We are starting to see improvements on the inventory mix of those stores. As you know, it takes time for it to really replace the old high-priced inventory to the new inventory that is coming in. The last one that I'll mention is also in some of the imports. We have seen a pretty significant drop in volume. Some of it having to do with the rush that there was last year to buy some of the EVs due to the incentives going away.

Jeff Lick
Jeff Lick
Analyst at Stephens Inc.

Just a quick follow-up on used. The used grew or shrank faster. Call it the same store down 14 versus the same store down six for new. A lot of us tend to use that ratio of, hey, if your trade-ins or your inventory availability should maybe grow at the same rate or shrink at the same rate as new ones. There's a bit of a spread there. I'm assuming you alluded to it in the call or your prepared remarks about Tekion. If you could just kind of reconcile that for us and then talk about how the new strategy of ramping up volume a little bit is helping that.

Dan Clara
Dan Clara
President and CEO at Asbury Automotive Group

Absolutely. To your point, part of the decrease in used cars is you sell less new cars, you're going to take in fewer trades, and so some of that is part of that. I will tell you the biggest impact is just the slow but very methodical and strategic approach to moving from a strategy that we're not chasing volume and maximizing gross profit to a strategy where we are going to go more aggressively after the volume while maintaining healthy PBRs. That has to be done in a very slow, methodical approach, because let's not forget that September is right around the corner. We all know what happens to used car valuations when September comes.

Dan Clara
Dan Clara
President and CEO at Asbury Automotive Group

Going in and aggressively acquiring inventory just to hit a top-line volume number and then having to liquidate all the aged inventory come September, October, does not make sense. The approach that we have taken is strategically acquiring inventory. We bought approximately 6,500 cars from auction last quarter. You can see the impact in our day supply from a 30- to 37-day supply. We still have a healthy inventory, where 70% of our inventory is less than 30 days. We're starting to see the improvements. You look at also the impact that additional inventory is having on our internal gross profit. It is having a nice impact there. As we continue to execute on this methodical approach, that's where I feel comfortable that by going into the fourth quarter, you will start to see the increase in volume year-over-year.

Jeff Lick
Jeff Lick
Analyst at Stephens Inc.

Thanks very much, and best of luck in Q3 and the rest of the year.

Dan Clara
Dan Clara
President and CEO at Asbury Automotive Group

Thank you, Jeff.

Michael Welch
Michael Welch
SVP and CFO at Asbury Automotive Group

Thank you.

Operator

Our next question comes from Rajat Gupta with J.P. Morgan. Please proceed with your question.

Rajat Gupta
Rajat Gupta
Analyst at J.P. Morgan

Great. Thanks for taking the question. Just wanted to follow up on the SG&A comments and some of the Koons and Florida stores on Tekion. Given those stores have had a bit of a larger period of seasoning with Tekion, are you able to share what the SG&A to gross is for those stores versus pre-Tekion? Any directional color on that would be helpful. Just to clarify, you are suggesting that SG&A to gross will continue to decline in 3Q and 4Q? Just wanted to clarify that and have a quick follow-up.

Michael Welch
Michael Welch
SVP and CFO at Asbury Automotive Group

Yeah, I'll let Dan hit a few of the detailed numbers, but I don't have the SG&A by store in front of me. Just as a reminder, the Koons stores have been on it for about a year, so they're the most seasoned of the stores. The Atlanta stores went in December, so they're just hitting that six-month mark at the very end of the quarter. The Florida stores went on in January and February, so they're really in that; right at the end of the quarter, they hit the five-month mark. I'll say of those three buckets that we gave you, one's seasoned well past the timeframe. The other one's just hit the end of that timeframe right at the end of the quarter.

Michael Welch
Michael Welch
SVP and CFO at Asbury Automotive Group

Again, as we talk about the numbers, those are kind of the spectrum of where we are in the kind of process. From an SG&A perspective, next quarter is a pretty heavy quarter for implementations, but we still think we'll be able to shrink the SG&A percentage of gross in the third quarter. You'll see it continue to kind of decline in fourth quarter and then on in the first and second quarters. We think we can get to that low 60s number kind of toward the end of 2027, which is kind of where we're projecting. You'll see a steady decline each quarter as we go through from an SG&A perspective. Dan has maybe a few more numbers on the sales side, but again, I just don't have the SG&A number by store in front of me.

Dan Clara
Dan Clara
President and CEO at Asbury Automotive Group

Rajat, good morning. I'll share a little bit more information, but before I share that, I can't stress enough how excited we are that 70% of our stores have already converted to Tekion. We believe this investment will deliver meaningful long-term value, not just by enhancing the guest experience but also by making us a lot more efficient. When you look, I'll share with you a few other numbers that we have not quoted in the past. From a units-per-sales manager, I'm just going to focus on Koons. Koons on a quarter-over-quarter basis increased 14.2% in productivity. Another number that I'll give you also is units per F&I manager, again, on a quarter-over-quarter sequential increase. This will be Koons' increase in F&Is, 15.2%. We're seeing healthy efficiencies coming from both the variable and the fixed side of it.

Dan Clara
Dan Clara
President and CEO at Asbury Automotive Group

We just cannot be more excited to finish the completion and have all the stores operating under one DMS so that we can gain the efficiencies and get back to normalized growth levels.

Rajat Gupta
Rajat Gupta
Analyst at J.P. Morgan

Got it. That's helpful color. Just to follow up on the parts and services comments, we appreciate the comment on June, +4%. Is it safe to assume that the third quarter should be at least at or above 4%, given the run rate? Just zooming out, is it still safe to assume that the normalized growth rate is like mid-single digits for this business? We have been hearing, I would say, some data points around maybe labor rates are peaking out, and we are seeing consumers just downshift a bit given affordability concerns. I'm curious to get your thoughts on that and obviously the third quarter. Thanks.

Dan Clara
Dan Clara
President and CEO at Asbury Automotive Group

Yeah. I'll start on the service part of it; Michael can jump in as well. The first question was, What do we expect for Q3? As I mentioned, as I shared in the month of June, +4%. July is starting pretty similarly to—well, not starting; we're almost done, but it is very similar to what we saw in June. It's very exciting to see some level of consistency there. As we move into the third quarter, we believe that low- to mid-single-digit customer pay is achievable. You had asked me, Can you repeat the second question? There was a second part to it, please.

Rajat Gupta
Rajat Gupta
Analyst at J.P. Morgan

Just more of a broader parts and services question in terms of medium- and long-term normalized growth rate. We have been hearing some data points where we suggested that it's becoming harder to increase the labor rates. Also, there is some impact to traffic because of consumers downshifting due to affordability concerns. I'm just curious if you're feeling any of that at your stores. Thanks.

Dan Clara
Dan Clara
President and CEO at Asbury Automotive Group

We have not seen much of that, but I will tell you one of the good opportunities as you roll out a new DMS is it really allows you the opportunity to adjust the labor rates as you need to. Our approach is not so much about maximizing the ticket with a consumer where we only see that consumer one time. It's more about growing the customer pay account and growing that retention basis so that we can have sustainable growth as we move forward. We have been able to adjust labor rates as we are rolling out Tekion, and we see that as another one of the impacts that we have of rolling out a new DMS. When I say adjusting labor rates, obviously it's not about going up on the expense side of it.

Dan Clara
Dan Clara
President and CEO at Asbury Automotive Group

It's more about how we can provide a good value for the guests while providing a great guest experience and allowing them to keep coming back on a retention basis and grow their customer pay account. There is some pressure on the consumer availability out there, but it is not being impactful in our service drives.

Rajat Gupta
Rajat Gupta
Analyst at J.P. Morgan

Understood, sir. Thanks for all the color. Good luck.

Dan Clara
Dan Clara
President and CEO at Asbury Automotive Group

Thank you.

Operator

Our next question comes from Alex Perry with Bank of America. Please proceed with your question.

Alex Perry
Alex Perry
Analyst at Bank of America

Hi, thanks for taking my questions here. I guess first, just starting on used. I wanted to dig in a little more on your thoughts around the used vehicle procurement environment and how that should impact volumes and GPUs in the back half. Obviously, you have the sort of shift in strategy internally, with a lot of the off-lease supply coming into the market, maybe you could just talk about how that may sort of impact GPUs and volumes in the back half. Thanks.

Dan Clara
Dan Clara
President and CEO at Asbury Automotive Group

You're welcome. Morning, Alex. Our approach to going away strategy-wise, of not chasing the volume, was all well thought out, trying to time it with the market as to when the lease returns were going to start to come back in because we know the one thing that you're guaranteed when you go and buy a car at the auction is you're the last person standing. That means you paid the most for that car. Realizing the margins that we expect is a little bit tougher, or very tough, when you're the last person standing at the auction. When you think about our strategic approach, as we start to get these lease turn-ins to come in, it definitely gives us the ability to enhance the amount of inventory that we have and turn it faster at a better acquisition price point than if we went to the auction.

Dan Clara
Dan Clara
President and CEO at Asbury Automotive Group

That's one of the benefits of being a franchise dealer. When those lease turn-ins come in, we get the first right of refusal, for a lack of a better term. That fits straight into our strategy. There are quite a few electric vehicles that are coming off lease right now. We didn't plan for the gas prices to be where they are right now; it's actually a nice mix because we're seeing those cars coming in and also being retailed in the used car market. I see it as a benefit that we have these cars coming in. I don't see a negative impact to the gross profit. Now, keep in mind, as we get more aggressive and we go after the volume, there will be an impact on the margins; we're still going to run a healthy PBR.

Dan Clara
Dan Clara
President and CEO at Asbury Automotive Group

As I mentioned last quarter, we have done the stress analysis, and for every additional, call it 500 used cars that we sell, we have the ability to drop about $200, $250 a car. We're really managing that accordingly to make sure that we get the best return for our shareholders.

Alex Perry
Alex Perry
Analyst at Bank of America

That's incredibly helpful. Really good color. I guess just shifting to the new side. Can you talk a little bit more about sort of the performance by segment, especially luxury versus non-luxury, and what you're seeing there and sort of expectations as we trend through the balance of the year on some of the luxury versus non-luxury? Thanks.

Dan Clara
Dan Clara
President and CEO at Asbury Automotive Group

Yes. In the second quarter, luxury from a volume standpoint, we were down 10% in luxury where imports From a unit basis, I'm quoting the same store; we were flat. Then domestically, we were down 16%. We all know that luxury is really more of a tail end of the third quarter, and going into the fourth quarter is really where luxury takes off. I don't see anything out there that is of major concern from a luxury standpoint. I believe Lexus, BMW, and Mercedes, all the OEMs in the luxury arena for the most part, are performing well. There's nice influx of inventory coming in. I expect the third quarter to continue to deliver like it always has.

Dan Clara
Dan Clara
President and CEO at Asbury Automotive Group

From an import standpoint, we're seeing a little bit of margin compression, a little bit, slightly in some of the OEMs, but Toyota's still averaging 12 to 15 days' supply. It is positioned for a healthy margin. Imports: I think that we have hit a stabilized level, and not much fluctuation is to come from where we have been.

Alex Perry
Alex Perry
Analyst at Bank of America

That's incredibly helpful. Best of luck going forward.

Dan Clara
Dan Clara
President and CEO at Asbury Automotive Group

Thank you.

Operator

Our next question comes from Robert Saltzman with the UBS. Please proceed with your question.

Robert Saltzman
Robert Saltzman
Analyst at UBS

Hey, guys. Thanks for taking my question here. Just as the first one on the pace of the Tekion rollout. You're now at 70% of stores. That's versus over 50% mentioned on the Q1 call and more than 25% in Q4. 20% of total stores were added in the quarter, which is probably a slight slowdown from that Q1 pace of additions. Any reason for that slowdown, or is that just in line with your kind of internal rollout plan and expectations to kind of add that extra 30% here between now and October? Thank you.

Michael Welch
Michael Welch
SVP and CFO at Asbury Automotive Group

Yeah. That was kind of the plan all along. We rolled out Herb Chambers in March and April. As part of the Herb Chambers rollout, we also rolled them out on some of our standard processes and our shared service center. There's a lot of change for that group. We took the month of May pretty much off from rolling out stores to just help that group kind of absorb the change. That was strategic, just kind of thinking through the timing and all the changes for our acquisition last summer. There was a lot of change besides just Tekion that we had to do with them. We rolled out Tekion. That was strategic, kind of taking the month of May off, helping support that platform, and then kind of kicking it back off in June and July.

Robert Saltzman
Robert Saltzman
Analyst at UBS

Thanks. Super helpful. Just one follow-up from me would just be super helpful disclosure just on the efficiencies per tech driven by Tekion, kind of in that double-digit percent range. Does that mean if completion goes as planned, all else equal in parts and service, you see a double-digit revenue growth opportunity there as all of these techs get rolled on? Exactly what is driving the efficiency per technician with the new DMS system to kind of get to that double-digit level? Thanks so much.

Dan Clara
Dan Clara
President and CEO at Asbury Automotive Group

Yep. Robert, I'll start it, and then Michael can add on. Our approach and our guidance continue to be the same, with single-digit growth in fixed operations and customer pay. When you talk about what is driving the efficiencies, when we have the old DMS or the stores that still have the old DMS, you have multiple logins to operate what you do as a technician and what you do as an advisor. You log into the DMS, but then you also have to log into a bolt-on. It might be Xtime or myKaarma, whatever you decide to do. All great tools, but as a technician, you have to migrate from one system to the other. In here, it's all one ecosystem. All the communication flows from the advisor to the technician and to the parts department and vice versa, all through the one ecosystem.

Dan Clara
Dan Clara
President and CEO at Asbury Automotive Group

That ability to not have to be jumping from one to the other has become a lot more efficient. We're seeing the dollars per technician as the numbers that I quoted, where we're seeing the improvement. Keep in mind also, having one ecosystem to do the media, whether it is photos or video or both, in that one ecosystem just enhances the guest experience. It improves the time to market, meaning the time that we present the information to the guest. We know the faster that we present the information to the guest, the higher the propensity for that guest to approve the additional services recommended. That leads into additional dollars per ticket or per technician, as I have quoted in the previous information.

Robert Saltzman
Robert Saltzman
Analyst at UBS

Thank you so much. Appreciate it, guys.

Operator

Our next question comes from Daniela Haigian with Morgan Stanley. Please proceed with your question.

Daniela Haigian
Daniela Haigian
Analyst at Morgan Stanley

Hi, everyone. Thanks for taking my question. I wanted to double-click on that used vehicle strategy evolution. You've talked a little bit about how sourcing has changed. Off-lease volumes have improved. Are you feeling any impacts from increased competition from used car retailers becoming more price-competitive?

Dan Clara
Dan Clara
President and CEO at Asbury Automotive Group

No. I have not felt that impact. The one advantage that we have that I did not mention is also another source: we have a big fleet of loaner cars as well. The loaner cars, obviously, we keep them in there to serve our guests; at some point, we retire them and put them up for sale in the used car inventory. That gives us a pretty nice advantage. Most of those cars, I would say the vast majority of them, are sold as certified. That's another key item of being able to be a franchise dealer: we're able to differentiate ourselves from a certified car versus a non-certified car out there. Overall, no, I have not seen any margin pressure from the other used car competitors.

Daniela Haigian
Daniela Haigian
Analyst at Morgan Stanley

Got it. Yeah, and you can definitely see that in the GPU results. That's great. I also wanted to ask about the FTC pricing rules, where do things stand now? Any remaining exposure, or have you seen a change in competitive dynamics on advertised pricing versus a year ago with this?

Dan Clara
Dan Clara
President and CEO at Asbury Automotive Group

No, we have always conducted business the legal and ethical way. There's been no change from our perspective. I think the only change that I would tell you from a market level is excited to the fact that it puts everybody on a level playing field. I think that it is very well-received and the right thing to do, not just for the industry but for the consumer.

Daniela Haigian
Daniela Haigian
Analyst at Morgan Stanley

Great. Thank you.

Operator

Our next question comes from John Babcock with Barclays. Please proceed with your question.

John Babcock
John Babcock
Analyst at Barclays

Hey, good morning. Thanks for taking my question. I just wanted to quickly hit on parts and service here. Obviously the margin's been quite good for the last year or so; I'm just wondering how much more you might be able to squeeze out of that, especially if you do see a reversal on warranty, which seems like it's still growing, at least in the low single digits. On top of that, if you could also just talk about it, because in the slide deck, I noticed you provide something that shows the dollars per repair order for plug-in hybrid EVs and also battery EVs. I was just wondering how we should think about gross margins for those, like if that necessarily means that gross margins are higher or if maybe we shouldn't look at it that way.

Michael Welch
Michael Welch
SVP and CFO at Asbury Automotive Group

I think gross margins will kind of hang where they're at. The only caveat to that is as we continue to increase used vehicles, because we have to eliminate the revenue on used vehicles but keep the gross profit in there, that has a pretty meaningful impact on increasing the gross margin as we increase the used vehicle volume. As we get into the fourth quarter and then on into 2027 and kind of crank up the volume on used, that will help the margin of parts and service because it's kind of gross profit with no revenue.

John Babcock
John Babcock
Analyst at Barclays

Okay.

Dan Clara
Dan Clara
President and CEO at Asbury Automotive Group

John, just to give you some color, on the BEV dollars per RO, we're averaging about, call it, $350 or more higher than the average ICE vehicle. The margins are probably pretty similar between the buckets. It's just the amount of work that has to be done on those EVs right now. We do expect over time, as the technology gets better and better, that they kind of come more in line with each other. Right now, there are, I'll call them, lots of early-stage repairs that have to be done because it's new technology.

John Babcock
John Babcock
Analyst at Barclays

Okay. Thanks for that. My next and last question is just on the M&A front, and I know you have talked in the past about pulling back on that this year, just given leverage, and you're at 3.4x now, still a little bit above your target. On the other hand, dealers have talked about how the M&A market looks pretty good and there are a decent amount of assets out there. I was just wondering how you're thinking about the M&A side of things for the balance of the year.

Dan Clara
Dan Clara
President and CEO at Asbury Automotive Group

Yeah. We review the deals that are out there. We have reviewed a few deals during the quarter. Again, our priorities are very clear to us. Right now it is to complete just the rollout of Tekion, and then number two is to improve operational improvement, specifically in our same stores. The good news is Chambers is about to be counted as a same store here as we go into the fourth quarter. We continue to see them, and we continue to analyze them; those are where our key priorities are right now, on those two key topics that I gave you. I'll let Michael expand on it from a capital allocation as well.

Michael Welch
Michael Welch
SVP and CFO at Asbury Automotive Group

We've kind of shifted to a more balanced approach on capital allocation between share buybacks and acquisitions, along with deleveraging. Right now, we looked at the last quarter in terms of share price. It's kind of hard to justify an acquisition versus buying back your own shares just at the price we're trading at. I think as prices get back to normalized levels, I think the acquisition for the share buyback equation may change a little bit. Definitely the current pricing; our thinking is that share buybacks represent a better return for shareholders than some of the acquisitions we've seen.

John Babcock
John Babcock
Analyst at Barclays

Okay, thanks. Appreciate it.

Operator

As a reminder, if you would like to ask a question, please press star one on your telephone keypad. Our next question comes from David Whiston with Morningstar. Please proceed with your question.

David Whiston
David Whiston
Analyst at Morningstar

Thanks. Good morning. I was just curious on negative equity. Has that become more of a problem this year than last year as used vehicle pricing has come down just a little, and is it at all particularly a pressure point in certain light truck segments?

Dan Clara
Dan Clara
President and CEO at Asbury Automotive Group

Morning, David. This is Dan. For as long as I have been in the industry, when I was selling cars, negative equity has been a part of the business. I have not seen anything of an uptick that is outside of the norms. No. As you know, there are different ways to help a consumer out of negative equity, but you're always going to have the one-off scenario where somebody has so much negative equity that they can't trade at that particular time. Unless it requires a tremendous amount of cash down, but nothing that is out of the ordinary from what the averages have been in the past.

David Whiston
David Whiston
Analyst at Morningstar

Okay, great. Thank you. That's all I had.

Operator

Our next question comes from Ryan Sigdahl with Craig-Hallum Capital Group. Please proceed with your question.

Ryan Sigdahl
Ryan Sigdahl
Analyst at Craig-Hallum Capital Group

Hey, good morning, guys. When I look at Total Care Auto, and I look at your slide of the accounting non-cash deferral, last quarter, you were expecting negative $0.66. Sorry, excuse me. You're expecting a negative now, not a positive for the year. I'm curious what changed there. You're not putting out the old years anymore. I guess, is it reasonable to assume that we stay positive in our years, or was this just a deferral as you focus on Tekion and the other things going on?

Michael Welch
Michael Welch
SVP and CFO at Asbury Automotive Group

It's just the volume. As the volume plays out with the SAR being a little bit lower and the used-vehicle volume being lower than we anticipated. That has a positive impact on TCA deferral. As we crank up the used vehicle volume in the fourth quarter and then on into next year, we'll probably go back to a negative position at some point. Also, we roll out Chambers later this year as well, which will have a hit on the deferral. We still think we're negative in the out years. We're waiting to see kind of an SAR forecast for 2027, 2028, and 2029. As we get toward the third quarter and fourth quarter, as we have a better view of what those out years' SAR forecast looks like, we'll update the out years at that point.

Michael Welch
Michael Welch
SVP and CFO at Asbury Automotive Group

Just right now, it's kind of hard to look and say what SAR is going to be in 2027 and 2028. It's more the volume difference. We're just lower on volume than we anticipated. That has a benefit or results in a lesser deferral impact on TCA until that volume kind of starts catching up to us.

Ryan Sigdahl
Ryan Sigdahl
Analyst at Craig-Hallum Capital Group

Makes sense. Thanks, guys.

Operator

We have reached the end of our question-and-answer session. I would now like to turn the floor back over to Dan Clara for closing comments.

Dan Clara
Dan Clara
President and CEO at Asbury Automotive Group

Thank you for joining our second quarter earnings call. We look forward to seeing you in the third quarter.

Operator

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.

Executives
    • Chris Reeves
      Chris Reeves
      VP of Finance and Investor Relations
    • Dan Clara
      Dan Clara
      President and CEO
    • Michael Welch
      Michael Welch
      SVP and CFO
Analysts
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