Asbury Automotive财报电话会纪要发布：Q3业绩低于预期，但FTC程序撤销、Tekion降本路径推动股价盘中涨约10%

Asbury Automotive Group (NYSE:ABG) reported third-quarter financial results on Tuesday. The transcript from the company’s third-quarter earnings call has been provided below.
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Summary
Asbury Automotive Group reported $4.4 billion in revenue for Q3 2026 with a gross profit of $732 million and a gross profit margin of 16.6%. Adjusted net income was $111 million, with an adjusted EPS of $6.16.
The company completed the rollout of the Tekion technology platform across all active stores, aiming to improve operational efficiency and customer service, with early adopters in Georgia and Koons showing significant performance improvements.
New vehicle PVRs were $2,949, declining 6% sequentially, attributed partly to a decrease in EV sales due to incentive expiration. Used vehicle retail gross profit grew 3%, and retail PVR increased 10% to $1,777, driven by volume growth.
Management aims to reduce SG&A as a percentage of gross profit to the low-60% range by 2027, leveraging technology and operational improvements. Current SG&A was 67% of gross profit.
Capital allocation priorities include reducing net leverage below 3 times by mid-2027, with future opportunities for share buybacks and acquisitions once leverage goals are met.
The FTC dismissed proceedings against the company, affirming the legality of its F&I sales practices.
Despite market challenges, Asbury anticipates strong performance in Q4 2026, with an emphasis on operational excellence and capital discipline.
Full Transcript
OPERATOR
Welcome to Asbury Automotive Group third quarter 2026 earnings call. At this time all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star-0 on your telephone keypad. Please note this conference is being recorded. I will now turn the conference over to Parin Patel, Vice President, Finance and Treasurer. Thank you.
You may begin.
Parin Patel (Vice President, Finance & Treasurer)
Thanks, operator, and 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 third quarter 2026 earnings call. The press release detailing Asbury’s third quarter results was issued earlier this morning and is posted on our website. Investors 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 up the call for questions and will be available later 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 which are not historical in nature, which may include financial projections and current expectations, each of which are subject to significant uncertainties.
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 31, 2025, 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, non-GAAP financial measures as defined 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 third quarter results. And now it is my pleasure to hand over the call to our President and CEO, Dan Clara.
Dan Clara (Chief Operating Officer)
Thank you, Parin, and good morning, everyone. Welcome to our third quarter earnings call. I am pleased to share that we have reached a defining milestone. Every active Asbury store is now operating on Tekion, our single modern technology platform. After several years of planning and execution, we now run the entire company on one system, giving us a common foundation to operate more efficiently, make decisions faster, and serve. This milestone is one part of a broader strategy anchored in our Five Pillars, which aligns the organization on operational excellence within the following five priorities: growing new-vehicle market share; driving profitable volume growth in used vehicles; re-establishing consistent growth in customer pay gross profit; disciplined management of SG&A; and leveraging technology.
On the technology pillar, we converted 47 stores to Tekion in the third quarter, our largest single quarter ever, and completed the final 10 dealerships in October. Our longest-tenured Tekion stores in Georgia and at Koons are giving us an early read on the platform’s impact. In the third quarter, customer pay gross profit grew 7% versus the total company same store being flat. Total fixed ops gross grew 5% versus total company same store down 2%.
Units per salesperson increased 4% and gross profit per technician improved by 9%, both outpacing the rest of the company. As we have shared before, it takes time for team members to build the muscle memory that comes with a new platform before taking it to another level. These stores have had the time, and we believe the same opportunity exists across the rest of our stores to improve efficiency, enhance the guest experience, and drive value for our shareholders.
This was a major lift for our organization. Our store teams learned a new system while continuing to sell, service, and care for our guests every day, and our support teams worked alongside them at every step. I am grateful to them and to our partners at Tekion for getting us across the finish line. With the conversion behind us, the time and resources we dedicated to implementation can now go back into running and growing the business. Our teams have done the hard work.
Now it is time to put the technology to work. It has been a busy few months for our teams. In addition to converting 47 stores to Tekion in the third quarter, we also implemented Total Care Auto to our 30-plus Herb Chambers stores, which completed our TCA rollout to all of Asbury. And now I will speak to our operational results on a same store basis. Unless otherwise noted, I will note that our Herb Chambers stores are included in same store results for August and September only.
Starting with New Vehicles, our new-vehicle business continued to perform in line with our expectations this quarter on an all-store basis. New PVRs were $2,949, down 6% sequentially. These PVRs are well within the range where we expect them to remain going forward. Same store new units were down 8% against a tough prior year comparison, as we were lapping the expiration of federal and state BEV tax credit eligibility in 2025. The sharp decrease in EV volume accounted for 5% of this 8% change year over year, mostly driven by Colorado, which had robust state EV incentives.
We closed the quarter with a well-managed inventory position of 53 days’ supply, in line with the second quarter and setting us up well for the fourth quarter. Next, turning to Used Vehicles. Our used-vehicle business continued to build momentum this quarter, and we are encouraged by the progress. Used retail gross profit grew 3% over last year, and we grew used retail PVR by 10% to $1,777, reflecting our focus on growing volume profitably. Our strategy and retailing process improvements are taking hold and driving a stronger pre-owned business. On an all-store basis, our used retail volume increased 4.5% over the second quarter.
With our disciplined processes in place, we anticipate used volume to increase on a year-over-year basis as we move into the fourth quarter, and we ended the quarter with a 41-day supply, keeping us well positioned heading into the fourth quarter. Moving to F&I, our F&I business performed well at the dealership level this quarter, where F&I PVR was up year over year. On a reported basis, F&I PVR was $2,177, down $19 from the prior year, but that decline was driven entirely by the non-cash TCA deferral, which represented $138 of impact. Excluding the TCA deferral, our F&I PVR was $2,453, up $119 year over year. Our front-end yield per vehicle was $4,583 in the third quarter.
Next, Parts and Service. Our customer pay revenue was up 2%, with gross profit flat year over year. Warranty gross profit was down 1%. Overall, parts and service was not where we wanted it to be, but now, with the heavy lift of rolling out a new DMS behind us, we are optimistic in our ability to get back to consistent growth while delivering an exceptional guest experience. And quickly on operational efficiencies, our same store adjusted SG&A as a percentage of gross profit was 67% in the quarter. With the Tekion conversion now complete, we believe our SG&A can reach the low-60% range by the end of 2027, driven by efficiency gains as our teams become more productive on the platform.
As we enter the fourth quarter, I am encouraged by what I see. Our used business has improved for several quarters in a row, and with our Tekion rollout now behind us, our teams can turn their full attention to serving our guests and executing our Five Pillar strategy. We will remain disciplined in allocating capital. Our priority is to bring net leverage below three times. We believe we are well positioned to finish the year strong and look forward to one platform to achieve our goals in 2027.
Most of all, I want to thank our team members. They took on one of the largest changes in our company’s history and delivered it while keeping our guests at the center of everything we do. We are now positioned to see the benefits of their hard work. And before I pass to Michael, one additional item worth noting. In early October, the FTC administrative proceeding against the company was dismissed. The outcome is consistent with our long-held view that our F&I sales practices have been and continue to be sound, lawful, and in compliance with applicable regulations. We remain focused on serving our guests with the integrity and transparency that have always defined how we do business. And with that, I’ll now hand the call over to Michael to discuss our financial results for the quarter.
Michael Welch (Chief Financial Officer)
Thank you, Dan, and good morning, everyone. I’ll start with our high-level financial results for the third quarter. We generated $4.4 billion in revenue, earned a gross profit of $732 million and a gross profit margin of 16.6%, and we delivered an adjusted operating margin of 4.9%. Our adjusted net income was $111 million, our adjusted EBITDA was $218 million, and adjusted EPS was $6.16 for the quarter. In addition, a non-cash deferral headwind due to TCA this quarter was $0.69 per share.
Our adjusted EPS would have been $6.85 without the deferral impact. Adjusted net income for the third quarter 2026 excludes, net of tax, $6 million related to the Tekion implementation expenses, $1 million related to duplicate DMS-related expenses, and $1 million related to the net gain on divestitures. Adjusted SG&A as a percentage of gross profit on an all-store basis was 67.4%. This reflected the peak of our Tekion conversions, with 47 stores converting in the quarter and a number of stores still early in the adoption.
We expect SG&A leverage to improve in the fourth quarter, with cost savings continuing into 2027. Next, the adjusted tax rate for the quarter was 24.5%. We estimate our effective tax rate for the full year to be approximately 24.8%. TCA generated $5 million of pre-tax income in the third quarter versus $14 million in the prior year. The negative non-cash deferral impact for the quarter, net of tax, was about $12 million compared to $4 million in third quarter 2025. TCA’s rollout to Chambers Group has been completed, and now all Asbury platforms are enabled with this differentiated asset. As previously noted, we are assessing the next phase for TCA following its full rollout.
We generated $525 million of adjusted operating cash flow year to date. Excluding the real estate purchases, we spent $190 million on capital expenditures in the first three quarters of this year. We are updating our view for the full-year CapEx in 2026 to be approximately $275 million. Adjusted free cash flow was $336 million through the end of September. We ended the quarter with $1 billion liquidity, comprised of floor plan offset accounts, availability on both our used line and revolving credit facility, and cash excluding cash at Total Care Auto.
Our transaction-adjusted net leverage ratio was 3.5 times at the end of the third quarter. Our target of 3 times remains a priority for us, and we plan to reach it by mid-2027. Driving operational excellence and reducing leverage is our focus. Once there, we will look for opportunities for share buybacks and tuck-in acquisitions. And with that, this concludes our prepared remarks. We will now turn the call over to the operator and take your questions.
OPERATOR
Thank you. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate 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. Our first question is from Jeff Lick with Stephens Inc. Please proceed.
Jeff Lick (Analyst at Stephens Inc.)
Good morning. Thanks for taking my question and congrats on getting the Tekion installation out of the way. Dan and Michael, I was wondering if maybe you could just—you’ve given some Tekion stats in terms of SG&A of the stores that are starting to see the benefit or productivity of technicians or salespeople. I was wondering maybe you could just break apart a little bit more what the Tekion stores look like versus the non-Tekion stores and then, you know, what the rollout—or when we’ll start to see the benefit—of the stores that were, you know, still within that, call it, that 6 to 12 month timeframe of installation.
Dan Clara (Chief Operating Officer)
Jeff, good morning. Thank you for the call. Thank you for the question. Yes, as I stated, the customer pay gross profit grew 7% in the Koons and the Georgia stores, and the reason why I’m focusing on that is consistent with what we have been stating in the past, which is it takes six months for the muscle memory to kick in, and those stores have definitely been in the six-month timeframe. So we’re excited about what we see. I will give you a little bit more color as well. When you look at ROs per advisor per day, we’re seeing about a 9% increase. When you look at dollars per technician, we’re seeing about a high single-digit growth to a low double-digit growth. And then from a units-per-salesperson standpoint, we’re seeing about a mid single-digit improvement. From an efficiency standpoint, as I stated at the beginning of the call, we rolled 47 stores in the quarter.
So it’s going to take us six months to get the muscle memory in those stores to be able to see the efficiencies that I just mentioned. But we are very excited with what we see, the hard work that the team members have put together alongside our partner Tekion, and excited for the future. And as you stated at the beginning, I appreciate your congrats. It’s been a heavy lift but excited that it is behind us.
Michael Welch (Chief Financial Officer)
And Jeff, just one more thing on that. From an SG&A percentage-of-gross perspective, we were down 329 basis points in the quarter on a same-store basis. The two groups, Koons and Georgia, who have been on the longest, one of those platforms actually improved on an SG&A percentage-of-gross basis, and the other one, with the decline in PBRs, was up on an SG&A percentage-of-gross basis but about a third of what the rest of the company did. So we are seeing the impact on SG&A as well.
It’s a two-sided coin—it’s a gross profit item, so it helps on the gross profit but also helps on the efficiencies. And so we’re seeing that on the SG&A side, percentage of gross, in those two markets as well.
Jeff Lick (Analyst at Stephens Inc.)
In terms of just the store composition, what’s the number of stores that at this point you’d say are in the Tekion beneficiary column versus the Tekion, hey, we’re still working through it, or it’s a net drag on productivity and SG&A measures?
Dan Clara (Chief Operating Officer)
Yeah. So Jeff, if I look at the Koons and the Georgia markets, we’re probably talking 35 to 40 stores that have reached the six-month threshold that is crucial for us to see that muscle memory kick in.
Jeff Lick (Analyst at Stephens Inc.)
Okay, I just want one last quick one for you, Michael. The dynamic of—can you talk about the dynamic of SG&A? It’s obviously a little more noticeable when the GP dollars come from service and parts. Is there a bit of a double-whammy impact on SG&A in terms of getting better? Because obviously not only is Tekion going to help your SG&A in general, but it helps your service and parts gross as well. Can you talk about that a little bit?
Michael Welch (Chief Financial Officer)
Yeah, 100%. That’s really our focus as we get back to being able to grow gross profit again coming out of Tekion. The goal is to be productive with our people and so don’t put the cost back in to go with that gross profit growth. And so that’s really where the focus is. It’s some cost cuts, some benefits from AI, but it’s really getting back to growing gross profit and maintaining the cost structure to go with that. So if we’re trying to chase reducing gross profit, it’s just hard to get that SG&A number.
So it’s two pieces, and we talk about low 60s. I’d say half of that comes from gross profit growth and the other half comes from true SG&A saves.
Jeff Lick (Analyst at Stephens Inc.)
Great. Thanks very much for taking my questions. Best of luck in Q4.
OPERATOR
Thank you. Our next question is from Rajat Gupta with J.P. Morgan. Please proceed.
Rajat Gupta (Analyst at J.P. Morgan)
Great. Thanks for taking the question. Just on the metrics you provided on the Koons and the Georgia stores, that is just on a same-store basis versus last year third quarter, correct? Just to clarify. And if you look at it on a dollar basis pre-Tekion versus post-Tekion seasoning, are those metrics still higher year over year, or you’re still working through more progress for those stores on the parts and services side? And I have a quick—thanks.
Michael Welch (Chief Financial Officer)
Yeah, parts and service is higher. We think there’s still room to go, and we are seeing—if you think about the layers, Koons is farther ahead than Georgia because it’s been on it longer. And so as we see the stores work through the system, we are seeing those kind of improvements, and Dan can kind of hit on those pieces because we have some Florida that just kind of got over the six-month mark at the very end of the quarter. So there’s some numbers there that we’re seeing.
We’re starting to see it on Florida at the very end of the quarter as well.
Dan Clara (Chief Operating Officer)
Rajat, good morning. On Michael’s comment, I’ll just give you a few more numbers on what we saw at the end of September from a fixed operations gross profit. Florida, which just hit the mark, was up 3%. I’ll give you Koons as well, which I’ve already mentioned before, but Koons—just for September—was up 9%, and then Georgia was up 7%. So that gives you a pretty good indication of the efficiencies and the gains that we’re getting once the muscle memory takes place.
Rajat Gupta (Analyst at J.P. Morgan)
Understood, that’s helpful. And then, just on TCA, I know in the past there’s been some chatter around maybe potentially disentangling that from the company. I’m curious, as you’ve spent more time evaluating if the business needs to be core and in-house, what’s been the outcome? Do you still think TCA is better as an in-house captive, or a hybrid model would serve it better? Thanks.
Michael Welch (Chief Financial Officer)
We really love the TCA business. We love what it does for us long term and the cash flow that it provides. And also just owning the guest experience all the way through the cycle. But, you know, once we get it fully rolled—we’ve rolled it out fully to all the groups—we have to evaluate: keep it as is, grow it through other channels outside our dealerships, or, to your point, flip it out to have it be an outside company to kind of get rid of the accounting noise.
We’re still in the evaluation phase of that. Again, we love the business, love what it does for us, love the cash flow. Very, very solid business for us, but just again trying to think through the next steps for that company.
Dan Clara (Chief Operating Officer)
And Rajat, one thing I’d like to add to Michael’s comment is, to his point, we love the business. And when you think about the cash flow that it generates, it is also one part of the business that does not require heavy CapEx—or any CapEx for that matter. So we really like what it generates from a cash flow standpoint. But as Michael mentioned, those are the three options on the table that we are always analyzing.
Rajat Gupta (Analyst at J.P. Morgan)
Understood. Thanks for the color and good luck. We’ll jump back in queue.
OPERATOR
Our next question is from Glen Gin with Seaport Research Partners. Please proceed.
Glen Gin (Analyst at Seaport Research Partners)
Good morning. Thank you, and congrats on completing the rollouts of both Tekion and TCA, and glad to see all the benefits starting to come through. First, can you tell us what you saw with the consumer in the quarter? There was a lot of noise and chatter of volatility, and I’m glad to see that parts and service still grew same store, but margins compressed a bit. Can you tell us what happened there?
Dan Clara (Chief Operating Officer)
Yes. I’ll start with the last question. Margin compression in fixed operations—that is a product of what I just mentioned, the six months that it takes for muscle memory to be developed as we roll out Tekion. And to be more specific, think about this: You’re used—for 20, 30 years as an advisor—to process customers one way. Under CDK, your world is turned upside down. You’re learning a new system. You have five, six customers waiting for the path of least resistance, which I don’t blame team members for taking.
They start discounting just to make sure that we take care of the guests. As that muscle memory starts to come in, the discounts start to go away, and then the margin starts to stabilize and get back to its normal course. So not concerned about that—that’s going to get back to normal, and we’re already seeing the progress being made. On the first part of the question, on consumer affordability, I will tell you that from a customer pay standpoint, we measure all of them—we measure BEV, plug-in, hybrid, and internal combustion—and the dollars per ticket have stayed flat. In some cases they’ve gone up a little bit here and there. So that gives us good indication that things are working properly and the consumer is still spending money with us.
I will tell you that on a customer pay traffic, our customer pay traffic for the quarter—meaning the repair order count—was down 1.9%. But I think I’ve answered your question. If you have any other follow-ups, happy to take them as well.
Michael Welch (Chief Financial Officer)
Glenn, one other thing. Internals are highly accretive to the gross margin on parts and service because there’s no revenue for it—it’s just all gross profit. As we continue to grow the used car business, especially in the fourth quarter and in 2027, that will also help the fixed ops margin as we get that used car volume back through and get that recon work through the fixed ops side.
Glen Gin (Analyst at Seaport Research Partners)
Okay, very good. Thanks for all the color. And then on used, good to see the progress there—the improvement in comps. Can you tell us what we might expect going forward with respect to the balance between volume versus GPUs?
Dan Clara (Chief Operating Officer)
Yes, we—at the end, I cannot remember when it was. It might have been May or June, but we announced that our strategy was shifting. For years we had been protecting gross profit and not chasing the volume. As a reminder, we shifted that strategy in May because we knew that these returns were coming, and it was a good time to start going after a little bit of the volume while protecting the profitability of the used car department. So when you think about 70% to 75% of the cars that we retail come from either trade-ins or acquisitions from guests or loaner cars, that puts us in a pretty good place to continue to grow that business.
And then about 15% to 20% of them come from acquisition at the auction, which we have made the concerted effort to go after to grow the volume. So I will tell you that we are fully committed to growing the volume while protecting the gross profit. And we expect in the fourth quarter to be ahead year over year compared to last year.
Glen Gin (Analyst at Seaport Research Partners)
Okay, very good. Thanks, gentlemen. Good luck.
Dan Clara (Chief Operating Officer)
Thank you.
OPERATOR
Our next question is from Alex Perry with Bank of America. Please proceed.
Alex Perry (Analyst at Bank of America)
Hi, thanks for taking our questions here. Just wanted to follow up on the last question, actually. So just on the customer-pay RO count being down, I think you said 2%. Do you think there is share loss happening? The cheaper independents for some of the P&S work, given some of the affordability constraints on the consumer right now, are you seeing any sort of evidence of work deferrals given some of the affordability challenges? Thanks.
Dan Clara (Chief Operating Officer)
Morning, Alex. On the work deferral, the measurements that I had, when I compare what we call declined work from our customers, I have not seen an increase in that. So that gives us some level of comfort that nothing is changing materially. On the first question in regards to maybe a loss of share, I’ll tell you that it’s more than a fair question. But when you look at the average miles that are coming through our shop at 70,000 miles, I would argue that we do a pretty good job of retaining that guest after the manufacturer’s warranty expires.
The 1.9% like anything, I would not make a big deal about it. It is seasonality, obviously. When you roll 47 stores in Tekion in the quarter and I can’t stress it enough, the heaviest lift of the entire rollout of Tekion, you will see an impact in traffic because people’s muscle memory gets lost. They don’t move as fast. The efficiency is not there. But that will all come, as we have proven after six months of the muscle memory kicking back in.
Alex Perry (Analyst at Bank of America)
That’s really helpful. And then my follow up was just on the FTC enforcement actions. Can you, what impact are those enforcement actions sort of having on your business? Did you have to take advertised prices up at all? Do you think it’s impacting your used volume sales? And then what do you think happens to some of those doc fees? Do you think they get dropped over time or how do you think this all sort of plays out? Thanks.
Dan Clara (Chief Operating Officer)
Yeah. The impact that we’ve had is more of a level playing field. We’ve always done things the legal, ethical way, full transparency. As a reminder, when the FTC came with this notification at the beginning of the year, Asbury Automotive Group did not receive a letter because we have always been compliant. In some of our major markets, such as Georgia, Colorado and Massachusetts, it was already state law to have that doc fee included in the price.
So we’ve been operating under those circumstances for years. As far as what does it do, I think that it is great for the industry. I think that being transparent, no hidden charges is what the consumer deserves. It level sets the playing field for all of us out there. So I view this as very positive. It will continue to enhance the guest experience. And, you know, those that don’t want to abide are going to be left behind.
Alex Perry (Analyst at Bank of America)
That’s really helpful. Best of luck going forward.
OPERATOR
Our next question is from Michael Ward with Citigroup. Please proceed.
Michael Ward (Analyst at Citigroup)
Thanks very much. Good morning, everyone. First thing, could you put some numbers on the BEV sales year over year?
Michael Welch (Chief Financial Officer)
Sorry, you cut off a little bit on the electric sales.
Michael Ward (Analyst at Citigroup)
You mentioned that was about half of the new unit decline. So could you put some actual numbers on the number of BEV units you sold last year and then this year?
Michael Welch (Chief Financial Officer)
Yeah, so I have your. I have the. Yes, I can, I can do that for you. In Q3 of 2026, my electric vehicles were 2.1% of the total units sold. I will tell you that from a year over year basis, we were down 76% in EV sales. Q3 of 25 versus Q3 of 26.
Michael Ward (Analyst at Citigroup)
Okay. And now I always thought the BEV profitability was lower than ICE. So, you know, with that decline, you would expect to see a little stronger new-vehicle gross than we saw. Was there something else in there in the quarter? Was there a sell-down on some late models that kind of compressed gross that maybe turns as we go into 4Q and into the first half?
Dan Clara (Chief Operating Officer)
It’s a great question, an excellent point. You are correct. The PVR in ICE is higher than EV. I will tell you that what impacted the drop in PVR quarter over quarter, it really came down from imports. We’re seeing additional pressure with some of the OEMs, Hyundai being one of them. And then obviously you can see at the domestic side of the equation as well. We still continue to have headwinds with Stellantis. Although I will tell you that from an inventory management standpoint, we have really put ourselves in a good position.
We have reduced about 1,000 units from what we used to carry on floor plan expense with Stellantis. Our ordering is at a much higher level from a turn-rate standpoint. So really excited to see what I’m seeing out of those Stellantis stores that we are set up for a better quarter and as we move into 2027.
Michael Ward (Analyst at Citigroup)
Thank you. Very good color. I appreciate that. And just lastly on Tekion, because I know we’ve hit it hard, but I think it is important, the muscle memory that you talked about. So about a third of the stores just got converted in October. So some of that muscle memory lags. Then from November, December and into the first half we should start to see some pretty good benefits, particularly since you have a good track record behind it. Is that the right way to look at it?
Dan Clara (Chief Operating Officer)
Yeah, I think you’re looking at it right. I would just say that it’ll be more into the tail end of Q1, beginning of Q2. Listen, nobody’s more anxious and wants to get the benefits of all the hard work than us, but we do know after rolling out 157 dealerships that it does take six months for the muscle memory to kick in. And we’re just going to be there continuing to train, mentor and develop our team members to provide the best guest experience.
Michael Ward (Analyst at Citigroup)
I really appreciate it. Thanks very much.
OPERATOR
Our next question is from Rob Saltzman with UBS. Please proceed.
Rob Saltzman (Analyst at UBS)
Hey team, thanks for the time. So you mentioned that you expect to exit that low 60% range on estimated gross by the end of Q4. So that’s the exit rate. How are you thinking about the trajectory of that metric into 2027 assuming a stable operating environment, and then what could that number look like maybe in the back half of 26 after that six-month transition period you mentioned starts to abide after the large Q3 rollout? Thanks.
Michael Welch (Chief Financial Officer)
Just to clarify, we expect to be in the low 60s by the end of 27. So we’ll get a little bit better in fourth quarter and then kind of progress through it as we go through next year. And to Dan’s point, kind of two Qs when we start getting most of the stores into that six-month window. So you’ll see it in the back half of the year next year when we get kind of fully on. And again it’s both a combination of increasing the gross profit which will help the SG&A and making sure we get the cost out. That will help the SG&A. So both pieces, but it’s low 60s by the end of 27. That is the goal.
Rob Saltzman (Analyst at UBS)
And then just one follow up would just be, obviously SG&A, but any sort of high-level thoughts on the business here into 2027? How are you thinking about the trajectory and kind of how are you thinking about the rest of the business heading into next year? There are just some early high-level puts and takes you guys are thinking about starting to plan?
Michael Welch (Chief Financial Officer)
Yeah, it’s really hard right now. We’re still, you know, it feels like for a new-vehicle perspective, it’s probably going to be, you know, similar in terms of volume. PVRs we said, you know, kind of 2,750 to 3,000 is kind of where we see the range and we’re kind of in that range now. So I think that’s kind of a range for next year. Used cars we talked about, we’re going to push on the volume side of the equation. PVR should kind of be in the range that they’re at now, somewhere in that 1,750 range.
F&I from a TCA perspective, we’ll see some continued headwinds into next year and so we think the dealerships will have some improvements in F&I, but TCA will kind of offset that, make, you know, I’ll call it F&I a little bit of a drag next year. And then fixed ops, we think we can get back to growing fixed ops, call it in the single-digit range next year. And that will put SG&A kind of in that—it will move throughout the year—but by the end of the year in that low 60s, but starting off mid-60s and then kind of working its way down.
Rob Saltzman (Analyst at UBS)
Thanks Dean. Appreciate the time.
OPERATOR
Our next question is from Daniela Halligan with Morgan Stanley. Please proceed.
Daniela Halligan (Analyst at Morgan Stanley)
Thank you. I think that was a really helpful overview of thoughts into next year. I’ll kind of step back and ask more of a macro question. Have you seen any change in consumer behavior, whether that’s trade-down or substitution from new into used or deferring some service work? I know we’ve talked a little bit about this, but any greater sensitivity than you’ve seen in prior quarters?
Dan Clara (Chief Operating Officer)
Good morning, Daniela. Yes, we’ve seen a little bit of a change. I think the longer that it goes with the high gas prices that we have. I mentioned this in the last earnings call that based on prior history, it takes about six months for consumers to decide whether they’re going to get rid of the gas guzzlers or not, and we’re starting to see a little bit more of that. Ironically, they’re trading from a big SUV, V8 or what have you into still an SUV, but maybe in this case a hybrid SUV that affords them the size but still a much better miles per gallon.
And then from a decline, I mentioned this earlier. Based on what I track, I have not seen a drop in declined services. Staying pretty consistent. So I’m not seeing a change there from a consumer behavior.
Daniela Halligan (Analyst at Morgan Stanley)
Thank you, that’s very helpful. And then on the used-vehicle side, you said pushing volumes more. Is that a function of more off-lease supply coming online? So now you have more access to trade-ins or are you seeing greater competition to try and access those volumes?
Dan Clara (Chief Operating Officer)
It’s more about tweaking the way that we appraise cars, improving our look-to-book, which basically what that means is if I appraised 100 cars, how many did I trade for? It’s a metric that we pay close attention to, working with our great operators on improving that metric, and then obviously taking full advantage of the cars that we can buy through the service drive with the internal processes that we have.
Daniela Halligan (Analyst at Morgan Stanley)
Great, thank you very much.
OPERATOR
Our next question is from John Babcock with Barclays. Please proceed.
John Babcock (Analyst at Barclays)
Morning and thanks for taking my questions. Just firstly, on the used-vehicle market, it generally sounds like the wholesale market’s been pretty soft there. What impact did that have on the GPUs? And also if you can just broadly talk about what’s driving that, that would be helpful.
Dan Clara (Chief Operating Officer)
It didn’t have much of an impact on our PVR. As I mentioned before, 75% to 80% of our inventory comes from trade-ins, loaner cars and cars that we acquire internally. I will tell you that it is a metric that I measure every single week and it is how much PVR do we make on a car that we traded in versus a car that we bought at the auction? The one thing that is guaranteed when you buy a car at the auction is you’re the one that paid the most money for the car because you’re the last one standing with your arm up.
So naturally your PVR is not going to be the same, but we normally make about 50% less than we make on a car that we trade in. But there’s a benefit. You get the internal gross profit, you get another unit in operation, you get to certify the car and then you get also the opportunity to protect the investment by offering the vehicle service contract or any of the other products that we offer.
John Babcock (Analyst at Barclays)
All right, thanks for that. And then next on M&A, I was wondering if you might be able to talk about what you’re seeing in the market right now, both in terms of prospects and valuations and also when we should expect you to get more active there.
Dan Clara (Chief Operating Officer)
Like Michael and I stated earlier, we have two major priorities right now. Our number one priority is operational excellence now that the rollout is behind us. The second priority is, with the operational excellence, comes additional EBITDA and free cash flow. We want to go ahead and pay down the debt to get below three times, and then M&A. I’ve been seeing some deals still hitting the market. As you can see those deals, I’m sure that you see what they’re bringing.
Michael Welch (Chief Financial Officer)
And you know, I’d like to expand a little bit on this one because I would say that the private market transactions in our industry, they continue to show the value that buyers place on high-quality dealership portfolios. We believe that Asbury stacks up very well with a strong mix of luxury and import franchises. We have very attractive markets and very valuable owned real estate. And I can’t stress it enough, we own over 80% of our real estate and we have TCA, which gives us a nice growing stream, which we believe the market does not give us full credit for. So therefore, when you put all that together, we believe our current share price does not reflect the underlying value of the business that we’re seeing in some of these private markets deals that are going out there.
Yeah. So on the SG&A side, not only does Tekion make us more efficient, but also just a lot of stuff going on with AI really helps us with those efficiencies as well. And being able to automate some functions with that technology, and Tekion allows us the ability to deploy that AI easier. But really, we’ve been—this sounds bad—but you know, we’ve been devoting a lot of our resources to getting Tekion rolled out, and so being able to deploy all those resources back into the five pillars, where it’s growing new vehicles, growing fixed ops, growing used cars—like that focus—and not being, I won’t say distracted, but just we’ve been having to put a lot of resources towards the rollouts.
That’s just going to allow us to push the volume on the gross profit growth. And that’s really, if we get back to growing gross profit in solid numbers and keep the expenses lean, that has a big benefit on the SG&A number, or SG&A percentage of gross number.
OPERATOR
Our next question is from David Whiston with Morningstar. Please proceed.
David Whiston (Analyst at Morningstar)
Thanks. Good morning. Could you just talk a bit about what effect, if any, interest rates and negative equity is having both for buying new and used vehicles, and for making additional purchases in the service lane?
Michael Welch (Chief Financial Officer)
Yeah. I will tell you that the biggest impact that I have seen, or the one that comes up the most, is negative equity. You know, we’re starting to see cars that were sold during the pandemic that are starting to come in. And so there is that negative equity that’s definitely impacting some brands more than others. From an interest rate perspective, we have not seen a major shift. Although I’m curious to see when OEMs are going to start supporting more leasing just because of the affordability that it allows—somebody to get a newer car for less of a monthly payment.
David Whiston (Analyst at Morningstar)
Then on the brands where it is having an issue, are you losing those sales? Are you able to figure something out?
Michael Welch (Chief Financial Officer)
Listen, it’s hard to tell because, as you know, it is based on the consumer credit. If the consumer credit is, you know, call it a 700 FICO score, your loan-to-value is going to be a lot more flexible. You can put that deal together depending on how much negative equity we’re talking about, but that’s on a case-by-case scenario. And in some cases, if you have somebody that maybe is subprime or does not have a lot of down payment, yeah, you do miss that deal.
We always try to find a solution. Is there a car that came out—a loaner car—that maybe puts you in a better book position that you can trade them out of it? And we explore every option available for us.
David Whiston (Analyst at Morningstar)
And then on the balance sheet, you talked about wanting to do some tuck-in acquisitions but also paying down debt to get the leverage ratio to your target. So would the tuck-in deals involve touching the credit line, or would it be entirely internally funded without debt?
Michael Welch (Chief Financial Officer)
Well, I mean, our first priority is getting the leverage down and then, you know, at the current share price it’d be share buybacks, and then tuck-in acquisitions would be the last of what we use the capital for. But the goal is, in the future, we should be able to do share buybacks and tuck-in acquisitions with our free cash flow. We want to get back to that below three times just to have the optionality when something comes up to be able to go after it.
Right now we’re just a little limited in terms of where the leverage is.
David Whiston (Analyst at Morningstar)
Okay, thank you.
OPERATOR
Our next question is from Ryan Sigdahl with Craig-Hallum Capital Group. Please proceed.
Ryan Sigdahl (Analyst at Craig-Hallum Capital Group)
Hey, good morning, guys. Two clarifications for us, or follow-ons, but on the doc fees: I appreciate the more transparent approach relative to many of your peers, but curious on it from an absolute standpoint—if you expect doc fees to go lower from here for Asbury, or if you think most of that is already built in at this moment. And then maybe just talk to the GPU 3000 from a new standpoint, normalization, and if document fees impact that from here.
Michael Welch (Chief Financial Officer)
I don’t expect doc fees to go down. Our approach has always been very simple with doc fees. We’ve never wanted to be the highest in the markets that we operate. We’ve always been in the middle, for lack of a better term. So we’re positioned the right way. Don’t expect that to go down, and we’ll continue, obviously, to operate with full transparency. The second part of the question—can you please remind me?
Dan Clara (Chief Operating Officer)
Oh, new vehicle PVR—yeah, at 3,000. You know, for several quarters we’ve been talking about our projection of anywhere between 2,750 to 3,000. You can see that actually, I believe new car PVR sequentially, quarter over quarter, went up $6 a car, if I remember correctly. So I believe that we’re stabilizing there. And it fits well within the range that Michael and I have been talking about. The one thing that is important to consider here is it doesn’t mean that it’s going to be a flat line.
You know, there’s going to be ups and downs—seasonality, OEMs, incentives, and what have you. But I think that, you know, that target that you see is pretty much what we’re seeing moving forward.
Ryan Sigdahl (Analyst at Craig-Hallum Capital Group)
Appreciate that. Then maybe just a quick one on SG&A to gross profit. Appreciate the commentary and kind of glide path from mid-60s to low-60s exiting next year, but are you willing to say at least directionally if you think ’28 and beyond you can go below the low-60s if it’s kind of a linear improvement from there. Thanks.
Michael Welch (Chief Financial Officer)
Well, so I guess we’re going to take it in stages. So we have, you know, call it the AI and Tekion stuff that gets us into the low-60s. There’s some things we’re looking at in terms of, I’ll call it the digital vehicle transaction, and depending on where that goes that could give us the ability to kind of push it below 60%. But I wouldn’t say that’s a linear path. That’s more of a next-step path. And we just got to kind of figure out how that works with the software and the consumer, and kind of how the consumer wants to behave online and in digital-type transactions.
So that’s a below-60s with that new phase of digital vehicle sales transactions.
Ryan Sigdahl (Analyst at Craig-Hallum Capital Group)
So reasonable to assume kind of a low-60s is the right run rate kind of in all years.
Michael Welch (Chief Financial Officer)
Yeah, again, until we kind of cross the bridge on—we’re hoping ’28, ’29. But we got to do some homework and feel it out on how the consumer reacts to that and test it before we pull the trigger on that. But yeah, I think low-60s until we can make that change.
Ryan Sigdahl (Analyst at Craig-Hallum Capital Group)
Helpful. Appreciate it. Thanks. Good luck, guys.
OPERATOR
Our next question is from Rajat Gupta with J.P. Morgan. Please proceed.
Rajat Gupta (Analyst at J.P. Morgan)
Hey, thanks for taking the follow-up. I just wanted to follow up on parts and services. I think you talked about, you know, getting back to mid-single-digit range at some point next year. Are you already starting to see some signs of turnaround in the fourth quarter here—from down 2% same store in the third quarter? Do you think you’re going to be back in positive territory here in the fourth quarter? Just trying to understand the path towards that mid-single-digit range.
Is it market driven? Is it Tekion productivity driven? And then I have a really quick follow-up. Thanks.
Michael Welch (Chief Financial Officer)
Just reminder, 47 stores went live this quarter. Fourth quarter will still have an impact for those stores. Like, we’re still in the—I’ll call it—fourth quarter still in the heavy piece of Tekion. So I just wanted to put that out there, and I’ll let Dan kind of answer the rest of it. But, you know, fourth quarter is still a pretty heavy Tekion-impacted quarter just because of the amount of stores that went live this quarter.
Dan Clara (Chief Operating Officer)
Agree with Michael. And Rajat, just to give you more color again—yes, we’re seeing progress in the stores or the markets that have been under Tekion for six months or more. And just as I repeated earlier, Florida, which just crossed the six-month target—the market was up 3% in September. That’s just for the month of September. And then Georgia was up for the month of September 6.6%, so very encouraged by what we see. But I can’t stress it enough—please don’t forget that we rolled out 47 stores in the third quarter. All those stores are not going to be in the six-month threshold that we require and that we have seen the progress being made until end of Q1. So you will see progress in the stores that continue to roll into the six-month threshold. But we’re not going to realize the full benefit of this as we go until we go into the end of Q1 and Q2 of 2027.
Rajat Gupta (Analyst at J.P. Morgan)
Understood. And then just on F&I, you know, we have been hearing at least from some private dealers that, you know, warranty attach rates are just taking a bit of a hit given affordability pressures. I’m curious if you’re observing any of that at your stores. Like, how do you think F&I progresses—excluding obviously the TCA accounting noise—just on a core basis. What’s your view there? Thanks.
Michael Welch (Chief Financial Officer)
Yeah, so we have seen a little bit of a drop in terms of our mix of the products versus the financing side of the equation. But this quarter we still grew F&I PVR at the store level—excluding the TCA deferral, we grew it $119. So we’re still able to grow the F&I number. We have the headwind of TCA deferral going through there, but we’re still seeing nice progress at the store level on the F&I side. So we haven’t seen a decrease on PVRs at the store level.
Rajat Gupta (Analyst at J.P. Morgan)
Understood. That’s very helpful. Great. Thanks for the questions again and good luck.
Michael Welch (Chief Financial Officer)
Thank you.
OPERATOR
This concludes today’s call. Thank you very much, and we look forward to seeing you after Q4. Thank you for your participation. You may now disconnect your lines.
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