Good day and welcome to the Asbury Automotive Group, Q3 2019 Earnings Conference Call. Today’s call is being recorded. And now, at this time I'd like to turn the call over to Matt Pettoni. Please go ahead..

Thanks operator and good morning everyone. Welcome to Asbury Automotive Group’s third quarter 2019 earnings call. Today’s call is being recorded and will be available for replay later today. The press release detailing Asbury’s third quarter results was issued earlier this morning and is posted on our website at www.asburyauto.com.

Participating with us today are David Hult, our President and Chief Executive Officer; John Hartman, our Senior Vice President of Operations; and Sean Goodman our Senior Vice President and Chief Financial Officer.

At the conclusion of our remarks, we will open the call up for questions and I will be available later for any follow-up questions you might have. Before we begin, I 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. All forward-looking statements are subject to significant uncertainties and actual results may differ materially from those suggested by the statements.

For information regarding certain of the risks that may cause actual results to differ, please see our filings with the SEC from time-to-time, including our Form 10-K for the year ended December 2018, 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 measure on our website.

It is my pleasure to hand the call over to our CEO, David Hult.

David?.

Thanks Matt and good morning everyone. Welcome to our third quarter 2019 earnings call. We achieved record third quarter adjusted EPS of $2.33, up 5% from the prior year. This was driven by revenue and gross profit growth of 5%.

We're able to grow our parts and service gross profit by 9%, grow our total front end yield by increasing F&I gross profit and bring our new vehicle inventory levels down by 10 days, which is within our targeted range.

During the quarter, we expanded our footprint in Indianapolis by acquiring a Toyota store and we entered a new market by acquiring a Subaru store in Denver. Both of these stores are characterized by high quality and tenured team, solid performance profile, strong and loyal customer base and sound business processes..

In Mike Shaw Subaru, we have found the ideal anchor store. We plan to build our presence in the market following a similar approach to what we successfully executed in Indianapolis. Subaru also happens to be the number two brand in Colorado.

We are excited about the return that we will generate from these two great acquisitions and the growth opportunities for Asbury in the Denver market. This quarter we continue to make great progress implementing an enhanced process and procedures that leverage technology to create a highly guest centric consumer experience.

At our pilot store in North Carolina we're excited to see – excuse me, we're excited to consistently see exceptionally favorable consumer views as our guest react to a level of service and transparency.

While we are focused on being at the forefront of innovation in our industry, we believe that success is driven by well-designed process improvement and effective change management. We plan to start thoughtfully rolling out our technology driven process improvements to additional stores in the first quarter of 2020.

We are confident that our investments in creating an unrivaled guest centric experience will yield attractive returns. Before I end, I want to thank Sean for his valuable service and contributions to Asbury. He's been a great partner and a pleasure to work with. I speak for the entire organization and wishing him well as he embarks on his next chapter.

I will now hand the call over to Sean to discuss our financial performance..

Thank you David and good morning everyone. Overall, compared to the prior third quarter our revenue increased by 5%, gross profit increased by 5%, gross margin of 15.9% was 10 basis points higher than last year.

SG&A as a percentage of gross profit increased by 100 basis points to 68.9%, operating margin decreased 10 basis points to 4.5%, income from operations increased by 2% and adjusted earnings per share increased by 5% to $2.33.

As a reminder in Q3 of 2018, we adjusted for an approximately $600,000 discreet tax item related to the 2017 Tax Act or $0.03 per share. There were no adjustments for the third quarter of 2019. During the quarter some of our stores in Florida were impacted by the threat of hurricane Dorian.

However, the effect was not materials to our financial results. Our performance this quarter was however significantly impacted by a single midline import brand where despite earning the available manufacturer incentives results were considerably below last year.

This brand alone negatively impacted earnings per share for the quarter by approximately $0.14. Our effective tax rate was 24.4% for the quarter compared to 25% in the third quarter of 2018. Looking at expenses, SG&A as a percentage of gross profit for the quarter was 68.9%, an increase of 100 basis points over last year.

This increase was driven by the enhanced benefits packages provided to our frontline associates, reduced OEM advertising credits and continued investment in our omnichannel initiatives. As expected, our year to-date SG&A as a percentage of gross profit is 68.5% in line with our full year guidance of between 68% and 69%.

With respect to capital deployed, during the quarter we spent $13 million on capital expenditures and $4 million repurchasing shares of our common stock, our remaining share repurchase authorization stands at $66 million.

This year to-date, we have invested $43 million in our existing business through capital expenditures and real estate acquisitions, returned $15 million to shareholders through share buyback activity and we have completed the acquisition of six new stores with total annualized revenue of $425 million.

When making capital deployment decisions we focus on achieving the highest risk-adjusted return.

In the case of acquisitions we assess each store individually with consideration for the market dynamics, quality of the brand, customer profile, operating performance of the store, opportunities for value creation, stability of the earnings and much more.

As an example, we have a higher hurdle rate of return when acquiring an underperforming import store acquiring a significant turnaround investment then we would for a luxury store with a loyal customer base, high margin and a solid parts and service business.

At the end of the quarter, our total leverage ratio stood at 2.8 times and our net leverage ratio at 2.3 times. We believe that our capital structure positions us well to opportunistically capitalize on expected attracted future capital deployment opportunities.

Our floor plan interest expense increased by $600,000 over the prior year driven by an increased in inventory levels. Note, that our new credit facility effective on September 25th [ph] result in a decrease in our new floor plan interest rate by 15 basis points and are used floor plan interest rate 10 basis points.

From a liquidities perspective, we ended the quarter with $2 million in cash, $65 million available in floor plan offset account, $101 million available on our used vehicle line, $237 million available on our revolving credit lines and $173 million of undrawn mortgage facilities.

In closing, I want to take this opportunity to express my sincere thanks and appreciation to David and the Board for their support during my time at Asbury. It has been an honor to be part of this exceptional team and I wish everyone all the very best and continued success in the future.

With that, I'll hand the call over to John to walk us through the operating performance in more detail..

Thank you, Sean. My remarks will pertain to our same-store performance compared to the third quarter of 2018. Looking at new vehicles, SAAR for the quarter was of 17.1 million units or flat versus last year and retail SAAR was down 1% for the quarter.

Our new unit sales decreased 5% and the margin rate was 3.9%, down 40 basis points from the prior year. We experienced margin pressure across our midline import brands, however domestic margins were flat and we were able to grow gross profit in our luxury brands.

We are pleased that we will once again able to offset the overall margin pressure by strength in F&I. Our totally new vehicle inventory was $810 million and our day supply was 76 down 10 days from the prior quarter. Turning to used vehicles; unit sales were up 6% from the prior year on top of an 8% growth rate last year.

Our gross profit margin of 6.6% represents a gross profit per vehicle of $1,467 down $113 from last year. Though our gross profit per unit was down, it is important to remember that used car volume growth also drive increase reconditioning parts and service gross profit as well as F&I business.

Our used vehicle inventory of $176 million is at a 36 days supply, up three days from the prior quarter. Turning to F&I. Total F&I gross profit increased by 8% and gross profit per vehicle increased by $119 or 8% to $1,628 from the prior year quarter.

Note, that when we think about gross profit per vehicle, we look at the total front end yield which combines new, used and F&I gross profit. This provides us with the best view of our true profit per vehicle sold. In the third quarter, our front end yield per vehicle increased to $3,065 from $3,056 last year.

This total front end yield has remained stable over the past decade. Turning to parts and service; our parts and service revenue increased 8% and gross profit increased 7%. This was achieved with a 7% increase in customer pay and a 13% increase in warranty.

And now an update on our omni-channel initiatives; our PUSHSTART online sales were up 3% from the prior year. We continue to grow traffic utilizing our digital parts and service scheduling tool and we reached a record of 137,000 online service appointments this quarter, up 23% from the prior year.

In addition to our omnichannel strategy, an important part of our continued success is our people.

As previously announced at the beginning of this year we put together an industry-leading benefits package for our frontline associates including subsidized medical plans, equity grants, education grants, a four-day workweek, extended vacation time and paid maternity leave.

This enhanced benefits package is continuing to have favorable impact on both recruiting and retention. In conclusion, I would like to take this opportunity to express appreciation to all our teammates in the field and our support center, who continue to produce best-in-class performance.

I would also like to welcome all our new teammates in both Indiana and Colorado. We will now turn the call over to the operator and take your questions.

Operator?.

Thank you. [Operator Instructions]. And we'll first hear from Rick Nelson of Stephens..

Thanks. Good morning, guys..

Good morning, Rick..

Someone who asking about the new vehicle, same-store unit down 5%, looks like that didn't keep pace with the overall market and the domestic brand declined of 17%, if you could comment on what was the driver there?.

Sure. Rick, this is John. I'll address the domestic first. We were pleased, we were able to increase the PVR on our domestic stores 3% and maintain our margin. This is certainly we want to increase the volume in domestic and the scenario of the business and we will focus on and improve.

As far as the midline imports being down, three or four of the brands we actually outperformed the market. It was really one brand where we underperformed as far as volume, which took us down to 5% in that segment..

And was that lagging brand? Was that also responsible for the margin erosion that we saw at GPU?.

This is David. It was..

David, I guess, what are the strategies here with that brand to reinvigorate, I know you sold some stores, your thoughts about that?.

Yes. We sold one. Over time these brands are cyclical. We more than any of our peers have a high percentage of this brand and it has a material impact on this right now. We're doing our best efforts to do we can to offset it with parts service, F&I in use where we can control.

But at the end of the day we're franchisee to the manufacturing, and we're trying to be opportunistic and do the best we can with it..

On advertising PVR, $198 compared to $154 last year, that's really stepped up.

Is that focused on specific brands or what is the drive to that growth rate?.

I'd say, it's a couple of things. One; there's a little bit less credits from the manufacturer this year over last year. That's a small piece of it. The other piece of it is too when we do acquisitions and we took in the Bill Estes Group, kind of all at once. We kind of go through a transition phase to not to a culture shock.

They were a lot more aggressive in spending advertising dollars, so you'll see improvements over time and that number coming back down, it just a moment in time if you will and most of it is related more than new acquisitions then it is to the core company..

And used car, are you sourcing more cars at auction to drive volume and that's causing some of the margin erosion or if you could speak to the competitiveness of sourcing vehicles at auction?.

Hey, Rick, this is John again. Our auction purchases run a small percent. It's about 50% of our total retail sales. We still focus on trade to keep the margin -- to keep the margin high. We were certainly happy to get the use vehicle growth back this quarter especially with our comp versus last year.

What we focus on Rick is really – as a company, we turn the inventory about 1.2 times per month. So for stock in a 100 retail vehicles we can expect 120 sales.

The issue when you – we have to go to auction as if you have 100 cars in stock, you have a big weekend and you sell 30 cars and now all you have 70 and the guys tend to run out and try to backfill that with quick purchases. So, we've really focused on trying to keep it more steady flow of the pre-owned inventory and having less fluctuations.

That being said, we were happy with the volume last quarter. We're going to focus on getting the margin back too..

I would also add, Rick, we're focused on CPO too, and our CPO sales for the quarter were up 11% and with those there's a little bit more cost involved certifying those vehicles..

And just getting back to the problematic brand, is there anything on the horizon I guess to shift those pressures with the brand?.

All I can say at this point Rick is, our job is to be great capital allocated and really strong operators. And we're always seeking to how can we better positioned Asbury and our brand mix. And that's certainly a focus that we have right now..

Got you. Thanks guys. Good luck..

Thank you, Rick..

Next we'll hear from John Murphy of Bank of America..

Good morning guys. I just want to follow-up on one of the comments and I apologize I may have misunderstood or misheard this Sean. When you were talking about this midline import brand that you're having issues with, you said there was a $0.14 per share hit, is that correct? Because the volume rebates or stair step rebates didn't come through.

I just want to understand if I'm getting this right?.

Yes, John. The EPS impact was $0.14, and it was primarily related to reduced manufacturer incentives, so a decline in the available incentive dollars..

John, just to clarify further, we obtained almost all that money that was available by that OEM, but the total amount available was about 30% less than it was prior year..

Okay. And that was known in advance.

That was not a change in the program mid quarter or mid month or something like that?.

No. We were notified of it right after the quarter started..

Okay. Then a second question, when you think about the front end gross being up $9, obviously the F&I and PVR is helping out quite a bit there.

Just curious if you can engage us -- give us sort of a range of what sort of like the highest F&I and PVR you have on a individual vehicle roughly? And how far you think you have a penetration for extended service contracts and stuff like that that might also help.

Just trying to understand where this can go? And if there's absolute number increase potential and also a penetration potential as well?.

John. This is John. I think there's still plenty of opportunity in F&I. I think we've talked about this before. We kind of focus on the bottom half of the organization and getting them up to average. So as far as PVR, VSC penetration and overall penetration on product, I think there's still opportunity for us to grow..

Okay. And then just lastly, I think it's on your slide you say about 23% of your parts and service revenue is recon. If I run that through it looks like it was about $52 million as recon revenue in parts and service in the quarter.

If I apply that all to use, it looks like you're doing about $2300, $2400 of recon revenue per unit and probably about $1500 in profit there.

Is that, I mean, are you -- use really drive -- recon really driving that bigger chunk of profits in parts and service or is there something else going on there? What sort of the average recon revenue and gross profit number we should think about for used vehicle?.

So, I would tell you that the number per vehicle is a lot lower than that on a reconditioning. It'll vary by brand, but it typically hovers around $1200 to $1300 a car. So if you think about selling a used car the way we look at it to your point, we look at that front end margin.

We understand -- we recognize that 1200 and then naturally the F&I dollars..

I'm sorry. And the recon, that's a revenue number and we should assume roughly 60%, 62% gross profit of that.

Is that a fair way to think about it?.

I'm sorry, John. I miss the revenue word. That's a gross profit number. That's a gross profit number, John not a revenue number..

So, if we looked in all and fully loaded GP for a used vehicle, you guys are printing 14.75 on the vehicle sale and about another 1200 to 1300 on GP for on the recon side within parts and service?.

That's correct..

Okay. Right. That's very helpful. Thank you very much guys..

Thank you..

Thank you..

Next, we'll hear from Bret Jordan of Jefferies..

Hey, good morning guys..

Hey, Bret..

Could you talk a little bit about the warranty growth that I guess, are we looking at particular recalls? Or how long might we expect this pretty significant warranty growth to continue?.

John Hartman:.

Takata :.

Okay.

And then a question on F&I and just sort of a big picture, is there a negative correlation between FICO scores and F&I spend? And can you get at the lower end consumer either a longer loan term or GAAP insurance or products that don't sell further upstream?.

I would tell you as the credit scores go lower and I'll just talk sub prime for a second. Your F&I dollars are very much governed by the lender, right down to what products you can offer and sell them not. So I would say you actually have more opportunity as the FICO score goes higher for product sales..

Okay, great. Thank you..

Next, we'll hear from Armintas Sinkevicious from Morgan Stanley..

Great. Thank you for taking the question. As we were thinking about the quarter here, second quarter had an elevated level of inventory versus a year ago. You work that down. I'm surprised to not see it come through in the new vehicles same-store sales.

Maybe you can walk me through the dynamic on the inventory day supply and the impact to same-store sales?.

We worked hard on the quarter trying to bring our new vehicle inventory back to our targeted range. Some of that was we moved inventory internally, so the stores that had a higher day supply we moved it to the stores with a lower day supply..

And that's essentially how we get the lower day supply, which is shifting inventory around?.

This is David. It's also again you're doing your allocations with these manufacturers once or twice a month. So it's obviously scaling back. And when you think about an overall day supply, you're looking at a number, but you do have to realize is the width of these inventories.

How many different model lineups there are? And then within the model lineups how many different package offerings there are. It's very difficult to satisfy everyone, but you have to have a spare sampling of inventory to try and hit especially in the domestic truck side.

The amount of -- there's hundreds of different ways you can order and package these trucks. So, its really key to make sure you spend the time to be thoughtful about how you're packaging and moving those trucks.

As John's comment as far as moving inventory that was more on the domestic side with trucks and that market shifts around a little bit based upon how the trucks are equipped and what market has a certain need..

Okay.

And then as we're thinking about the challenges here from the third quarter with the specific brand, how do we think about the incentive environment here for the fourth quarter?.

Yes. I would say, we're in the same position today as we were in the third quarter as it relates to incentives and where we are with a that particular brand. Quite honestly, we call that out, because it was a very material number. We're actually pretty happy with our quarter.

When you think about what we did with F&I, parts service and used climate over that 8% growth rate last year and our additional investment in our omnichannel. There was lot going on in the quarter. Then you had the noise of a hurricane. The hurricane that didn't hit, but it was five days of impact. We know how the media can drive those up.

Our stores were actually shut for a couple of days. And then the few days they were open around and there was no business because everyone was focused on the hurricane. So, it was a lot going on in the quarter. And quite honestly we're happy we stayed focused to generate what we did..

Okay. Appreciate the answers..

Thank you..

Next, we'll hear from Chris Bottiglieri of Wolfe Research..

Hi. Quick question on PUSHSTART, like 3% growth, you've been making lot of progress on that, pretty impressive growth overtime. Was there any comparison this quarter that was more difficult, I mean, 3% is kind of seems relatively low to where you are with that.

And then just for context given your exposure to Atlanta and Florida, are you seeing any impact from CarMax, omnichannel push or even Carvana for that matter? Any thoughts there will be helpful?.

Sure. This is David. I would tell you, it's a new entry for new car dealers to be able to do full transaction online. I don't know what everyone else report we're the first that out. But my perception is we've been leading the market as far as sales.

And I think when you initially come to market you get that long hanging fruit and pretty strong increase this quarter over quarter. It's really now, enhancing the product, getting more lenders online, because what we've seen over this the last year with the product.

We had started off kind of half new, half used sales that's tip more to more use than new. So having that availability of lenders online, we think we'll enhance it further. We have a tremendous amount of activity on the tool and a tremendous amount using it.

But the exit point right now for most consumers that aren't converting are around the credit application piece where they're putting their social security number online. It's a difficult challenge to convince a consumer in this day and age to put their personal information out there..

Got you. That makes sense. And then just one follow-up question related, for warranty could you elaborate little bit on the programming, like, if the compares get more difficult on warranty into Q4 into next year, maybe how much confidence you have that warranty could continue.

I'm just not sure, I understand like what's driving the warranty growth given SAAR has been flat and CP has been up slightly. This doesn't seem like a metric that should grow as robustly as it has.

Just want to get your thoughts on kind of sustainability if that would be helpful?.

Sure. I would say in years past there were certain brands that had dramatic recalls for large dollar amounts. And this year it's more about of many brands having small recalls. I think as technology gets better in these vehicles there's a lot of programming errors and issues that come up. It's very, very difficult to us.

I mean, this has come up in 34 years for me in retail. One of the hardest things to predict is what is warranty going to look like next year. It's very difficult to say. Some of the brands that are down this year, we expect it to be up. Some of the brands that are up, we expect it to be down. So it's really very difficult.

I guess is a little bit of a cadence around new models. As far as looking ahead to think potentially you might have some small issues that come with it. But we tend to go into every New Year thinking warranty is going to be flat or we model that. And then see how that adjusts throughout the months..

Got you. Thank you..

Rajat Gupta with JP Morgan has our next question..

Hi. Thanks for taking my question. Just had a question on the SG&A pick up in the quarter. I know you had talked about second half being a little higher than the first half. You had cited omnichannel investment as one of the reasons. You also cited reduced OEM advertising credits as one of the reasons.

Can you help elaborate what's going on there? And is this more of a onetime major step up in investments? Or this is something that we should expect within the base run rate going forward? And then I have a follow up..

This is David. I'll start and then Sean can clean it up. We foreshadowed in the last couple quarters as the second half of the year. We anticipated SG&A going up. So, we kind of ended up where we expected to end up. The OEM credit is being a little bit late. It wasn't across the board with all OEM. There was only certain ones. And it wasn't material.

We knew we had the acquisition of Bill Estes is coming on and what they were used to spending and what that was going to do for an impact. And we understood the cadence of our investment in omnichannel. So again that was the purpose of foreshadowing in prior quarters expecting it to increase. John, anything you want to..

Yes. Anything I'd add to that is one of the other items was the enhanced benefits packages that we are providing to our frontline associates. That is just the timing of expenses related to that will be higher in the second half as we've foreshadowed last quarter. Our year to date SG&A is 68.5%.

It's very much in line with our expectation of between 68% and 69%. And so we continue to expect that for the full year 2019..

Got it. And I know, in the beginning of the year you've talked about 67% to 68%, I believe or you've been in that ballpark historically.

I mean, is 68% to 69% kind of a good level to think about going forward? Just like to think about 2020 or going forward is that kind of like a range you would like to be in or it could go anywhere from here?.

Sure. So we've started the year, our guidance actually the beginning of the year was between 69% and 70% really relating to the additional investments that we've been making in our omnichannel initiatives. And as I'm sure you can appreciate a lot of those additional investments flow through the SG&A line on the income statement.

Our SG&A expenses will be lower than that this year primarily because of the results from our omnichannel initiatives are better than we initially expected, and that's actually resulted in some benefits on the SG&A line and that's driven our SG&A expenses lower.

Do I believe long term that there are opportunities to increase the efficiency of our SG&A spend below that sort of range? I do. But I think that is a long term outlook as we enhance omnichannel initiatives and our enhanced processes. But I think 68% to 69% is a reasonable expectation in the medium term..

That's helpful. And then any updated thoughts on capital allocation. What you're seeing in the M&A space out there in terms of multiple.

Is it still a pretty attractive market out there? Looks like there is still decent amount of opportunity on your balance sheet to take on some leverage, so what you're seeing out there? And then any thoughts on potential to play about a little bit towards buyback as well given where the stock price is? Thanks..

Sure. This is David. There's a tremendous amount of activity with acquisitions out there. Some of the stronger brands and luxury brands are holding their multiples well. Some of that more struggling brands right now the multiples have come down pretty good.

I think our approach figure our approach going into every quarter is where is our opportunity and what presents a high potential for return for our shareholders and we'll certainly be opportunistic and enter the quarter that way. We do believe in growth and adding stores, but thoughtfully it's very easy to buy something much harder to run it.

So we really want to make sure that it’s a good long-term acquisition for the company and most importantly it balances out our portfolio well..

Got it.

And any thoughts on buyback in the near term or is the focus more on the M&A at this point?.

Yes. I would simply answer that by saying as the quarter ends and as we see what our opportunities are certainly that the lever that we will pull. That's more attractive than an acquisition..

Yes. Then I'll just add to that, that we have a balanced approach to capital allocation and we are opportunistic as David said. It's hard to look at our numbers for one quarter. You have to look at for numbers over a period of time you look for example, last year in the fourth quarter we spent over $50 on share buyback.

This year we've spent little bit more on acquisitions and buybacks, but it's really is based on the opportunities where we can see the opportunity to create the highest risk-adjusted return for a shareholders..

Make sense. Thank you very much..

Thank you..

Next, we'll hear from Stephanie Benjamin of SunTrust..

Hi, good morning. I was hoping if you could maybe talk a little bit further on your omnichannel investments and some of the digital investments that you're making.

I know that in the past and even in the slide deck you called out whether it's on the sales side or building out financing capabilities, if may be you can provide a little bit more granularity on what you're focusing on right now or is it really a broad suite of things? And what we can expect to be your focus on that next quarter even as we move into 2020? Thanks..

This is David. I would say, it's ramping up in the second half of the year and we'll probably neutralize a little bit towards the first half of next year. It's really in several different categories. Its software expense cost investment.

Its investment in people, adding positions, changing positions, so I would say, its human capital and software technologies where the biggest investments have been in this second half of the year and will be there in the first half of the year. So we have the online approach with parts and service that we're doing.

We have the online goal of completing a car deal 100% online which we're not there yet, but we're getting closer. And then we have the guest experience peace within the dealership and how that the two melt into one, so they're not two different processes and they're very seamless. So we're very focused on that integration.

And that was my point in script when I referred to that store North Carolina. So its kind of the omnichannel where we been working on it at an enterprise level, creating those transactions, but then bringing it into the store to make it seamless. And that's where eventually we're going and that's we're going to start rolling out in 2020.

We see strong potential knowledge from a guest experience standpoint, but an opportunity to tighten up SG&A a little bit..

Great. I really appreciate the color. And that's all I had. Thank you..

Thank you..

Next, we'll hear from David Whiston of Morningstar Equity Research..

Thanks. Good morning.

First questions on same-store used-to-new ratio, what was driving that really large increase of 880 bps, is that omnichannel? Is that just a lot more awfully supply, turning people away from new, can you talk about that little more?.

This is John. You saw our used vehicle sales were up, so obviously that was part of it. And David had touched on the online that the PUSHSTART is really heavily more towards the used vehicle and new currently..

Okay. On the pressure from the midline import brands, obviously these types of stair steps and monthly targets, it's an issue all the time and some automakers are more flexible than others.

And my question is basely at what point you just -- how many quarters or years does it take for you to say at some point maybe it's not worth for a particular brand?.

I think this base has been saying for a couple years is not worth it. And it’s a little bit more exacerbated, and hopefully not be confusing with this. But when you think about, we believe our opportunities are parts, service, F&I and used and we can control that, we can control the new car market.

Having said that several of the midline import brands are very strong parts and service business units as well. One of the midline import, really the one that we're prone to today on the variable side also happens to be a little bit weaker than the other midline imports when it release its parts and service.

So in odd way you're getting exacerbated on both ends. You feeling it with the incentives on new and then it's not traditionally as robust to parts and service customers, some of their competitors..

Okay. Finally just a broader strategic question, always been interested in the fact you're not in California given its largest car market in the country.

Do you have interest in ever expanding there?.

You know, you can never say never. There's a – when we look at an acquisition, a big part of it is land costs and a business friendly environment. Dealerships expand and contract well from the expense standpoint in markets and can adjust to SAAR well. You can adjust your fixed expenses.

So our goal is to always be in markets that we can weather up and down times and we don't laden ourselves with a heavy debt on fix expenses meeting real estate or a heavy tax environment some like that. So California is a great state to do business in, I'm sure.

But we think that there's better opportunities for Asbury to create larger returns in other markets..

Okay. Thanks guys..

Thank you..

This concludes today's discussion. We appreciate your participation in today's call. Have a great day..