AutoNation, Inc. (NYSE:AN) is one of the largest automotive retailers in the United States, with a nationwide network of 347 new vehicle franchises from 251 stores located predominantly in major metropolitan markets in the Sunbelt region. The company offers a diversified range of automotive products and services, including new vehicles, used vehicles, parts and service, and automotive finance and insurance.
Financials
In the fiscal year 2023, AutoNation reported annual revenue of $26,948.9 million and net income of $1,021.1 million. The company's annual operating cash flow was -$89.4 million, and its annual free cash flow was -$499.7 million.
For the first quarter of 2024, AutoNation reported total revenue of $6,485.7 million, up 1.4% from the same period in 2023. Net income for the quarter was $190.1 million, down from $288.7 million in the first quarter of 2023. The company's operating cash flow for the quarter was $294.5 million, and its free cash flow was $257.0 million.
Business Overview
AutoNation's core business segments include new vehicle sales, used vehicle sales, parts and service, and finance and insurance. The company's new vehicle sales accounted for 45.9% of total revenue in the first quarter of 2024, while used vehicle sales contributed 30.8%, parts and service generated 18.1%, and finance and insurance made up 5.2%.
The company's Domestic segment, which includes retail automotive franchises that sell new vehicles manufactured by Ford, General Motors, and Stellantis, generated $1,756.7 million in revenue in the first quarter of 2024, down 4.1% from the same period in 2023. The Import segment, which includes retail automotive franchises that sell new vehicles primarily from Toyota, Honda, Hyundai, Subaru, and Nissan, reported revenue of $1,979.5 million, up 10.6% year-over-year. The Premium Luxury segment, which includes retail automotive franchises that sell new vehicles primarily from Mercedes-Benz, BMW, Lexus, Audi, and Jaguar Land Rover, generated $2,414.9 million in revenue, down 2.8% compared to the first quarter of 2023.
Navigating Industry Headwinds
AutoNation has demonstrated resilience in navigating the challenges facing the automotive retail industry, including changing economic conditions, supply chain disruptions, and evolving consumer preferences.
New Vehicle Sales
In the first quarter of 2024, AutoNation's new vehicle sales increased 6.9% year-over-year, with the Import segment leading the growth at 19.4%. However, new vehicle gross profit per unit (GPU) declined 36.1% to $3,328, reflecting the moderation of pricing and margins due to increasing supply and availability of new vehicle inventory.
Used Vehicle Sales
AutoNation's used vehicle sales increased 2.3% in the first quarter of 2024, but used vehicle GPU declined 30.4% to $1,473 due to stabilization of used vehicle value trends and the company's actions to better align used vehicle inventory with market demand.
Parts and Service
The company's parts and service business continued to perform well, with revenue increasing 7.6% and gross profit growing 8.7% in the first quarter of 2024. This high-margin segment contributed 46.4% of the company's total gross profit, benefiting from increases in gross profit from vehicle preparation, warranty service, and customer-pay service.
Finance and Insurance
AutoNation's finance and insurance (F&I) business remained strong, contributing 27.9% of the company's total gross profit in the first quarter of 2024. F&I gross profit per vehicle retailed declined 3.5% to $2,615, primarily due to a shift in vehicle financing towards the company's captive finance arm, AutoNation Finance.
Liquidity
AutoNation maintains a balance sheet with cash and cash equivalents of $60.3 million as of March 31, 2024. The company's current ratio was 0.79, and its debt-to-equity ratio was 1.79.
During the first quarter of 2024, AutoNation generated $294.5 million in operating cash flow and $257.0 million in free cash flow, with a conversion rate of 135% of adjusted net income. The company used its strong cash flow to reduce net debt by $393.7 million and repurchase $38.7 million of its common stock, excluding the excise tax imposed under the Inflation Reduction Act.
Subsequent to the first quarter, AutoNation's Board of Directors approved an additional $1 billion in share repurchase authorization, demonstrating the company's commitment to enhancing shareholder value.
Outlook
AutoNation expects new vehicle inventory levels to continue increasing throughout 2024 as manufacturer supply chains improve, which should help moderate the decline in new vehicle gross profit per unit. However, the company anticipates used vehicle margins will remain constrained due to limited availability of late-model used vehicles.
The company's parts and service business is expected to remain a strong contributor, with a focus on capacity utilization and technician development to support continued growth. AutoNation Finance is also expected to continue its expansion, with the goal of doubling its portfolio size in 2024.
Risks and Challenges
Risks facing AutoNation include ongoing supply chain disruptions, changes in consumer demand, regulatory changes, and competition from other automotive retailers and online platforms. The company's ability to effectively manage its inventory, adapt to industry trends, and execute its strategic initiatives will be crucial in navigating these challenges.
Conclusion
AutoNation has demonstrated its resilience and adaptability in the face of industry headwinds. The company's diversified business model, strong balance sheet, and strategic initiatives, such as the expansion of AutoNation USA used vehicle stores and the growth of AutoNation Finance, position it well to capitalize on future opportunities. While challenges remain, AutoNation's focus on operational excellence, customer experience, and shareholder value creation make it a compelling investment proposition in the automotive retail space.