AutoNation Earnings: Buybacks Continue To Drive EPS Growth but Overall Performance Still Solid

AutoNation AN reported good first-quarter results given U.S. macroeconomic uncertainty and continues to significantly boost its EPS via share repurchases. Diluted EPS of $6.07 rose 5% year over year and beat the Refinitiv consensus of $5.74, however, we calculate EPS would have declined 29.1% absent buybacks. AutoNation has long been an aggressive repurchaser of its stock, having reduced the diluted share count by 90% since year-end 1998 by our calculation. First-quarter buybacks totaled 2.4 million shares for $305 million, or $127.08 per share, which we like since it’s below our fair value estimate. Buyback authorization is about $875 million, and we don’t expect the board to hesitate to increase this amount when likely needed later this year. Management remains well disciplined by balancing repurchases while maintaining a healthy balance sheet and investing in omnichannel capability and the AutoNation USA standalone used stores. The USA stores opened two more locations in the quarter (Albuquerque and Austin) to bring its store count to 15.

Same-store revenue fell 6.2% with increases only coming from new vehicles and service, up 4% and 8%, respectively. Total company new vehicle unit volume fell 2.4%, but revenue per new vehicle rose by 7.1% to $53,244 with 45% of sales at the manufacturers’ suggested retail price. New vehicle gross profit per unit, or GPU, fell by 14.8% as industry profits continue to come off record highs in recent years caused by the chip shortage, but new vehicle GPU of $5,210 remains far above 2019 levels of about $1,800. Total new vehicle gross profit fell by 16.8%, which led to total company gross profit down 1.7% and overhead costs as a percentage of gross profit rising 420 basis points to a still-excellent level of 60.8%. We’re glad to see heavy reliance on not sourcing used inventory from auctions helping used vehicle GPU grow 35.2% to $2,117, increasing total retail used gross profit by 14.5% despite a 21.2% fall in used retail revenue.