Asbury Automotive Group Inc (ABG) 2021 Q1 法說會逐字稿

Ladies and gentlemen, good day, and welcome to the Asbury Automotive Group First Quarter 2021 Earnings Call. Today's conference is being recorded.

At this time, I would like to turn the conference over to Ms. Karen Reid. Please go ahead.

Thanks, David, and good morning, everyone. As David mentioned, today's call is being recorded and will be available for replay later this afternoon.

Welcome to Asbury Automotive's First quarter 2021 Earnings Call. I'm Karen Reid, Asbury's new Treasurer and Head of Investor Relations. I look forward to engaging with our analysts and our investor community. The press release detailing Asbury's first quarter results was issued earlier this morning and is posted on our website at asburyauto.com.

Participating with me today are David Hult, our President and Chief Executive Officer; PJ Guido, our Chief Financial Officer; and Dan Clara, our Senior Vice President of Operations. At the conclusion of our remarks, we will open up the call for questions, and I will be available later for any follow-up questions that you may have.

Before we begin, we must remind you that the discussion during the call today is likely to contain forward-looking statements. Forward-looking statements are statements other than those which are historical in nature, including those statements relating to the duration and contemplated impact of the COVID-19 pandemic on our business and financial performance. The impact of the chip shortage as well as the financial projections and expectations about our products, markets and growth.

All forward-looking statements are subject to significant uncertainties, and actual results may differ materially from those suggested by these statements, including potential impact from the COVID-19 pandemic and the semiconductor chip shortage, on us, our industry and our customers, suppliers, vendors and business partners. 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 2020, any subsequently filed quarterly reports on Form 10-Q and our earnings release issued earlier today. We expressly disclaim any responsibility to update forward-looking statements.

In addition, certain non-GAAP financial measures as defined under SEC rules may be discussed on this call. As required by applicable SEC rules, we provide reconciliations of any such non-GAAP financial measures to the most directly comparable GAAP measures on our website. We have also posted an updated investor presentation on our website, asbury.com, highlighting our first quarter results.

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

Thank you, Karen. We're excited to have you on our team. Welcome to our first quarter earnings call. We have just reported record adjusted EPS of $4.68, up 160% over the prior year. Stock continues to recover from prior year lows despite supply chain disruptions due to the chip shortage in COVID. This strong demand in the face of lower day supply helped us deliver a strong gross margin of 17.5%, an expansion of 60 basis points versus the first quarter last year.

We've also stayed disciplined in managing expenses, resulting in SG&A as a percentage of gross profit of 62.7%, an 880 basis point improvement versus prior year. Of note, this result includes an estimated $0.22 negative EPS impact from the winter storm experience in February that caused us to close stores in several markets, along with some structural damage.

Our total revenue for the quarter was up 36% year-over-year, and total gross profit was up 40%, showing strong signs of recovery. New unit sales were up 24% and used unit sales were up 16%, with margin expansion in both segments. Total F&I revenue was up 25%, while revenue from parts and service was up 18% from last year. We saw signs of growth in parts and service over this past quarter as drivers are returning to the road.

Our balance sheet remains strong due to our performance and cash flow. Our pro forma adjusted net leverage ended this quarter at 1.7x. This leverage level will allow us to maintain a more active acquisition pipeline and grow our business by strategically deploying capital.

A couple of additional comments regarding performance. We achieved an adjusted operating margin of 6.1%, up 180 basis points over last year, and we successfully launched Clicklane, which Dan will discuss further.

Regarding acquisitions, it is a very active market, and we are engaged in many conversations, but remain disciplined in our approach. We are confident we will find deals that make sense for Asbury. Looking forward, we are focused on our 5-year plan, while we continue our disciplined approach to operating our business and allocating capital to its highest returns.

Finally, I would like to thank all the hard-working men and women who showed up every day throughout the past year with a positive attitude and a commitment to serving our guests. Once again, you delivered great results for our company.

I will now hand the call over to Dan to discuss our operating performance. Dan?

Thank you, David, and good morning, everyone. My remarks will pertain to our same-store performance compared to the first quarter of 2020.

Looking at new vehicles. Based on current market conditions, we are focused on being opportunistic with our inventory and improving grosses to maximize profit. Our new average gross profit per vehicle was up $640 per car or 39% from the prior year period. All segment margins were up significantly from the prior year period.

Factoring in the acquisition of Park Place, luxury represent a 45% of our total revenue, up from 34% in the first quarter of 2020, driving our all-store new vehicle PVRs up $1,114 or 67%. At the end of March, our total new vehicle inventory was $527 million, and our day supply was at an all-time low of 34 days, down 71 days from the prior year. Some of our brands were below 20 days supply during the quarter and experienced major challenges due to the lack of inventory. With no clear understanding of when production will return to normal levels, we expect the day supply to remain low throughout the remainder of the year.

Turning to used vehicles. Our gross margin was 8.1%, up 100 basis points from the prior period, representing an average gross profit per vehicle of $1,943. As a result of our performance, our gross profit was up 36%. Our used vehicle inventory ended March at $193 million, which represents a 27-day supply, down 15 days from the prior year. We remain focused on sourcing inventory that will generate a fair return.

Turning to F&I. Our strong, consistent and sustainable growth in F&I delivered an increase of $114 to $1,798 per vehicle retailed from the prior year quarter. In the first quarter, our front-end yield per vehicle increased $637 per vehicle to a first quarter record of $3,932.

Turning to parts and service. Our Parts and Service revenue increased 1% in the quarter, with business exceeding pre-COVID numbers in March. We continue to see this trend thus far in April.

And now I would like to provide an update on our omnichannel initiatives. In December, we launched Clicklane, which is the latest evolution in our omnichannel strategy that we began more than 5 years ago. We are excited to announce that we have completed the rollout of Clicklane to all stores in this quarter. As a reminder, Clicklane is a complete transactional tool, which allows for a true online car buying and selling experience. It fills many of the gaps that exist with online automotive retail platforms currently on the market, which basically are lead generators and unable to fully complete an online transaction.

Features that are unique to Clicklane include: penny perfect trade-in values and loan payoffs; real-payment figures based on local taxes and fees; a loan marketplace, which now includes more than 30 lenders; VIN-specific finance and insurance products customized to the vehicle and consumer; the ability to sign all documents online via DocuSign; in-tool service and collision appointment scheduler, and we just added parts and accessories.

Although Clicklane just fully launched in all stores, we have some promising initial metrics to share. Average down payment is more than double our in-store average. F&I PVR is 17% higher when compared to our stores. Nearly 50% of customers chose to take delivery at home. Credit scores, on average, are higher than our stores.

On average, 9 out of 10 customers that apply for a loan are approved through Clicklane. 50% of transactions had a payoff with their trade. Trades taken through Clicklane that were retailed are averaging higher front-end PVRs when compared to our stores. Trades through Clicklane are turning in less than 15 days. We are certainly excited about these early indicators.

And finally, I would like to take this opportunity to express appreciation to all of our teammates in the field for their continued focus on the guest experience, their commitment to continuous improvement and the perseverance.

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

Thank you, Dan, and good morning, everyone. I'd like to provide some financial highlights, which marks yet another record quarter for our company. For additional details on our financial performance for the quarter, I would refer you to our financial supplement in our press release dated today, April 27, 2021.

Overall, compared to the first quarter of last year, total revenue was 36% higher than last year. Gross margin expanded by 60 basis points to 17.5%, driven by our focus on maximizing gross profit in a market where demand continues to outweigh supply. Moving down the P&L, we saw SG&A, as a percent of gross profit, decreased by 880 basis points to 62.7%. We estimate that SG&A would have been approximately 100 basis points lower, absent the impact on gross profit and expenses of the winter storm that resulted in-store closures in several markets and also caused damage to a few of our Texas stores.

Our actions to manage gross profit and control expenses resulted in a record first quarter adjusted operating margin of 6.1%, an increase of 180 basis points above the same period last year. Adjusted net income increased 161% to $90.7 million and adjusted EPS increased by 160% versus the prior year period, maintaining our momentum coming out of 2020.

Net income for the first quarter of 2021 was adjusted for the following pretax items: gain on legal settlements of $3.5 million or $0.14 per diluted share; gain on real estate sales of $1.1 million or $0.03 per diluted share; and real estate related charges of $1.8 million or $0.07 per diluted share. Net income for the first quarter of 2020 was adjusted up for pretax items totaling $20.4 million or $0.79 per diluted share. For specific details on 2020 adjustments, please reference this morning's press release.

Our effective tax rate was 22.3% for the first quarter 2021 compared to 19.1% in 2020. Floor plan interest expense for the quarter decreased by $4.1 million over the prior year quarter, driven primarily by lower inventory levels and lower LIBOR rates. With respect to capital deployed this quarter, we spent approximately $17 million on store improvements in real estate, and we repaid approximately $14 million of debt.

As a result of our operational performance, our balance sheet remains in a very strong position. We ended the quarter with approximately $550 million of liquidity comprised of cash, floor plan offset accounts and availability on both our used line and revolving credit facility. Also at the end of the quarter, our pro forma adjusted net leverage ratio stood at 1.7x, well below our targeted leverage range of 3.0x.

As we look forward to the remainder of 2021, we anticipate similar conditions to what we have seen the last few quarters. Inventories are likely to remain low, and there will be continued opportunity to drive gross margin. Overall, as we did in Q1, we are still planning to a 16 million SAAR environment, but will keep our business nimble and flexible with an emphasis on gross margin and SG&A expense management. One shift worth noting is that as the economy opens up more, we expect to see higher growth and a bigger contribution from our Parts and Service business.

With regard to our 5-year plan, we are only 1 quarter into it, but are off to a great start. Our Clicklane platform is up and running across all our stores. Our same-store sales revenue in Q1 was a strong 18%, and we are building an active acquisition pipeline to pursue those deals that make the most sense for Asbury. As we progress, we will provide regular updates on the 5-year plan and how we are delivering.

In closing, I would also like to thank our teams across the business to continue to work tirelessly during this unprecedented time to ensure our current and long-term success.

This concludes our prepared remarks. We will now turn the call over to the operator and take your questions. Operator?

(Operator Instructions) Our first question comes from Rick Nelson with Stephens.

So it sounds like you're expecting inventory to remain tight. Here, do you think you can maintain these GPUs and the SG&A expense ratio in an environment like this? And is there potential here at 34 days of supply now? Kind of where you see that going to potentially become even more or more problematic?

Rick, as we all know -- this is David, it's a fluid situation. It's a fantastic question. As we sit here today, we received far less cars in the month of April than we anticipated. But looking forward at May, we're anticipating more inventory to come in than we received in April. So based upon what we have on the ground now and what we perceive we're going to receive in May, which could certainly get pushed, we think we're in fine shape to deliver what we need to from a unit perspective, but also keep the margins as well.

It's really tough to look beyond a month at a time, not knowing what's going to happen with the chip shortage and inventory and what's going to come. I mean, it's really, really too hard to see how much beyond that. But we have strong confidence as we're positioned in April and what we anticipate receiving in May.

Are there brands that are more impacted by the semiconductor shortage than others? How does that look across those spectrum?

Rick, this is Dan. Yes, listen, every brand is definitely impacted, but I would say domestics are more impacted than some of the other ones that we're seeing out there.

Okay. Look I am curious on the used side about how -- what proportion of vehicles are you sourcing internally? And what proportion are you going to auction? And what do you see going on in the auction market nowadays?

Yes. Rick, another great question. So we are sourcing over 50% of our cars coming from the trade in perspective. Auction prices, as you can imagine, are at an all-time high. And the availability is -- continues to be scarce at the auction.

Yes. And Parts and Service was quite a differential -- customer pay same-store up 3%, warranty down 13%, curious what's driving that differential and the big outlook, I guess, for those 2 drivers to Service and Parts?

Rick, this is David. The warranty, it ebbs and flows with the brand and what's going on with recalls and everything, so across the board, import, domestic, luxury. We're just down everywhere in warranty. Don't read much into that. I mean, that kind of pops up and down, and we'll continue to do that throughout the year.

We're really excited about customer pay when you think about it. We probably had close to 40% of our stores at one point and another closed down in February. So we were dramatically impacted in February, not only with sales but in Parts and Service. March came back so strong, it was actually ahead of '19 pace numbers. And as we sit here in April, we're experiencing the same. So the customers are back on the road. The service business is back. We always had a lagger in collision coming back and now collision is back as well. So while we're feeling it on the variable side with some shortages with inventory, thankfully, Parts and Service is picking up on that.

And just to go back and touch on what Dan said about the used cars and acquisitions of 50% coming from trades, our other resources is buying directly from consumers, off-lease vehicles from the manufacturers, certainly within our service drive and loaner car fleet. So we got certainly a tight day supply, but we think it's one that the inventory churns quickly, and we're creating great margins with it.

Great. And if I could sneak one more in here about April. You talked about the inventory challenges. How do sales look and GPUs? Are they continuing to be elevated?

Just what you've seen in the first quarter results, we're experiencing that as we sit here today in April as well.

Our next question comes from John Murphy with Bank of America.

I just had a first question on follow-up on Rick's on inventory. I mean you as well as the rest of the industry has done a great job of turning inventory faster, and it hasn't had a significant impact on sales. I'm sure it's hindered it to some extent, but it's not been a major negative. At what point or what inventory level do you think you start running into constraints on supply and not being able to deliver the consumer what they want?

And also, on the inventory side, we all know -- often dog sit around in inventory. I'm just curious if you think that you've kind of -- you and the industry have worked out a lot of these unattractive vehicles, and now we're really just looking at really hot selling vehicles in inventory that are turning fast?

John, it's a great question. And again, it's such a fluid situation, you don't have a long runway to look over the next 90 days, what's coming. So my comments that I'm going to make are based on sitting here today. Our perception is we're going to receive almost double the inventory in May that we received in April. I can tell you sitting here today, if we receive the same inventory levels in May that we received in April, we would struggle to get to the new unit sales that we need to get to. So no insight to June at this point. But we're confident where we're sitting in April, and we're confident with May, assuming we receive the production that we were told we're going to receive.

As it relates to the hot selling products, as you point to, the OEMs are really great at this. And while the chip shortage is there, they've really been shifting their production to the faster selling vehicles. So to your point about some of the dogs that sit out there, I'm sure there's a few strays every now and then. But it's really very light inventory, and it's moving pretty quickly. The demand is very high, which is, obviously, you can see everyone's benefiting from in the margins. And I can't see it slowing down anytime soon. Because there's also -- with people coming back, there's going to be a pent-up demand on the fleet side as well.

Yes. It's pretty encouraging. Okay. And then just a second question, Park Place, obviously, was a big acquisition. You guys didn't even mention it much in the quarter. Just curious, it sounds like the integration is going very smoothly because there's no noise about it. So I mean, that's a good sign. And given that, that appears to be going so well, you've got a $5 billion target over your 5-year plan. Could you get more aggressive on acquisitions? I mean, some of your peers are talking about that kind of number almost on an annual basis, and we're doing that almost on an annual basis. I mean, is there an opportunity to get more aggressive and even larger than what you're targeting at the moment?

Yes, it's a great question, John. I'll touch on Park Place real quick. The largest acquisition in Asbury's history from a dollar standpoint, but from a meaning standpoint and really setting us up for who we want to be. I mean we looked at Park Place as the crown jewel in the automotive industry. The professionals that we have there, the general managers, the senior team that runs the business there, is everything we thought it was and more. But it takes a lot of communication and care to make sure things go smoothly. And we're looking at the long-term relationships and run. So very, very excited what we're seeing there, and it kind of shows in our total numbers compared to same-store. So that will continue to progress, and the relationship is great, and acquisition transition is going great at this point.

As it relates to acquisitions, in the time that I've been with the company, we've never had more conversations going on than what we have now. Everyone wants their prices based off COVID numbers. I don't think that, that's in the shareholders' best interest to buy every acquisition based on COVID numbers, and there has to be some discipline and common sense to the numbers. So while we feel the need to want to acquire things right now, we're not going to go outside our structure because it's about the long game and doing the right thing with the shareholders' equity. So we'll stay disciplined. We know deals will come our way. We like a lot of the conversations that we're in now. There aren't any deals being announced that we haven't looked at. But we're really not just into acquiring revenue. We really want to make sure it's revenue that is meaningful for the company for 5, 10 years from now. And we're not just buying at a moment in time when the earnings and multiples are very high.

Okay. And then the last question, which I'll kind of weave together with that. I mean, Clicklane, you gave us some metrics, which were helpful. But very curious what kind of geographic reach or extension in your reach that is giving you, if you can tell us sort of early days? And even with that, what kind of market share gains you may be seeing in your existing markets because of the ease of transaction for the consumer?

Sure. It's a great question. And keep in mind, every store in the company has it, but some stores were rolled out in the last week of the quarter. We're seeing the luxury customers really take advantage of the tool. We're seeing the import customers really take advantage of the tool. We're seeing it a little bit on the domestic side. But I think we're really hurting with inventory on the domestic side, which is making it difficult. You can't purchase what you don't have.

With PUSHSTART, we were seeing 70%, 80% used and 20%, 30% new. It's about a 60-40 split used to new right now. And we're certainly obviously acquiring a lot of customers with sales transactions that we never did business with before. We're shipping a lot of vehicles. But I think that is somewhat normal as well right now with low day supply and people really looking for their vehicles. I think the key metrics to really focus on, it's not a lead generation, it's a transactional tool. Most people's tools are seeing a lot of subprime and are struggling to get the financing.

Our average credit score so far in Clicklane is higher than the store average, 9 out of 10 people are getting financed. Double the cash being put down on a Clicklane consumer compared to in-store. These are very strong metrics that says strong creditworthy people are buying these cars online, trading vehicles with payoffs and taking delivery of them at home. And I can't emphasize enough. It's just started. So this is only going to build incrementally over time. And we believe we're the first in the space to have a full transactional tool, not a lead generation, not a piece of the sale, a full transactional tool, which puts us in the driver seat for really growing the tool.

And like I said, we launched all the stores at the end of the quarter. We've already launched parts and accessories on it now as well. So we're going to continue to innovate with this tool. And we're going to get better each and every month, and we'll certainly continue every quarter to share the information, what we're seeing. But it's very, very promising business.

I'm sorry, David, if I can follow-up on that. So if we think about Clicklane and your acquisition strategy, I mean, you could argue that this digital overlay means that you might not need to make as many acquisitions and you have a much farther reach, so you can gain market share that way. Or conversely, some are arguing that you need to build a greater national network to really leverage the digital overlay. Which way do you think it is at the moment? And how do you approach the marriage of the 2?

John, it's an excellent question. And look, there's more than 1 way to climb a mountain. But from our perspective is brick-and-mortar is permanent and it's expensive. And if the transaction happens online, then it's really just a supply chain delivery. I've used this example before, so I'll use it again. As we sit here today, we currently don't have any stores in Phoenix. If we chose to put a ring around the city of Phoenix with 5.5 million population and start marketing Clicklane, no differently than Carvana, we could start doing transactions within that marketplace, which would create much higher SG&A numbers than what we're currently doing without that brick-and-mortar. So we will continue to build out our markets. But because of the tool that we have and our ability to move vehicles around, we absolutely do not believe we have to be in every market to do business in each segment of the country.

Our next question comes from Ryan Sigdahl with the Craig-Hallum Capital Group.

Just one quick follow-up on Clicklane. So looking at the Clicklane website, also looking at Asbury website, it seems very similar between the 2. Curious if you plan to run kind of side-by-side websites there? Or if you plan to consolidate those at any point in the future?

Sure, Ryan. As a reminder, with the franchise stores, all the OEMs require us to use certain vendors for a website. So we certainly have to stick to those policies. Clicklane will continue to grow. And depending upon whether we have franchise stores in that market or not, it will grow in different ways. When I talked about launching the Parts and Accessory piece, because we didn't want it to be a distraction during the purchase of the vehicle and people accessorizing the car, we actually put it in the back end of Clicklane.

So after the consumer purchases the vehicle and we PDF them -- their DocuSign documents, they have access to the back end of the tool for service and parts and collision. That's where they have the ability to accessorize it as well. So we have a road map. We're not done innovating this tool. And we have a long ways to go from where we see it. But being the first with the lending marketplace and a full transactional tool and the only one out there in the market right now being able to do payoffs, we think we're at a competitive advantage. And now we just need to scale our product and get the word out there to consumers the ease it is they are doing business with us.

Great. And then you mentioned the used versus new mix, it is higher on the used side on Clicklane. Do you think that's purely a function of inventory availability right now? Or do you think, over time, used will stay stronger online as far as the mix goes?

Yes, it's an excellent question. It's hard to say. I mean, we were close to 80% with PUSHSTART, and 60-40 to us is very promising. We're selling $100,000 Land Rovers on the tool new, and we're selling pre-owned that way as well. It's kind of hard to judge when your inventories are so low, whether someone would transact that way or not. We believe no differently than technology in any other space. As the consumers become more comfortable and the tools actually get out there more often, we believe that these numbers are going to double every year as far as used because the convenience factor and transparency is second to none. And it's what the space has been craving for, for years. And seeing our F&I results to be 17% higher per vehicle on Clicklane compared to the actual stores is extremely promising.

Last one for me. You mentioned you quantified the EPS impact from weather in Texas and closures there. Can you quantify what the impact was to same-store sales?

Yes, sure, Ryan. This is PJ. We estimated the total impact to growth split evenly between sales and service at roughly $5 million of gross profit impact. The stores -- our stores in Texas, our Park Place and McDavid dealer groups were closed for nearly a full week. And our Plaza Group -- our group in Indiana and our Crown Group were also closed for a full day. So again, we estimate the total impact of that on gross profit at $5 million.

In addition to that, we also had roughly $1 million worth of damage to 2 of our stores in Texas, our Lexus and Acura Plano stores. So we incurred the expense associated with that. And then lastly, we did guarantee pay for all our associates in those markets for the time that the stores were closed. So that was approximately an additional $800,000 of compensation expense.

Our next question comes from Adam Jonas with Morgan Stanley.

Thanks so much for those KPIs around Clicklane. That's really great. I wanted to hone in on one where you said over -- I think you said over 50% preferred or chose home delivery. Is that correct? Is that what you said?

Yes, that's correct.

Okay. Can you tell us how many units that was in the quarter?

Yes, Adam, we're not disclosing that at this point because, again, it was -- you are right, there were 90 stores that came on all throughout, but I could tell you, as we sit here, the number is growing every week.

So when are we going to start seeing that stuff? Because -- and the KPIs were great. I'm looking for the slide in your deck. And of course, there is no slide or all the stuff, and it's important that the KPIs are consistent. So obviously, we can do the whole dog and pony thing and check the transcripts and talk with you after, but it is nice if it's on the deck, just some feedback. When are we going to start seeing a more formal unit volume that we can track, so we can start tracking digital comps sequentially and then eventually year-on-year?

Yes. I appreciate your passion in wanting to see the numbers. As I said, we were launching stores the last quarter -- the last week of the quarter. So I don't think it's too much to say, well, let's get a full quarter under our belt, and we'll be talking about it every quarter. So certainly in July, we'll be happy to share that information.

Last one for me. Auto companies are starting to explore going direct to consumer with insurance. And then -- yes, insurance has been -- and even legacy guys are starting to do that. GM using partners with Onstar, Tesla going themselves -- with partners, but then eventually themselves. I'm wondering if -- what you think of that? Do you think this is -- does that make sense? Is that part of where you see the digital expression of auto retailing? And if OEMs start to do more kind of cutting out the third-party kind of parasitic insurance folks. And I'm saying that mainly because the cars become the actuary and the agent and just makes sense to do that. How do you see that affecting your role on the I part of F&I?

So I think it's an excellent question. And I don't really want to talk too much about things we're working on in innovation. But I mean for 35, 40 years within dealership, people refer insurance business to other locations. It's a natural to assume that this would be logical down the road to have it be one-stop shopping and everything available at one location. But I really don't want to get into any details at this point. But it's an excellent point, it's only logical that it's altogether.

Our next question comes from Rajat Gupta with JPMorgan.

I just had a question on the used vehicle unit growth. You talked about the overall $5 million gross profit impact overall for the company. I mean it suggests something like 2 to 3 points of unit growth impact. Am I close on that? And then just relatedly, obviously, pretty strong numbers year-over-year and on a 2-year basis. But still seems to be lagging some of the peers that have reported recently. Are you satisfied with the performance there? Do you think there's more you could do in terms of sourcing or the mix of the vehicles that you're selling to grow that business even faster? And then I have a follow-up.

No, it's an excellent question. No, we're not satisfied. And it's more than fair to say we're not performing at the level we should with preowned. It's hard to quantify. PJ talked about some of the markets that were closed, but we literally had 40% of our stores closed. And while they were physically closed for a week, you know the hyper storms, they close down before and close down after. So I would think it's probably fair to say looking at all the stores and markets that were closed for some periods of time and the effect on business, it had to be somewhere in the 4% to 6% range in volume. But it's really hard to quantify. It's really just a guess at that point. But to answer your question, simplistically, we're not performing at the level we need to with preowned. We think in every other category, we're more than holding our own. And this is an area of opportunity for us we need to get going.

Got it. That's really helpful. And just to follow-up on the M&A -- the M&A environment. You talked about like unreasonable earnings and probably not appropriate multiples right now in the market. I mean and there is -- it looks like these gross margin tailwinds could probably last for another year or maybe like mid-2022 or late 2022. So when do you make the decision to start deploying that capital finally? Because it's already been 6 months since you announced the plan, it will be 18 months a year from now and earnings might still look elevated. So I mean, would you continue to say (inaudible) on the cash on the balance sheet? Or just trying to understand like how that capital might be deployed between now and then? And then when would be the right time to finally make that decision to work towards your 5-year plan?

Yes. Rajat, it's PJ. So I'll start and then maybe hand it off to David. But it's actually been 3 months since we announced the plan in December. And as we've said before, we're very disciplined in our approach to acquisitions. We do -- we look -- when we evaluate an opportunity, we're looking at EBITDA multiples and then factoring in the synergies we think we can achieve. And then we look at the IRR relative to our cost of capital, and we need to see a margin there to deliver an accretive deal. So we are evaluating new deals. It's on a deal-by-deal basis. And so we'll continue to fill the pipeline. But we're only going to look at or execute on those deals that make the most sense for Asbury.

And I'll just follow-up on that, talk about 2 points. When you look at 2020, if prior to 2020, a dealer was making $5 million annually, and then in COVID they started making $10 million. And they want to work off the $10 million, and they want a multiple that's higher than what the brand has ever run, that makes it difficult. While I agree with you the way margins in this space is going to be for the next year. And again, it's one person's opinion. This isn't a forward-looking statement. But you have to think about '23 and '24, the amount of EVs that are going to be on the market, where the infrastructure is going to be for that in the country at the time and where is supply and demand going to mix. So I don't think you can get caught up in the hype by just buying it at the moment in time, and you have to look out a few years to really see what the value and trend is going to be.

And as when we talked about when we launched the 5-year plan, which is no doubt we'll hit it, that $5 billion doesn't all have to come in 1 year, that -- it doesn't have to be $1 billion a year. We have to be disciplined. We've been doing this a long time. I've been in automotive for 35 years. There's always highs and lows. We're talking to more acquisitions today than we ever have since I've been employed here. So I think things will happen. But I think we should be judged in the long run by the acquisitions that we did and how accretive they were for the company instead of just having nervous energy buying revenue and then maybe struggling with performance over time.

Got it. Got it. That's really helpful. One last one, just following up on Clicklane. I know you don't want to give out like the unit numbers, but had it not been for Clicklane, would you have grown slower than what you did in the first quarter? Just curious if it contributed to incremental volumes and not just not just replacing one for one.

No, it's an excellent question. And I can't stress this enough. We only had a few pilot stores on it in December. So we essentially -- and no other public group really has this full transactional tool, nor do they have it in all their stores. We rolled out 86 stores in 2.5 months. So the numbers are -- what I mean week over week, you're adding so many stores. There's a lot of incremental sales that we would not have received. And I make that comment because looking at the information, we weren't doing business with them before.

But when you're adding 40 stores in the last 3 weeks of the quarter, it's just not a material number. I can tell you every single week, the number grows and the transactions are growing on the tool. And we haven't hit our stride with marketing. Well, we really just started marketing now. We really want to perfect the tool, make sure everything was rolled out properly, and it was efficiently working. And I know it sounds crazy to roll out, it's just plug-and-play software. But when you think about all the different counties and different tax codes and making sure that it's perfect and everything is working correctly, there's a little bit of discipline and time to make sure it's right.

You just don't want to invite people to the tool and not have it be a great experience. And what we quoted it last time with the pilot stores is still holding true. It's a 14-minute transaction if there's a payoff and there's financing needed. And if someone is paying cash, it's 8 minutes. It's hard to beat that kind of time. And it's very encouraging for us from our perspective, and I'm not saying it won't change over time, but it's information we're sharing as it's coming. 50% of the people are taking delivery at home. That didn't happen in the heat of COVID with PUSHSTART. So we're very excited about what we're seeing. We're also seeing a higher credit score with Clicklane compared to PUSHSTART. So it's very, very encouraging. And I promise, we'll talk about it in great detail every quarter. But it's not just the unit sales. It's the type of person that's using the tool and transacting on it that is most encouraging to us.

Our next question comes from Stephanie Benjamin with Truist.

Just -- we really appreciate all the additional color that you've given on Clicklane. But question, I understand that it's a pretty large task to roll this out to all of the -- your stores this quarter. So how should we think about any kind of incremental advertising or investments as we move through the year? Is -- should there -- should we expect a step-up as you kind of look to get the name out there a little bit more in some of your markets? Is that something we should just kind of expect not only in-store, but maybe also on a local level, just so customers know what their options are?

Yes, Stephanie, it's a great question. Yes, we've allocated several million dollars between now and the end of the year. And we spread the dollars by market depending upon unit sales and traffic counts and density of population. Now the numbers may change as what our plan is, depending upon what happens with inventories. It's too hard to predict sitting here today what things are going to look like in July and August from an inventory standpoint. But our intent is to get that out there.

We think we have some interesting marketing things coming out that will help us. And again, we're sitting here the third week in April or the fourth week, I should say, and we're talking about first quarter data. I can't stress it enough. It's incrementally growing every week. So we're very excited to talk about it in the future as it comes. We're hoping that the marketing really sticks and it's noteworthy. And I can't stress this enough. This is different than a lot of the other transaction -- or the -- lot of the other tools that are out in the market right now.

This was built on a chat platform. And what that means is the ability to walk people through the tool if they're getting stuck or if there's an issue at a moment in time. And there's also the ability when they leave the tool to send them a link to start right back where they were, so there's no starting over. So it's not just the incremental sale or the conquest sale when they go through the whole tool, but it's also the follow-up in recovering the sale and bringing them back. And we're very hyper-focused on tracking all the KPI. And as we accumulate more, we'll certainly share that as well.

Absolutely. And then just to follow-up on that. When you speak to the incremental advertising, is that going to be just in your existing markets? Or will you also look to maybe -- you mentioned Phoenix, as an example, kind of entering a new market as well with some of these investments or advertising investments?

Sure, Stephanie. I'll say this. Our intent soon will be to test this product in markets we don't do business in. I really don't want to start talking about specifics. But it will be in short time that we experiment in markets where we don't currently do business. That is the fact.

Got it. And then lastly for me, just on acquisitions, you've mentioned that it's pretty apparent that it's a pretty active market right now. So I'm just curious if you're -- it's what you're targeting, I think, in the past, looking to expand a little bit more in luxury, so maybe in terms of brand concentration or geography. Has that changed at all just as new opportunities maybe have come up as of late that maybe really -- you couldn't really consider in years past? Just trying to kind of gauge as you're looking at the M&A environment, what's most appealing at this stage?

No, it's a great question, Stephanie. Again, 35 years of doing this, brand strengths come and go. Certain luxury brands are hotter than heck. And years later, they slow down. And I think it's really about having a balanced portfolio. After doing the Park Place deal, we had a lot of conversations where dealers in other parts of the country wanted the same multiple that we paid Park Place. And I'll just pick a brand just for a conversation. If you have one luxury brand, the multiple is different, even though it's the same brand, whether you're talking Massachusetts, California, Michigan or Texas or Florida, because the franchise laws are different within each individual state. Seasonality of the business, density of population, a business-friendly state or not.

So we really spend a lot of time looking at each individual acquisition. And where it sits within the market. And do we think that this is a proper return for us. I mean, I've just recently had this conversation with someone else, asking why we wouldn't offer them the same as what we paid for Park Place. And I just simplistically said it's not Texas. I mean it's a different market with different franchise laws. If one state has a franchise law, no franchise within 15 miles, and another state is 5 miles, I don't know how you don't factor that in when you're looking at the pricing.

Our next question comes from Bret Jordan with Jefferies.

This is Mark Jordan on for Bret. Well, a lot of good questions have already been asked, but I guess I have 2 quick questions, and you may have touched on them both already. But thinking about the Parts and Service segment and in particular, customer pay, can you talk about how it trended throughout the quarter? And maybe if trends have continued to accelerate through April, kind of what you're seeing there?

Sure. I would call it January pretty promising and stable. It wasn't quite pre-COVID numbers, but it was continuing to come back, and I would call it, close to being flat. Just because the way February played out, it really varied by market because of weather. But I'll call February a step back, but I think it was more due to weather than anything else. And March was just a full acceleration forward. And all the numbers, specifically around customer pay, were ahead of pre-COVID numbers going back to '19. We're seeing that same result as we sit here in April. And we anticipate that for the rest of the year.

We think there's a lot of pent-up demand. Now if something happens in the fall, the virus comes back, I mean, I can't honestly comment on that. I'm just saying, as I said in my comments earlier, people are back on the road. The collision business is back. The customer pay business is back. Warranty being down, I don't look at that as anything. It is what it is. You can't do warranty work if it's not needed. So that's just a reactionary thing.

Okay. Great. And then it seems like competition for sourcing attractive used vehicles is very high right now. And thinking trade-ins might be down in terms of unit volume, are you having to shift more to purchasing vehicles directly from customers? And if so, kind of how competitive would you say that channel is right now given many competitors might be increasing sourcing from the same channel?

It's an excellent question. We're taking in less trades because we're selling -- we're not selling the cars we should be selling based upon the demand right now. But we're still -- from a percentage standpoint, we're still taking in the amount of trades we always did prior. It's just different volume levels. We are having to seek other avenues. And some of those avenues have dried up. There's a lot of -- it's kind of like the residential real estate market. I mean there's an awful lot of buyers out there, and there's not a lot of sellers out there. So it's a little bit more difficult getting inventory. People are certainly paying up for that. You see it at the auctions, and you certainly see it in the Manheim data that comes out. We don't think that, that's going to change anytime soon, especially with what's going on with the new car inventory. I don't know if there anything you want to comment or add to that, Dan?

No, I think you covered it well, David.

Our last questioner is David Whiston with Morningstar.

Do you guys -- I guess, how bad you guys want higher inventory or at the risk of giving up some of your pricing power you're now enjoying? Do you want a lot more or a little more? Or can it say where it is even?

Yes. We're smiling over here on this end because it's such a fair and greedy question to ask. Yes, that's a great question. The problem is, look, it's all -- everyone looks great. Everyone's reporting good numbers. Everyone showing high margins. We didn't all of a sudden get that much better. It's simplistically supply and demand. There is that point where you're missing a lot of sales because you just don't have the inventory. Domestic truck for us was brutal in the quarter. We were really down in trucks. I mean we didn't have the inventory to sell. So we wanted a lot more than what we had. I would tell you the industry performs well and stability exists when there's probably a 60- to 70-day supply in the market. And right now, with all the government spending that's going on and people coming out, the demand is going to be high right now, and the fear is the inventory won't be there to match the demand.

Okay. And what happens now when the customers coming in really set on buying a new -- a particular new vehicle, you have to tell them that you don't have it due to inventory. Does that customer tend to end up buying another new vehicle, buying a used vehicle (inaudible)?

David, this is Dan. So in a lot of cases, we have really become even more efficient on taking a preorder for a lack of a better term. So perhaps a car that is an incoming unit that is actually being built or already on a transportation. In a lot of cases, we're seeing a lot of cars that are being delivered by the trucking company, and they're going in for a pre-delivery inspection, getting detailed and coming right out for delivery. So I can tell you -- in a lot of cases, where we just don't have that availability of that particular model, customers are a little bit more flexible on maybe giving up a particular package or maybe taking an additional package that they were not considering at the beginning.

Okay. And shifting over to the rise of Tesla, particularly their Model Y. I'm just curious, is that hurting your Toyota, Honda or your premium brand stores at all? And do you have any customers, especially at the Park Place group wanting to pay in bitcoin?

No. To answer to all your questions, no. Not yet, not at this point, no. Haven't had the consumers come to us with a bitcoin request yet, and haven't really felt a strong competitive point from Tesla. I think a lot of their sales come from California and certainly other parts of the country, but it's not a real dominant player in the markets we currently transact in.

Okay. I appreciate the detail. That's helpful. And just for PJ or Karen, just real quick, the 3 special items, where were they booked for GAAP?

They're booked in other income, David.

This concludes today's discussion. We appreciate your participation, and we look forward to speaking with you all in the next quarter. Have a great day.