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Introduction & Market Context
Asbury Automotive Group (NYSE:ABG), one of America’s largest automotive retailers, presented its first quarter 2025 results on April 29, revealing mixed performance amid plans for significant strategic expansion. The company’s stock closed at $224.45 on April 28, 2025, according to available market data, as the company navigates a challenging automotive retail environment while pursuing ambitious growth initiatives.
The presentation highlighted Asbury’s continued focus on strategic acquisitions, operational efficiency, and portfolio diversification as key pillars of its long-term growth strategy. Most notably, the company detailed its pending acquisition of Herb Chambers, which represents a major expansion into the New England market.
Quarterly Performance Highlights
Asbury reported mixed year-over-year performance for Q1 2025. Total (EPA:TTEF) company revenue decreased by 1%, while same-store revenue increased by 1%. New vehicle revenue showed strength with a 4% increase for total company and 6% for same-store operations, while used vehicle retail revenue declined by 9% total company and 8% same-store.
The company’s Parts & Service business emerged as a bright spot, with same-store gross profit growth of 5% year-over-year. Customer pay and warranty service, which represent the largest portions of this segment, showed particularly strong performance with 9% combined growth.
As shown in the following chart of Parts & Service performance, customer pay represents the largest portion of both revenue (53%) and gross profit (63%), highlighting the importance of this high-margin business segment:
Asbury’s operating margin continued to compress compared to previous years, with adjusted operating margin at 5.8% in Q1 2025, down from 6.3% in Q1 2024. This follows a multi-year trend of margin compression from the peak of 8.3% in 2022.
The following chart illustrates this trend in operating income and margin:
Despite the margin compression, Asbury maintained solid cash flow generation. However, adjusted operating cash flow decreased to $187 million in Q1 2025 from $209 million in Q1 2024, as shown in this comprehensive cash flow summary:
On the positive side, the company’s financial position showed improvement in terms of leverage and liquidity. The transaction adjusted net leverage ratio improved to 2.75x in Q1 2025 from 2.85x in Q4 2024, while total liquidity increased significantly to $964 million from $828 million in the previous quarter:
Strategic Initiatives
The centerpiece of Asbury’s strategic initiatives is the pending acquisition of Herb Chambers, a leading automotive retailer in Massachusetts. This acquisition, valued at approximately $1.34 billion, will add 33 new vehicle dealerships and 52 new vehicle franchises to Asbury’s portfolio, significantly expanding its footprint into the New England market.
The following slide provides an overview of the Herb Chambers acquisition:
The acquisition is expected to be financed through a combination of credit facility funding, proceeds from a new mortgage facility, and existing cash. Asbury anticipates that its transaction adjusted net leverage will be near the higher end of its target range in 2026, with plans to deleverage to its target range over the following 18-24 months.
This strategic expansion will significantly alter Asbury’s brand mix, increasing its luxury vehicle exposure from 30% to 34% of the portfolio. The following chart illustrates how the acquisition will rebalance Asbury’s brand portfolio:
The acquisition aligns with Asbury’s long-term growth strategy, which aims to achieve over $30 billion in revenue. Following the Herb Chambers acquisition, Asbury’s pro forma total revenue is expected to reach approximately $20 billion.
Business Segment Performance
Asbury’s business model is built on four key components, with varying contributions to revenue and gross profit. As shown in the following breakdown, while new vehicles represent 52% of revenue, they contribute only 20% of gross profit. Conversely, Parts & Service represents just 14% of revenue but generates 47% of gross profit, highlighting the importance of this high-margin segment:
The company’s Parts & Service business is showing interesting trends related to electric vehicles. While battery electric vehicles (BEVs) represent only 1% of repair order count, they generate significantly higher dollars per repair order ($861) compared to internal combustion engine and hybrid vehicles ($544):
Another positive indicator for Asbury’s service business is the increasing average vehicle mileage being serviced, which reached 71.8K miles in Q1 2025, up from 68.9K in 2022. This trend suggests customers are keeping their vehicles longer and continuing to service them at Asbury dealerships beyond the warranty period.
Forward-Looking Statements
Asbury outlined its mission to transform its business and achieve over $30 billion in revenue. The company’s guiding principles include achieving scale through M&A, entering strategic markets, delivering best-in-class operating efficiency, and maintaining a strong balance sheet with an efficient approach to capital allocation.
The following slide illustrates Asbury’s strategic roadmap:
Since beginning its transformation journey, Asbury has more than doubled the size of its revenue and operations, established presence across the West region and D.C., doubled its presence in the Dallas metro area, and generated industry-leading operating margins.
Looking ahead, the company is affirming its commitment to growth through balanced capital allocation, accelerating same-store growth and guest experience through technology investment, and prioritizing transactions in strategic markets.
Conclusion
Asbury Automotive’s Q1 2025 presentation reveals a company navigating a challenging automotive retail environment while pursuing ambitious growth initiatives. While the company faces margin pressure and challenges in its used vehicle business, it continues to demonstrate strength in its high-margin Parts & Service segment and is improving its financial position through better leverage ratios and increased liquidity.
The pending Herb Chambers acquisition represents a significant strategic expansion that will increase Asbury’s luxury vehicle exposure and establish a strong presence in the New England market. This move aligns with the company’s long-term strategy to achieve over $30 billion in revenue and transform its business through strategic acquisitions and operational excellence.
Investors will be watching closely to see how effectively Asbury can integrate the Herb Chambers acquisition and whether the company can reverse the trend of margin compression while continuing to generate strong cash flow.
Full presentation:
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