AutoNation shares tumble as profit margins shrink despite revenue growth

Investing.com - AutoNation, Inc. (NYSE:AN) on Thursday reported better-than-expected third quarter results on Thursday, with revenue climbing 7% to $7.04 billion and adjusted earnings per share of $5.01, exceeding analyst estimates of $4.84.

However, shares tumbled 7.9% as investors focused on declining profit margins in the company’s new vehicle business.

The automotive retailer saw its new vehicle gross profit per unit drop to $2,290 from $2,820 a year ago, a significant 18.7% decline despite a 4.8% increase in new vehicle unit sales. Total revenue was driven by increases across all major categories, with new vehicle revenue up 7%, used vehicle revenue up 5%, and after-sales revenue increasing 6%.

"We are pleased to report another quarter of strong performance, with robust growth across the business, including record profit in After-Sales and Customer Financial Services," said Mike Manley, Chief Executive Officer of AutoNation.

The company’s Customer Financial Services division posted record gross profit of $375 million, up 12% YoY, while after-sales gross profit rose 7% to $597 million with margins improving 100 basis points to 48.7%.

AutoNation Finance continued to scale, growing its portfolio to more than $2 billion while improving profitability.

Despite the revenue growth, the company’s declining new vehicle margins reflect ongoing normalization in the automotive retail market following the post-pandemic pricing environment. Used vehicle gross profit per unit also decreased 6.3% to $1,489 compared to $1,589 in the year-ago period.

During the quarter, AutoNation repurchased 0.8 million shares for $181 million at an average price of $217 per share. The company also completed several acquisitions, including Audi and Mercedes-Benz stores in Chicago, representing more than $500 million in annual revenues.

"AutoNation’s multiple revenue streams, flexible cost structure, cash flow generation, and investment grade balance sheet position us to continue delivering strong results and deploying capital to generate attractive shareholder returns," Manley concluded.

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