AutoNation, Inc. (AN) shares took a hit in premarket trading on Friday after the company announced disappointing third-quarter results. The automotive retailer missed analyst expectations on both earnings per share (EPS) and revenue, sending a clear signal of the ongoing challenges facing the industry.
The company reported adjusted EPS of $4.02, falling short of the Wall Street consensus of $4.38. Quarterly sales also came in below expectations, reaching $6.586 billion compared to the anticipated $6.71 billion. The primary culprit behind the underwhelming performance was the lingering impact of the CDK outage that occurred in July. This technological disruption is estimated to have shaved approximately $0.21 off the company’s EPS.
Across its various segments, AutoNation experienced a downturn in revenue. Domestic Segment revenues slumped by 10.5% to $1.8 billion, while Import Segment revenues dipped 1.5% to $2.0 billion. The Premium Luxury Segment also saw a decline, with revenues falling 3.6% to $2.4 billion.
This revenue contraction translated into a significant drop in profitability. Gross profit plunged 9% year-over-year to $1.182 billion, and adjusted operating income plummeted 23% to $320.3 million. The company’s core automotive business took the brunt of the hit. New vehicle gross profit declined by $74 million, driven by a decrease in gross profit per vehicle retailed, which fell from $4,025 a year ago to $2,804, despite a 1% increase in unit sales. Used vehicle gross profit also suffered a $17 million decrease, with gross profit per vehicle retailed dropping to $1,589 from $1,746 last year, alongside an 8% decline in unit sales.
However, there was a bright spot in the form of AutoNation’s after-sales business. After-sales gross profit rose by $12 million, or 2%, reaching $558 million. This growth was fueled by higher revenue and a 50-basis point increase in margin. This segment’s performance highlights the potential for AutoNation to navigate the current market challenges.
In a strategic move, AutoNation divested seven Domestic stores and one Import store during the quarter, representing a total of 11 franchises. These divestitures generated net proceeds of $156 million for the company and resulted in a pre-tax gain of $53.9 million.
As of the end of the third quarter, AutoNation held cash and equivalents worth $60.2 million, while inventory totaled $3.530 billion.
The market’s reaction to these results was swift and negative. AN shares were down 4.07% to $156.54 in premarket trading on Friday. Investors are clearly concerned about the impact of the CDK outage and the overall decline in profitability.
AutoNation’s performance underscores the challenges facing the automotive industry in the current economic environment. The company’s ability to navigate these headwinds and deliver consistent growth will be crucial for its long-term success.