AutoCanada has rebranded its nine U.S. locations as the Leader Automotive Group under a turnaround plan that includes selling underperforming stores, Canada's lone publicly traded dealership group said Thursday.
AutoCanada, which in April 2018 acquired nine stores from the Grossinger Auto Group, said in a news release detailing second-quarter earnings that it also plans to sell four of its U.S. dealerships. It did not specify the locations.
Tammy Darvish, who AutoCanada hired to lead the ailing U.S. stores in March, has created a restructuring plan focused on managing expenses, certain dealership initiatives and gross profit efforts at department levels. Darvish, on a Friday conference call with investors, said the efforts have included renegotiating vendor contracts and shifting compensation from fixed to performance-based.
AutoCanada Executive Chairman Paul Antony said the company hopes to turn the U.S. stores’ financial performance around under Darvish within six months.
“We now know what we have there,” Antony said. “Our goal is over the next six months to make those stores at minimum break even and then start turning the corner to actual profitability.”
Antony said the four U.S. stores up for sale are the weakest of its American dealerships and said it would become more difficult to achieve the company’s break-even goal without selling those locations.
The U.S. stores have dragged down the company’s earnings and share price since the group acquired them in 2018. AutoCanada, which spent $135 million Canadian (US$105.6 million) on the 2018 acquisition of the U.S. stores, has said it has dealt with unexpected costs and has written down the value of the U.S. operations.
‘Solid progress’
The company reported a net loss on the U.S. operations of $17.3 million (US$13.15 million) in the quarter ended June 30, compared with a $33.5-million (US$25.5 million) loss in the same 2018 period. (AutoCanada noted that because it did not acquire the stores until April 2018, second-quarter 2018 results “do not represent a full three months under our ownership” during that period.)
In a statement, Antony said AutoCanada made ”solid progress in stabilizing our U.S. Operations this quarter."
Revenue from the U.S. operations jumped 16 percent to $116 million (US$88.16 million) in the second quarter, while gross profit increased 9.6 percent to $15.3 million (US$11.63 million).
AutoCanada’s American stores posted unit sales of 2,370 in the quarter, down 2 percent from a year earlier. They sold 1,545 new vehicles, down 27 units from a year earlier, while used-vehicle sales fell by 22 units to 825.
Net loss
As a whole, AutoCanada reported a net loss in the quarter of $4.5 million (US$3.42 million), compared with a loss of $39.4 million (US$29.94 million) the previous quarter. The company also said the adoption of new reporting standards increased expenses, resulting in an unfavorable impact of $2.6 million (US$1.98 million) on the latest quarter's red ink.
Revenue rose 7.4 percent to $946 million (US$718.96 million) as total vehicles sold rose 4.3 percent to 19,353.
The number of new vehicles sold during the quarter fell 3.2 percent to 12,104 units. Used-vehicle sales surged 20 per cent to 7,249 units.
On a same-store basis, revenue rose 4.7 percent to $741 million (US$563.16 million) and vehicle sales jumped 5.4 percent to 15,535 units.
F&I sales rose 6.4 percent to $38.3 million (US$29.11 million). Parts, service and collision repair revenue climbed 6 percent to $64.5 million (US$49.02 million).
Acquisition strategy
AutoCanada said it sold a Hyundai store in Victoria, British Columbia, in June, followed by the sale of another Hyundai store in Calgary, Alberta, in July. The company said it “is not planning to sell any further Canadian dealerships at this time.”
Antony said AutoCanada, which has expanded in recent years via acquisitions, would look at buying new stores when the company’s financial performance is in order.
"We still have a lot of wood to chop when it comes to operating the business,” he said. “What we’re very concerned about and what we’re focused on every day is getting our balance sheet square. Once we do that and continue to operate our way into a good financial position, we’re looking forward to making acquisitions.”
Canadian operations
AutoCanada reported net income of $12.8 million (US$9.73 million) at its Canadian operations during the second quarter, compared to a loss of $6 million (US$4.56 million) a year earlier.
The company attributed the gain in net income to its “Go-Forward Plan,” which it says has “improved the operational focus of the Canadian dealership network” while developing new profit centers, which include new special finance and wholesale divisions and long-term plans to sell more used vehicles.
“At the end of Q2, we felt very, very good about the talent that we had, the new profit centers performance and contributions across all of our business lines,” AutoCanada President Michael Rawluk said on the call. “And we felt a great sense of momentum going forward. To put it anecdotally, we are just getting started.”
Canadian revenue rose 6.4 percent to $830 million (US$630.8 million) as the number of vehicles sold rose 5.3 percent to 16,983.
Total new-vehicle sales in Canada dipped 3.4 percent to 10,559 units, as a decline in fleet vehicle sales offset a gain in retail sales. Meanwhile, used-vehicle sales increased 24 per cent to 6,424 units.
Melissa Burden contributed to this report.
