AutoNation Stock Continues to Rev Up

AutoNation reported first-quarter earnings outpacing previous estimates, marking the fourth consecutive record for the largest car-dealer chain in the United States. The automotive retailer’s Q1 2021 adjusted earnings skyrocketed 207% year over year with adjusted earnings of $2.79 per share. AutoNation’s performance tops the Zacks Consensus Estimate of $1.80 for the quarter. Its revenues totaled $5.9 million, up 27% year over year.

There is more demand than supply. And, the supply chain is very fragile.

AutoNation also reported Quarter 2 SG&A expenses as a percentage of gross profit at 62.7%, marking a 1,120-basis point improvement from the first quarter in 2020. 

Mike Jackson, chief executive officer of AutoNation Inc., reports a 27% increase in revenue year over year, a 27% increase in gross profit, and lower operational costs by investing in digital capabilities (more than half of AutoNation sales now originate online). Jackson attributes these increases to higher-than-expected new and used vehicle sales prompted by the pandemic. 

“I felt a seismic shift toward personal transportation,” he said in an interview, calling the pandemic “a scarring event that created significant demand for personal transportation.”

AutoNation, like other automotive retailers, has benefited from “an acceleration in U.S. new and used vehicle demand, positive pricing, and cost improvement,” reported Analyst Michael Ward in an interview. 

Ward also noted that supplies have resulted in “improved turnover, a positive shift in mix, and better pricing” in new and used vehicle markets which led to record financial performance. 

While Ward predicts positive momentum through 2021 and 2022, Jackson warns of a fragile supply chain. The CEO reported he expects the industry’s vehicle shipments to be double what they were in 2020, but warns it’s barely enough to keep dealer lots full. 

“There is more demand than supply. And, the supply chain is very fragile,” he says. “Now we’re hit with this chip crisis, which will not get solved in the near term.”

Jackson predicts disruptions will continue well into 2022, but noted AutoNation recently inked a deal to buy 11 stores and a collision center from Peacock Automotive Group. The transaction, expected to close this summer, will add $380 million to the company’s revenues.

AutoNation strives to sell 1 million in new and pre-owned vehicles annually. “We source 90% of what we present at retail internally,” he says. “We’re taking vehicles, not only on trades, but buying them off lease from manufacturers and buying them directly from customers.”