EDMONTON, Aug. 9, 2018 /CNW/ – AutoCanada Inc. (“AutoCanada” or the “Company”) (TSX: ACQ), a multi-location North American automobile dealership group, today reported its financial results for the three and six months ended June 30, 2018.
“This was a challenging quarter for AutoCanada which led to a comprehensive review of our organization, governance and operating objectives. We began taking decisive actions to resolve operational issues that have long been limiting store profitability. Neither our top line performance nor our profitability were acceptable and so we acted,” said Paul W. Antony, who was today appointed as Executive Chairman. “AutoCanada has evolved from a founder-owned and operated company largely concentrated in Western Canada, into a national auto retailer. Our rapid store growth has given us a portfolio of excellent dealerships that provide AutoCanada with improving geographic and brand diversity, but we fell short in integrating acquired stores and enforcing consistent practices and standards across the Company. We are now addressing these deficiencies and expect to realize margin improvement from our actions in the coming quarters.”
For the 3 month period ended June 30, 2018 basic earnings per share was $(1.51) with adjusted earnings per share of $0.55. The Company took an impairment charge of $58.1 million, of which, $44.0 million related to the Grossinger acquisition. The Grossinger acquisition is still expected to be accretive for AutoCanada’s shareholders, but in the short term it will come below the level previously anticipated by management.
As previously announced, the Special Committee of the Board of Directors of the Company appointed in June 2018 has been conducting a strategic review to explore a range of alternatives to enhance shareholder value with the assistance of its financial advisor, Greenhill & Co. Canada Ltd.
On July 3, 2018, Michael Rawluk, a seasoned operator of a large Canadian multi-brand chain, was appointed as President of AutoCanada. Mr. Rawluk immediately undertook a comprehensive review of store operations and dealer services and has developed a go-forward plan under the supervision of the Special Committee with the goal of enabling the Company to achieve operating profit comparable to the best of the public auto dealers in the United States. This plan contemplates an improvement to EBITDA attributable to AutoCanada shareholders of more than $30 million within 18 months. “Our stores should outperform their peers and we are putting in place operating disciplines that will ensure we achieve our financial objectives,” Mr. Rawluk said. “Our plan touches every store and every profit center with a goal to manage costs, increase sales, and improve employee productivity. Some of our stores met some of these criteria, but even in those we can make further improvements. We will also divest those stores that do not fit with our plan and have entered into agreements to sell two dealerships. The team at AutoCanada – in the dealerships and at our corporate office – is excited and motivated to implement the actions in our plan,” said Mr. Rawluk.
The strategic review has been completed and the Special Committee and the Board have endorsed the go-forward plan for the Company developed by the President. However, the Board will continue to consider any alternatives that may be available to enhance shareholder value. The Company also announced today in a separate press release changes to the composition of its Board and its executive management team.
2018 Second Quarter Highlights
- Revenue was $880.6 million, down 1.6% compared with the second quarter of 2017. Same-store revenue declined by 5.1%. The General Motors stores divested in January accounted for a $100 million decline in revenue, all of which was included in same store revenues in 2017. The loss of revenue was partly offset by the addition of nine stores in the Grossinger acquisition.
- Operating expenses were $128.7 million, up 14.0% from the same period last year, and included $4.5 million of management transition costs. Operating expenses as a percentage of gross profit were up to 91.6% from 78.5% in the same period in 2017.
- Gross profit was $140.6 million, down 2.3% compared with the same quarter in 2017, with gross profit as a percentage of revenue slightly decreasing to 16.0% from 16.1%. Same-store gross profit declined 4.3%.
- New vehicle sales were 12,506, down 6.9% from the same period in 2017. Revenue from the sale of new vehicles was $522.1 million, down 6.5% from the same period in 2017. The sale of new vehicles accounted for 59.3% of the Company’s total revenue and 21.8% of gross profit versus 62.4% of revenue and 26.8% of gross profit in the second quarter of 2017.
- Used vehicle sales were 6,013, up 18.8% compared with the same quarter last year. Revenue from the sale of used vehicles was $198.6 million, up 8.6% from the same quarter last year. The sale of used vehicles accounted for 22.6% of the Company’s total revenue and 9.4% of gross profit, versus 20.4% of revenue and 9.1% of gross profit in the second quarter of 2017.
- Parts, service and collision repair generated $121.5 million of revenue, up 6.6% from the same period in 2017. This accounted for 13.8% of the Company’s total revenue and 43.3% of its gross profit, up from 12.7% of revenue and 39.1% of gross profit in the same quarter of 2017.
- Finance and insurance generated $38.4 million of revenue, a decrease of 2.4% from the same period in 2017. This accounted for 4.4% of the Company’s total revenue and 25.5% of its gross profit, in line with 4.4% of revenue and up from 24.9% of gross profit in the second quarter of 2017.
- EBITDA attributable to AutoCanada shareholders decreased to $10.8 million from $43.7 millioncompared with the same quarter last year.
- Including the impairment of non-financial assets, the Company generated a net loss attributable to AutoCanada shareholders of $41.3 million (Adjusted net earnings attributable to AutoCanada shareholders of $15.0 million), or $(1.51) per share (Adjusted net earnings per share attributable to AutoCanada shareholders $0.55) versus net income of $25.0 million in 2017 ($15.5 million on an adjusted basis) or $0.91 per share ($0.57 on an adjusted basis).
- Total impairment charges were $58.1 million in the second quarter, or $1.99 per share net of tax. Included in this total is a $44.0 million impairment charge related to the Grossinger Auto Group. This is a result of revised expectations for the timeline of US operational profitability. The Company has revised downward its future profitability projection for this acquisition primarily because store quality was lower than expected and will require more time to realize needed improvements.
“Our same store business was affected by the divestiture of four GM dealerships and an under-performing FCA platform that, combined, had an impact of approximately 15 per cent on our revenue this quarter,” said Chris Burrows, Chief Financial Officer.