Good day, welcome to the Asbury Automotive Group Q4 year-end 2017 earnings call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Mr. Matt Pettoni. Please go ahead.
Thanks, operator, good morning, everyone. Welcome to Asbury Automotive Group's fourth quarter 2017 earnings call. Today's call is being recorded and will be available for replay later today. The press release detailing Asbury's fourth quarter results was issued earlier this morning and is posted on our website at asburyauto.com. Participating with us today are David Hult, our President and Chief Executive Officer, John Hartman, our Senior Vice President of Operations, and Sean Goodman, our Senior Vice President and Chief Financial Officer. At the conclusion of our remarks, we will open the call up for questions, I will be available later for any follow-up questions you might have. Before we begin, I must remind you that the discussion during the call today is likely to contain forward-looking statements. Forward-looking statements are statements other than those which are historical in nature.
All forward-looking statements are subject to significant uncertainties, actual results may differ materially from those suggested by the statements. For information regarding certain of the risks that may cause actual results to differ, please see our filings with the SEC from time to time, including our Form 10-K for the year ended December 2016, any subsequently filed quarterly reports on Form 10-Q, and our earnings release issued earlier today. We expressly disclaim any responsibility to update forward-looking statements. In addition, certain non-GAAP financial measures, as defined under SEC rules, may be discussed on this call. As required by applicable SEC rules, we provide reconciliations of any such non-GAAP financial measures to the most directly comparable GAAP measures on our website. It is my pleasure to hand the call over to our CEO, David Hult. David?
Thank you, Matt, good morning, everyone, welcome to our fourth quarter 2017 earnings call. During this quarter, we achieved record adjusted EPS of $1.81, a 16% increase over last year. Our success was driven by growth in new vehicle sales volume, enhanced F&I PBR, continued solid growth in parts and service. While we continue to operate in a challenging new and used margin environment, the fourth quarter caps off a solid year for Asbury. Let me touch on a few of the highlights for 2017. In a year impacted by major hurricanes and a decline in SAAR after seven years of growth, we generated $6.5 billion of revenue, retailed over 175,000 vehicles, delivered F&I PBRs of over $1,550, grew our same store parts and service gross profit 4%, achieved adjusted operating margin of 4.6%, grew adjusted earnings per share by 6% to $6.43.
In addition, we completed our Atlanta Nissan realignment, opened our Cumming Nissan add point, returned $35 million of capital to our shareholders, and acquired a Chevrolet dealership in the Indiana market. In summary, our fourth quarter and full year results represent another record year for Asbury. In 2018, we also plan to continue our investments in our omni-channel capabilities that both enhance the customer experience and drive operating efficiencies. As always, we will continue with our strategy of being intelligent capital allocators, seeking the highest returns for our capital through investments in our existing business, acquiring new stores, or returning capital to our shareholders. To that end, we have increased our share repurchase authorization up to $100 million. In conclusion, I believe that we are extremely well-positioned for success in 2018 and beyond. I will now hand the call over to Sean to discuss our financial performance. Sean?
Thank you, David, and good morning. We're pleased with our results for the fourth quarter. The highlights compared to the prior year fourth quarter are as follows. Our same store gross profit increased by 2%. Gross margin increased by 20 basis points to 16.1%. SG&A, as a percentage of gross profit, declined by 200 basis points to 67.3%. Adjusted operating margin increased by 30 basis points to 4.7%. Adjusted net income increased by 11% to $37.8 million. Adjusted EPS increased by 16% to a record of $1.81. Q4 2017 adjusted earnings exclude two items. First, a $7.9 million, or $0.37 per share, tax benefit associated with a write-down of our net deferred tax liability as a result of the recently passed Tax Cuts and Jobs Act. This adjustment drove our effective tax rate down to 21.9% for the quarter.
The tax benefit was partially offset by a non-cash accounting charge of $5.1 million, $3.2 million after tax, or $0.15 per share, associated with franchise rights and payments at certain stores. These items result in adjusted earnings being $4.7 million, or $0.22 per share less than GAAP earnings. Note that adjusted net income for the fourth quarter of 2016 excluded a $45.5 million pre-tax gain from the sale of our Arkansas stores, $6.6 million we received before tax from legal settlements, a $500,000 pre-tax real estate impairment charge related to closing two Q Auto stores, and $900,000 of discrete tax benefits. In total, these adjustments decreased GAAP earnings per share for the fourth quarter of 2016 by $1.52. Our SG&A expenses in Q4 are a reflection of our culture of efficiency and cost control.
Expenses in the quarter were positively impacted by certain operating decisions that we made to ensure that the business was appropriately sized for the environment. For the full year 2017, despite the negative impact of the hailstorms, hurricanes, and CEO transition charges, we achieved SG&A as a percentage of gross profit of 69.1%, a decrease of 10 basis points compared to 2016. With respect to capital deployed in 2017, we spent $42 million on non-real estate related capital expenditures, approximately $55 million on acquisitions, and we repurchased $35 million of common stock. During the quarter, we paid off three mortgages totaling $37 million. These were relatively higher-cost mortgages that we intend to refinance at more attractive interest rates. At the end of the quarter, our total leverage ratio stood at 2.9 times and our net leverage ratio at 2.4 times.
Before I pass the call over to John Hartman, our Senior Vice President of Operations, to review our Q4 operating performance in some more detail, I would like to make a few comments regarding 2018. We are planning our business for a declining SAAR with an expectation of between 16.5 million and 17 million units. Our expectation is that new vehicle margins will remain stable at the level achieved for 2017, and used vehicle margins will be around 7%. We expect F&I PVR to be in line with full year 2017 results. Note that F&I PVR in Q4 benefited from a reserve adjustment associated with favorable product cancellation experience. We believe that we can continue to grow our parts and services gross profit in the mid-single-digit range.
We expect SG&A as a percentage of gross profit to be in the range of 69%-70%, with the benefits that we saw in Q4 being reinvested in our omni-channel capabilities and some de-leveraging due to the lower expected SAAR environment. In addition, we expect interest rates to continue to rise. Note that a 1% increase in interest rates results in an additional interest expense on our floorplan debt of approximately $7 million. The Tax Cuts and Jobs Act will positively impact our effective tax rate going forward. For 2018, we anticipate our effective tax rate to be between 25% and 26%, which is down from our prior expected rate of 38%. We are planning for CapEx of approximately $50 million. Note that this amount excludes potential lease buyout opportunities that we consider to be financing transactions.
Finally, from a liquidity perspective, we start the year with $5 million in cash, $49 million available in floorplan offset accounts, $89 million available on our used vehicle line, $237 million available on our revolving credit lines, and we also have unencumbered real estate with a value of around $200 million. I would now like to introduce John Hartman, our Senior Vice President of Operations. John joined Asbury in September and is already making a significant contribution to our business. John?
Thank you, Sean. I'm excited to be part of the Asbury team and to be with you this morning. My remarks will pertain to our same-store performance compared to the fourth quarter of 2016. Looking at new vehicles, our new unit sales are up 1%, while SAAR was down 1% from the prior year as we took market share on most of our brands. Margins stabilized during the course of 2017, with our Q4 margin of 4.8% being 10 basis points higher than last quarter. However, fourth quarter margins were 30 basis points lower than last year. New vehicle margin pressure compared to last year continues to be the most notable in midline imports, where we have a heavy sedan versus truck mix. Our total new vehicle inventory was $647 million.
With a strong quarter, we reduced our day supply by eight days to 53 days, which is slightly lower than where we'd like to be. Turning to used vehicles. Our used vehicle unit sales decreased 9%, and our gross profit margin declined 40 basis points from the prior year to 6.7%. In the fourth quarter, we changed the used car enterprise software at all of our stores. While the new software will benefit us in the long term, the implementation led to business disruption, putting pressure on our used sales. We believe this new software should be fully utilized by the second quarter of 2018. Our used vehicle inventory of $136 million is at a 31-day supply, which is in our target range of 30-35 days. Turning to F&I. Our team continues to deliver strong results.
Total F&I gross profit increased by 6%, and gross profit per vehicle increased by $148 to $1,662. These gains helped drive our total front-end yield up $109 to $3,320 per vehicle. As Sean mentioned, our F&I gross profit was positively impacted in the fourth quarter by a reserve adjustment due to recent favorable chargeback experience. Turning to parts and service. We grew our parts and service revenue by 3% and gross profit by 2%. This was achieved with a 4% increase in both customer pay and warranty business. The lower used vehicle sales caused our reconditioning work with parts and service to decrease by 4%. For the full year of 2017, despite the shutdowns due to the hurricanes, we grew parts and service revenue by 4% and gross profit by 4% compared to the prior year.
Looking towards 2018, our operational focus will be on the growth opportunities in used vehicles, F&I, and parts and service. We will also further our investments in our omni-channel capabilities. During the fourth quarter of 2017, we saw continued solid results from these investments. For example, company-wide online service appointments increased by 130% from the prior year period, and total online sales increased by over 1,000 units from the prior year period and now represents 6% of our business. All of the above was achieved cost effectively with historically low advertising spend per vehicle. Finally, I am pleased to announce that last month we acquired a Honda dealership in the Indiana market. We would like to welcome our new teammates at Hare Honda. We are very excited to have you all on board.
We would also like to thank all of our associates in the field whose continuous hard work has made it possible for us to report a record performance for 2017. We will now turn the call over to the operator and take your questions. Operator?
Yes, if you'd like to ask a question, please signal now by pressing star one on your telephone keypad. Please make sure your mute function is turned off to allow your signal to reach our equipment. Again, that is star one for any questions over the phone. We'll take our first question from Rick Nelson with Stephens.
Thanks. Good morning. Nice quarter, guys. I'd like to ask you about tax reform and the benefit that you're going to see in 2018 on the tax rate side. Do you think you're going to be able to retain those benefits, and does it at all change your capital allocation priorities?
Hi, Rick, it's Sean. Good morning. Rick, a couple of points on the tax reform. Firstly, tax reform does clearly provide a significant benefit to the company given the reduction in our tax rate by 12%-13%. Tax reform doesn't change our strategy or our capital allocation approach. We'll continue to invest in the business, including our associates, our facilities, and our omni-channel customer experience. We're going to continue to seek value-accretive acquisitions, and we'll continue to look for opportunities to opportunistically return capital to shareholders. All of this with a long-term focus on shareholder value. As far as the ability to retain the benefit of the tax savings, somewhat difficult to answer, we do believe that we should be able to retain the vast majority of the savings.
Our competitors tend to be smaller private dealers or dealer groups. The operators of these competitors tend to focus more and are compensated more on pre-tax numbers. We also while it's different for different entities, we do believe that the tax benefits for us should be, generally speaking, better or greater than the tax benefits for the smaller private operators. We do expect to be able to maintain the vast majority of the savings from tax reform.
Okay, great. Thanks for the color, Sean. Operationally, I'd like to talk about the new car side, which outpaced the industry. If you could discuss the drivers there and were there regional differences, Florida, for example. The used volume was down, came in below our expectations, I guess. The software, if you could provide some color there and how you see that impacting the business as we push forward.
Hey, Rick. I'll take the new volume question first. We outperformed the market, specifically in the midline imports. We did a good job with a couple of brands there. As far as the used vehicles go, we had the disruption with the software implementation. The company has been on this software for years. It's really just a learning curve and the employees and the associates getting used to using the new software, which definitely caused a decrease in our sales in Q4.
Is that the vAuto software that you're rolling into those stores?
It is. We went to vAuto.
Okay.
Rick, just to follow up on your point about the markets. You specifically called out Florida. Most of our markets gained market share or outpaced their markets that they did business in. We had very few that didn't.
Finally, if I could ask you on the F&I side, that was a big contributor to the front-end yield. You had this reserve adjustment. Can you quantify what that reserve adjustment did for F&I per unit?
Sure, Rick. It's short again. What happened is cancellations on our F&I products came in lower than we expected. That did result in a reserve reduction. Overall, if you look at our F&I PVR on a same store basis, the F&I PVR increased by $148. We would attribute a third of that to the reserve adjustment, roughly a third of that 148 PVR increase.
Got you. Hey, thanks a lot, good luck.
Thank you.
Thanks, Rick.
We'll take our next question from Irina Hodakovsky with KeyBanc.
Thank you. Good morning, everyone.
Morning.
A question for you guys on the used vehicle side. The software update that pressured the numbers this quarter, do you expect this to continue into the first and the second quarter of 2018?
I think by Q2, we'll be fully utilized with the new software. I'd expect by Q2 we'll be fine.
On the SG&A expense, you did a lot better than we expected, and you did this despite the headwinds in your used operations. As that normalizes, should we anticipate SG&A leverage to improve further?
Irina, yes, we had a very good quarter from an SG&A point of view. We made some operating decisions, as I mentioned in my prepared remarks, that really helped us during this quarter. We are a cost-conscious organization. We're very data-driven as well. The adjustments we made really reflected what we believed to be a tighter margin environment and a lower SAAR environment going into 2018. In 2018, we expect the benefits from the cost-saving changes that we made in 2017. We expect these benefits to continue to flow through in 2018. However, we do expect offsetting pressure, we've guided in 2018 to an SG&A percentage of 69%-70%. The reason for this is we do expect some pressure on SG&A from a lower SAR environment that will obviously impact our fixed cost absorption.
We also expect pressure because we're going to invest and continue to invest in our omni-channel experience. We're very pleased with the results of our omni-channel investments to date. Therefore, we're going to continue to invest in this area. We're also seeing some cost pressure in certain areas of the business. Just an example of where we see cost pressures in the area of insurance. After the several catastrophic weather events in 2017, we're seeing significant increases in our insurance costs as well. That overall is why we're seeing offsetting pressure, and that's why we've guided to the 69%-70% SG&A percentage in 2018.
Understandable. Thank you for that detail. One last question on used volume. If you were to exclude the training process and the adjustment period, do you have an estimate of how you would have done on volume in used?
This is David. I'll jump in on that. Any number we said would really be kind of winging it. This software, we used one software since Asbury's inception. Not just switching the software, it's inventory feeds, websites. There was a lot of disruption going on. It really would be hard to quantify what it would be. It's more than fair to say it would have been significantly better than the result was, but it would be hard to tell you an exact number.
All right. Thank you very much.
We'll take our next question from Bret Jordan with Jefferies.
Hey, good morning, guys.
Good morning.
On your discussion on the tax reform benefits, it sounds like the independents or smaller operators might not see the same that you do, and obviously declining SAR. Could you give us some maybe color on what the M&A environment looks like? Is it heating up? Are more willing to sell now?
No, we're actually pretty excited about all the opportunities that we've been seeing lately and that we're currently looking at now.
Are hopeful that we'll see some come to fruition pretty soon. We think it's pretty good. I know there's been a lot of talk about the tax savings and will the private cap deals give it away and have it be a more competitive market? John touched on it earlier, but I thought it was important to bring it up again. This is not an operating P&L issue, where it's in the hands of the operators. We don't see this as a pass-through at all. I know a lot of private cap dealers that the last couple of years, their profitability has been going backwards. I think they're looking forward at this opportunity to get that money back, so to speak. We see most of this passing through well for us.
Right. Great. Then on parts and service, I think mid-single digit outlook for this year. How much of that is customer pay versus a recovery in the used as the software normalizes, you get more refurb business?
Well, this is John. You saw that the decline in used car sales took us down about 4% on the service and parts side. We were up in customer pay. Expect that to continue and expect to get the lift from the used vehicle sales moving forward.
The only thing I'll add to that, not to make an excuse, the fourth quarter last year was a stiff comp. We were up 9%. We're coming off that 9% number and still had a 4% lift. We feel pretty good about that.
Okay. Is customer pay still the majority of the growth for this year?
Well, clearly, that's our main focus because it's what we can control the most of. As we see the used car volume recover, there's no question that in turn it will make a material difference as well. It's very difficult to predict what kind of warranty work is going to come down the pipe.
Okay, great. Thank you.
We'll take our next question from James Albertine with Consumer Edge Research.
Great. Thank you and good morning, everyone.
Good morning.
I wanted to ask, if I may, in light of your comments on the new vehicle side that most of your stores outperformed the industry in the markets in which they operate. A question we've been getting a lot is on the sort of the gap between new and used or late-model used vehicle pricing, and particularly on a monthly payment basis. I wanted to understand what you are seeing there that's driving folks into new vehicles and whether or not you feel there's any sort of decision-making going on that might be impacting certified pre-owned or late-model used vehicle sales negatively. More incentives on the new vehicle side or something of that nature. I just wanted to get some color there if we could.
Well, this is John. As these late-model pre-owned vehicles come off the lease market, you do get a price difference in payment that gets close to new, especially if the incentives are heavy. It becomes a decision from the consumer which way they're going to go, and it can have an effect on pre-owned sales if the price point becomes too close.
The only thing I'll add to that.
Yeah, go ahead. Sorry.
You see it in the fourth quarter, the incentives were pretty steep. You do see the off-lease cars coming. If you look at our cost of sale year-over-year, it bumped up almost $600, and that made an impact on our margin, where really our PVR was only down $23 year-over-year. When you have heavy incentives like that and these off-lease cars coming off, and it's more of a truck-car mix than it was a car-truck mix before, your average cost of sale is going to creep up closer. I do see the value in CPO and all the benefits that consumers get from the warranty to the incentives and the rates and everything else. I don't think that that'll be deterred in any way. I wouldn't look at our used performance in the quarter to signify a concern.
Understood. You have some idiosyncrasies there with the software rollout, and I get that. It does sound like what you're saying is the fourth quarter, maybe that gap between new and used pricing contracted a little relative to prior quarters. Am I hearing you correctly?
Yes.
Okay, great. One final one for me, if I may, on the credit side, just sort of a broader update in the markets in which you operate. Are there any shifts, either in terms of the types of consumers coming into stores from a credit tranche basis or documentation requirements, competitiveness among lenders? Just trying to get a sort of a mark to market, if you will. What's the latest and greatest from an auto credit perspective? Thanks.
I haven't seen a big shift in the credit at all. As far as in the subprime market, which is a small percent of our business, the stipulations are getting a little bit tighter, credit availability hasn't been an issue in all the tranches.
Okay, great. Thanks again and best of luck.
Thank you.
I'll take our next question from John Murphy with Bank of America.
Good morning, guys. Just to stay on the used vehicle business, obviously backing away from or closing Q Auto and then with the software changeover, it seems like there's obviously been a big change in strategy. There's a huge opportunity in front of you it seems like on the used. If we get beyond the second quarter of 2018 where there might still be some noise from the software changeover, how are you thinking about the used vehicle business? Is this the kind of thing where you try to shoot for a one-to-one ratio in your stores as they stand right now? What's really the focus and the new strategy we should be thinking about beyond the noise of the near term?
Well, the ratio one-to-one would be great, and I think that's more realistic in the domestic brands than some of the luxury, the import. I think, moving forward, whatever the SAAR does, and we're saying it's going to be between 16.5 and 17, we can control our destiny in used to a greater extent. There's leased vehicles coming in that is available for inventory. We can trade at the door, and we can get inventory out of our service drives. I think when it comes to used vehicles, we've got more control of our destiny than waiting for the new SAAR.
What was the specific rationale for the changeover in the software? Is it to take advantage of that, or is it just that the old software was not as efficient as it should be? I'm just trying to understand what drove the change and what you think you can drive going forward.
Sure. We're not a huge company, anytime you change something across the enterprise, it's painful, you put it off for long periods of time. The software we had was serviceable, the data that it gave us wasn't as timely as what the new software gives us. The new software is far more complex and more data-driven than the old. We're confident once we get comfortable with it, we'll really be able to increase our turn, which is what we're focused on. We want to turn the inventory faster and naturally grow our volume through trades.
Got it. Okay. Then also on used, if you could sort of dimension the F&I PVR opportunity on used versus new, because it does seem like used might be a growing portion of that component over time. What is the opportunity delta between F&I PVR and used and new?
It's typically a little bit better on the used vehicle side. On the luxury side, when you're looking at new, you've got a higher amount financed per vehicle, and it can be good there also.
Got it. It's a little bit better, but not a ton. Is that a fair characterization? It shouldn't change the total number all that much if we see a shift towards used.
That's a fair characterization, yes.
Okay. That's helpful. Lastly, GM's changed their pay plan for some of the salespeople at their dealers as far as the volume bonuses and such that they can achieve. Are you seeing anything else coming from any other automakers or brands in change in pay plans or bonuses for sales folks? What kind of impact does that kind of a change have on the sort of the motivation of an individual salesperson or just volumes in general?
I'll do my best at trying to address this. What we believe to be one of our strengths is our entrepreneurial model, we really allow the general managers to decide on compensation as far as that goes. We have everything from just front-end yield compensations to total yield with the salespeople get paid on finance and insurance as well. Our belief is total yield is the best way to go because it kind of neutralizes the up and down for the sales associates, which would slow the turnover down. As far as incentives from the manufacturers to the salespeople, they've been out there for decades doing it. From time to time it's there, and time to time it's not, and it changes. We certainly welcome it. Anytime our associates can benefit from a situation like that, we certainly enjoy watching them receive the additional income.
We truly believe the total yield approach is the best way to neutralize the swings for the sales associates.
That's very helpful. Thank you very much.
Thank you.
I will take our next question from Armintas Sinkevicius with Morgan Stanley.
Good morning. Thank you for taking the question. Maybe you could talk about just the industry landscape for the used car side. Having gone through the storms, there's a bit of volatility there in the results. Where are we now and how are you thinking about the tax season coming up and your used business, how it stands there?
I'll take that. Typically, the used cars get a little bit of bump during tax season. The wholesale business becomes a little bit stronger in the spring during that. I see it as favorable.
Okay. Did you see any dynamics around the storms where demand was pulled forward from, say, the fourth quarter into September or anything like that?
The major hurricanes really was Texas and Florida. They impacted Georgia and South Carolina and other places as well. From a car replacement standpoint, it was a tale of two different stories. Texas had tremendous car replacement because of all the flooding, specifically Houston area. We had one store there and we benefited from it dramatically. A completely different story in Florida. It was a huge business disruption. It shut down our business for a period of time, but there wasn't that flooding, so we didn't have the vehicle loss. We didn't see any spike in sales in Florida.
Okay. The other one, the Indianapolis acquisition, do you have any financial metrics, as far as how to think about how much revenue is coming online or anything like that?
This is Sean. The revenue from the Indianapolis acquisition should be around $100 million of additional revenue coming online.
Okay. Got it. Thank you.
Thank you.
We'll take our next question from Chris Bottiglieri with Wolfe Research.
Hi, thanks for taking the question. Wanted to dig in a little bit on some of this new software that you're using on the used side with your analytical services online packages. I was wondering how this is structured. Is it a one-time fee or how do you pay for it? I guess what I'm trying to get at is I'm wondering to what extent some of this technological change will be favoring large dealer groups versus small operators.
You're referring to the tax savings?
No, no. I'm talking about the new used software you're rolling out, some of the online software you're rolling out, the online scheduling for parts and services. What is that stuff costing you in aggregate? Is it a per unit basis, or is it like a fixed one-time fee?
I'll do the best I can at addressing that, but I don't know that I'll hit it exactly. You can see in our SG&A, we absorbed all the expenses for all of it. When we talk about the significant increases in online service appointments, those appointments were coming to the traditional phones. We're trying to create a more online experience for our customers. We've learned based on the research that we've done, the more that we can get customers to do most online or as much online as possible, the experience is better for them, our costs are lower for us, and we can be more efficient at what we do. We think based on what you can see in our SG&A and our fourth quarter numbers, we're seeing benefits, really strong benefits of what we've done online with the experience.
It's not so much that there's additional traffic or additional expense. There is some additional expense, but it's more where we're moving the traffic to, which is online. We're absorbing those expenses as we go. You can see the expense increases are not material.
Got you. Okay. I had a question on rising rates. You quantify the floor plan expense. Is there like a floor plan assistance offset that's related to rates? Then two, maybe just more generally speaking, can you walk us through some of the puts and takes? When you see rising rates historically, how does that affect F&I penetration, lease versus own, sales, any other metrics you kind of help contextualize what rising rates will mean for your business?
I'll jump on and then Sean can jump in. From a PVR standpoint, if you think about a 100 basis point increase, depending upon the term, it's anywhere from $20 to $25 a month. It's not material, it's not significant. We won't feel any impact in that sense. Now, if it starts going up 300, 400 basis points, that would change, but we don't see that happening. We don't see it slowing. The 100 basis point increase would be dramatic, but we do not see that affecting our car sales because the difference in payment is so low.
Yeah, the only thing I would add to that is that our floor plan debt is floating. Therefore, there is a corresponding impact on our interest expense. Our other debt is fixed, so there would be no impact from a corporate point of view. There'll be no impact on our interest expense other than the floor plan interest expense.
Got you. Then the floor plan assistance, is that at all tied to the rate environment or is that just completely separate?
Sorry, I didn't quite get the question. Was that the floor plan incentives? What was it?
No, the floor plan assistance expense, income item. I'll follow up.
I'm sorry?
Sorry, can you repeat that?
The floor plan assistance, is that at all tied to interest rates? Is there any kind of offset to the expense?
Most of the manufacturers haven't increased their floor plan assistance. Some do move with the interest rate a little bit. Generally speaking, most of the incremental increase in rate will be passed on to us.
Got you. Okay. Thank you.
Yep.
We'll go back to Irina Hodakovsky with KeyBanc Capital Markets.
Thank you. I have a follow-up question for you guys on the used vehicle software. What type of data do you track to improve your inventory turnover? If you could maybe highlight a couple of key items you're tracking, how does the inventory turnover improve from this program versus the old one?
The biggest difference is we track market day supply on the used, where it used to be more aging buckets. Now if we look at a vehicle, if it has a low market day supply, we know that vehicle will turn quicker and we can price it appropriately versus a vehicle that has a high market day supply and there's abundance of them in the market. We need to price that more aggressively to move it quicker. The data is much more fine-tuned. The other significant increase I'll add to that from appraising the vehicle, it's more real-time data, meaning today and this week what's happening. The old software was really a 90-day look back.
Got you. Two strategic questions for you. In terms of acquisitions, with the lower tax rate, makes targeted stores, the evaluation, and the approval process more likely. Your return on invested capital is probably easier to meet. All things equal, this would be beneficial to the acquisitions outlook. Can you update us on what you're seeing overall in the market, the inventory of stores for sale? Has anything changed in the positive or negative direction to, let's say, six months ago?
Generally, I would say, all I can do is speak for Asbury. We're seeing more deals in the last 60 days than we've seen in the last six months. The pricing is becoming more realistic than it was, say, 12 months ago.
The last question for you. You've provided more detailed guidance than in the past this time around. What is driving this change?
Sorry, the question, I just want to make sure I understand that. The question is, we've provided more detailed guidance. What's driving the change? Is that correct?
Right. I mean, you're increasing transparency with the investment community, at the same time, there's a little bit of a risk involved, right? Whenever you're providing more guidance. I'm just wondering what's driving the change. Is it the fact that we're at the top of the new vehicle market? What are you hoping to achieve with improving guidance forecast?
We're really looking to just be as transparent as we can as to where we see the business going in 2018 and the key metrics that we're driving towards in 2018. We're just trying to be transparent with that with the investment community.
Thank you. We appreciate that. Thank you, gentlemen.
Thank you. This concludes today's discussion. We appreciate everyone's participation in the call today. Have a great day.
That concludes today's call. Thank you for your participation. You may now disconnect.