Good day, ladies and gentlemen. Welcome to the Asbury Automotive Group Q1 2017 earnings call. Today's conference is being recorded. At this time, I would like to hand the call over to Mr. Matt Pettoni, Vice President and Treasurer. Please go ahead, sir.
Thanks, operator. Good morning, everyone. Welcome to Asbury Automotive Group's first quarter 2017 earnings call. Today's call is being recorded and will be available for replay later today. The press release detailing Asbury's first quarter results was issued earlier this morning and is posted on our website at asburyauto.com. Participating with us today are Craig Monaghan, our President and Chief Executive Officer, and filling in for David Hult is Dan Clara, our Atlanta Market Managing Director. David is currently attending a Harvard Executive Management Program and will be back for our next call. At the conclusion of our remarks, we will open the call up for questions. I will be available 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. 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, Craig Monaghan. Craig?
Good morning, everyone. This morning, we announced adjusted EPS of $1.58 for the first quarter, a 16% increase over last year. While we continue to operate in a challenging new and used margin environment, our ability to drive incremental used sales volumes, enhance F&I PVR, and grow parts and service enabled us to deliver same-store gross profit growth of 3% and industry-leading margins of 4.6%. During the quarter, we acquired a Chevy franchise and an Isuzu truck franchise in Indianapolis, Indiana. We completed our Atlanta Nissan realignment with the opening of our Cumming Nissan add point. We repatriated $15 million to our shareholders. Our adjusted results represent another first-quarter EPS record and our 31st consecutive quarter of EPS growth. I'll turn the call back to Matt to bring us through our financial highlights.
Thanks, Craig. This morning, we reported EPS of $1.61 for the first quarter of 2017. Adjusted EPS was $1.58, a first-quarter record and a 16% increase from last year. Income from continuing operations for the first quarter of 2017 was adjusted for $900,000 of pre-tax legal settlement benefits, or $0.03 per diluted share. Income from continuing operations for the first quarter of 2016 was adjusted for $3.4 million of pre-tax real estate-related charges, or $0.09 per diluted share. Turning to expenses, our SG&A as a % of gross profit for the quarter was 69.6%, up 10 basis points from last year. A significant portion of this was associated with investments in technologies we made to better manage our customer experience and improve productivity. For 2017, we continue to expect our SG&A as a % of gross profit to be in the 69%-70% range.
Our floorplan interest expense totaled $5.3 million, up $900,000 from the prior year period, primarily due to an increase in the LIBOR rate. Our tax rate for the quarter was 36%, down 220 basis points from the prior year period. This was primarily attributable to new accounting guidelines related to the tax treatment of stock-based compensation. Notwithstanding the adoption of these guidelines, we expect our effective tax rate to be approximately 38% over the remaining quarters of 2017. With respect to capital deployment, during the quarter, we acquired Hare Chevrolet, repurchased $15 million of our common stock, and spent approximately $5 million in CapEx. For 2017, we plan to invest $60 million in core CapEx and an additional $10 million for the construction of a new facility that will replace an existing leased facility.
Going forward, we will continue to seek opportunities to purchase real estate currently under lease and acquire properties in connection with future dealership relocations. From a liquidity perspective, we ended the quarter with $3 million in cash, $55 million available in floorplan offset accounts, $106 million available on our used vehicle line, and $237 million available on our revolving credit lines. Our total leverage stands at 3.0 times. On a net basis, our total leverage ratio is 2.5 times, which is at the lower end of our targeted range of 2.5-3 times. Going forward, we are committed to our targeted leverage range while maintaining flexibility to deploy capital on an opportunistic basis. Finally, last weekend, a major hailstorm hit two of our dealerships in Plano, Texas.
While we are still working to understand the full impact of the storm, more than half of the vehicles were totaled and the damages could range from $15 million-$20 million. Though our insurance policies limit our losses to $1 5 million, our dealerships were left with virtually no vehicle inventory, and it is too soon to say how long it will be before these stores are fully operational again. Now I'll hand the call over to Dan to discuss our operational performance. Dan?
Thanks, Matt. Good morning, everyone. My remarks will pertain to our same-store performance compared to the first quarter of 2016, unless otherwise stated. We delivered a strong quarter. We grew our used retail unit sales 6%, drove F&I PVR above 1,500, delivered a front-end yield of approximately $3,200 per car, and grew parts and service gross profit 5%. Turning to new vehicles. SAR fell 1% to 17.3 million. While our new unit volumes were flat, we took market share in almost every brand in our local markets. From a margin perspective, we experienced new vehicle margin pressure across all segments due to aggressive stair-step programs and growing inventory levels in certain brands. As a result, our margins were down 60 basis points to 4.8%. Our total new vehicle inventory was $780 million or 74-day supply at quarter end. We were not materially impacted by stop sale vehicles.
Like the industry, our new vehicle levels are higher than we would like, but we believe they're manageable. Turning to used vehicles. We increased our unit sales 6% in the quarter with CPO vehicle sales up 13%. Our used vehicle retail gross profit was down 2% due to our decision to trade margin for volume. As you are well aware, incremental used vehicle sales provide profit opportunities in both F&I and parts and service. We continue to believe that there is additional opportunity to grow our used vehicle sales. Our team did a great job managing our used vehicle inventory at 32-day supply. We target a range of 30 to 35 days, which minimizes our risk of major movements in used vehicle valuations. Overall, our business was not materially impacted by stop sale inventory. Turning to F&I. Our team continues to deliver strong results.
Increased used vehicle sales, combined with a $91 increase in our F&I per vehicle retailed, enabled us to increase F&I gross profit 9%. Now for parts and service. Our parts and service business continued to perform well in the first quarter with our teams delivering 5% gross profit growth. This growth was primarily attributable to a 22% increase in warranty. Now, I'll hand the call back over to Craig.
Thanks, Dan. Looking forward, we expect the SAR to fluctuate in the low to mid 17 million range. Despite the moderating SAR and a difficult margin environment, we believe we'll be able to continue to grow EPS. The influx of off-lease vehicles will allow us to better source inventory and grow our used business. We believe our parts and service business will continue to benefit from the growing number of late-model units in operation and the ever-increasing complexity of today's vehicles. Our ongoing efforts to strengthen our sales process, recently renegotiated product contracts, and increased used unit sales should continue to drive further F&I improvements. Finally, our strong balance sheet, modest leverage levels, and over $400 million of available liquidity affords us considerable flexibility to deploy capital as opportunities come our way. In closing, we want to thank each of our associates.
Our record results are a reflection of your dedication and hard work. Now, we'll turn the call over to the operator and take your questions. Operator?
Thank you. Ladies and gentlemen, if you would like to ask a question, please press star one on your telephone keypad. If you're using a speakerphone, please pick up the handset before pressing the corresponding digits. Once again, everyone, it is star one if you have a question today. We'll take our first question from Rick Nelson, Stephens Investment Bank.
Thanks. Good morning.
Morning, Rick.
I'd like to ask you, Craig Monaghan, about the GPUs. We saw a higher year-over-year in luxury domestic segments, but quite a bit of pressure in the import segment. If you could provide some color there. Is it specific brands or regions that are driving that? Any signs that things may be stabilizing?
Right. Yeah. Rick Nelson, I'm happy to jump in on that. What you see there is a direct reflection of these stair-step programs and very aggressive sales targets.
In the import brands, it's where I'd say the pressure is the greatest. That's where we're seeing the biggest margin deterioration. In the luxury brands, we actually have some instances where we've got some product shortages. As a result, you see the opposite happen. You see some improvement in margins. It's really that simple. I don't know, Dan Clara, do you have anything to add?
No, Craig Monaghan. Actually, the only thing I would add is we're also seeing in some of the imports where there's some clearance of old models that are going up, and that's also with the high day supply of those models. That's creating additional pressure to the margins.
Got you. Thanks for that color. Any comments on the regions where you might be seeing strength or weakness? I guess I'm especially interested in Florida, what's happening there.
Yeah, Rick, the regions, we didn't see that much variation across the regions. There's always some up and downs, broadly speaking, I would say our performance was fairly constant across the regions.
Finally, if I could ask you for an update on the timeline for recruiting a CFO. I thought that sounded pretty good on the call this morning.
Yes, we've got a recruiting effort underway. We've talked to a number of very attractive candidates. We have one that we are specifically interested in, we think we've got a good chance of bringing that to conclusion rather quickly.
Sounds good. Thanks a lot and good luck.
Thanks, Rick.
Next up, we'll hear from Irina Hudakovsky, KeyBank.
Thank you. Good morning, everyone.
Good morning, Irina.
A couple of questions for you gentlemen on the overall acquisitions and the contributions from the acquisitions you just announced. How big are they? You haven't been very active in the acquisition market recently because of the seller's expectations. Is this a sign that perhaps this is improving and just your last comment kind of points to that as well. Can you talk a little bit about the conditions in that market?
Sure. Let me take a shot at this and maybe Matt might be able to add more color as well on the numbers. I'd start off with, broadly speaking, when we look at these numbers, we focus on the same-store results. Same-store results include the like stores in both periods. There's really no impact of these recent acquisitions when we talk about same-store results. With respect to the market, these were acquisitions that made a lot of sense to us. They were markets that we feel good about, markets that we feel are going to continue to grow. They were priced right. When we find acquisitions that make sense, we're going to jump all over them. If we could find another Hare Chevrolet type transaction tomorrow, we'd buy it. As you know, our fallback is our own stores, is share repurchase.
We're trading at somewhere around seven and a half times on an EBITDA basis, which that's a good price. On this quarter, we bought $1 million of our stock. That's a good price for our stores.
Irina, this is Matt. When you're looking at the difference between the all stores and the same stores, this quarter, we had a lot going on. If you remember last quarter, we sold off our Arkansas platform, halfway through this quarter, we purchased the Hare Chevrolet. In addition to that, later in the quarter, we had our new Nissan open point in Cumming, Georgia. There was a lot of timing in this quarter. We lost the full contribution from the Arkansas stores, but during the quarter, our new initiatives started to come on. Hopefully as we get throughout the rest of the year, we'll be able to realize the full quarterly potential of those new initiatives.
Thank you for that. Can you guys update us on Q Auto and the progress there? I know you're very paced and careful about the rollout of that initiative. A lot of your competitors seem to be entering the used vehicle market. Just can you talk a little bit about the results there and how your plans going forward? Anything changing?
Yeah, I'll take that one. We're running the Q Auto stores as really, I would say, a discount used car store that's supporting just the local Tampa market. Fundamentally, we keep coming back to ROI on everything we do. We want to generate a return on the investment. We're trying to prove that we can make that model economically viable. At this point, with just two stores, it's just not material to our results. I don't think there's much to add. We continue to work on it. We're going to watch and see where it goes.
Got you. Thank you very much, gentlemen. Congratulations on a good quarter.
Thank you.
Next up from Evercore ISI is Michael Montani.
Hey, guys. Good morning. Thanks for taking the question.
Hey, Mike.
Hey, I just wanted to ask if I could, first off, if there's any incremental color you can share on the import side for new. Is it one particular brand, or is it across basically all the import brands? What are maybe some actions that you all can take moving forward to get a little bit better balance there between volume and GPU pressure?
Well, Mike, that's a big question. I'll start with that and maybe Dan wants to add more. Specifically, no, it's not just one manufacturer. We see it happening with multiple manufacturers. It's not just stairsteps. In some cases, it's manufacturers are trying to move a lot of inventory through the marketplace, and the inventory stacks up in the stores, and there's a lot of pressure on the stores to move that inventory. Our competitors drop prices in order to move it, and we drop prices to match. I think, longer term, let's deal with the fundamental issue is there's too much production, and it's causing these disruptions in the market. I'll speak specifically to our view on stairsteps and these aggressive targets is, they cause quite a lot of damage, and I'd break it down maybe into three areas.
When a store gets a sales objective that it just can't achieve, it's very demoralizing. It demoralizes our staff. I think you're very familiar with the fact that it alienates customers, because different customers in the store at different times of the month can see vastly different prices. Ultimately, it devalues the franchise. I don't believe this will continue for the long term. I think it's a function of where we are in the cycle. I think when production gets back in line with demand, some of this will stabilize. In the meantime, we've got to manage through it, and we do the best we can on a store-by-store basis of balancing volume and margin. Dan?
How much ability do you have to sort of refuse allocation, and are you all kind of canceling orders actively as well, or is there just not enough potential to do that?
Good morning, Mike. It's Dan.
Dan.
We do have the ability to decline allocation. Obviously, we manage that on a store-by-store basis. We can even get more specific on a model-to-model basis to that particular store. To answer your question, yes, we do have the ability, and in some instances, we are exercising that ability.
Okay. Just two specific initiative questions. One was on the F&I per unit, obviously a nice gain there, and it still looks like you have $100-$200 of upside versus some of your peers. Just trying to understand if there's any structural impediments to that, or if we can continue to expect the glide path to continue. Secondly, on private label parts, obviously AutoNation has been vocal about an initiative to basically private label their parts and not buy as much from the OEM supply chain. Would you all have any intentions to do something like that? If you could share any thoughts there.
Sure. Mike, I'll start with the F&I. You did see improvements, see some improvements there. F&I is very fundamental for us in that we do recognize that some of our competitors do a better job at F&I than we do. We are making progress. There's always the bottom 25% that needs to do better. A lot of it boils down to training, the processes, following the procedures that we've got in place, and we're just going to stick to it. I think the other thing that happens is when in our industry, when you see a lot of pressure on the front end of the store, it seems amazing, but the F&I side of the business seems to do better. There's really a team process that's happening these days in the store when we sell a vehicle.
The F&I office is working with the desk in order to try to maximize front-end yield, which we talk about all the time. You do see some shifts with that margin pressure from front end to F&I. Maybe let me just stop for a second, see if Dan's got anything to add to that.
No, Craig, I think you covered it very well.
The second question, I'm sorry, I've forgotten already.
Well, it was about private label parts, if you might look to source those from the vendors directly as opposed to through the OE supply chain.
We don't see that. We just don't see that. We wish the guys at AutoNation well. If that adds some value, that's something we'd think about. We've got other initiatives that we're focused on right now.
Okay. Thank you.
Sure thing.
Up next is Michael Levin, Deutsche Bank.
Good morning, guys. First, I just kind of wanted to get your feel for the new GPUs at this point. Do you kind of feel that at this point in the cycle, automakers have essentially positioned it such that on the new business, you're basically just covering costs and you have to just make money everywhere else? Is that a fair characterization from your experience?
Well, I'd say it's true that we're not making anywhere near as much money selling new cars as we used to. Whether that is an intentional move on the part of the manufacturers to force us to break even in new cars, I don't know that we can say that. I come back to what I mentioned earlier. I think we're just in a situation today where there's more production than there is demand. Until that gets back in balance, it creates a very difficult environment for us. I don't believe that it's sustainable long term for the reasons that I stated. We've been through this before many times. It will eventually stabilize itself. I think if you or I were running a manufacturing facility, we'd be doing everything we could to maximize the throughput because that's how you maximize your profitability.
In the near term, this policy, if you would, maximizes profitability at the manufacturer level. In the long term, it damages the distribution network, and that's why we'll come back into balance.
Got you. Considering where we are in the new business and looking at your experience with Q Auto and understanding the need for a strong brand, have you taken a look at doing any M&A of existing used standalone stores that have a presence in certain markets and already have an established brand as a way to diversify your profit base and move more into the used market?
No, we really haven't. We've got Q Auto. If we can make that work in one of our local markets, like I said earlier, I said before, by making it work, to us, that means it generates an ROI in excess of our cost of capital. If we can make that model work, the outlet center model, if you would, we can move that across mobile markets and enjoy some success there. Until we see that it's viable, we're not going to put a whole lot more capital into that. I would just share with you that the challenges of a standalone used car store are really twofold. One, you've got to source inventory, two, you've got to hang the paper for a large population of subprime buyers.
Sourcing the inventory is something that's not that challenging for us as long as you don't get too large, because we've got vehicles that we're sending to auction that we could probably retail. Hanging the paper a substantial number of your buyers can be subprime, we have found in these stores. Hanging the paper is something that we're doing in the marketplace. We do not want to retain that risk. Others have made the decision to retain the risk. That's not where we want to go. We're just being careful as we move down this path.
Interesting. In the exposure that you do have in both your franchise stores and in the two Q Auto, are you seeing increasing tightening within subprime from lenders? Is that something that could be a headwind in your ability to take advantage of some of the better affordability developing for used?
Good morning, Mike. This is Dan. We see that our credit is available out there. We have seen a few of the subprime lenders that are maybe getting a little more specific on some of the steps that they are requesting to verify employment, income levels, et cetera. Overall, the credit is available, it is not impacting us.
Got it. Okay. Thank you so much, guys.
Sure thing.
Thank you.
Next question today comes from Jamie Albertine, Consumer Edge Research.
Hi, good morning. Thanks for taking my question. This is Derek Glynn on for Jamie. We saw strong F&I trends in the quarter. Can you just give us a sense of the gap between the top F&I performers in your store base relative to, say, the bottom third of performers? Just trying to get a better feel for the opportunity here in improving F&I for some stores, and do you think you could still catch up to the average or the best performers there?
Morning, Derek. Dan again. That's a great question. I'm going to try to answer it to the best of my ability. The reason I say that is because there's so much that goes into a per retail unit in F&I. The market could determine that, and not to mention, it is extremely important to have the right individual at the desk with the right training that is able to execute the training 100% of the time. If I had to give you a range, I would say that from the bottom line performer to the top line performer, you're probably looking at a spread of somewhere, if I had to guess, probably $300 a car. Again, there could be completely different OEMs and completely different markets, so please keep that in mind.
Okay. Thank you. That's helpful. I just also had a follow-up on the used side of the business. I guess for the market as a whole, where do you see supply relative to demand? If you could just help us delineate between those two dynamics. Just trying to get a sense of how to think about the comp trajectory and whether you think looking out into the future, demand could keep pace with what should be a rise in supply in the coming years. Thanks.
Sure. Derek, that's a great question. I'll give you the way we look at it, might be a little different than others, but fundamentally, the used car market's about 40 million units. The number of cars coming off lease, not in theory, in reality, going to bring a lot more cars to market, but you're looking at 40-ish million units that will trade hands in a year. We think that's going to create some pressure on used car prices. I think that's inevitable. We see it as a trading business. We try to be in and out of these cars in 30 to 35 days. I think Dan mentioned it in his remarks. If used car valuations fall, that means we'll buy them cheaper, we'll recondition them, and then we'll sell them at a lower price.
We're just trying to make a spread, trying to make our $1,500, $1,600 on a transaction, move on and get the next one done. For us, it's really about turn. It's about velocity of moving that inventory through the stores. As long as the market price for a vehicle goes up slowly or goes down slowly, as long as there's no major or dramatic shifts in valuations, we'll manage through this fine. We deal with this on a regular basis anyhow, because used cars happen to be a very seasonal business. We see values fall at the end of the year, values pick up again in the spring. It's something that we're accustomed to.
Okay, thank you.
Sure thing.
We will now hear from John Murphy, Bank of America.
Good morning. This is Elizabeth Suzuki on for John Murphy. On off-lease, when you're getting these cars back, how would you characterize the residual values on the lease agreements versus the market value of those cars? Are a lot of lessees coming in underwater on their leases? When that's the case, are the captives working with you and your dealers to come up with a price for the dealer to buy that car?
Morning, Liz. This is Dan Clara. Yes. It depends from an OEM manufacturer standpoint. We are seeing some lessees that are coming back that are underwater. The good news is a lot of the manufacturers have given us the ability where they come in, for a lack of a better term, they'll appraise the car, and then they'll give us a market value at which we can acquire that car if the customer decided not to repurchase that car after the end of the lease. That is good support from our manufacturer partners, and it is also allowing us to feed our used vehicle inventory, and then turn it into a certified pre-owned, which, as I mentioned earlier, our CPO growth was very healthy in Q1.
Great. Would you say that you are acquiring a larger, same, or smaller percentage of those off-lease cars than you were, say, a year or two ago?
I think that from a percentage standpoint is probably the same. What has changed is the amount of cars that we are seeing coming to the dealers on a day-to-day basis or a week-to-week basis. We have always been aggressive at buying those cars in the past, and we will continue to do so.
Great, thanks. Just one more quick one. You mentioned warranty was up 22%, and I may have missed this in the comments, but can you just talk about what drove that significant increase?
Absolutely. This is Dan again, and I'll be glad to answer that question. We're seeing multiple warranty items out there in the marketplace. Number one, airbag inflators are starting to come in pretty handsomely right now. We have a few OEMs that have a few engine warranty work that is being performed, other OEMs that have dashboards that are being performed. It's a little bit of a few mixes in there depending on the manufacturer, and that is what is driving our 22% increase in our warranty.
Great. Thanks very much.
Thank you.
We'll now go back to Irina Hudakovsky.
Thank you for taking a follow-up question. Craig, actually a question for you. There is a competitor I'm sure you've heard coming to market right now discussing e-commerce in the used vehicles a lot, and much of the investment community is discussing about a potential disruption to the way cars are sold and how much market share can this competitor take. Can you talk a little bit about what it is that you offer online? How is this model different from what you have, and what do you see in terms of consumer preferences, and could this be as much of a disruptor as people appear to think it is?
Irina, it's Craig. I'd be happy to answer that question. Maybe if I can, I want to answer the question from 50,000 feet. I can just maybe I'll share our views and maybe share a little bit of data. We'll see where we go, if you've got any follow-ups. I think we all agree this industry is changing, and it's changing very rapidly. So are we. We are not very public about what we're doing to change our business. I assure you that we're making investments every day in technology and the web and our digital capabilities, and those investments are baked in our SG&A. Rather than a big one-off, it's just something that we're doing quarter to quarter. The investments are all about improving the customer experience and expediting the sales process.
We actually believe that many of the new entrants that are coming into our space are actually doing the right thing. We admire some of the moves that they're making. I would also say that many of the things that you see them doing is happening in our stores already. Maybe I could give you some data points to back that up. We've got a 25-person in-house digital marketing team. They've been in place for almost two years. These are the millennials, polished concrete floor. They wear funky socks. They're good, and they're having a tremendous impact on our stores. 75% of our advertising spend is now digital. Our internally generated internet leads were up 37% last year, largely as a result of the work that this team is doing.
In the first quarter, our website visitor count was up 130% versus the first quarter last year. In this past quarter, 5% of our vehicle sales were initiated in what we call Push Start, and that's our online sales tool. I'd encourage you to go to one of our websites, in all the stores, look at a specific vehicle and click on the button that says Buy Online. It'll take you to our Push Start tool, and you will see a sale, an online sales process that in many ways is very similar to what you see Carvana doing. It won't take you 100% of the way through the transaction, but it will take you all the way through the sale. It will take you through valuation on your trade. It will take you to F&I products. In many states, we still need wet signatures.
We need to verify. It's not 100%, but it is a huge step in the right direction. Our online sales are growing at double-digit rates. We're not just working on the front end of the store, we're working in parts and service as well. There I would share with you that almost a quarter of our parts and service appointments are now scheduled online. I come back to what I said earlier, we're all about ROI. Sometimes that means we buy stores, sometimes it means we buy stock. The first place we spend money is always in the stores and on technology that we think we need to have in place to grow our business in the future. I'd sum this all up and say, we see the world changing.
We think there's an opportunity to blend this digital world with the traditional brick and mortar world, and those are the things that we're working on.
Very good. Thank you very much. Just one follow-up. You mentioned there was a percentage of sales that are generated online through the Push Start button. What was that percentage?
5% of our sales in the first quarter.
5%.
Yep. Were initiated in our Push Start tool.
Got it. Thank you very much. Appreciate that.
Most welcome.
We'll take a follow-up from Michael Montani.
Hey, guys. Thanks for the follow-up. Just wanted to ask if there was any impact on the quarter to profitability from the remaining Q Auto stores. Also, if you could talk about just the outlook moving forward, if there's a certain period of time where if they don't turn profitable, you may look to move in a different direction.
Mike, the impact of the Q Auto stores is completely immaterial. We're down to two stores. I would say it's an experiment. I think a lot of the things that I just mentioned with our online sales initiatives will play into Q Auto at some point. We like having them there. It's a place for us to go and experiment. We can combine different things. We can play with one price. I think they're going to be there for some time, but it's almost like an R&D initiative. It is not a drag in any material way on our profitability.
Okay. On the service and parts side, if memory serves, the reconditioning component was actually down a little bit, which was surprising just given that the used unit comps were pretty strong. Just trying to understand the dynamic there, if that's a timing issue in some way that works itself out or what's driving it?
Hi, Mike, this is Dan. I'll try to answer that question for you. There's two items that affected our reconditioning. One is, I believe we are, and I'll probably turn it over here to Matt afterwards so he can give us some more color, but there was a reserve that we took compared to last quarter. That affected that number. The other item is the fact that we have had a few stores where we have ventured to go to outsource some of the detail departments for the reconditioning part. Hopefully that answers your question. Matt, is there anything you would like to add to it?
Mike, I'll just add, traditionally, our reconditioning does mirror our used unit growth, and I would expect that going forward. We did in the quarter have some other things, as Dan mentioned, but those are pretty small. Going forward, as we do continue to focus on growing and driving the used car business, one of the reasons we do like focusing on it is because it puts business in our parts and service shop. I would expect that to hold going forward.
I don't know if you'd care to comment, but forgetting about the hailstorm stuff for a minute, but as you think about 2Q, is there anything you can say from an EBITDA standpoint? Now you've done these acquisitions, are we in a position where total EBITDA can start to grow again at this stage or do we have to wait for some more deals or other things to take hold?
Mike, as you know, we don't give specific guidance at that level. There's just so many variables that are in play right now. I think these margins are the great unknown. If margins stabilize, I think we could be in an environment where we see EBITDA growth. If margins continue to deteriorate, that makes things much more difficult for us.
Got it. Understood. Thank you.
Good thing.
The next question comes from Chris Bottiglieri, Wolfe Research.
Thanks for the commentary earlier on your digital initiatives. That's really helpful. Just had one follow-up, though. I don't think I heard you mention this, but are you still testing online delivery to the customer right now?
Yeah. What we're finding is that in excess of 90% of the customers who start down the Push Start path come to the store to take delivery. There are some who will ask for the car to be delivered, and we will deliver the car. We will take the paperwork to them, to their home or office, wherever it might be, and we will complete that transaction remotely. Our experience is they are in the minority at this point in time.
Yeah. Looks like less than 150 basis points of sales. What has the experience been there? Are you seeing return like for those customers who do choose delivery, what has the experience been? Are you seeing a lot of return rates? Are you seeing other issues that are popping up where you don't think this model could be sustainable? Just curious your thoughts there.
Well, let me just start and say, no, this model is very sustainable, it is growing nicely. I don't think there's any doubt in our mind that we're not going to be spending more and more time on this. I think Dan can give you more. Dan had a very interesting transaction just yesterday. Maybe he'll share with us.
Yeah. Chris, I'll try to provide more clarity to it, back to Craig's point, it is very sustainable. We continue to see improving and increasing on a day-to-day basis. Since Craig mentioned, I'll give you more information on it. We just, a couple of days ago, just sold a Bentley to an individual that is moving from Australia to Savannah, Georgia. That is the power that this tool brings to us. In addition to that, we took a very hefty down payment from that consumer towards the purchase of this car. We see that growing and expanding, we are very excited at what the future holds.
As far as the consumer interaction and their satisfaction with it, I have been personally at the stores when transactions take place and customers, A, either come to take delivery of their car, or B, we deliver their car to their home. In both instances, they are very, very satisfied. The biggest feedback that we get, especially when a consumer comes to the store, is the amount of time that it saved them throughout the transaction.
That's helpful. Then it sounds like you're doing new as well. What do you think the pathway for regulation there looks like right now? Do you think it's something that could be more prevalent, or is that going to be a long path to get new car delivery?
I'll jump in. We're doing new and used. The regulations is the piece that I mentioned earlier, where you still need the wet signature, and you definitely need to validate the steps. Else we just create an F&I problem for ourselves down the road with reserves that go bad. It would be a lot easier to continue to move forward with this if the states were uniform in the regulations and we could accept digital signatures. That will come. I don't think it's holding us back at this time. I think the point Dan made is very powerful, that is a lot of what this is about is expediting the sales transaction. The vast majority of the transaction is completed even before the customer comes to the store.
When they get to the store, we'll spend however much time we want with them, if they want on a demo. Literally, if they want to come in, sign the remaining paperwork, and pick up the vehicle, certainly they can be out of the store in less than an hour.
Wow, okay. All right. Very helpful. Thanks for your time. Appreciate it.
Most welcome. Well, that wraps up our questions. We appreciate you being with us today, and look forward to talking to you again next quarter.
Again, ladies and gentlemen, that does conclude today's conference. Thank you all for your participation. You may now disconnect.