Good day, and welcome to the Asbury Automotive Group Q4 year-end 2016 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, sir.
Thanks, operator. Good morning, everyone. Welcome to Asbury Automotive Group's fourth quarter 2016 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 Craig Monaghan, our President and Chief Executive Officer, David Hult, our Executive Vice President and Chief Operating Officer, and Keith Style, our Senior Vice President and Chief Financial Officer. At the conclusion of our remarks, we will open the call up for questions, and 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 and 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 2015, 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 earnings per share of $1.56 for the fourth quarter, a 19% increase over last year. While we continue to operate in a challenging new and used margin environment, our ability to drive incremental sales volumes, enhance F&I PVR, and grow parts and service enabled us to deliver same-store gross profit growth of 5%. The fourth quarter caps off a solid year for Asbury. Let me touch on a few of the highlights for 2016. We generated $6.5 billion of revenue. We retailed over 180,000 vehicles. We grew same-store parts and service gross profit 7%. We delivered an adjusted operating margin of 4.5% and adjusted earnings per share of $6.08. We exited the Arkansas market and redeployed the capital into an attractive ROI accretive acquisition in the Indiana market.
Later this month, we expect to complete our Atlanta Nissan realignment with the opening of our Cumming Nissan add point. Finally, we repatriated over $200 million to our shareholders and reduced our share count by 14%. In summary, our adjusted results represent another fourth quarter EPS record and our 30th consecutive quarter of EPS growth. In addition, we were able to deliver adjusted EBITDA growth of 5%. For 2017, we anticipate a stable SAR environment, margins stabilizing at around Q4 levels, and rising interest rates. We believe the operational initiatives we have underway will offset these headwinds and enable us to deliver low single-digit EBITDA growth. Our EPS will be further enhanced by capital deployment. Due primarily to the timing of our divestitures and acquisition, we expect first quarter 2017 EBITDA to be in line with first quarter of 2016.
Before I end, I want to thank Keith for his valuable service to Asbury over the last 13 years. He has been a pleasure to work with, and we wish him well in his next endeavor. I'll turn the call over to Keith to bring us through our financial highlights.
Thanks, Craig. Good morning, everyone. This morning, we reported EPS of $3.08 for the fourth quarter. Adjusted EPS was $1.56, a fourth-quarter record, and a 19% increase from last year. As you saw in our release this morning, it was a busy quarter for Asbury for many aspects, which led to several adjustments to earnings. First, the sale of our Arkansas stores resulted in a $45.5 million pre-tax gain. Second, we received pre-tax legal settlements of $6.6 million. Third, the closing of two Q Auto stores resulted in a $500,000 pre-tax real estate impairment charge. Finally, we had $900,000 of discrete tax benefits, resulting in an effective tax rate of 37.2%, compared to 38.1% rate without these benefits. In total, these adjustments increased EPS by $1.52 for the fourth quarter of 2016.
Adjusted net income for the fourth quarter of 2015 excluded a $13.5 million pre-tax gain on divestitures, or $0.34 per diluted share. Turning to expenses, our SG&A as a percentage of gross profit for the quarter was 69.3%, down 120 basis points from last year. As we have discussed in previous quarters, increased enrollment in our employee medical insurance plans put pressure on our overall personnel expense. Solid execution in managing our advertising spend and reduced rent expense resulting from recent lease buyouts enabled us to drive down our SG&A ratio during the quarter. For the full year of 2016, the SG&A ratio was 69.2%. We expect our SG&A as a percentage of gross profit to be in the range of 69%-70% for 2017.
We may be at the high end of this range in the first quarter of 2017, as we anticipate that the seasonality of the business will bring lower sales volumes and that the higher employee medical insurance costs will continue to be a headwind into the first part of 2017. Our floorplan interest expense totaled $4.9 million in the quarter, up $800,000, primarily due to the increase in the LIBOR rate. In terms of capital deployment, during the quarter, we repurchased $50 million of our common stock or 4% of our outstanding shares. For the full year of 2016, we repurchased $212 million of our stock or 14% of our outstanding shares. CapEx for the year, excluding real estate purchases, totaled $81 million. In addition, we purchased $20 million of previously leased property and $11 million of property for future expansion.
We now own approximately 70% of our real estate portfolio, which we believe provides us with operational flexibility and long-term value for our shareholders. For 2017, we are planning to invest $70 million in CapEx, which includes $10 million for construction of a new facility as we plan to terminate an existing lease. 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, $71 million available in floorplan offset accounts, $91 million available on our used vehicle line, and $241 million available on our revolving credit lines. Our total leverage ratio stands at 3 times. On a net basis, our leverage ratio was 2.4 times, which is slightly below our targeted range of 2.5-3 times.
However, after adjusting for the Indianapolis acquisition in the first quarter of 2017, we are in the middle of our range. We are committed to remaining in our targeted leverage range while maintaining flexibility to deploy capital on an opportunistic basis. In closing, after more than 13 years, it is time for me to say goodbye to Asbury. I'm grateful for the opportunities Craig has provided for me over the years and for the confidence the board of directors has placed in me. I am thankful for the support of the entire finance organization and the partnership of the operational leadership team. Mostly, I will miss my coworkers, who after 13 years have become like family. I look forward to watching the many years of success Asbury's future holds. I'll turn the call over to David to discuss our operational performance. David?
Thanks, Keith. Good morning, everyone. My remarks will pertain to our same-store performance compared to the fourth quarter of 2015, unless otherwise stated. We delivered a strong quarter. We outgrew the market in new vehicle sales, grew our used vehicle sales 7%, drove our total yield back up to over $3,200 per car, grew our parts and service gross profit 9%, reduced our SG&A by 150 basis points, and reduced our day supply of new and used vehicles. Turning to new vehicles. The fourth quarter was a strong selling quarter, with SAAR reaching 18.1 million, up 1% from the prior year. Our new unit volumes were up 2%. From a margin perspective, luxury grosses improved, but both import and domestic margins declined. We experienced new vehicle margin pressure due to a combination of lower manufacturer incentives and aggressive sales objectives.
As a result, our margin was down 50 basis points to 5%. For 2017, we anticipate continued margin pressure. Turning to our new vehicle inventory. With our more disciplined approach to inventory management, we were able to reduce our new vehicle inventory by 11 days from last quarter to a 61-day supply on a trailing 30-day basis. Our new vehicle inventory totaled $721 million and was not materially impacted by stop sale vehicles. Turning to used vehicles. We increased our unit sales 7% in the quarter. However, our used vehicle retail gross profit was up only 1%. This was due to a combination of margin pressure and our decision to trade margin for volume. I will speak to the benefits this had on our F&I and reconditioning business shortly. Our team also did a great job growing our CPO business 10% in the quarter.
We continue to believe that there is additional opportunity to grow our used vehicle sales and maintain our margins around the fourth quarter levels. Turning to our used inventory. Our team did a great job reducing our used vehicle inventory by 10 days from last quarter to a 30-day supply on a trailing 30-day basis, which was at the lower end of our targeted range of 30-35 days. Overall, our business was not materially impacted by stop sale inventory, which stood at 5% for the quarter. We feel like we are well-positioned for the first quarter. Turning to F&I. Our team continues to deliver strong results by growing our new and used vehicle sales, combined with a $60 increase in F&I per vehicle retailed, enabled us to increase F&I gross profit 8%.
Now for parts and service. Over the past couple of years, we have focused intently on growing our parts and service business by building out our leadership team, implementing business processes, and integrating technologies to enhance the customer experience. These efforts have resulted in consistent growth in our parts and service business, which continued in the fourth quarter, with our team delivering 9% gross profit growth, including 9% customer pay growth. Our strategy to grow used vehicle sales was the primary driver of our 9% reconditioning growth. Looking forward, we believe we can continue to grow our parts and service gross profit in the mid-single-digit range. Turning to our new acquisition. We would like to welcome our new teammates at Hare Chevrolet. We are very excited to have all of them on board and look forward to the future.
Finally, we would like to express our appreciation to all of our teammates in the field and in our support center who continue to produce best-in-class performance in many areas. Again, thank you. We will now turn the call over to the operator and take your questions. Operator?
Yes, sir. Thank you. If you would like to ask a question, please signal by pressing *1 on your telephone keypad. If you are using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, that is *1 if you would like to ask a question. We'll move first to Rick Nelson with Stephens.
Thanks. Good morning. First of all, good luck and congrats to Keith. It's been nice getting to know you over the last 13 years.
Absolutely. Thank you, Rick.
Wanted to ask about the margin, the GPU. Quite a divergence, I guess, between premium luxury and can we hold up the pressures in the midline import and domestic side of the house. David, if you could talk about the inventory levels at 61 days, where you might be heavy, where you might be light, and the outlook for margin in those three segments pushing forward.
Certainly. Rick, I'll take my best and hopefully if I miss something, please remind me that I missed it. From the import and domestic piece, there's a couple different stories there. On the domestic side, it literally is the difference in quarter of 2015, quarter of 2016, in lack of incentive money that was there in 2015 that wasn't there in 2016. We're actually pretty happy with the way we held, considering how much less incentive money there was quarter-over-quarter. On an import basis, it's just very competitive. We see the benefit of chasing volume a little bit with their stairsteps and incentives that they have. We have to be a little bit more aggressive and dig a little bit deeper in the hole to actually get those payouts.
As you can see, we delivered overall great gross profit growth in the quarter. That's what we're most excited about. From an inventory standpoint, we think we're well-positioned at 61 days. I don't think you ever have the ideal mix. You always have too much of something and too little of something. Generally speaking, we're really pleased where we're starting the year off and don't really see any headwinds with any of our OEMs or inventory levels.
All right. Thanks for the color. Service and parts, now you've been tracking well ahead of that mid-single digit same store target there. Is this a type of level you think can be sustained through 2017?
Rick, this is David. I'll take the first crack. Craig might jump in. We're still predicting the mid-single digit range. It's still a very choppy environment. How much of it's reconditioning? How much of it's warranty, customer pay? Days in the month, days in the quarter all play a factor in it. We've been focused on our initiatives the last 18 months specifically. We feel like we're starting to see the benefits of that through our dollar sales. We still think we have plenty of opportunity for traffic growth.
All right, Craig. Finally, if I could ask about Q Auto, how that performed in the quarter and any expansion plans for the new year?
Rick, I'll jump in on that one. It's Craig. We're down to two Q Auto stores. The results in the quarter just aren't material. I don't think they're worth talking about. I would say philosophically, we believe there continues to be an opportunity to go to market with an alternative distribution channel, a Q Auto, to sell cars that we'd otherwise send to auction. We've moved to a quality outlet concept. We're doing that in the Tampa market. We think two stores are all we need to cover that market. I would say it's still an experiment. The definition of success for us is a business model that generates an ROI that's above our cost of capital. We're not there yet. We're hopeful that we can get there.
If we can make these two stores work, we'll roll this concept out to the markets where we've got a footprint elsewhere around the country.
All right. Thanks for the update, have a good luck, guys.
Thanks, Rick.
Thank you.
We'll now take our next question from Brett Hoselton with KeyBanc.
Good morning, gentlemen.
Morning, Bret.
Keith, congratulations.
Thank you, Bret.
A couple of questions here. First of all, how should we think about the pace of share repurchase going forward? You kind of seem to be doing somewhere in that $50 million range per quarter, give or take.
Bret, I think we're going to continue to be opportunistic. We've always been of the view that when it makes sense to buy stores, we'll buy stores. When it makes sense to buy stock, we'll buy stock. You've also seen there have been quarters where we've sat tight because we thought we were better off to wait to see how some of the uncertainties in the market play out. I think that's what you'll continue to see us do going forward. We're very excited about this acquisition we just made in Indiana. As I mentioned, it's a very accretive transaction for us. If we can find more opportunities like that, we'll jump on them. We love knowing that we can always fall back on share repurchase if that's the most attractive opportunity.
Along those lines, M&A, can you talk about the level of deal flow and then kind of pricing multiples that you're currently seeing in the marketplace?
Sure. There's always deals in the market. I would say that the deal flow that we see today is pretty consistent with what we've seen over the last 18 months. I don't feel like there's been a major change, despite all the uncertainty that's out there. With respect to pricing, the domestic stores clearly traded a discount to the premium stores. We look at deals on an EV to EBITDA basis, relative to where we trade. I will tell you that the premium luxury stores are still being priced at a premium significantly above where we trade, which makes that a more difficult transaction for us to execute.
All right. Thank you very much, gentlemen.
Thank you.
Thank you.
We'll now take our next question from Bill Armstrong with C.L. King & Associates.
Good morning, gentlemen. I was wondering if you could maybe elaborate on the used unit comps, which accelerated pretty strongly. I know you mentioned in your opening remarks that you wanted to trade margin for volume. I was just wondering, kind of what led to that decision, and how you feel about the results that you got, and how you might approach that going forward.
Bill, this is David. The first half of the year, we were pretty focused on our margin and not as much focused on volume. As we started thinking about it during the year and looking at the total package between our F&I and our reconditioning gross, it just made sense to us, looking at the business, to really push the volume a little bit more, to sacrifice margin. We're happy with the outcome. We're going to stay with the current model that we have, and hope for the same success going forward.
Another question on the Indianapolis market. I see, in addition to the Chevy dealership, you also acquired an Isuzu truck franchise. You'd gotten out of the truck business a few years back. I was wondering if you could kind of talk about that. What are your plans on there?
Bill, it's Craig. The truck business that we got into here is, I'd call, medium-range truck, as opposed to the heavy-duty trucks that we were in before. It's a very different business, and it's one that we're comfortable with.
Right, it's still a commercial truck dealership as opposed to consumer. Does this signal perhaps a new strategic direction for you? Can we maybe expect you to put more resources into this market?
Bill, I think we're going to have to wait and see how this goes. This was part of the acquisition. They're successful with that business. I can't emphasize enough, it's not an 18-wheeler. It's a delivery truck as opposed to a heavy, long-distance vehicle. If it goes well, yeah, it's something we'd think about, but I think we want to get this tucked in and see how we do with it before we make any type of a commitment like that.
Okay. Just to clarify, this was part of the Hare acquisition, right? These were not two separate transactions?
That's correct.
Okay. Thank you.
Sure thing.
We'll now take our next question from Bret Jordan with Jefferies.
Good morning, guys.
Good morning.
I think on both, you mentioned that you didn't have much impact from stop sale, either new or used. Is that because you're seeing a better flow of replacement parts around the Takata issue? Maybe you could give us an update there. One quick follow-up.
Bret, this is David. Yeah. They're flowing pretty well. Every month we're reducing the number of $ we have currently outstanding. We see that progressing. There are still one-off vehicles that don't have airbags, and we don't have a timeframe for when they'll come in, and they could be as far away as the end of the first quarter into the second quarter, potentially. Generally, it's decreasing every month.
I guess, what are you seeing as far as an impact from selling those cars that have been held? Are you seeing any near-term push-down on profit as those units depreciate on your lot for a while, prior to sale?
No, not really. In 99% of the cases, we were receiving funds from the OEM to depreciate these vehicles. In a lot of cases, they're fairly desirable vehicles coming out that we're selling.
Okay, great. One last question. Was there any meaningful dispersion regionally in performance this quarter year-over-year?
No. Texas has been a little bit of a headwind or struggle for us, but generally speaking, fairly stable.
Okay. All right. Thank you very much.
We will now take our next question from Michael Montani with Evercore ISI.
Thanks, guys. First, congrats to Keith. Good luck in the next move. Just wanted to ask for elaboration, if I could, from David about the comment that you see opportunity to maintain margin in used. I guess as we think about modeling that out for next year, is that referencing the $1,500 a unit in the fourth quarter? Is it talking about the gross margin %, like the year-over-year declines? Can you just add some color to that?
Sure, Mike. I would say, where we're at in the fourth quarter, that $1,500 range, as long as we can drive the volume, we think that's the sweet spot for us.
Okay, thanks. Also just related to that, David, is on the CPO side, you mentioned the 10% rise. Can you update what percentage of the business that is currently? Given the off-lease supply that is coming back to market, is there any reason that shouldn't sustain for this year?
No. We're a big fan of the OEM-supported certified programs. We're continuing to look for opportunities to improve with them. It's a value proposition for the customer, and it's a value proposition for us because there's also, with CPO vehicles, additional reconditioning dollars in service. We still see a huge benefit there. It's less than 50% of our sales right now. It's typically between 30% and 35% on a monthly basis is CPO.
Okay, thanks. One also, I guess, was on the lease versus own mix today of the dealerships. What kind of opportunity is there to maybe increase that own percentage over time? How are you guys thinking about that?
Hey, Mike, this is Keith. We've made a lot of progress over the years, whether it be through straight up lease buyouts or constructing facilities near the end of current leases on leases that we're terminating. We regularly look at opportunities. I mentioned another one. We're building another facility in the coming year for $10 million. That is to move out of an additional lease facility. We're always evaluating that, but that's truly opportunistic. We're talking to our landlords all the time and looking for opportunities all the time, but that's on an opportunistic basis. I expect the progress to continue.
Okay. The last two I had was, number 1, on the F&I side. I guess back to David, if you could just shed some additional light on the opportunities you see to get $1,500 up to $1,650 plus that some of the peers have. Finally was on border tax. AutoNation made comments around potential benefits in tax reform. I'm wondering if you guys could share any thoughts around that as well.
Sure, Mike, this is David. I'll take the F&I and certainly leave that other question for Craig. On the F&I side, we're very happy with the month and where we came out. We think we can sustain these levels going forward. I guess $1,600 is always a potential. I struggle to see us getting there in the near future. I think currently where we're at is probably the level we'll stay at for a period of time with small lifts here and there. To us, $60 was pretty substantial.
Oh, okay. The border tax, I'll take a shot at that one, Mike. Philosophically, we just don't think it makes a lot of sense for us to try to give you any guidance on what any of these different issues that are up in the air in Washington might mean to us. I'd point out just a couple of facts. That the number 1 U.S. content car in the United States is a Camry. It's a complex issue. I think most people would think that the heaviest content car in the U.S. must be a domestic, and that's not the case. I'd also point out that we're a 38% effective taxpayer, one of the highest in the country as a domestic-only retailer. If there's any changes to the tax rates, obviously those will play to our advantage.
we've got to come back and ask, will we lose the depreciation tax shield? Will we lose the interest rate tax shield? Will we lose an interest rate tax shield on floor plan?
There are just so many unknowns about this and so many variables that we've decided that best thing for us is to just keep our heads down and work on the things that we can control. We'll watch this very closely, and we'll start to make adjustments to the extent we can as we get more clarification on what might come.
Thank you.
Sure thing.
We'll now take our next question from James Albertine with Consumer Edge Research.
Yeah. Hi. Thanks for taking my question. This is Derek Glenn on for Jamie. Just another quick follow-up on F&I. We were curious how we should think about this F&I per vehicle retailed, assuming we're in an environment where new vehicle sales decelerate and used vehicle sales accelerate. Is it harder to maintain this F&I PVR if used is outperforming new? Thanks.
Derek, this is David. I'll take first shot, and then maybe Keith will want to jump in. Years ago, it would have been because of the cost of sale, but now the cost of sale has come up so much on pre-owned vehicles. It really isn't impactful. We think our fourth quarter numbers is a number that we can sustain.
Okay. Thank you very much, and best of luck.
Okay, thanks.
We'll now take our next question from John Murphy with Bank of America Merrill Lynch.
Good morning. This is Elizabeth Suzuki on for John. Looking at new vehicle demand at this point, how elastic do you think it is? Would a tariff on imported vehicles or rising interest rates or other potential impacts here be likely to put material pressure on demand, even if it may be offset by a lower consumer tax rate?
Elizabeth, one that's difficult for us to answer. We're just a retailer. We run car stores. We look at some of the same economic forecasts that the large banks put together, people like yourselves. We, in our guts, we certainly feel that if new car prices are going to go up because of tariffs, we've seen estimates that say they could go up on average $2,000 a car, some much more. Obviously, we think that's going to have some impact on sales volume. SAR will fall. How far it would fall, we don't know. Like I said earlier, I think we're just paying very close attention to what's happening in Washington, and we'll be prepared to adjust to whatever comes our way.
Great. Thanks. That's helpful. How much interest rate exposure do you have in your floor plan lines and other debt in terms of what's variable versus fixed?
Yeah, Hi, Elizabeth. This is Keith. Basically, all our long-term debt is fixed effectively. Our new floor plan is obviously, it's LIBOR based, and it's floating. We carry about $800 million of floor plan at the end of the fourth quarter.
Great. Thanks very much.
We'll now take our next question from Paresh Jain with Morgan Stanley.
Morning, everyone, and congrats, Keith. Craig, a question for you on used. There is this thought that franchise dealers are expected to benefit a lot more than independent dealers from the increase in off-lease supply. If you try to isolate the impact that stop sale had on used vehicle performance in the last 12 months, are you seeing those benefits of basically having the equivalent of right of first refusal on lease supply? Would you say the impact is more in terms of volume or GPU?
There's clearly an advantage that we enjoy because we can sell a CPO unit, and with all these vehicles coming off lease, they fall right into that sweet spot. Stop sale has been very brand specific with respect to its impact. I feel that to a large extent, that issue is behind us. Like David said, we do have some brands. We're down to the point where essentially where one brand holds half of our stop sale vehicles. That's causing some disruption, but it's not material to us from an overall perspective. David, I don't know if you want to talk in more detail about the off-lease and how we might move that through the system.
The only comment I'd make is the inventory is plentiful. To acquire it is easy. Is there a benefit from a large group to a smaller group? There should be because it gives you the ability to move inventory around between stores and easier access for other stores to get brands or inventory that they maybe wouldn't have access to get. Generally speaking, our goal is to turn the inventory every 30 days. There are cars that from an appetite perspective, we might be able to turn, but we can't turn them in a timely manner, so we don't acquire them. We let them go. It's a good time to be opportunistic to buy what you need and what you want, so you can turn it in a timely manner.
Got it. A follow-up to that. Can you comment on what the difference in GPUs is for a used retail vehicle that was sourced through in-store appraisal versus that acquired at an auction?
I can't give you an exact number. I don't have it in front of me. I can tell you, generally speaking, your profits are larger when you take a vehicle on trade than when you acquire one at an auction. When you think about the auction concept, there's a lot of competition there, and if you leave with 10 vehicles, it just means no one would pay more than you would for those 10 vehicles. Naturally, your gross profits are going to be better on the cars that you trade at your door.
Thanks for the color.
We'll now take our next question from Chris Bottiglieri with Wolfe Research.
Hi. Thanks for taking my question. Just a question on the divestiture. Is there a way to quantify how much that helped your SG&A throughput, which was really strong this quarter? Is there any kind of basis point impact you can speak to and how we think about that for 2017?
Let me start. Then maybe Keith can get into the details. On that divestiture, we gave up five franchises. There were some body shops in there as well. Essentially, we replaced it with one large store. Typically, a larger store is going to be much more efficient. We're going to get better flow through, better net to gross. So the SG&A is going to look better. Philosophically, we like that kind of a concept. Keith, I don't know if you can add any more specific color.
Yeah, Chris, we disclose in our release and in our financials, we do SG&A on a same store and all store basis. The improvement in SG&A on a same-store basis was similar in nature to what you saw on an all-store basis, actually a little bit even stronger. Let us remind everybody, we've had a great run of SG&A. I think we have a focus here. It's a cultural focus. It's not just a finance team focus, but it's all the way through the operational team. It starts from the top, and we're always focused on continuous improvement. We're pretty proud of where we are from an SG&A perspective.
Got you. Okay. Then in terms of divestiture, what is it about, it sounds like you kind of alluded to this, I know they're small stores, but you guys are very strong operators and among the highest margins in the space. How do you think about divestitures? What was it about these four stores that made them less profitable? Then two, are there any other kind of, is there room for potential further optimization of the portfolio or are you pretty happy with where you stand today?
It's Craig. One of the things we do is we manage a portfolio of stores. There are sometimes opportunities for us to divest stores at prices that are very attractive, potentially prices that are greater than where we trade. If we can, in an asset that, like we said earlier, we don't think we can necessarily get it to the level of efficiency that we can get some of the larger stores to. In this case, selling those stores made economic sense to us from a shareholder value perspective. Then the beauty of the transaction was we could then turn around and reinvest a portion of the proceeds, buy a store that we think we can run or currently runs at a very attractive level of efficiency, and roll that into the portfolio and be net better off.
Got you. Okay, thanks. Then one final unrelated question to CPOs. That 10% is really impressive. It seems like the market, the industry-reported volumes are growing a lot slower. Is there anything structural based on your footprint or brand mix that allows you to grow faster than the market? Maybe small dealers might not have the lot capacity or what do you think are kind of the factors that attribute to that 10% growth?
Yeah. Chris, this is David. I don't think those are really factors at the end of the day, or at least as it pertains to us. We're lucky to have really good operators and people in our stores running the business. They really got their arms around this and are very focused on growing the CPO business. I think it's just a collective effort that we've been focused on really the last four months, and then we're just starting to see some of the benefits of it.
Okay, that's really helpful. Thank you for taking my question.
Folks, that wraps up our call for today. We appreciate you joining us and look forward to talking to you again next quarter.
Once again, that does conclude today's conference, and we thank you all for your participation.