Title

Presentation

Asbury Automotive Group, Inc. misses on earnings expectations. Reported EPS is $5.37 EPS, expectations were $5.62.

Operator: Greetings, and welcome to the Asbury Automotive Group First Quarter 2026 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Chris Reeves, Vice President of Finance and Treasurer. Thank you, sir. You may begin.

Chris Reeves: Thanks, operator, and good morning. As noted, today’s call is being recorded and will be available for replay later this afternoon. Welcome to the Asbury Automotive Group’s First Quarter 2026 Earnings Call. The press release detailing Asbury’s first quarter results was issued earlier this morning and is posted on our website at investors.asburyauto.com. Participating with me today are David Hult, our President and Chief Executive Officer; Dan Clara, our Chief Operating Officer; and Michael Welch, our Senior Vice President and Chief Financial Officer. At the conclusion of our remarks, we will open up the call for questions and will be available later for any follow-up questions. Before we begin, we 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, which may include financial projections forecasts and current expectations, each of which are subject to significant uncertainties. For information regarding certain of the risks that may cause actual results to differ materially from these statements, please see our filings with the SEC from time to time, including our Form 10-K for the year ended December 31, 2025, 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.

Comparisons will be made on a year-over-year basis unless we indicate otherwise. We have also posted an updated investor presentation on our website, investors asburyauto.comhighlighting our first quarter results. It is my pleasure to now hand the call over to our CEO, David Hult. David?

David Hult: Thank you, Chris, and good morning, everyone. Welcome to our first quarter earnings call. Our first quarter results highlighted efforts to transform our business by optimizing our portfolio and successfully migrating to Tekion. Today, over 50% of our stores are running on Tekion. We remain on track and anticipate to be fully converted by the fall of this year. After which time, we expect to begin fully realizing the cost and efficiency benefits enabled by the new technology platform. . The first and second quarter of this year represents a peak in terms of number of stores, making the transition. As a result, costs related to integration and temporary disruption in store operations will also remain elevated as team members become fully acclimated to the new technology.

Michael will provide additional color behind the transition and its impact on our financial performance. The first quarter also showcased a number of capital allocation decisions which Asbury — which position Asbury for future success, while also returning capital to our shareholders. We divested 10 dealerships and a collision center at attractive multiples. — representing approximately $600 million in annualized revenue. $147 million of the proceeds went towards repurchasing 678,000 shares of our stock, with the rest directed towards reducing our debt. In our view, our trading price undervalues the earning potential of the company, and we took advantage of this price to value dislocation to accelerate our repurchase activity. Moving on to our first quarter 2026 operational performance.

Our results reflect the expected decrease in volumes as consumer demand moderated from last year’s tariff turbine spike in sales. More challenging weather was also a factor as was the temporary disruption for the stores going through the Tekion conversion. While new vehicle volumes were down, gross profit on a per unit basis held up well. On an all-store basis, new vehicle PVRs were down just $73 sequentially, and 177 on a year-over-year basis. An indication profitability is beginning to approach normalized levels. Similarly, used vehicle PVRs on an all-store basis, was $1,847, which is up sequentially 5% and 16% year-over-year as the team continues to execute our strategy to maximize per unit profitability. Parts and Service had a more challenging quarter, driven by a variety of factors, including weather, a more cautious consumer and temporary disruption from our DMS transition.

That said, we still expect fixed operations gross profit to grow at mid-single-digit rates over time. And now for our consolidated results for the first quarter. We generated $4.1 billion in revenue at a gross profit of $727 million, a gross profit margin of 17.7% and an expansion of 22 basis points. We delivered an adjusted operating margin of 5%. Our adjusted earnings per share was $5.37, and our adjusted EBITDA was $207 million. Before I hand the call over to our incoming Chief Executive Officer, Dan Clara, I want to take a moment to thank our team members to helping to make Asbury Automotive the company that it is today. Together, we have transformed our organization from a regional player to one with national scale in highly desirable markets, a balance portfolio and a leader in technology focused investments.

It has been an honor and a privilege to serve as a steward of this business for the past 8.5 years. and I know our best days are ahead with Dan running the company. Dan I will hand things over to you to discuss our operational performance in more detail.

Dan Clara: Good morning, everyone. Thank you, David, for the kind words. I feel I can speak for everyone here in saying that Asbury would not be as strong as it is today without your vision for growth and seeing the potential in this company. We all wish you the best in your next role as Executive Chairman. And now moving on to the quarter. I would also like to thank the team members for handling the challenges that were thrown at them this quarter. including severe winter weather in nearly all our markets and across multiple weekends. Our teams have been working diligently to make a transition to Tekion a smooth process and we are pleased with the early progress our stores are making. Changing the DMS is a complex endeavor for any dealer group, let alone one of our size, but it is necessary in order to elevate the guest experience and enhance our capabilities for strong operational performance.

As an example, we converted the [Koons] dealerships last summer, and they are starting to show the power of the software. For that specific group in March, we saw gross dollars per technician up 21% year-over-year, and average productivity per service advisor up 16%. We are seeing efficiencies extend beyond the service day as support cost in the stores decreased by 5% at the same time. And now I’m going to provide some updates on our same-store performance, which includes leadership in TCA on a year-over-year basis unless stated otherwise. Starting with new vehicles. Same-store revenue year-over-year was down 9%. While we believe the winter weather impacted sales activity, we are also monitoring consumer behavior in light of ongoing geopolitical events.

New gross profit per vehicle was $3,061 as luxury maintained GPUs in line with the prior year and import and domestic moderated as expected. On an all-store basis, which includes the positive impact of the Chambers platform, new gross profit per unit was $3,371, only down $177 year-over-year. Across all brands, our same-store new day supply was a healthy 54 days at the end of March, which we believe support resilient gross profit per unit. Turning to used vehicles. First quarter total used gross profit was up 1% sequentially. Used retail gross profit per unit was up 12% at $1,828, a $201 increase over the prior year and a $79 increase over our reported fourth quarter 2025 number. Our efforts in use continue to pay off. This represented our second consecutive quarter of progress in growing GPUs. We have seen sequential increases in GPUs in 6 out of the last 7 quarters, thanks to our teams executing more consistently.

We anticipate the pool of used vehicles will increase through the year, aided by lease return activity, which can give us the opportunity to increase volume and maintain this level of. Finally, our same-store used DSI was 30 days at the end of the quarter, down from 35 days at the end of the fourth quarter. Shifting to F&I. We earned an F&I PVR of $2,307. The nonres deferral impact of TCA was $45 a — so without the year-over-year impact of PVR would have been $2,351. We are on track to implement TCA in the timber stores by year-end, which will complete our rollout across all our platforms. And finally, in the first quarter, our total fund and yield per vehicle was $4,806. On an all-store basis, our front-end yield was up $70 year-over-year at $4,921.

Now moving to Parts & service. Our same-store Parts & Service gross profit was down slightly year-over-year due to slowdowns associated with the winter storms. In addition, it is also important to note that when we convert stores to Tekion, there is a short-term effect of adjusting to the new software at the store level. We believe it takes about 4 to 6 months to overcome the muscle memory of the legacy software and start to see efficiencies take hold, like those I mentioned earlier. Now going back to the quarter’s results. Customer pay gross profit was up 1% with warranty gross profit higher by 3%. During the month of March, we generated 4% growth for both customer pay and warranty gross, which was encouraging to see. April to date is trending similar to March.

Overall, we believe our stores are well positioned for the extended period of growth within parts and service supported by the aging car park and increased vehicle complexity. Before I pass the call to Michael, I want to thank the team again for your hard work to deliver a guest-centric experience and striving for improvement to unlock further performance. And with that, I will now hand the call over to Michael to discuss our financial performance. Michael?

Michael Welch: Thank you, Dan, and good morning to our team members, analysts, investors, other participants on the call. Our financial performance in the first quarter, adjusted net income was $102 million. Adjusted EPS was $5.37 for the quarter. In addition, noncash deferral headwind due to TCA this quarter was $0.26 per share. Our adjusted EPS would have been $5.63 without the deferral impact. . Adjusted net income for the first quarter of 2026 excludes net of tax, net gain on divestitures of $94 million, $5 million related to Tekion implementation expenses, $3 million of weather-related losses and $1 million related to the duplicate DMS related expenses. In our consolidated results, we estimate that the weather impacted gross profit by $19 million and EPS of $0.56.

As stated in our press release this morning, during the quarter, we divested 10 dealerships and terminated 7 franchises, which included exiting the Alfa Romeo and Maserati brands. Combined, these stores generated an estimated annualized revenue of $625 million. Adjusted SG&A as a percentage of gross profit on a same-store basis came in at 66.9% which includes $2 million related to legal expenses for a specific matter. In March, we saw adjusted same-store SG&A in the low 60s. So we believe the SG&A number would have been more solidly within our expectations for mid-60s range without the severe weather headwinds. As Dan mentioned, there is some frictional costs associated with changing our DMS that will take time to work out. In the short term, the stores are slightly less efficient than the first 2 months of operating in the new DMS.

In months 4 to 6, we see the stores become more efficient — it is encouraging to see our team members lean into the tool and embracing the operational improvement as the new platform can provide. Overall, we believe any short-term headwinds are outweighed by the benefits to come. Before I move on, I will note that the onetime implementation costs at the stores and the cost of duplicate software have been adjusted out of our non-GAAP SG&A numbers as shown in our press release this morning. Next, the adjusted tax rate for the quarter was 25.1%. We also estimate the full year 2026 effective tax rate to be approximately 25%. TCA generated $15 million of pretax income in the first quarter. The negative noncash deferral impact for the quarter was $7 million.

We generated $166 million of adjusted operating cash flow during the quarter. Excluding real estate purchases, we spent $46 million on capital expenditures in the first quarter and still anticipate approximately $250 million of CapEx spend for both 2026 and 2027. Adjusted free cash flow was $120 million for the first quarter. We ended the quarter with $1.2 billion of liquidity comprised of floor plan offset accounts, availability on both our used line and revolving credit facility and cash, excluding cash of Total Care Auto. Our transaction adjusted net leverage ratio was 3.2x at the end of the first quarter. As David mentioned, we took opportunities to optimize our portfolio through strategic transactions. Our divestitures in the quarter also reduced our CapEx burden, further allowing us to deploy cash to higher-return options.

The proceeds of the divestitures combined with robust cash flow in our business allowed us to balance our capital allocation priorities, both reducing our debt level and repurchasing 678,000 shares. Our diluted share count is approximately 18.6 million shares before adjusting for any future buybacks. And finally, before we open the Q&A, I would like to thank David for his years of valuable leadership. David guided us very — through a new level of growth and is still the team focused and guest-centric culture that makes Asbury what it is today. And with that, this concludes our prepared remarks. We will now turn the call over to the operator and take your questions. Operator?

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Operator: [Operator Instructions] Our first question comes from the line of Jeff Lick with Stephens.

Jeffrey Lick: David, just want to extend my thanks and you’ll be missed. Since we’ve got you, I was wondering if — look, 1Q was obviously a pretty noisy quarter on a variety of fronts, weather being one of the most. I wonder if you can just give a state of the union of kind of where we are for yourselves and the industry in 2Q. Just thinking about new and then new has some implications for used. And then obviously, service and parts was a little lumpy. I mean you did mention it was up in March. But just kind of where do you think things stand now that the tax refund season is over? And obviously, we’re not going to be getting is any more of the rest of this year.

David Hult: Sure, Jeff. I’ll take a shot and Dan can jump in. January and February were really rough for us from a weather perspective and we go far behind the 8 ball at that point before the weather started hitting in mid-January, we were actually facing well the first half of January. And then once we got hit with all the weather, we kind of didn’t recover. March was a good sign for us. Last March and April, were extremely strong with the tariff pre sales for lack of a better term, but we really bounced back. And to Michael’s comment, being in the low 60s for SG&A from March was a telltale sign for us. We see the same going into April. Very difficult to predict much beyond that with what’s going on with the war in gasoline prices and other things and how long that lingers.

One would think the longer that lingers, the more impactful that’s going to be on our business. We’re definitely feeling the slowdown. It’s not all the same by brand, but we’re still seeing a slowdown in new car sales into April as well. And just a top level, we were essentially back about 4,300 units or so in the quarter on new on a same-store basis. roughly, you’re going to take in 2,300 to 2,500 trade-ins on those 4,000 and you’re going to retail 80% of those cars. So there’s a chunk of preowned that we normally have internally to sell that we don’t have. So it will be a balancing act the next few quarters if new doesn’t pop back where we’re going to source vehicles. But I think Parts & Services is going to bounce back nicely and continue to grow as the year goes on, it does take us 4 to 6 months with Tekion to get the muscle memory right in the stores.

It doesn’t matter the market or the brand. It’s just human behavior takes time. But once you get tested that 6-month window, you can really start to see some efficiencies as to why we would make this change in the DMS. We do believe it makes our folks more efficient and more productive, while certainly lowering our costs at the same time. I don’t know if there’s any you want to add.

Unknown Executive: I think you covered up all, nothing to add.

Jeffrey Lick: And then just a quick follow-up for Dan maybe is you wonder if you could just give us 1 thing with Tekion, where you look at it and say, it manifests itself in financial benefit where you say, you know what, we’re making the right decision here yet — it might be a little noisy for 4 to 6 months, but when you start to look at our P&L a year or 2 years from now, we made the right decision. I was wondering if there’s one thing you could highlight.

Dan Clara: I think — Jeff, I think I covered it just 1 example of several that we’re seeing earlier today. When you think about the efficiencies to — that the new software brings. When you look at the gross dollars per technician being up 21% at cons and the average productivity per service adviser — and then you add the fact that support cost has also decreased. It’s a pretty nice mix and aligned with what we expected. And then to put icing on the cake, the guest experience is definitely improved upon by the ease of using the technology, the ability to enhance how fast that guests can be served. So we believe that it definitely gives us a competitive advantage that we need for the future, and it is definitely the right thing to do.

Operator: Our next question comes from the line of Rajat Gupta with JPMorgan.

Rajat Gupta: Great — and then David, best of luck and hope to catch up at some point again. I want to just follow up on some of the first quarter results, especially around the new car units and even used car of 11% same-store decline and the 12% in use, is there any way to break up how much of it was weather? How much of it was just the Tekion productivity? And then how much of it was market. Any way to parse that out would be helpful. And I have a quick follow-up on SG&A.

Dan Clara: Yes. Raj, this is Dan. I’ll start it. On the — when you look at the weather impact, I’m talking about from a same-store basis, we believe there’s no closure in Q1 affected us somewhere in the $500 range and similarly in U.S. core volume. And then when you when you go down to the fixed revenue as well, obviously, that had a tremendous impact somewhere on a same-store basis, somewhere around $13 million impact. So it was a significant impact. And as you know, when we have weather-related issues, it’s not just the data we’re close. It’s the days leading up to with all the media friends that happens and the days after the fact recovering David was in the Northeast of that time. And as you know, the Northeast was hit pretty severely and there were piles and poses now.

So it was definitely a big impact. But glad that it’s behind us and glad that March showed that we are directionally correct. And glad that April is similar to March so that we continue to build on the momentum.

Rajat Gupta: Got it. And how much do you think you lost due to like just the Tekion rollout in 1Q because you’ll probably close the store for like a day and like the Monday, I’m curious if that had any meaningful impact on the units. I know it probably impacted services, but anything on the units that you could flag?

Dan Clara: So yes, on the — I don’t have the exact number, Michael, I don’t know we have not shared that number. But on — you bring up an excellent point because when we roll out the Tekion stores, we go through the conversion, Saturday and Sunday, and we closed operations on that Monday. So that is definitely a day that we lose from being able to serve our guests. And then Tuesday, we’ve reopened. But again, that’s a competing new system were much lower than what we used to be until we developed that muscle memory that like I explained earlier, it takes between 4 to 6 months to get back to the efficiency levels.

Rajat Gupta: Got it. Got it. And just to clarify in Mike’s comments on SG&A on the call — in the prepared remarks, I think you mentioned mid-60s excluding the weather headwinds. I just want to make sure we heard that correctly. Is it mid-60s even excluding some of the productivity losses from the DMS transition? I’m curious, like, what’s a good steady-state number both taken. If it did not have weather, if it did not have DMS transition? What would have been a good steady-state SG&A to gross number in the quarter?

Michael Welch: Yes. I think based on the March results that we saw that were in the low 60s, I think mid-60s without the weather would have been the right now for the first quarter. So we’re still comfortable in that mid-60s range, going forward. And then at some point in the back half of the year as we start to see the Tekion efficiencies come through. I don’t know if that’s fourth quarter or where that shakes out. But sometimes we’ll start seeing an approach toward the mid-60s after we get the Tekion efficiencies running through the system.

Rajat Gupta: Got it. Just a final one on buybacks. Given the fact that you’re ramping up buybacks here why EBITDA is coming down. I’m curious, is this you taking a view on the benefits of the Tekion rollout and the benefits you might see into 207 and beyond, that’s giving you that confidence given like the cyclical backdrop still looks a bit choppy here. Just curious list thinking around the buybacks ramping up.

Michael Welch: So a couple of things in there. In the first quarter, we disposed of the stores, and so we used those proceeds to buy additional shares in the quarter. But also as the share price continues to dislocate and get low levels at attractive prices for us. We took a view that we need to take advantage of that stock price. We do think the back half of this year and into 2017, the EBITDA comes up dramatically with the Tekion rollout behind us. And so we’re kind of trying to balance the leverage ratio and the share buybacks. And if the share price is low, we’re going to lean in a little bit of share buybacks.

Operator: [Operator Instructions] Our next question comes from the line of Glenn Chin with Seaport Research.

Glenn Chin: Just another follow-on related to Tekion, can you just confirm for us sort of the contour the tuck-on impact throughout the year? Do the cost and inefficiencies from the transition peak in 2Q?

Michael Welch: No. So — if you think about just the stack-up effect, we have first quarter was pretty heavy rollouts. 2Q has a decent amount of rollout and then we go kind of handle the West in 3Q. And so just the stack of all the storage, if you think about that 4- to 6-month window, it will probably peak in 3Q. At some point, call it, sometime in 4Q, we should be able to flip over the — we have more stores that are past the 4 to 6 months. But I would say that the peak is going to be very late 2Q into 3Q is kind of where the peak will be.

Glenn Chin: Okay. Very good. And I understood that you’re going to adjust out sort of the explicit costs from Tekion, those time line around those, Michael, is also same?

Michael Welch: No, it should be similar. 2Q and 3Q, 2Q pros a few less stores in it and 3Q has a few more. So just from an implementation cost perspective, it will be in a similar ballpark to 1Q, but maybe a little lighter in 1Q and similar to 3Q when you compare to 1Q. .

Glenn Chin: Okay. Very good. And then I think Dan, you mentioned in your prepared remarks as well as last quarter, just hesitation around the consumer with respect to parts and service. Can you just — any further elaboration on that, if you will?

Dan Clara: Yes, Glenn. We saw the pullback, as you mentioned in Q4 going into Q1, there’s a lot of uncertainties going on out there. So I would say that it is somewhat consistent, but there is — keep in mind, there’s a new award that has started. That is with oil prices at an all-time high is just keeping people on more of the defensive side of it. But again, when I go back into my remarks earlier today, it’s encouraging to see what we saw in April, customer pay up and seeing the same trend going into April — I’m sorry, in March going into April.

Glenn Chin: Okay. Very good. That’s it for me. David, we’ll miss you, good luck with everything and your new position.

David Hult: Thank you.

Operator: Our next question comes from the line of Alex Perry with Bank of America.

Alexander Perry: I guess just first, I wanted to double-click a little bit more on sort of the current stated demand with where gas prices have gone and just the impact of consumer confidence — on the new vehicle side, when did you start to see the slowdown? Is that more sort of an April comment? And is that just on new? Are you seeing any impact to mix yet in terms of the mix of vehicles that consumers are buying? And what are you sort of seeing unused?

Dan Clara: Yes. On the new car, it really goes back to — I mentioned this on the fourth quarter, there was — we didn’t really get the pop for a lack of a better term that we get in December. January, as David mentioned earlier today, the first half of January before we got hit with the weather, we were facing okay. and then we just never recover from the weather. So from a new car perspective, I will tell you that really after the weather never recovered, February about the same in March the same trend continued. From a mix, typically, when you see gas prices at the levels where we are right now, it usually takes 5 to 6 months for consumers to start really changing their buying habits. We have not seen that. And what I mean by that is a consumer that is going to trade in a Chevy Tahoe for Honda Civic or what have you.

We have not seen that, but the longer the war goes, I think the closer we’re going to be getting to see a shift in consumer behavior, but we’re not there yet. And from a used car standpoint, the demand of used cars is there. especially with the difference in the cost of sale between a new and used car. When you factor in all the items that have gone up, insurance rates, the average cost of maintaining a car. When you look at all that, the demand is definitely there for used cars. We strategically have made the decision to not chase the volume and to maximize the gross profit — and as we showed in Q4, we were heading gross profit. Q1 when you look at margin, again, even though we were backwards in volume, our gross profit was ahead year-over-year for used cars.

So we believe strongly that, that is the right strategy to continue to execute. And as the availability of used cars become readily available as we move throughout the year, then we can pull that lever while still protecting the margins that we have delivered over the last few quarters.

Alexander Perry: Got you. Got you. That makes a lot of sense. And then I guess I just wanted to ask a little bit more on the Parts & Service trend. If we think about comps from here, I think you mentioned the rebounding earlier in the call. Is that primarily a factor of just getting past the weather impact? Is there something you’re seeing in terms of sort of delayed effect from people that would have came into the first quarter starting to come in? Like can you just maybe talk about how you think about the Parts & Services? And what sort of drives that rebound?

Dan Clara: Parts & Service, we’ve always been saying mid-single digits. We have a — we’ve developed a very strategic plan to go and grow our fixed operations, meaning Parts & Service. And no different than what we’ve done with U.S. cars. It’s about the execution — when you think about — and you can see it on the IR deck, the average miles coming through our shop or continue to be in the 70,000 mile range. So that gives us a lot of stability that we are retaining the guest and obviously, that we have the opportunity to continue to maintain those cars for those customers. And the last factor that I see tremendous potential is growing the CP count and really focusing on what we call the cycle time, how fast can we serve our guests, which is also one of the benefits that I mentioned earlier of going to Tekion.

The faster we get that guest in and out, the higher the retention and the higher propensity for that customer to come back and do business with us and the more throughput that we can push through our service departments.

Operator: Our next question comes from the line of John Babcock with Barclays.

John Babcock: I guess just first of all, I was wondering if you could talk about Herb Chambers , how the integration is going there and if there’s anything new to share on that front? And then also, if you can just remind us when you’re pointing on implementing Tekion into that business.

Dan Clara: Yes. Herb Chambers integration is going well. We are very happy with the talent, the people. We’ve got some great team members, great stores and what they have built together is impressive and now is up to all of us to work together as a team to take it to the next level. Tekion rollout at Chamber started last month. We’ve already converted. I think — we have — we need 2 stores, 22 or 24 stores, call it, in the 20% range with the rest of the stores. I think we have 8 more that are going to be converting in the month of May or June, I’m sorry, in the month of June. So by June, chambers will be completely converted to Tekion.

David Hult: Okay. And the next question, just on GPUs because you do break it out across luxury imports and also domestic. And it seems like quarter-over-quarter, there was pretty good stability in luxury and imports, but domestic was down a decent bit. Is there anything we should take note of from those trends? Or…

Dan Clara: Listen, the biggest impact that I’m seeing on domestic side is we still have the headwind of Stellantis. We are well aware of it. We’re focusing on performing better with Stellantis, getting that inventory turn and maximizing the gross profit. But it really — the biggest impact in the domestic was our Stellantis stores. .

John Babcock: Okay. Very helpful. And then just my last question. Just I was wondering if you could share how much, if any, shares you bought back in April?

Michael Welch: Yes, any shares we would have bought back in April would have been disclosed as part of the press release. So we did our share buyback early on in the quarter, took advantage of some share prices then. And so all those shares were purchased January through March.

Operator: [Operator Instructions] Our next question comes from the line of Bret Jordan with Jefferies.

Bret Jordan: On the plants, are you seeing any improvement in the trend? I mean it seems as if maybe they’re making some product adjustments or maybe pricing adjustments? Are you seeing any traction there? Or is it pretty much the same?

Dan Clara: From a high level, there are changes being made that make total sense, and it is a step in the right direction. — but it’s a double-edged sword because when they make those changes, I’ll give you an example, they adjust the pricing for the new models coming in, but we still have the same model that is a year older that is more expensive than the new model coming in. And so that is where there is some pressure to the margins to be able to make sure that we liquidate that old inventory in the old pricing structure to make room for the new decisions that the management team is making. .

Bret Jordan: Okay. And then I guess on the parts and service side of the business, you had a pretty hard warranty comp year-over-year. Could you sort of talk about what you’re seeing? Are there any major warranty programs that are popping up that might give you some tailwinds in volumes in the balance of this year?

Dan Clara: Yes. We had some big warranty comps. I’ll tell you 1 of the — I want to say surprise, but one of the, I guess, obstacles that we faced is 1 of our import OEM not a major decrease in warranty issues last quarter, which obviously more is something that we don’t control. So we happily service the customers when they come in. but it’s really outside of our control. Moving forward, we’ve seen some of the domestics that have issued some recalls and some additional warranty work. But it’s hard to tell. Like I said, warrant is important to pay attention to it, but I cannot control it. That’s why our focus is always on the customer pay. We’re just after we serve the guests when the OEMs have any warranty issues.

Operator: Our next question comes from the line of Ryan from Craig-Hallum.

Matthew Raab: This is Matthew Raab on for Ryan. Just want to go back to the new GPUs, maybe putting a finer point there. We’ve talked in the past about settling out in that 2,500 to 3,000 range. you’re at 3271 feels like inventory is pretty rational, and you’re certainly getting the benefit of the Herb Chambers mix. I mean at this point, is there any reason why GPUs can’t settle out near the higher end of that range? And if you have any expectation for new GPUs for 26, whether it’s a year-end number or quarter-over-quarter decline through the rest of the year, that would be great.

Dan Clara: Matt, thank you. Great question. And I agree with you. I think for the last several quarters, we’ve been talking about 2,500 or 3,000. We believe now that, that number is moderating, and it is closer to about 3,000 range. So to your point, excellent question.

Operator: We have no further questions at this time. Mr. Hult, I’d like to turn the floor back over to you for closing comments.

David Hult: Thank you, operator. We appreciate everyone joining our first quarter earnings call. And the team here looks forward to discussing our second quarter results in the future. Have a great day.

Operator: Ladies and gentlemen, this does conclude today’s teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a wonderful day.

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