Release Date: February 19, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Autosports Group Ltd (ASX:ASG) achieved a total revenue growth of 2.1% in the first half of FY25, despite challenging market conditions.
• The company successfully reduced its inventory by $47.2 million during the first half of FY25, improving its positioning for future financial periods.
• The acquisition of the Stillwell Motor Group contributed $80 million in revenue since its settlement in October 2024.
• Autosports Group Ltd (ASX:ASG) announced a fully franked dividend of 3.05 cents, in line with its dividend policy.
• The company is expanding its brand portfolio with the addition of luxury brands Pulsar and Zika, aligning with its luxury growth strategy.

Negative Points

• The new vehicle market was challenging, with a 7.4% decline overall and a 13% retreat in the luxury segment, impacting Autosports Group Ltd (ASX:ASG)'s new vehicle revenue and gross profit margins.
• Gross margins fell by 1.4% to 18.3%, primarily due to pressure on new vehicle margins and costs associated with inventory reduction strategies.
• Interest costs increased to $32.3 million, driven by higher leasing costs and acquired floor plan from the Stillwell acquisition.
• The company's EBITDA was down 25.1% to $80.1 million, reflecting the challenging market conditions and increased costs.
• Autosports Group Ltd (ASX:ASG) remains cautious about the outlook for the second half of FY25, expecting continued challenges in the new vehicle market.

Q & A Highlights

• Warning! GuruFocus has detected 7 Warning Signs with ASX:ASG.

Q: To remain challenging, is there a risk to further discounting that could potentially be a drag on gross profit margins? A: Nick Payton, CEO: If the market continues to decline, we will ensure that we reduce our new car inventories to keep them in line with reductions. This could put pressure on new vehicle margins. However, conditions would have to worsen for more pressure to occur. New car margins are elastic on demand and supply, so if demand decreases, we may need to trade deeper.

Q: Do you expect a 50% decline in interest given the inventory reduction and potential rate cuts? A: Nick Payton, CEO: There's a chance for interest costs to be stable or decline. A recent 0.25% rate reduction is worth about $2 million annually to us. We believe our stock is in a reasonable position, and through 2026, there are real chances for interest costs to decline.

Q: What is the potential quantum for inventory reduction in the second half, or is a stable inventory position more the plan? A: Nick Payton, CEO: We believe we're in a reasonable position on inventory today. If the market drops by 5%, we need to drop our inventory by 5% as well, which is about $25 million. We'll be monitoring it closely to ensure the right stock levels.

Q: Can you comment on how demand has tracked over January and February, and what's happened to your order bank? A: Nick Payton, CEO: The market was 3.2% down in January, and we anticipate deliveries will be slightly down overall. The order rate for the group was high 10s up on the previous period, but many cars won't be delivered in the next 6 months. The order bank is stable, but cancellations have increased slightly from 5% to 8%.

Q: Can you give a rough feel for the incremental OpEx for the Greenfield sites on an annualized basis? A: Aaron Murray, CFO: The Zika and Pollstar sites operate at a very low cost basis. Most sites will use existing showrooms, and the fixed expenses at the Pollstar site not using an existing showroom are extremely low.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.