EDMONTON, Aug. 9, 2018 /CNW/ - AutoCanada Inc. ("AutoCanada" or the "Company") (TSX: ACQ), a multi-location North American automobile dealership group, today reported its financial results for the three and six months ended June 30, 2018.

"This was a challenging quarter for AutoCanada which led to a comprehensive review of our organization, governance and operating objectives. We began taking decisive actions to resolve operational issues that have long been limiting store profitability. Neither our top line performance nor our profitability were acceptable and so we acted," said Paul W. Antony, who was today appointed as Executive Chairman. "AutoCanada has evolved from a founder-owned and operated company largely concentrated in Western Canada, into a national auto retailer. Our rapid store growth has given us a portfolio of excellent dealerships that provide AutoCanada with improving geographic and brand diversity, but we fell short in integrating acquired stores and enforcing consistent practices and standards across the Company. We are now addressing these deficiencies and expect to realize margin improvement from our actions in the coming quarters." 

For the 3 month period ended June 30, 2018 basic earnings per share was $(1.51) with adjusted earnings per share of $0.55. The Company took an impairment charge of $58.1 million, of which, $44.0 million related to the Grossinger acquisition. The Grossinger acquisition is still expected to be accretive for AutoCanada's shareholders, but in the short term it will come below the level previously anticipated by management.

As previously announced, the Special Committee of the Board of Directors of the Company appointed in June 2018 has been conducting a strategic review to explore a range of alternatives to enhance shareholder value with the assistance of its financial advisor, Greenhill & Co. Canada Ltd.

On July 3, 2018, Michael Rawluk, a seasoned operator of a large Canadian multi-brand chain, was appointed as President of AutoCanada. Mr. Rawluk immediately undertook a comprehensive review of store operations and dealer services and has developed a go-forward plan under the supervision of the Special Committee with the goal of enabling the Company to achieve operating profit comparable to the best of the public auto dealers in the United States. This plan contemplates an improvement to EBITDA attributable to AutoCanada shareholders of more than $30 million within 18 months. "Our stores should outperform their peers and we are putting in place operating disciplines that will ensure we achieve our financial objectives," Mr. Rawluk said. "Our plan touches every store and every profit center with a goal to manage costs, increase sales, and improve employee productivity. Some of our stores met some of these criteria, but even in those we can make further improvements. We will also divest those stores that do not fit with our plan and have entered into agreements to sell two dealerships. The team at AutoCanada – in the dealerships and at our corporate office – is excited and motivated to implement the actions in our plan," said Mr. Rawluk.

The strategic review has been completed and the Special Committee and the Board have endorsed the go-forward plan for the Company developed by the President. However, the Board will continue to consider any alternatives that may be available to enhance shareholder value. The Company also announced today in a separate press release changes to the composition of its Board and its executive management team.

2018 Second Quarter Highlights

• Revenue was $880.6 million, down 1.6% compared with the second quarter of 2017. Same-store revenue declined by 5.1%. The General Motors stores divested in January accounted for a $100 million decline in revenue, all of which was included in same store revenues in 2017. The loss of revenue was partly offset by the addition of nine stores in the Grossinger acquisition.
• Operating expenses were $128.7 million, up 14.0% from the same period last year, and included $4.5 million of management transition costs.  Operating expenses as a percentage of gross profit were up to 91.6% from 78.5% in the same period in 2017.
• Gross profit was $140.6 million, down 2.3% compared with the same quarter in 2017, with gross profit as a percentage of revenue slightly decreasing to 16.0% from 16.1%. Same-store gross profit declined 4.3%.
• New vehicle sales were 12,506, down 6.9% from the same period in 2017. Revenue from the sale of new vehicles was $522.1 million, down 6.5% from the same period in 2017. The sale of new vehicles accounted for 59.3% of the Company's total revenue and 21.8% of gross profit versus 62.4% of revenue and 26.8% of gross profit in the second quarter of 2017.
• Used vehicle sales were 6,013, up 18.8% compared with the same quarter last year. Revenue from the sale of used vehicles was $198.6 million, up 8.6% from the same quarter last year. The sale of used vehicles accounted for 22.6% of the Company's total revenue and 9.4% of gross profit, versus 20.4% of revenue and 9.1% of gross profit in the second quarter of 2017.
• Parts, service and collision repair generated $121.5 million of revenue, up 6.6% from the same period in 2017. This accounted for 13.8% of the Company's total revenue and 43.3% of its gross profit, up from 12.7% of revenue and 39.1% of gross profit in the same quarter of 2017.
• Finance and insurance generated $38.4 million of revenue, a decrease of 2.4% from the same period in 2017. This accounted for 4.4% of the Company's total revenue and 25.5% of its gross profit, in line with 4.4% of revenue and up from 24.9% of gross profit in the second quarter of 2017.
• EBITDA attributable to AutoCanada shareholders decreased to $10.8 million from $43.7 million compared with the same quarter last year.
• Including the impairment of non-financial assets, the Company generated a net loss attributable to AutoCanada shareholders of $41.3 million (Adjusted net earnings attributable to AutoCanada shareholders of $15.0 million), or $(1.51) per share (Adjusted net earnings per share attributable to AutoCanada shareholders $0.55) versus net income of $25.0 million in 2017 ($15.5 million on an adjusted basis) or $0.91 per share ($0.57 on an adjusted basis).
• Total impairment charges were $58.1 million in the second quarter, or $1.99 per share net of tax. Included in this total is a $44.0 million impairment charge related to the Grossinger Auto Group. This is a result of revised expectations for the timeline of US operational profitability. The Company has revised downward its future profitability projection for this acquisition primarily because store quality was lower than expected and will require more time to realize needed improvements.

"Our same store business was affected by the divestiture of four GM dealerships and an under-performing FCA platform that, combined, had an impact of approximately 15 per cent on our revenue this quarter," said Chris Burrows, Chief Financial Officer.

The following table summarizes the Company's results for the quarter ended June 30, 2018:

Outlook

The U.S. market has clearly entered a correction period which most analysts believe will last about two years. The extent of the correction is uncertain but during previous cycles the market declined at least 3% per year and 5% plus per year was common. The Canadian market is holding at slightly under the record sales of the last year but is also poised for a slight correction.

The difference between the U.S. and Canadian market is ownership levels. In the U.S., ownership of vehicles is stable at just under 100% of the driving age population and analysts do not believe there is room to grow structurally and is thus more exposed to a cyclical downturn.  In Canada, ownership has risen from two-thirds of the driving age population in the year 2000 to 85% last year. This resulted in an increase of over 9 million drivers over this timeframe and these new owners are now returning to the market. Thus, the Canadian outlook is more positive than the U.S. outlook although both markets are expected to decline in the near term. Rising interest rates compound this outlook but are also difficult to forecast.

The Canadian market is also very different depending on brands and regions. The Manitoba and Ontario markets are up this year while all other provinces where the company operates have seen a downward trend, with Saskatchewan, which is an important market for AutoCanada down double digits.  Brands tend to follow their product cadence. Those with older product, from an engineering perspective, struggle in the market and are much more dependent on incentives. This has been FCA's issue in recent months for instance. However, FCA has renewed most of their models and in particular the RAM pick-up truck which should be fully available for dealers to sell in the coming months.

There also is considerable speculation about the U.S. government applying duties to vehicles imported from Canada. This certainly would exacerbate the U.S. downturn, especially if the duties were to be extended to other countries. This would also seriously hamper vehicle manufacturing in Ontario, which exports about 1.8 million vehicles to the U.S.  Accordingly, duties would be negative for the Ontario market but the other provinces are not as likely to be affected as almost all vehicle and component manufacturing is in Ontario.

The vehicle retail sector in Canada could also be negatively impacted if the Canadian government were to retaliate with tariffs applied to vehicles imported from the U.S. This is impossible to predict, but retaliatory duties in the same sectors were not applied when the U.S. applied duties to the aluminum and steel sector. Instead, the Canadian government retaliated with duties on selected agriculture products.

While macro-economic factors determine total vehicle demand, AutoCanada's performance might vary relative to the overall market due to the Company's brand and geographic concentration. AutoCanada is nonetheless committed to achieving industry-leading sales in its stores and operating performance from each of its 68 franchised dealerships. The management and operational changes the Company has already made is validating this commitment. The Company also remains committed to acquiring top tier dealerships that grow the business while continuing to diversify its geographic footprint and brand portfolio. With its team implementing consistent processes and standards across all dealerships, including newly acquired stores, the Company is confident that it can realize the economies of its scale, integrate new acquisitions effectively and be able to adjust quickly to changes in markets. With slowing new vehicle demand, the Company is sharpening its focus on the less cyclical portions of the business, especially parts, service and collision, which generate both consistent results and strong margins irrespective of the economic climate.

Dividends

Management reviews the Company's financial results on a monthly basis. The Board of Directors reviews the financial results periodically to determine whether a dividend will be paid based on a number of factors with a goal to efficiently allocate capital to fuel AutoCanada's future growth while also providing returns to shareholders.

On August 9, 2018, the Board declared a quarterly eligible dividend of $0.10 per common share on AutoCanada's outstanding Class A common shares, payable on September 15, 2018 to shareholders of record at the close of business on August 31, 2018.
For purposes of the enhanced dividend tax credit rules contained in the Income Tax Act (Canada) (the "ITA") and any corresponding provincial and territorial tax legislation, all dividends paid by AutoCanada or any of its subsidiaries in 2010 and thereafter are designated as "eligible dividends" (as defined in 89(1) of the ITA), unless otherwise indicated. Please consult with your own tax advisor for advice with respect to the income tax consequences to you of AutoCanada designating dividends as "eligible dividends".

SELECTED QUARTERLY FINANCIAL INFORMATION*

The following table shows the unaudited results of the Company for each of the eight most recently completed quarters. The results of operations for these periods are not necessarily indicative of the results of operations to be expected in any given comparable period.

The following tables summarize the results for the three months ended June 30, 2018 on a same store basis by revenue source and compares these results to the same period in 2017.

MD&A and Financial Statements

Information included in this press release is a summary of results. It should be read in conjunction with AutoCanada's consolidated financial statements and management's discussion and analysis for the quarter ended June 30, 2018, which can be found on the company's website at www.autocan.ca or on www.sedar.com.

Non-GAAP Measures

This press release contains certain financial measures that do not have any standardized meaning prescribed by Canadian GAAP.  Therefore, these financial measures may not be comparable to similar measures presented by other issuers.  Investors are cautioned these measures should not be construed as an alternative to net earnings (loss) or to cash provided by (used in) operating, investing, and financing activities determined in accordance with Canadian GAAP, as indicators of our performance.  We provide these measures to assist investors in determining our ability to generate earnings and cash provided by (used in) operating activities and to provide additional information on how these cash resources are used. The following "Non-GAAP Measures" are defined in the annual MD&A and quarterly report; EBITDA; Adjusted EBITDA; Adjusted Net Earnings and Adjusted Net Earnings per Share; EBIT; Free Cash Flow; Adjusted Free Cash Flow; Adjusted Average Capital Employed; Absorption Rate; Average Capital Employed; Return on Capital Employed; and Adjusted Return on Capital Employed.

Conference Call

A conference call to discuss the results for the three and six months ended June 30, 2018 will be held on August 10 at 9:00am MT (11:00am ET).  To participate in the conference call, please dial 1.888.231.8191 approximately 10 minutes prior to the call.

This conference call will also be webcast live over the internet and can be accessed by all interested parties at the following URL: https://www.autocan.ca/investors/Q22018/

About AutoCanada

AutoCanada, a leading North American multi-location automobile dealership group currently operating 68 franchised dealerships, comprised of 27 brands, in eight provinces in Canada as well as a group in Illinois, USA and has over 4,200 employees. AutoCanada currently sells Chrysler, Dodge, Jeep, Ram, FIAT, Alfa Romeo, Chevrolet, GMC, Buick, Cadillac, Infiniti, Nissan, Hyundai, Subaru, Mitsubishi, Audi, Volkswagen, Kia, Mazda, Mercedes-Benz, Smart, BMW, MINI, Volvo, Toyota, Lincoln and Honda branded vehicles. In 2017, our dealerships sold approximately 63,000 vehicles and processed approximately 870,000 service and collision repair orders in our 999 service bays generating revenue in excess of $3 billion.

Additional information about AutoCanada Inc. is available at www.sedar.com and the Company's website at www.autocan.ca.

Forward Looking Statements

Certain statements contained in management's discussion and analysis are forward looking statements and information (collectively "forward looking statements"), within the meaning of the applicable Canadian securities legislation. We hereby provide cautionary statements identifying important factors that could cause our actual results to differ materially from those projected in these forward looking statements. Any statements that express, or involve discussions as to, expectations, beliefs, plans, objectives, assumptions or future events or performance (often, but not always, through the use of words or phrases such as "will likely result", "are expected to", "will continue", "is  anticipated", "projection", "vision", "goals", "objective", "target", "schedules", "outlook", "anticipate", "expect", "estimate", "could", "should", "plan", "seek", "may", "intend", "likely", "will", "believe", "shall" and similar expressions) are not historical facts and are forward looking and may involve estimates and assumptions and are subject to risks, uncertainties and other factors some of which are beyond our control and difficult to predict. Accordingly, these factors could cause actual results or outcomes to differ materially from those expressed in the forward looking statements. Therefore, any such forward looking statements are qualified in their entirety by reference to the factors discussed throughout this document.

The Company's Annual Information Form and other documents filed with securities regulatory authorities (accessible through the SEDAR website www.sedar.com describe the risks, material assumptions and other factors that could influence actual results and which are incorporated herein by reference.

Further, any forward looking statement speaks only as of the date on which such statement is made, and, except as required by applicable law, we undertake no obligation to update any forward looking statement to reflect events or circumstances after the date on which such statement is made or to reflect the occurrence of unanticipated events. New factors emerge from time to time, and it is not possible for management to predict all of such factors and to assess in advance the impact of each such factor on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward looking statement.

Additional Information
Additional information about AutoCanada is available at the Company's website at http://www.autocan.ca and www.sedar.com.

SOURCE AutoCanada Inc.