DULUTH, Ga. -

Asbury Automotive Group’s management expects the retailer’s Q auto program to show run rate profitability by the end of the year and said the standalone used-car outlet program is actually ahead of schedule on the financial side.

In his early remarks during Tuesday’s first quarter earnings conference call, Asbury senior vice president and chief financial officer Keith Style said the Q auto program “continues to progress in line with our expectations.” 

It resulted in an earnings per share loss of $0.03 during Q1, which is better than the prior estimated loss of $0.04 to $0.06, Style said.

“Looking to near-term expectations, we estimate this initiative may reduce EPS by 1 to 3 cents in the second quarter of 2015,” Style continued. “We continue to focus on our objective of achieving run-rate profitability for Q auto by the end of the year.”

Then during the Q&A portion of the call, when an analyst asked management to gauge Q auto’s performance against its expectations, president and chief executive officer Craig Monaghan said the Asbury is “happy with the progress” made by the used-car program

“I’d say we’re actually maybe moving slightly ahead of where we expected to be, as you saw in the results of this quarter; we had a 3-cent loss, we’re anticipating a loss of 1 to 3 cents next quarter, so we think we’ll continue to make progress,” Monaghan said.

What Format of Q Auto Works?

The Asbury CEO was asked by the same analyst to provide some additional color on the Q auto format (which consists of small, medium and large stores) and on when Asbury could make a final decision on what ultimately happens with Q auto.

“I think we’re learning that the smaller formats are most effective. The larger format is more challenging, but we think there’s still opportunity in that store,” Monaghan said. “The other thing we’re learning is that the stores that are opened the longest are the stores that are doing the best. I think that’s something that you might expect.

“With respect to where do we go from here, I think we continue to look at this as a tremendous opportunity for us to utilize today’s technologies and some of our in-house expertise, and figure out if we can’t retail some portion of the 35,000 cars that we’re sending to auction every year,” he added.

“And I think we’re making progress in that direction. Our objective is to achieve run-rate profitability by the end of the year,” Monaghan said. “We think we’re heading in that direction, and I think at this point, we just ask for some patience while we continue to work on it, and see where we can get (to).”

‘Just Right the Way We’re Doing It’

It’s a “puzzle” Asbury is trying to solve, Monaghan says, this process of building a marketplace to retail at least some of the tens of thousands of vehicles it would normally wholesale.

Asbury has “a lot to learn,” he said during the Q&A, and you can expect more technology to arrive in Q auto stores as the company continues to work with its partners.

“We’re working with our technology partners, we’re working with our financing partners, we’re experimenting with a number of different things. We think it’s just right the way we’re doing it, and this is what we want to stay focused on right now,” Monaghan said.

Another thing Asbury is looking to determine is who, exactly, Q auto customers might be, Monaghan said later during the Q&A. What the company has found so far is that the customers vary by market.

“In one of the markets, for example, it’s primarily subprime,” he said, “but in another market we can sell luxury cars.”

Monaghan, who was answering a question from an analyst about the rationale behind the investment in establishing a separate brand and standalone stores, would then go back to what he called the “overriding view” on Q auto.

“We’re not consuming a lot of capital with this. It is not terribly disruptive to our core operations. We’ve carved out a group of people who are dedicated to it. And we’re learning. And I think that’s the important thing; we’re learning,” Monaghan said.

“I think brand is important; obviously, a brand is important. And we do believe that as we these stores continue to operate and get more time under their belt, they are becoming more relevant in their marketplace, they’re becoming more relevant online and we think those are some of the things that are helping them continue to improve their volumes,” he said.

“And we’ve just got to continue down that path,” he added. “It’s going to take some time. But we feel like we’re headed in the right direction and it is well worth our effort, and your investor and our investment to shareholders, to give this thing a shot. In fact, we think we’d be remiss if we didn’t give it a shot because there’s a real opportunity here.”