AutoNation, Inc. (NYSE:AN) Q1 2020 Earnings Conference Call May 11, 2020 11:00 AM ET

Company Participants

Robert Quartaro – Vice President, Investor Relations
Michael Jackson – Chairman and Chief Executive Officer
Joseph Lower – Executive Vice President and Chief Financial Officer

Conference Call Participants

Rick Nelson – Stephens, Inc.
Bret Jordan – Jefferies LLC
John Murphy – Bank of America Merrill Lynch
Rajat Gupta – JPMorgan India Pvt Ltd.
Armintas Sinkevicius – Morgan Stanley & Co. LLC
David Whiston – Morningstar, Inc. (Research)

Operator

Ladies and gentlemen, thank you for standing by, and welcome to AutoNation First Quarter 2020 Earnings Call and Audio Webcast. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today’s conference is being recorded. [Operator Instructions]

I would now like to hand the conference over to your speaker today, Robert Quartaro, Vice President, Investor Relations. Thank you. Please go ahead.

Robert Quartaro

Thank you. Good morning, and welcome to AutoNation’s First Quarter 2020 Conference Call and Webcast. Leading our call today will be Mike Jackson, our Chairman and Chief Executive Officer; and Joe Lower, our Chief Financial Officer. Following their remarks, we will open up the call for questions. I will be available by phone following the call to address any additional questions that you may have.

Before we begin, let me read our brief statement regarding forward-looking comments. Certain statements and information on this call, including any statements regarding our anticipated financial results and objectives, constitute forward-looking statements within the meaning of the Federal Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve known and unknown risks, including economic conditions and changes in applicable regulations that may cause our actual results or performance to differ materially from such forward-looking statements.

Additional discussions of factors that could cause our actual results to differ materially are contained in our press release issued earlier today and in our SEC filings, including our most recent annual report on Form 10-K and subsequent quarterly reports on Form 10-Q and current reports on Form 8-K.

And now, I’d like to turn the call over to AutoNation’s Chairman and Chief Executive Officer, Mike Jackson.

Michael Jackson

Good morning, and thank you for joining us. Today, we reported adjusted EPS from continuing operations of $0.91, down only 4% year-over-year despite significant headwinds caused by the coronavirus. I would like to thank all AutoNation associates across the country for their tremendous effort during these challenging times. Only their hard work and dedication and continued support, first responders, essential workers and communities in which we live and work, on behalf of AutoNation, I would like to say thank you to all who have put themselves on the frontlines of this battle pandemic. We are forever grateful.

The health and safety of AutoNation’s customers and associates is our top priority. AutoNation stores are cleaned and sanitized multiple times a day. The company has implemented social distancing, best practice within the workplace and all our associates and customer interactions and our store-to-delivery program for customers who feel safer at home to complete their transactions.

Even with the pandemic and related shelter-in-place orders across the country, AutoNation delivered strong results for the quarter compared to the prior year. Same-store first quarter 2020 revenue was $4.7 billion, a decrease of only 5%. Same-store first quarter 2020 gross profit totalled $812 million, a decrease of 3%. Same-store variable gross profit was $423 million, a decrease of 5%. Same-store customer care gross profit was $389 million, a decrease of 1% compared to the year-ago period and customer pay down 2%.

The automotive recovery is underway as at May 8, states from which we derive roughly 50% of our total revenue are largely still under shelter-in-place or say-at-home orders compared to 95% beginning of April. In the month of April, we began to see a recovery in our sales. Same-store new and used retail unit sales were down approximately 20% in the final 10 days of April compared to down approximately 50% in the first 10 days of the month.

We continue to see improvement in our largest markets, Florida, Texas and California. At the end of March, same-store retail unit sales for Florida, Texas and California were down approximately 50%, 40% and 70% respectively.

But by the end of April, retail unit sales in Florida, Texas and California were down approximately 25%, 5% and 30%. We expect most manufacturers to resume production in May and credit is readily available and affordable for our customers.

We are also seeing customers return to our service lanes. At the beginning of April, our custom repair orders were down approximately 50%. And at the end of the month, repair orders were down roughly 30%.

I’d now like to turn it over to our Chief Financial Officer, Joe Lower.

Joseph Lower

.

Thank you, Mike, and good morning, ladies and gentlemen. Before discussing our first quarter financial results, I would like to provide perspective on the impact COVID-19 and related actions have had on our business and financial position.

In response to the dramatic sales decline during the last two weeks of March, in early April, we implemented a series of cost reduction and capital preservation measures, in an attempt to mitigate the economic challenges we were confronting.

We placed approximately 7,000 employees on unpaid leave, implemented temporary pay reductions for our executives and associates, suspended 401(k) matches and froze corporate new hiring.

We also took actions to significantly reduce our advertising expenses, discretionary spending and capital expenditures through the second quarter of 2020. Our Board of Directors also temporarily waived the retainer fees. These actions were swift, severe and necessary, given the uncertainty we faced.

Fortunate we have a business model that can quickly adapt to these types of business challenges, coupled with a strong balance sheet. Currently, we have in excess of $1.4 billion of liquidity, including over $750 million of cash and approximately $650 million of availability under our revolving credit facility. We also have access to other sources of capital should it be needed. As such, we believe we have more than adequate liquidity to weather the current situation.

Turning to first quarter results, we reported adjusted EPS from continuing operations of $82 million or $0.91 per share.

First quarter 2020 adjusted results exclude non-cash impairment charges of $315 million after-tax or $3.49 per share associated with goodwill, franchise rights and other assets. These non-cash charges were triggered by COVID-19-related impacts to the business and our market valuation at the end of the first quarter.

During the first quarter, same-store revenue decreased $238 million or 5% compared to the prior year. On a total store basis, revenue decreased $350 million or 6% and gross profit decreased $36 million or 4%. Of note, we began the year strong with combined same-store January and February revenue up 10% year-over-year, before COVID-19 and related shelter-in-place order caused almost a 30% decline in March.

SG&A as a percentage of gross profit was 73.9% for the first quarter, which represents a 50 basis point increase compared to the year-ago period, as disruption to our business from the coronavirus caused significant SG&A deleveraging in March following positive year-over-year trends in both January and February.

Floorplan interest expense decreased $26 million as compared to $39 million in the first quarter of 2019 due to lower interest rates and interest rates and lower average floorplan balances.

Non-vehicle interest expense decreased to $24 million as compared to $28 million in the first quarter of 2019, primarily due to lower average debt balances. At the end of March, we had $2.5 billion of non-vehicle debt, an increase of $418 million compared to the end of the fourth quarter as we’ve partially drawn our revolver and increased cash on the balance sheet as a precautionary measure given the uncertain outlook. The provision for income tax in the quarter on an adjusted basis was an effective rate of 27%.

With COVID-19 and shelter-in-place orders significantly impacting our operations, we halted our share repurchases before the end of the first quarter. Prior to that, we saw an attractive opportunity to acquire AutoNation stock and invested $80 million for the purchase of 2.5 million shares at an average price of $31.95.

Under the current board authorization, the company has approximately $139 million available for additional share repurchase and as of March 31, there were approximately 87 million shares outstanding. Our covenant leverage ratio of debt-to-EBITDA increased to 2.8 times at the end of the first quarter compared to 2.2 times at the end of the fourth quarter 2019.

Including cash, our net leverage ratio was 2.4 times at the end of Q1. Capital expenditures were $30 million compared to $40 million in the prior year, reflecting actions we started implementing in March that will continue through Q2. We will continue to remain disciplined over costs and capital as our markets continue to reopen and business recovers. We believe our resilient business model and strong balance sheet position us to excel going forward.

I will now turn the call back over to Mike.

Michael Jackson

Thank you, Joe. While there’s certainly unpredictability, especially through 2020 on the pace of the recovery, we believe the automotive recovery is underway. Customers are motivated. They told us they want personal space rather than shared space when it comes to transportation. We are prepared to meet all of our customers’ transportation needs in a safe and responsible way. AutoNation is focused and well positioned to perform during this auto retail recovery.

We’re now delighted to take any and all questions.

Question-and-Answer Session

Operator

Your first question comes from Rick Nelson with Stephens. Your line is open.

Rick Nelson

Thanks, good morning, [indiscernible], Mike. Curious what you see happening in the used car market. Seems to be a lot of inventory out there, dealers inventory reduction mode, how you’re responding to that? Are you taking early and aggressive markdowns? Or are you preferring to wait up on the sidelines for how pricing develops?

Michael Jackson

Rick, this is Mike Jackson. Retail pricing in the used vehicle market has been very stable. I would say it’s moved by 1% or 2% thus far. And what we’ve also seen now with the disruption to production on new, is the customer can’t find what they’re looking for new, they’re very flexible to consider nearly new and pre-owned. Obviously, the wholesale market is a different story and it’s very hard to judge, particularly with the auctions disrupted and with the rental car companies rightsizing their fleets, but I think a lot of that has already been done without disrupting the retail market. So the ability to acquire vehicles for inventory at a very attractive pricing is good and retail pricing is, I would call, stable all things considered and we are in a good position to manage come what may.

Rick Nelson

Great. Thanks for that. Also, curious how you see consumer behavior changing post-COVID? I know, you’ve made lots of digital investments. Maybe you could talk about the profitability of a digital sale versus in-store? And F&I, how you see social distancing affecting the F&I business?

Michael Jackson

So, this is Mike. I think for digital, this whole disruptive period with corona is an inflection point from which there’s no turning back. While there’s been a strategic trend towards digital and we certainly have invested in those capabilities, this is an accelerant from which there is no turning back. And I think the bar has now been raised for any company that wants to perform in this marketplace is you need first-class digital capability, you need a safe environment for your customers and a safe environment for your associates. That is the Holy Grail going forward.

We see no difference in profitability between the digital channel and the traditional challenge whatsoever. And as far as our performance around finance and insurance, on a PVR basis, I think we’re at near-record levels. Joe, could you talk about that, please? I’d see no impact there.

Joseph Lower

Yes. Thanks, Mike. So we’ve continued to see strength in F&I, saw through Q1 and continuing to see it in April and continuing to see it in May. So, all signs are very positive on that front.

Rick Nelson

Great. Thanks a lot and good luck.

Joseph Lower

Thank you. Stay safe.

Operator

Operator: Your next question comes from Bret Jordan with Jefferies. Your line is open.

Bret Jordan

Hey. Good morning, guys.

Michael Jackson

Good morning.

Bret Jordan

On the comment about digital being at an inflection point, do you see the independent use market changing dramatically? And then obviously, a lot of them are not as sophisticated from an online execution standpoint. Do you think we’re going to have a meaningful reduction in stores?

Michael Jackson

I think that trend was already underway where the value of a brand and experience and a warranty/guarantee has all been expressed as a consumer of things that are valued and there’s been a movement towards companies like AutoNation with One Price, CarMax, Vroom, Carvana. You see it. I think that is a trend that is there and that will continue now. I think there is an acceleration toward companies that have, as I said, first-class digital capability and the scale and the ability around the brand and the ability to deliver a uniform experience. So, this preowned market, which is dramatically at retail larger than somewhere approaching over – somewhere between $35 million, $40 million in a normal year. I don’t know what it will be this year with the disruption of corona. I think there is a consolidation into first-class digital, branded, warrantied known entities from consumers. And I think that means those that are competing with that will lose share...

Bret Jordan

Thank you. And then a macro question...

Michael Jackson

What’s happened now will only accelerate.

Bret Jordan

Thank you. And I guess a macro question, I guess starting with the cars. Do you think this pandemic is followed by a recession and I guess do you have any outlook as far as sort of a guesstimate for SAAR for 2020?

Michael Jackson

There’s no question the United States is in a recession; that there is no – absolutely no doubt about. The employment level in the United States is now lower than the bottom of the 2008, 2009 recession. We’ve given it back into the month 10 years of job growth. Now having said that, as far as 2020, to give a number on 2020, while I say the automotive recovery is underway, I think 2020 is a very unpredictable year. I think there’ll still be twists and turns and bumps and surprises through 2020. So, I’m not going to give a number for 2020 other than saying if I go back a month, a little over a month ago, we were looking at – we were down 50% and where we’re going to be down 90% or was it going to be something else. Today, we’re only down 20%. So obviously, the drumbeat of demand for personal transportation is strong and exactly how that plays out for 2020, I can’t tell you. But this is a multiyear recovery in automotive retail, retail that is underway and I’m highly confident that 2021 will be better than 2020. That I guarantee you, but I’m not willing to give you numbers on either considering the level of uncertainty and unpredictability, but directionally, I’m quite confident that get an automotive retail recovery is underway.

Bret Jordan

Great. Thank you.

Operator

Your next question comes from John Murphy with Bank of America. Your line is open.

John Murphy

Good morning, it’s great to hear from you and your thoughts and we’re hoping [indiscernible] is doing okay. Just a first question here, Mike. I mean, inventory on the new site appears to be a little bit high given the run rate of sales that we’re looking at right now. But with a lack of production, you could quickly get whipsawed into being very tight or deficient in your ability to actually deliver the new vehicle demand. I’m just curious how you’re navigating that and thinking about that and maybe also sort of in conjunction, how are the automakers acting in this kind of environment relative to history? It seems like they’re being a little bit more collaborative and supportive, but just curious your view on that as well.

Michael Jackson

John, we’re very satisfied with our inventory position. We think we’re in good shape. As you know, day supply is a trailing number, where it’s one of those numbers you can’t look in the rearview mirror, but rather you have to look forward and I like our position and I don’t see anything that we can’t manage. When it comes to the manufacturers reopening the plants, I’m fully supportive.

And you know I’m a hawk about watching for overproduction and oversupply. But we have shortages already. And I am well aware that this resumption of production will be difficult, complicated. They will introduce social distancing in all of the plants and all the supply chains. It is a massive undertaking.

So I’m looking down the road, 60 days from now, looking at a difficult resumption of production. I think it’s very good that they’re starting now. And I support the reopening of the plants in the United States and elsewhere. And while it’s appropriate, I would even go so far as to say I think Elon Musk has a point that he’s got a plan to keep his employees safe.

He wants to reopen with 30% of the employees. So even though, I don’t sell new Tesla’s, I think the plant should be reopened. So, I like our position on inventory, the day supply. As a rear-view mirror, it doesn’t worry me too much. If there’s a bump in the road, I don’t see anything we can’t manage.

John Murphy

Okay. And maybe just a follow up on that, GPUs were reasonably strong relative to fears given the backdrop you just described. I mean do you sort of envision an environment, both on the new and used side that you can manage reasonably strong GPUs and there’s not going to be any degradation or if anything, there might be some upside over time in the near term anyway?

Michael Jackson

I like your assessment. John, I think, we have a very manageable situation. So if I look at the pre-owned side, retail prices are stable. Wholesale prices, the way I think about it, are attractive. My cost of acquisition is going down, but the retail price is holding. That’s a very manageable situation. Now exactly how it shakes out, I can’t say. I’m not going to promise higher gross profits per unit, but it’s a very manageable situation.

And we see opportunity on the new side, where there are shortages in terms of vehicles where we will adjust pricing upwards. It’s nothing as severe as we had when you had the earthquake in Japan and production was stopped then, where there was a significant pricing opportunity. I don’t see it as big as that. But my whole point is it’s very manageable. And on finance and insurance, we are in an excellent position. And Joe, I think we’re at record levels, if you have the exact number.

Joseph Lower

I don’t give an exact number, but it’s north of 2,400.

Michael Jackson

North of 2,400? Yeah. So, I think listen, I’m not calling out an improvement, but I we’ve got the downside risk in a very manageable situation.

John Murphy

Sure seems like it. Maybe just one last one, you shifted gears and moved away from your PPP loans or have gone to sort of furloughing workers. I’m just curious what sort of dynamics drove that decision? I mean, maybe the PPP loans were a little bit too restrictive and you got handcuffed on what you may be able to do with the business?

And if we think about those furloughed workers coming back, are they coming back one for one? Or may you be just structurally more efficient going forward and you might not be hiring all those workers back?

Michael Jackson

Excellent question, John. So payroll, paycheck protection was launched to try to mitigate the damage from a avalanche – unprecedented history of America, avalanche of unemployment, people being put out of work. And I thought it was a enlightened and inspired almost a European-type plan where you’re looking to companies to – despite the circumstances, to sustain the same payroll as the prior year. So PPP was launched with that in mind, protecting jobs. And for us to qualify for forgiveness, basically the vast majority of the money had to go to employees. And we either had to bring the 7,000 back – so companies either had to bring everybody back and give pay increases where you would make cuts, whatever. You had to go back to the same payroll you had before.

Now that’s not something we would have done for the business because it’s not affordable. But in the spirit of looking at our furloughed associates standing and unemployment lines are as far as the eye can see and not being able to get on them on unemployment. We did it for our associates and it was basically a pass-through from the government to try to stabilize the employment situation in America. We are clearly eligible. They had suspended the Small Business Association rules around aggregation and we clearly had not excluded the publicly traded company. So it was in that sense that we went forward.

Now government can change its mind as happened. I’ve observed that with administrations and we woke up with new guidelines a couple weeks later. That said, basically, you can do everything we’ve asked. You can give all this money to the associates, but we’re not so sure we’re going to forgive you when it’s all done. Well, that makes – that is a nonstarter that once there was no clear path to forgiveness, we are not in a position to go down that road.

And so we suspended our applications and returned whatever PPP money we have received thus far, which was, I believe, $79 million, something like that and said, okay, we have to run the business for ourselves rationally where we’ve protected and ensured the company would be on the other side and participating in PPP put that at risk with no clear paths for forgiveness because I think that’s very understandable.

Now, as far as how I view the number of associates we have and who comes back when, here’s the way I think about it. So, if I go back to March, early April, our sales were down 50% during that period and we had reduced the staffing of the company by 26%, 27%, something like that, 7,000 employees and we were prepared that it could go either way. We really didn’t know. We’re prepared to do more. And of course, we are always happy and delighted to manage better news. That’s far easier than managing more bad news.

So at this point, business, as I said, is now running around down 20%. We’ve bought back 1,000 associates thus far, meaning that our staffing reduction is around the same as the business reduction. Now, exactly there is no predetermined cadence or plan as to when we bring back additional employees. That is going to be absolutely almost a daily discussion. And if I look back to 2008 and 2009, I would observe it was the re-staffing trailed the improvement in business. That’s the way you have to think about it. And what other efficiencies and effectiveness around digital is figured out or we come to grips with, whether that leads fact that we hire everyone when we ultimately have a full recovery in our back, well, I can’t answer that today, other than I can say, rehiring will trail the growth of the business.

John Murphy

I just – the simple characterization there is that PPP created undue risk on the grant turning into a loan, where the furlough just gives you a lot more flexibility to operate more on a market basis, is that just a fair characterization? It just seems like there’s a lot of risk out there with the PPP loans that people don’t realize.

Michael Jackson

Very good point, John. So we actually had a very strong debate within the company about PPP that we were bringing back 7,000 associates that we clearly could not afford and did not need. And we really did it because of the overwhelming unemployment situation. The crisis and the drama that these associates on furlough faced and we did it for them. And I said to the board right from the beginning, every dollar around PPP will go to associates. We don’t need it to pay rent or any other expenses. This is something we’re doing for our associates. However, your point is well taken and for the way we run a business, this is actually more straightforward and normal than the PPP route. So look, it was a decision we did for our associates when we said, yes, let’s do it and it was a very clear decision when the path to forgiveness was muddled that it was an unacceptable risk. And as far as running a business, it’s more straightforward without PPP than with PPP.

John Murphy

Great. Thank you very much. Appreciate it.

Operator

Your next question comes from Rajat Gupta with JPMorgan. Your line is open.

Rajat Gupta

Hey, good morning. Thanks for taking my questions. Just wanted to follow up on a couple of the previous questions, starting with the online initiative. Could you give us a sense of where you are with – in your partnership with Vroom? How that’s progressed? How that’s changed during this crisis period? Like how could it look like when we are out of this, any material changes or any changes in strategy or anything you’ve learned through this process that can help the company coming out of the other side? And I have a follow-up.

Michael Jackson

Yes. We admire Vroom as a company and we’re very satisfied with our investment. We discussed things between the companies, whether I would say there’s any strategic learnings there for either company, I can’t really say other than we’re satisfied with our investment. That’s all I have to say today.

Rajat Gupta

Got it. Got it. And that’s helpful. And then on the SG&A side, just a follow up to John’s question. Any sense of the run rate of savings you’re seeing right now on a monthly basis that you can provide? Just to quantify the impact just so we can model the rest of the year. Thanks.

Michael Jackson

I’m very sorry. The line broke up. I did not understand the question. Did you Joe, – were you able to get that?

JosephLower

Monthly savings. He’s basically asking about the month savings.

Michael Jackson

Take it. [indiscernible].

Joseph Lower

So obviously, it’s a fluid situation on that. We took a series of actions in early April, reflecting a business environment better. As Mike indicated, we’re already seeing recovery. But the magnitude of savings that we potentially had was in excess of $40 million a month, if you look across both the store and the corporate operations and obviously, we’ll manage that in a very disciplined fashion as we go forward based upon the business recover.

Rajat Gupta

Got it. That’s helpful. Thanks for taking my questions and good luck.

Michael Jackson

Thank you.

Joseph Lower

Thank you.

Michael Jackson

Stay safe.

Operator

Your next question comes from Armintas Sinkevicius with Morgan Stanley. Your line is open.

Armintas Sinkevicius

Great. You talked about the improvement you’ve been seeing here into the end of April and beginning of May. Maybe you could – you have some numbers around May, that would be helpful. And then also, where are you seeing the improvement coming, both on the sales side as well as the services side? What are people looking to – what services are people looking to do and is it the incentives driving the sales or is there something else?

Michael Jackson

So, the sales side is improving more rapidly than the customer care side. I don’t have an exact figure for May, but I think 20% – minus 20% is an acceptable working number, above what we sold at the end of April. The product line is holding up the strongest. Pickup trucks, only down 10%, 11%, 12%. We have a severe shortage on the General Motors Silverado because they get the double-whammy of the strike in corona. The brand is in short supply. F-150 is in reasonably good supply.

You will notice that the sales in Premium Luxury are down more than the overall market, but I’m not too concerned about that. We have – as you know, that’s primarily a leasing business, 75%, 80% leasing, something like that. A significant percentage of that clientele extended their leases a month or two just to see where the uncertainty is going. They’ve all told us they’re going to be back in the market.

Now on customer care, it’s been essential services that we’ve been performing and really keep those who need to be out and above, keep their vehicle running. There’s no question that miles driven is starting to recover as sheltering-in-place is lifted, the consumption of gasoline is going up and as people begin to move about, once again, we expect the recovery to get underway in customer care. But as of this moment, sales are only down 20%. And Joe, what would you say customer care is down so far in May?

Joseph Lower

In May, I would say – I’d say it’s high 20s.

Michael Jackson

High 20s. High 20 is [ph] not bad.

Armintas Sinkevicius

Okay. And then you mentioned this being an accelerant for digital. What are some concrete actions that you’re taking on the digital side? I know you made the investment in Vroom, but are you deploying capital or making decisions to push the digital side because ultimately, it seems like financing is still the challenge when it comes to fully online transaction?

Michael Jackson

So our investment in Vroom, which was $50 million, is relatively minor relative to AutoNation’s investment in digital over the last three to five years. We have made a significant investment in digital capability, which we’re very thankful for today and I would say the surge of activity to digital is remarkable in a very short period of time. And I don’t think it’s going to go backwards at all. So we continue the investment in our digital capabilities. Now we have really found a marvelous blend between – once the customer does digitally and what we do on the telephone, what we do interactionally personally or email with the customers that you see our performance around F&I. So, we’ve really found the optimal line there that the customers are delighted, they love the product that they receive.

I don’t see sight line to the finish line as of today and we could have the same performance in a pure digital transaction. There is a lot of added value and skill that is in our associates, processes that we’ve developed and built over the decade that are win-win for the company and for the customer. And I don’t see where there is a – I don’t know anywhere in the industry where digital – pure digital solution can match what we do, but we don’t need to end up there. We have found the optimal line of – and I’ve said this from the beginning, where you move back and forth between digital and interpersonal, inter-reaction. So I like where we are. We’ll continue to invest in digital and I think we found the optimal line.

Armintas Sinkevicius

Okay. And then my last question around AutoNation USA, I’m guessing that’s probably not at the forefront of your priority list at the moment, but any updated thoughts would be great.

Michael Jackson

So obviously, it was disruptive for the USA stores as anything else. So you have to say that when we pushed out capital decisions, USA decision also [indiscernible]. I would say that’s for the entire auto industry that, if I look at the manufacturers. I think capital decisions have to be delayed until the sight lines are very clear. And so I think that’s pushed out the decision point as to when we build more USA stores. And as of this moment, I wouldn’t want you to give you a date. The performance of the stores has been fine. I have no issues there, but it’s a big decision to build more and we’re not and prepared to make that at the moment and this situation has pushed out that decision.

Armintas Sinkevicius

Great. Thank you. Appreciate the time.

Operator

Your next question comes from David Whiston with Morningstar. Your line is open.

David Whiston

Thanks good morning. Staying with digital, I was going to ask do you think post-COVID, people will still want to come into the store and do a test drive or are we going to move to a kind of what you already can see on [indiscernible] can buy online in five minutes. It sounds like you don’t feel that’s how the whole industry would move. But any more thoughts there, please, let me know. But also, does this post-COVID world accelerate a move to no-haggle?

Michael Jackson

Yeah. I think I’ve said that. I think this is an inflection point. That is a permanent change that you’re going to need first class digital. [ph] The ante could be in the game for any business and any industry post COVID-19 or in the midst of COVID-19. [ph] Foreign care, whether the hotel business, the airline business or the auto retail business.

The issue is that you need first-class digital capabilities that delight customers and when they choose to actually interact with your business, either because you’ve come to their home or because they’ve come into a store, you absolutely must have provided them a safe environment and you must be providing your associates a safe environment wherever they are interacting with customers either face-to-face, digitally or online. You’re going to have to provide social spacing different than what you did before and it’s a new ball game and I don’t see that changing. We’ve embraced it going forward and I think we’re well prepared.

Michael Jackson

So, with that, I’d like to thank everyone for joining us today. Thank you for all your questions. I wish each and every one of you and your family, please stay safe, stay healthy. I would say that I look forward to the reopening of America being done in a safe, responsible way and thank you for your time today.

Operator

This concludes today’s conference call. You may now disconnect.