(Reuters) - AutoNation Inc (AN.N) shares fell more than 3 percent on Tuesday after the company posted a lower quarterly net profit due to higher interest expenses, narrower margins on new vehicle sales and costs for launching expanded repair parts operations.
The largest U.S. auto retail chain’s first-quarter net profit was in line with analyst expectations.
Chief executive officer Mike Jackson told Reuters that investment costs for the repair parts business, part of a broader strategy to increase AutoNation’s profits from higher-margin service and financing operations, should decline during the remainder of the year.
“You will see leverage as we go deeper in the year,” he said.
AutoNation said its retail new vehicle sales overall fell 2 percent in the first quarter from a year ago, and gross profits from new vehicle sales declined an average of 8.2 percent. Sales of Detroit Three brands such as Chevrolet, Ford and Chrysler were down while sales of Asian and European premium-brand vehicles increased.
Jackson said AutoNation will act to reduce the inventory of vehicles it carries in response to rising interest costs for stocking cars and trucks.
Jackson said he expects the shift by U.S. consumers toward trucks and sport utility vehicles that offer drivers and passengers a high seating position will continue, despite a recent increase in gasoline prices to more than $3 a gallon in some markets.
“It would take $5 or 6 a gallon to reverse consumer behavior,” Jackson said.
Fort Lauderdale, Florida-based AutoNation reported first-quarter net income of 93 million or $1.01 per share, down from $98 million or 97 cents per share a year earlier. Analysts had expected earnings per share of $1.01.
The company reported revenue of $5.26 billion, up from $5.14 billion a year earlier. Analysts had expected revenue of $5.27 billion.
In morning trading, AutoNation shares were down $1.50 at $44.69.
Editing by Bill Trott