Q1 2021 Group 1 Automotive Inc Earnings Call
Okay.
Good morning, ladies and gentlemen, welcome to group, one automotive 2021 first quarter financial results Conference call.
Please be advised today's conference call is being recorded.
At this time I'd like to turn the conference call over to Mr. Pete The long shot group one group.
Group, one senior Vice President on the manufacturer Relations financial services and public Affairs. Please go ahead, Mr. <unk> Shah.
Thank you Jamie good morning, everyone and welcome to today's call. The earnings release, we issued this morning and the related slide presentation that include reconciliations related to the adjusted results.
We will refer to on this call for comparison purposes have been posted to group one's website.
Before we begin I'd like to make some brief remarks about forward looking statements and the use of non-GAAP financial measures.
For historical information mentioned during the conference call statements made by management of group. One automotive are forward looking statements that are made pursuant to the safe Harbor provisions of the private Securities Litigation Reform Act of 1095.
Forward looking statements involve both known and unknown risks and uncertainties, which may cause the company's actual results in future periods to differ materially from forecasted results.
Those risks include but are not limited to risks associated with pricing.
<unk> conditions of markets adverse developments in the global economy as well as the public health crisis related to COVID-19, 19, and resulting impacts on demand for new and used vehicles and related services.
Uncertainty regarding the duration and severity of COVID-19, and its impact on U S and international authorities to ease current restrictions on various commercial and economic activities.
Certainty regarding the timing pace and extent of the economic recovery in the U S and elsewhere from the unknown current and future impacts of COVID-19, and unknown future impacts of oil producers and the effects of such can have on travel transportation oil prices, which in turn will likely adversely affect demand for our vehicles in service.
Also our ability to obtain and inventory desirable new and used vehicles and the impact of supply chain disruptions, which may occur from time to time on.
Also our ability to maintain vehicle margins and implement and maintain expense controls and maintain sufficient liquidity to operate.
Those risks and other risks are described in the Companys filings with the Securities and Exchange Commission over the last 12 months.
Copies of these filings are available from both the SEC and the company.
In addition, certain non-GAAP financial measures as defined under SEC rules may be discussed on this call.
As required by applicable SEC rules. The company provides reconciliations of any such non-GAAP financial measures to the most directly comparable GAAP measures on its website.
Participating with me on today's call Earl <unk>, our President and Chief Executive Officer, Darrell Kingham, or president of U S and Brazilian operations day.
Daniel Mchenry Senior Vice President and Chief Financial Officer, and Michael Welch, Our Vice President and corporate controller I'd now like to take the time.
Hang on I'll call over to Earl.
Thanks, Pete and good morning, everyone.
I am pleased to report that for the quarter group on generated adjusted net income of $103 million.
This equates to adjusted earnings per share of $5 57 per diluted share on <unk>.
Kris a 236% over the prior year on an increase of 170% over the pre pandemic first quarter of 2019.
Our adjusted net income results exclude non core items of $1 $7 million of after tax disaster pay provided to employees, who couldnt work during our February Texas store closures, partially offset by an $800000 after tax benefit from legal settlements on a $200000 after tax net gain on dealership.
And real estate transactions.
These profit results were particularly impressive given the fact that our Texas operations, which typically represent around 40% of our total revenues were severely impacted due to our record setting February winter weather event, our stores effectively lost about the equivalent of a full week of business. It is likely the vehicle sales were low.
Currently deferred in the subsequent months, but the available server shop hours per permanently lost.
Also the UK remained under locked down throughout the entire first quarter.
With so many restrictions on all our markets in 2020, it was difficult to generate revenue growth. Therefore, the 11, 9% on increase in our total consolidated revenue in the first quarter was a welcome improvement in our trend line.
This improvement was driven by new and used vehicle revenue increases on the U S of well over 20% in the first quarter.
Of course, we should remember that the pandemic did start to negatively impact traffic on sales during the second half of March last year.
The important factors that consumer demand per vehicles in the U S remains extremely strong and hit from even higher year on March.
It is true that sales have been will be hampered to a certain degree by low inventory levels, but this continues to support above average margin levels.
Sarah will speak more about our inventory situation shortly.
Our after sales business has suffered throughout the pandemic from less driving in a variety of lockdown conditions on all our markets.
In particular, our U S business started 2021 very slowly in January and February but it exploded in March.
Again, Daryl will provide more detail, but this gives us great confidence that we will enjoy very strong parts and service business. This spring and summer in both the U S and also likely the U K as those facilities are now completely open.
In the U S. We are especially pleased that our service results have now returned to pre pandemic levels.
On a same store basis, our U S. Total after sales gross profit increased 3% versus the first quarter of 2019 and customer pay gross profit increased 14% over that same pre pandemic time period.
These are very encouraging signs for continued after sales improvement in 2021.
Daryl will provide more detail on our U S results on a moment.
Relative to the U K mandatory lockdowns per Gan on November five 2020 and lasted through the entire first quarter.
They have since been lifted as of April 12.
Like the U S. Our UK operations have shifted heavily to online selling via our accelerate platforms. Since our showrooms have been closed for five months.
Despite not having the benefit of physical sales departments or the ability to conduct test drives we were able to deliver over 13000, new and used vehicles during the quarter.
Limited new vehicle availability increased our same store new vehicle margins by 160 basis points to five 6% during the first quarter.
Our after sales margin increased by almost 400 basis points to 58, 4% as most service work at our dealerships was heavy repair work as customers chose to defer routine maintenance until after the lockdown.
These strong new vehicle on after sales margins combined with strong cost discipline, evidenced by an 800 basis points same store SG&A improvement over last year enabled us to generate a meaningful level of profit in the UK Despite closed showrooms.
As we were permitted to open showrooms again on April 12th we've seen very strong sales and service traffic levels back in our dealerships.
Gives us a high level of confidence in our UK business during the remainder of 2021.
To provide some color on <unk> in Brazil first quarter performances, I will now turn the call over to Darryl scanning pack.
Thank you Earl a number of factors contributed to our outstanding U S first quarter results.
Namely new and used vehicle sales growth after sales growth and continued strong cost discipline.
All of which are continuation of the trends from the second half of 2020.
Compared to the pre pandemic first quarter of 2019, our same store, new and used unit sales increased by 11% on 5% respectively.
This 11% increase in new outdoor outperformed the retail industry.
U S. New vehicle inventory levels finished the quarter at 14 500 units a 34 day supply.
We anticipate inventories remaining types and we will continue to adjust our operations as necessary.
Our same store used vehicle unit sales improved sequentially by 14% along with a 5% growth over the first quarter of 2019.
Used inventories remained constrained as well however, we have made a number of changes in our merchandising sourcing reconditioning and acquisition processes that have resulted in higher velocity and better inventory turns.
Although we are around record high monthly levels of 90 units sold quarter rooftop in the quarter. We continue to believe there is a great deal of opportunity in used vehicles on our dealerships going forward.
The second and most encouraging profit driver was our after sales performance warranty collision sales were still very depressed in January and February.
But we saw improvement in March our customer pay business is very strong as Earl mentioned, our same store customer pay gross profit was up 14% versus the first quarter of 2019.
This allowed us to grow total after sales gross profit by 3% versus pre pandemic levels, despite the significant headwinds and warranty on collision.
Both of which will reverse in time.
We saw a significant expansion in gross profit per repair order in the quarter offsetting declines in March traffic counts increased and our same store customer pay Ro count grew 23% versus March of 2020.
We foresee after sales continuing to ramp up in the near term.
The third major factor driving our outstanding profit performance was continued cost discipline.
Our first quarter adjusted SG&A as a percentage of gross profit was 63%.
Down from 74% in the pre pandemic first quarter of 2019.
Part of the decline is certainly due to higher vehicle margins, which we don't believe to be fully permanent but a material part of the improvement is due to productivity gains.
For example.
Because of tools like accelerated our salespeople are more productive.
Because of our mix a higher mix of flat rate tax our tax on more productive.
These examples of permanent productivity gains will allow for us a significant ongoing reduction in our cost structure.
I would like to provide another quarterly update on accelerating our digital retail and platform.
We continued our upward trajectory in the first quarter by selling a record 4000 vehicles to accelerate and increase of 124% over the prior year and 7% of total retail units sold.
Customers choosing accelerated continue to close on a much higher rate than our other sources.
Additionally, I would like to share with you a number of enhancements, we have made or will make soon to the accelerated platform.
First we've integrated real time loan payoff courts within the platform.
Second we launched on Android App in addition to our existing Apple App.
Third customers now have the ability to toggle between English and Spanish.
And force in addition to be able to reserve a vehicle with a credit card customers also now have the ability to process down payments for any amount directly through the app.
And fifth over the next couple of months, we will introduce dynamic delivery fees.
Within the customer workflow.
This will introduce delivery fees earlier in the process and include them on a monthly payment calculation based on the customer's delivery address.
We're also working through numerous other enhancements and will provide future updates as appropriate.
We believe our digital retailing processes second to non in the industry and.
And we continue making improvements to remain at the forefront of this transformative technology.
Turning quickly to Brazil.
Despite a 7% decline in new vehicle industry sales driven by tight inventories and additional COVID-19 lockdowns. Our team did a tremendous job growing margins and aggressively setting the cost structure in order to realize a very strong quarterly profit in what is seasonally the weakest quarter on.
Per year we.
We easily set up a record for the most profitable first quarter over the entire eight years of group one's ownership and are well positioned to benefit from a sales rebound coming out of the pandemic.
I'll now turn the call over to our CFO, Daniel Mccann rates to provide a balance sheet and liquidity review Daniel.
Thank you Daryl and good morning, everyone.
As of March 31, we had $83 million of cash on hand, and another $245 million invested in our floor plan offset accounts.
Bringing total cash liquidity to $328 million.
There was also another $283 million of additional borrowing capacity on our U S. Syndicated acquisition line, bringing total immediately immediate liquidity to over $600 million.
We also generated $157 million of adjusted operating cash flow in the first quarter on $134 million on free cash flow after backing on Capex.
Our rent adjusted leverage ratio as defined by our U S syndicated credit facility, which reduced to two times at the end of March leaving plenty of flexibility for capital deployment.
On a net basis, which considers all use cash on hand, our leverage with one six times as of March 31.
Finally related to interest expense, our quarterly Floorplan interest of $7 6 million with a decrease of $5 3 million or 41% from the first quarter of 2020.
This decline was primarily driven by lower inventory levels and related borrowings.
Non floorplan interest expense decreased by $4 3 million or 24% from prior year, primarily due to the last year's bond debt refinancing.
As a reminder, we continue to manage our interest risks conservatively, we have floorplan swaps, averaging $550 million in place through 2026.
We also considering our mortgage swaps on bond debt over 75% of our debt is at fixed rates.
As a result of 100 basis point increase in interest rates with only have an approximate 20 negative impact on our annual EPS.
Our balance sheet on liquidity position has never been stronger and we look forward to growing the company through M&A.
We are seeing a strong flow of potential deals on anticipate closing or entering into contracts to acquire additional dealerships. This year.
For additional detail regarding our financial condition. Please refer to the schedules of additional information attached to the news release as well as the Investor presentation posted on our website.
I will now turn the call back over to Earl.
Thanks, Daniel relate.
Related to our corporate development efforts, we previously announced on March acquisition of two Toyota franchises on Cape Cod that increased our new England platform to 10 stores and will contribute $120 million on incremental land on revenues.
We also previously announced the January dispositions on the Cadillac franchise in the Dallas Fort worth market area and a mini franchise from the El Paso market. We've also since completed the termination of our U K Ford franchise in March and the disposition of our Mississippi a franchise on April <unk>.
Daniel mentioned, we continue to prioritize external growth on our capital allocation process. We are optimistic that we will have beneficial opportunities as the year progresses.
This concludes our prepared remarks, I'll now turn the call over to the operator to begin the question and answer session operator.
Yes.
Ladies and gentlemen, we will now begin the question and answer session.
I'll ask a question you May press Star and then one using a touch tone telephone.
All your questions you May press star two.
If you are using a speaker phone we do ask you. Please pick up the handset before pressing the numbers to ensure the best sound quality.
Once again that is star and then one day join the question queue.
We will pause momentarily to assemble the roster.
Okay.
And our first question today comes from Michael Ward from Benchmark. Please go ahead with your question.
Thanks, and good morning, everyone.
One thing that I always seem to miss.
As it relates to the dealer group is just the resilience of the business model.
I'm wondering if you can talk about some other levers you can pull to keep the profitability of the elevator deal of at the levels that we've seen over the last few quarters.
Sure Michael This is Earl.
Yes that is a good point and it does seem to get lost sometimes in the shuffle.
I think by now the financial crisis, and then the Lockdowns last year and.
Now, we're going to be going into a little tougher inventory situation.
This model is extremely flexible and.
We have had to learn over the years how to shift our focus.
The real backbone is parts and service, which is starting to Bloom again, which is good because that was really suppressed during the lockdowns, whether it was the U K.
Towards the U S people weren't driving as far in and they didn't really feel like going out, particularly for regular maintenance and such so.
That is one of the levers we're going to lean on heavily here as the year progresses and try to offset some of the new vehicle inventory pressure that we're going to see on the next couple of months and the other thing is used vehicles and <unk> seen the whole world jump into used vehicles, obviously on.
And that market is as much bigger the inventories we generally carry are lower on that enhance we're able to be responsive.
And just on market pricing conditions, either on the way up or the way down and then the real key is our ability.
Which many businesses to not have to flex our cost structure and so much of our cost structure is people.
You have seen we have been able to flex down extremely quickly last March and April and we've been able to adjust upward as the business returns. So.
I think.
I think those levers are the key levers on the tower success.
In the release, you talked about the U S parts and service being a 25% in March what type of what can we expect for the rest of the year from parts and service.
Moving to ship for most of the year.
Sorry, Chris.
I can't tell you a specific number but we expect good things out of parts and service.
Rest of the year, we see the traffic counts building our gross ferraro is quite good as we've made some adjustments during the pandemic on that better inspections on better reporting better selling skills with customers.
We are we are about three we've added over 300 technicians back to.
Our dealership base in the last 12 months so.
And Theyre productive technicians were approaching this is we want we're trying to improve the productivity of our shops. So very few hourly technicians, which tends to be which tend to be less productive than flat rate technicians and that helps us be more productive as a business. So we can put more throughput through.
Our footprint.
We expect good things as miles driven continue to increase and if vehicle suppliers do become an issue people on a whole loan on their cars on there will be in our shops.
So it's reasonable to assume double digit gains in parts and services for the rest of 2021 anyway.
This is Earl I don't know, if it will get to double digit or not.
Customer pay business is extremely strong and the chance of that being double digit in terms of increases is very very good but warranty we don't control and warranty has been a bit weak warranty has been that weak in recent quarters. So I don't know, how thats kind of move around but the <unk>.
<unk> business is going to be strong this year I'm quite confident in March it's a smaller piece of our business, Mike but in March our collision business came back on it was almost the same level as last March just a hair hair on them.
The C&I business return as well, yes, it's been collision and warranty which had been soft.
Over recent quarters.
Certainly good news thank you everyone.
Thanks, Mike.
Yes.
And our next question comes from John Murphy from Bank of America. Please go ahead with your question.
Good morning, guys.
Just wanted to follow up on your comments Earl.
The beginning about the inventory constraints potentially hitting sales.
To date.
Dealers have been doing a very good job, including yourselves Upturning inventory.
Much faster and not really impairing sales yet. So I was just wondering what sort of level you think we need to get to you want on inventory before it actually starts to hit sales.
And what we heard from Ford last night was pretty dire outlook on the second quarter with some.
Relative relief sequentially going into the second half of the year. So.
Is this.
Constraint really going to be isolated to the second quarter and then we see some relief from the second half of the year. How are you thinking about this and when it can become a real problem on sales.
Yes, John.
This is Earl Theyre kind of back to Mikes point. He just made the resilience of our people in the model.
These amazes me I've been amazed.
In the recent months, how we've continued to maintain pretty impressive sales levels with declining inventory levels, but it does seem that we'll get to a level as we get into the second half of the second quarter, where we're going to be constrained and sales from new vehicle inventory and I would guess.
That's that's going to go into the first part of the third quarter I really don't know much more about the shifts that you.
You do because I've read in the press.
And so forth but.
Same on used where all of a setting just just moving cars through the shop more quickly than we ever have and.
Maintaining sales rates with with a little less or a little more than half of our normal inventory.
Also the Oems have adjusted it seems that the only vehicles. They are making are the ones that sell the fastest so when they come off the truck. They go right to a retail customer. So there is there are some mitigating things in there that are for prolonged our volume a bit but yes, we will.
We'll start to get hit I think as we get into the latter part of the second quarter and that will probably carry on into the first part of the third quarter, but as we all know the biggest companies in the world are all trying to to address this problem. So sooner or later I expect they will.
Yes.
And a follow up Earl I mean this is.
The trillion dollar question is the demand is there. So we're looking at something Thats a supply disruption. So it's not such a scary thing from a macro standpoint, you've shown on the ability to manage through it.
Very well so as you get to the other side of this.
And given some of the record profitability that you've been putting up in the automakers have been putting up is there the potential from some on the lessons learned here on this higher throughput with lower inventory.
Actually sticking at the dealer level and at the automaker level.
We've all been looking at this and certainly for the last few decades, and saying Hey, This is the way things should be run.
Now it's been kind of force do you think some on the lessons were learned here.
Absolute profit higher so it seems like it should be but what do you think.
I do I do think there's lessons learned here and.
We're going to make sure that that some of the things we've learned carried through increased efficiency of salespeople technicians.
And being able to sell more with a lower day supply on used vehicles in other words getting them.
Through through our processing system faster, so I'm sure we're going to learn some of those lessons permanently and carry those through and I think you've heard some of the Oems talk.
About trying to operate with lower inventory again, you saw Ford profit yesterday and.
They're obviously.
In dire Straits, when it comes from being able to produce vehicles in the second or third quarter, but that wasn't a very bad profit in the first quarter on these vehicles.
Our balance supply and demand the auto manufacturers make more money.
And so I think there will be a material change in the way the distribution network works with the Oems. So when the dust settles I think we'll both be more productive and efficient.
Got you and then on parts and service it seems like Theres a backlog that's starting to build on deferred maintenance its going to get released.
Is there any friction is that gets released meaning I mean, you've stepped down on technicians can you staff up reasonably quickly or do you have the capacity to absorb what you think is going to be coming at you.
And you'll just get really strong operating leverage off debt return I'm, just trying to understand if there any negative or positive surprises here. It seems like it'll be a good thing, but just trying to understand.
John This is Daryl.
We are ready for more business in.
There.
As it relates to parts shortages.
Those tend to be isolated to certain brands.
But we can we can.
Once those Jeff.
On some of that is what's affecting the warranty business right now.
And once those good freight I think youll see the warranty numbers come back, but we will be able to handle more volume.
We're pleased with our progress on our technician rehiring and are reporting workweek and the ability to drive capacity.
And we.
We will continue to be so we don't have any concerns about that.
Okay, and then just lastly on page seven of the deck.
Acquisitions are on the growth strategy on early stage, obviously top of list and this is the first priority for capital is growing through acquisitions <unk> been alluding to that but I mean, you are putting it in black and white.
Seems like you started heading in that direction, but there is a lot more room to go.
Given the pace of acquisitions that you're doing relative to other folks in the industry.
What are we going to see that acceleration.
Are you getting a little bit twitchy because.
Some of the valuations are getting a little bit on the high side, so it might be harder to do that.
How should we think about this and when do we see the lift off points.
Yes.
How are you thinking about or how should we think about the levels that you actually execute on.
Yes, John this is Earl.
It's been you've made the valid points, it's clearly our intent.
I think it's also clear to most people debt.
There's a little bit of a <unk>.
Frenzy.
At the moment.
Now from model.
A lot of buyers in the market and it's kind of like the one to the used car auction.
When there is too many buyers going on on the way you come away with the cars you paid more than everybody else.
So we're trying to be very disciplined about this.
<unk>.
History tells me, we will be successful over time, but it's never good to let money burn a hole in your pocket.
So we're going to stay after it and I am very confident that we will find things that work for group, one and our shareholders. But this is a this is a fairly unique acquisition market environment. In fact, it's the most unique I've seen in 2016 years. So there is.
There's a little bit of a frenzy right now and I'm sure it will come down.
Okay. Thank you very much guys.
Our next question comes from Rick Nelson from Stephens. Please go ahead with your question.
Thanks.
Good morning, Ken.
Congrats on another.
Great quarter.
Mike.
But the winter storms.
Take that cost in the quarter what.
<unk> might have been.
For those storms any way to quantify it.
Rick This is Earl we didn't really try to quantify it.
It's kind of hard.
Did lose a week of business in Texas, and Oklahoma bits of Louisiana is kind of on the South Central U S.
Second we picked up most of his car sales.
And if not later in the quarter, we will get them early this quarter and.
We didn't try to figure out those law shop hours on what they are on work.
S&P 10, or 20, but we haven't calculated debt and.
The business is so dynamic it's hard to predict on a on that.
Rick Dauch.
Yes.
Side, some of it and some of those markets that were hard to set our per vehicle volumes performed quite well for the quarter.
And so I don't know that total quarter basis and effectiveness a lot from the variable side, maybe on the after sales side as Earl mentioned.
So shop hours are gone forever.
Yes.
Comparable side held up very well in those markets.
Okay great.
Follow up on the U K.
Well.
The quarterly decline in unit decline.
Down <unk> 26 per cent, how you would think that compared to the overall arc.
Ultra mature seeing in April.
Especially the strength.
So stores reopened.
April 12.
Rick you've picked up on a on a number that's a little bit of anomaly.
We had to change some accounting and.
On some fleet units, we sold through an agency basis, So I would say that we.
I would say that we.
Performed about in line with the market and the key in the UK and the U S is that there is strong demand there is strong underlying.
High end consumer demand.
And.
I think this is going to be a very strong year in the UK if the Oems can supply the vehicles and we're in the same position there the order take us obviously.
<unk>.
Growing as the customers come back out into the market, but many of these orders are going into the factory Q for the third quarter and fourth quarter.
And so that's still there's still settling out.
But there is very strong customer demand in the UK as well as the U S.
Great.
If I could ask.
Follow up on the accelerator.
T O.
Now launching their own.
Digital strategy.
Toyota has got smart path.
Like has there on Europe.
Toyota likelihood stiller, I'm curious, how that dovetails with sell out right.
So that you're making there.
We've always anticipated that the Oems would be in this business.
We felt like that was only a natural thing for them to go pursue.
And that's one of the reasons that we haven't.
Made accelerate a marketing brand, it's a digital retailing tool.
Our goal is to enable our.
Customers have a much easier transaction and interface with us and if and when the Oems get to a point that their tool is.
Functionally the same work.
We're certainly prepared to do that and I believe that's where it's headed.
I think.
They will they will come up with some great tools and great support to be able to do that.
We're ahead of them by a couple of years and we have more integration on things like finance and used cars and down payments and things like that so we don't really want to go backwards, but we talked on the Oems every day and you just mentioned one of them, we had a meeting with them last week on on.
On smart pass on Monogram and <unk>.
We're not we're not going to shy away from that we don't.
We believe Thats, where thats going ahead.
And we're prepared for it.
Great.
Thanks, a lot.
Good luck.
Thanks Ryan.
And our next question comes from Rajat Gupta from Jpmorgan. Please go ahead with your question.
Yes.
Great.
Echo Nicks comments, congrats congrats on a really strong quarter.
Yes.
Just wanted to follow up on the capital allocation question.
Now, obviously, it's a tough environment.
Just on time and with pricing.
Thanks.
But.
As you progress through the or Youre building cash on the balance sheet.
We used to when you just get on their cash flow their ideal comes through.
Some of that.
Being deployed back into buybacks or.
Just curious I assume.
When you would like to pull the trigger.
On that cash.
Think about the timing.
I will follow up.
The other job. This is Earl yeah, we have always been very conscious of returning cash to shareholders. When we couldnt deploy it.
To grow the business.
So we don't forget that for a single day.
But as we have stated.
We continue to believe that.
The best use of our capital at this point in time is to grow the business. So that continues to be our priority.
But should we not be able to execute that over some extended period of time, we'll look at ways to return it to shareholders.
Got it.
Yes.
And then just on the on the acquisition from.
What kind of assets.
Typically you're targeting is.
Is it more around the Texas area is it more.
The other regions.
Are you seeing most of the valuation discrepancies.
Total net.
Yes.
Well, we're pretty wide open in terms of geography to expand our company, but we do believe we benefit the most if we can diversify our footprint from more from outside of the South Central U S. Just because of the way the company was founded.
We were somewhat concentrated in Texas and Oklahoma as we discussed when we were mentioning the winter storm. So it's best for US if we can diversify our footprint within the <unk> within the U S around the <unk>.
Gulf States outside of the Gulf States toward the Southeast U S East coast in the southwestern U S.
Got it got it that's helpful and just if I could follow up on April.
You mentioned about the recovery in parts and services.
Any color you can give us how april has been tracking.
On the unit side.
Yes.
And also.
Excellent.
Our funded debt.
Good day.
Hi, John This is Daryl I'll comment on the U S and Earl can comment on the U K and the U S. We're pleased with April on both on new avenues side.
Yes.
U K, obviously, we saw on.
Massive movement back into our places of business. After we were allowed to open our showrooms again and of course.
In the UK the service right up areas tend to be within the showroom. So we're back to normal business in the UK on in the first couple of weeks there has been.
Theres been a lot of customers back out in our businesses.
In the U S.
Gainesville, one head of strength 90 levels as well on.
Just curious on.
Are those from <unk>.
Well I would just point you to some of the public forecast that have been out in the last few days on the Saar.
That's probably the guidance I'd give you is what you see publicly there Roger.
Yes.
Got it got it and just lastly on SG&A to gross.
Again really strong.
Stripes.
Theyre likelihood.
Gross margin tailwind.
Turning to the rest of the year.
Yes.
When should we expect the.
Before we see on any of the gross win.
Any rough range you could provide.
Rebecca.
Yes.
I think if margins continue at the current level and more importantly volume continued to current level I think SG&A will be in line with where we are currently operating.
Got it got it.
Okay.
It's very helpful and good luck.
Thanks Roger.
And our next question comes from David Whiston from Morningstar. Please go ahead with your question.
Thanks, Good morning, going back to inventory and Earl.
Earl you talked about everyone's making more money and whatnot.
Im going to ask you the same thing I've asked all the dealers so far which is do you really want more inventory or are you kind of happy with how things are now.
Well I would say that we're getting to the point where inventory is a problem if not at this moment very soon.
So ideal for US is about 45 day supply when we mix all of our different brands together and as you saw we ended the quarter at 730.
And.
Were actually fine in the Thirty's, but win because it's a big truck market. When you get very far below 30 day to supply you have trouble, having many of the configurations that to truck customers want.
And so that's that's where it starts to get a little challenging for some of our brands Toyota dealerships operated for a decade or more below 30 days. If you go back to the 80 to 90 days and so we're kind of getting back to that where we sell off the incoming trucks in.
Trains and things.
But the truck brands need a little bit more inventory.
Okay.
Somewhat related to that then is in the U S. I was just curious how you guys are able to get a 44% increase in new vehicle GPU when the new vehicle ASP was only up 6%. So is that just on all the favorable mix shift.
Well.
On a mix shift may be part of it.
Part of that but it's basically a supply and demand situation.
<unk> that drives margins more than anything else is when supply and demand are in balance or the favor as demand oversupply that is that's what drives those higher margins.
Okay and in the UK.
Did you do a lot of home delivery and was there any big difference in the consumer behavior between Brazil, and UK consumers given the growth of other source loans in the quarter.
Well relative to the UK, we did an awful lot of home delivery and the only other place we could legally deliver a car was in our repair shop, which doesn't work out very well. So yes. We were we did a lot of home delivery in the U K over the last five months.
But in Brazil is that not really an option or.
We do some our showrooms have been closed quite a bit in Brazil as well.
So we do what we are selling the unit volumes in Brazil are quite small when we are selling a lot of news on delivery.
Okay and then last question I was just curious why you.
Sold the Cadillac store in Dallas, given Texas seems to be really debt market economically right now.
Well it was a return on investment situation to just never never reached our hurdle rates.
And it was.
Was located within our BMW campus so it.
Wasn't generating enough financial return to be worth a disruption in our in our site there.
Okay. Thank you very much.
And ladies and gentlemen, with that we'll conclude today's question and answer session I would like to turn the conference call back over to Earl Hester Berg for any closing remarks.
Okay. Thanks to everyone for joining us today, we look forward to updating you on our second quarter earnings call in July.
And ladies and gentlemen, with that we'll conclude today's conference call. We do thank everyone for joining you may now disconnect your lines.