Q1 2024 Group 1 Automotive Inc Earnings Call
Operator: Good morning, ladies and gentlemen. Welcome to Group 1 Automotive's first quarter 2024 financial results conference call. Please be advised that this call is being recorded. I'd now like to turn the floor over to Mr. Pete DeLongshaw, Group 1 Senior Vice President of Manufacturer Relations, Financial Services, and Public Affairs. Please go ahead, Mr. DeLongchamp.
Good morning, ladies and gentlemen, and welcome to group one Automotive's first quarter 2024 financial results Conference call.
Please be advised that this call is being recorded.
Peter C. DeLongchamps: I'd now like to turn the floor over to Mr. Pete The long shore group, one senior Vice President of manufacturer Relations financial services and public Affairs. Please go ahead, Mr Dong Shah.
Speaker Change: Thank you, Jamie and good morning, everyone and welcome to today's call. The earnings release, we issued this morning and a 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.
Peter C. DeLongchamps: Thank you, Jamie, and good morning, everyone, and welcome to today's call. The earnings release we issued this morning and a related slide presentation that includes reconciliations related to the adjusted results we will refer to on this call for comparison purposes have been posted on Group 1'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. Except for historical information mentioned during the conference call, statements made by management of Group 1 Automotive are forward-looking statements that are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995.
Speaker Change: Before we begin I'd like to make some brief remarks about forward looking statements and the use of non-GAAP financial measures.
Speaker Change: 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 1995.
Speaker Change: 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. These risks include but are not limited to risks associated with pricing.
Peter C. DeLongchamps: 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. These risks include, but are not limited to, risks associated with pricing. Volume, Inventory supply due to increased customer demand and reduced manufacturer production levels due to some component shortages and conditions of markets. The successful integration of our pending Injcape acquisition and adverse developments in the global economy and resulting impacts on demand for new and used vehicles and related services.
Speaker Change: Volume.
Speaker Change: Inventory supply due to increased customer demand and reduced manufacturing production levels due to some component shortages.
Speaker Change: <unk> of markets successful integration of our pending inchcape acquisition and adverse developments in the global economy, and resulting impacts on demand for new and used vehicles and related services.
Peter C. DeLongchamps: Those and other risks are described in the company's filings with the Securities and Exchange Commission. 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 on the call today are Daryl Kenningham, our President and Chief Executive Officer, and Daniel McHenry, Senior Vice President and Chief Financial Officer. I'd now like to turn the call over to Daryl.
Speaker Change: Those and other risks are described in the company's filings with the Securities and Exchange Commission.
Speaker Change: In addition, certain non-GAAP financial measures as defined under SEC rules may be discussed on this call.
Speaker Change: 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.
Speaker Change: Participating on the call today, Daryl Kingham, our president and Chief Executive Officer, and Daniel Mchenry, Senior Vice President and Chief Financial Officer, I'd now like to turn the call over to Darryl.
Daryl Adam Kenningham: Good morning, everyone. Last week, we announced our acquisition of Inchcape Retail, the largest dealer dealership transaction in Group 1's history. We're thrilled to have successfully come to an agreement with Inchcape PLC on this generational acquisition. There are several benefits to Group 1.
Daryl Adam Kenningham: Good morning, everyone.
Daryl Adam Kenningham: Last week, we announced our acquisition of Inchcape retail the largest dealer dealership transaction in group one's history.
Daryl Adam Kenningham: We're thrilled to have successfully come to an agreement with Inchcape plc on this generational acquisition.
There are several benefits to group one.
One we'd like to grow the acquisition gives us access to markets, where we previously had no presence and it also adds scale to markets, where we have existing presence the.
Daryl Adam Kenningham: We'd like to grow. The acquisition gives us access to markets where we previously had no presence, and it also adds scale to markets where we have an existing presence. The brand mix at Inchcape is outstanding. Very low facility investment is required, and we felt the valuation was exceptional.
Daryl Adam Kenningham: The brand mix at Inchcape is outstanding.
Daryl Adam Kenningham: Very low facility investment as required.
Daryl Adam Kenningham: And we felt the valuation was exceptional.
Daryl Adam Kenningham: The Inchcape business is well run and our cultures align very well; we believe that combining Group 1 UK with Inchcape will benefit all of our UK stores. And Inchcape is accretive from day one, and we believe we will see an immediate EPS. Properly allocating our shareholders' capital is our highest priority. When evaluating an acquisition, we run disciplined valuation models with realistic expectations, incorporating growth and investment. The return generated through that modeling is compared to the expected return of repurchasing our stock, paying down debt, or using the capital for other uses. From our perspective, the valuation of the Inchcape transaction was excellent and provided an outstanding use of our shareholders' capital.
Daryl Adam Kenningham: The inchcape business is well run and our cultures aligned very well.
Daryl Adam Kenningham: We believe that combining groupon UK with inchcape will benefit all of our UK stores.
Daryl Adam Kenningham: And inchcape is accretive from day, one and we believe we will see an immediate EPS impact.
Daryl Adam Kenningham: Properly allocating our shareholders capital is our highest priority.
Daryl Adam Kenningham: When evaluating an acquisition, we run disciplined valuation models with realistic expectations incorporating growth and investment.
Daryl Adam Kenningham: The return generated through that modeling as compared to the expected return of repurchasing our stock paying down debt or using the capital for other uses from our perspective the valuation on the Inchcape transaction was excellent and provided an outstanding use of our shareholders' capital.
Daryl Adam Kenningham: In a four-week period during the first quarter of this year, we closed on three transactions that were similarly attractive in the US. What's also important to note is that we've passed on a number of acquisitions that didn't meet our investment hurdle. Some of those are in great markets with great brands. However, we will not chase revenue just for the sake of growing. We will chase returns. In the first quarter, it's important to note we also disposed of stores that did not meet our return expectations.
Daryl Adam Kenningham: And a four week period during the first quarter of this year, we closed on three transactions that were similarly attractive in the U S. What's also important to note is that we passed on a number of acquisitions that didnt meet our investment hurdles.
Daryl Adam Kenningham: Some of those were in great markets with great brands. However, we will not chase revenue just for the sake of growing we will chase returns in the fourth and the first quarter. It is important to note. We also disposed of the stores that did not meet our return expectations.
Daryl Adam Kenningham: As <unk> seen over the last two years, we've balanced acquisitions and dispositions with repurchasing our shares.
Daryl Adam Kenningham: As you've seen over the last two years, we've balanced acquisitions and dispositions with repurchasing our shares. We've bought $3 billion in revenue, disposed of $945 million in revenue, and repurchased 23% of the company. Although we had some operating bumps in the fourth quarter in the UK, our teams reacted well. Our used car inventory is very healthy, our grosses have returned, and we've implemented significant expense reduction. Daniel McHenry will speak more specifically to those actions in a moment.
Daryl Adam Kenningham: We bought $3 billion of revenue disposed of $945 million of revenue and repurchased 23% of the company.
Daryl Adam Kenningham: Although we had some operating bumps in the fourth quarter in the U K our teams reacted well.
Daryl Adam Kenningham: Our used car inventory is very healthy our grocers have returned and we've implemented significant expense reductions.
Daryl Adam Kenningham: Daniel Mchenry will speak more specifically to those actions in a moment.
Daryl Adam Kenningham: We are a pure play dealership group. While we regularly evaluate other business opportunities, we believe the best use of capital to grow the company is as a new vehicle franchise dealer. It may not be that way forever.
Daryl Adam Kenningham: We are a pure play dealership group.
While we regularly evaluate other business opportunities, we believe the best use of capital to grow the company as a new vehicle franchise dealerships.
Speaker Change: It may not be that way forever, but.
Daryl Adam Kenningham: That is what we see in today's economic and competitive environment. We also believe close partnerships with OEMs have never been more important. OEMs need great retail partners now more than ever. The great ones admit that and execute it. They need our capital, professionalism, and execution to win in this ultra-competitive environment. We don't see that changing in the future.
Daniel James McHenry: That is what we see in today's economic and competitive environment.
Daniel James McHenry: We also believe close partnerships with Oems has never been more important.
Daniel James McHenry: Mmm need great retail partners now more than ever.
Daniel James McHenry: Great words admit that and execute against that they need our capital professionalism and execution to win in this ultra competitive environment.
Daniel James McHenry: We don't see that changing in the future.
Daryl Adam Kenningham: We actually see that OEM relationship growing and important, and we believe the Inchcape acquisition allows Group 1 an outstanding opportunity to demonstrate that. Now I'll turn the call over to Daniel McHenry for an operating and financial overview.
Daniel James McHenry: We actually said OEM relationship growing in importance and we believe the Inscape acquisition allows group won an outstanding opportunity to demonstrate that.
Daniel James McHenry: Now I'll turn the call over to Daniel <unk> for an operating and financial overview Daniel.
Daniel James McHenry: Thank you, Daryl, and good morning, everyone. In the first quarter of 2024, Group 1 Automotive reported $130 million in adjusted net income and delivered a quarterly adjusted diluted EPS from continuing operations of $9.49. Current quarter total revenues of $4.5 billion were the highest first quarter revenues in company history, supported by all lines of business, and parts and service revenue of $576.2 million were an all-time high, starting with our U.S. operation. New vehicle units sold outpaced the industry, up 8% on a same-store basis and 14% on a reported basis.
Daniel James McHenry: Thank you Daryl and good morning, everyone.
Daniel James McHenry: In the first quarter of 2020 for group, one automotive reported a $130 million and adjusted net income and delivering a quarterly adjusted diluted EPS from continuing operations of $9 49.
Daniel James McHenry: Current quarter total revenues of $4 5 billion were the highest first quarter revenues in company history supported by all lines of business and parts and service revenue of $576 2 million were an all time high.
Daniel James McHenry: Starting with our U S operations.
Daniel James McHenry: New vehicle units sold outpaced the industry up 8% on a same store basis and 14% on a reported basis.
Daniel James McHenry: During the first quarter, 17% of our new vehicle sales in the U.S. were pre-sales, down from 24% in the prior quarter. These strong unit sales reflect the resiliency of demand and our emphasis on driving volume. GPUs performed about as expected and continue on their slow glide path down as inventories return.
Daniel James McHenry: During the first quarter, 17% of our new vehicle sales in the U S, where pre sales down from 24% in the prior quarter.
Daniel James McHenry: These strong unit sales reflect the resiliency of demand.
Daniel James McHenry: Emphasis on driving volume.
Daniel James McHenry: Gpus performed about as expected and continue under slow glide path down as inventories retire.
Daniel James McHenry: And used cars Gpus increased $245 sequentially with unit sales up 8%.
Daniel James McHenry: In used cars, GPUs increased $245 sequentially, with unit sales up 8%. Given the speed and depth that the industry's used car valuations declined in the U.S. during the latter half of 2023, we are pleased with our ability to hold margins and increase volume. We believe this is testament to our process, discipline with pricing, and our use of technology. Our F&I gross profit per unit of $2,340 only minimally declined on a same-store sequential quarter basis and increased 3% year-over-year. We expect some continued pressure on used vehicle finance penetration due to existing interest rates and higher lender requirements for some buyers.
Given the speed and depth at the industry used car valuations declined in the U S. During the latter half of 2023, we are pleased with our ability to hold margins and increased volume.
We believe this is testament to our process discipline with pricing on our use of technology.
Daniel James McHenry: Our F&I gross profit per unit of <unk> $340, only minimally declined on a same store sequential quarter basis, and increased 3% year over year.
We expect some continued pressure on used vehicle finance penetration Q2 existing interest rates and higher lender requirements for some buyers. However, we expect continued improvement in new vehicle finance penetration due to increasing OEM incentives.
Daniel James McHenry: However, we expect continued improvement in new vehicle finance penetration due to increasing OEM incentives. After sales first quarter revenues and gross profits, I've performed the prior year comparable quarter on a stand-alone basis, and we achieved a record U.S. parts and service revenues of approximately $500 million. We continue to believe that after sales is an area for Group 1 to differentiate, and we will continue to invest in that part of our business. Wrapping up the U.S., let's shift to SG&A.
Daniel James McHenry: After sales first quarter revenues and gross profits outperformed the prior year comparable quarter on a same store basis.
Daniel James McHenry: We achieved a record U S parts and service revenues of approximately $500 million.
Daniel James McHenry: We continue to believe that after sales scenario for group wanted to differentiate and we will continue to invest in that part of our business.
Wrapping up the U S, let's shift to SG&A.
Daniel James McHenry: Adjusted SG&A as a percentage of gross profit increased 260 basis points year over year to 65, 7%, but remained considerably from pre COVID-19 levels a variety of 70%.
Daniel James McHenry: Adjusted SG&A as the percentage of gross profit increased 260 basis points year over year to 65.7%, but remains considerably from pre-COVID levels of around 70%. As new beckel margins continue to normalize. Now, let's turn to the UK.
Daniel James McHenry: As new vehicle margins continue to normalize.
Daniel James McHenry: Yeah.
Daniel James McHenry: Let's turn to the U K.
Daniel James McHenry: The UK improve from fourth quarter of 2023.
Daniel James McHenry: The UK improved from the fourth quarter of 2023. Our UK team delivered record quarterly revenues driven by new vehicles and parts and service, which grew 10% and 9% respectively. We experienced declining new vehicle margins, a continuation at the initial onset of the quarter of the difficult used market first experienced in the fourth quarter of 2023, and Improved Cost Control as we worked to remove costs throughout the quarter. Quiet Hotel losses were down 34% per unit versus the sequential quarter, and we experienced an even steeper improvement in February and March. Used vehicle gross profit per unit improved $229, or 20%, on a sequential quarter basis. We believe vehicle demand remains resilient and new vehicle availability is still constrained.
Daniel James McHenry: Our UK team delivered record quarterly revenues driven by new that goes on parts and service, which grew 10% and 9% respectively.
Daniel James McHenry: We experienced declining new vehicle margins a continuation at the initial onset of the quarter of the difficult us market pressure experienced in the fourth quarter of 2023.
Daniel James McHenry: On improved cost control as we work to remove costs throughout the quarter.
Daniel James McHenry: While wholesale losses were down 34% per unit versus the sequential quarter.
Daniel James McHenry: We experienced an even steeper improvement in February and March.
Daniel James McHenry: Used vehicle gross profit per unit improved $229 or 20% on a sequential quarter basis.
Daniel James McHenry: We believe backhaul demand remains resilient and new vehicles availability is still constrained keeping you've that gold pricing and gpus elevated.
Daniel James McHenry: Keeping New Vehicle Pricing and GPUs Elevated, As of March 31st, our new vehicle order bank was approximately 12,500 units. As a reminder, our UK business mix is predominantly luxury, and those consumers are more resilient during times of economic uncertainty. Our UK operations began rebalancing of its used vehicle inventory during the fourth quarter of 2023 and continued into the first quarter of 2024. This continued rebalancing resulted in an $840 loss per vehicle sold through the wholesale channels in the first quarter.
Daniel James McHenry: As of March 31st our new vehicle order bank with approximately 12500 units.
Daniel James McHenry: As a reminder, our U K business mix, it's predominantly the luxury.
Daniel James McHenry: And those consumers are more resilient during times of economic uncertainty.
Daniel James McHenry: Our U K operations began rebalancing of its used vehicle inventory during the fourth quarter of 2023 and continued into the first quarter of 2024.
Daniel James McHenry: This continued rebalancing resulted in an $840 loss per vehicles sold through the wholesale channels in the first quarter an improvement from the 1300 dollar loss per vehicle in the fourth quarter.
Daniel James McHenry: An improvement from the $1,300 loss per vehicle in the fourth quarter. We have improved our used vehicle agency and reduced our used vehicle inventory by 12 days from 58 days on December 31st to 46 days. UK adjusted SG&A as a percent of gross profit decreased by 772 basis points sequentially, reflecting the impact of our cost-cutting efforts that began in the fourth quarter of 2023. Cost cutting took place throughout the entirety of the first quarter of 2024, resulting in an elevated adjusted SG&A, which was 1,020 basis points higher year over year. We also experienced the impact of a decline in gross margins across all lines of our business as compared to the prior year quarter.
Daniel James McHenry: We have improved our used vehicle agency and reduced our used vehicle inventory by 12 days from 58 days in December 31st to 46 days.
Daniel James McHenry: U K adjusted SG&A as a percent of gross profit.
Daniel James McHenry: Decreased by 772 basis points sequentially.
Daniel James McHenry: Reflecting the impact of our cost cutting efforts that began in the fourth quarter of 2023.
Daniel James McHenry: Cost cutting took place throughout the entirety of the first quarter 2024.
Daniel James McHenry: Resulting in an elevated adjusted SG&A, which was a thousand and 20 basis points higher year over year.
Daniel James McHenry: We also experienced the impact of the decline in gross margins across all lines of our business as prepared to the prior year quarter.
Daniel James McHenry: Turning to our balance sheet and liquidity.
Daniel James McHenry: Turning to our balance sheet and liquidity, as of March 31st, we had $42 million of cash on hand and another $180 million invested in our floor plan offset account, which is accessible immediately, bringing total cash liquidity to $222 million. We also had $241 million available to borrow on our acquisition line, bringing total immediate available liquidity to $463 million. In the first quarter of 2024, we generated $171 million of adjusted operating cash flow and $128 million of free cash flow after backing out $43 million of CapEx.
Daniel James McHenry: As of March 31st we had $42 million of cash on hand, and another $180 million invested in our Floorplan offset accounts assessable immediately, bringing total cash liquidity to $222 million.
Daniel James McHenry: We also had 241 million available to borrow on our acquisition line, bringing total immediate available liquidity to $463 million.
Daniel James McHenry: In the first quarter of 2024, we generated $171 million of adjusted operating cash flow and $128 million of free cash flow after backing out $43 million of Capex.
Daniel James McHenry: This capital was deployed through a combination of acquisitions, share repurchases, and dividends. In the first quarter of 2024, we spent $54 million repurchasing approximately 203,000 shares at an average price of $264.41, resulting in a 1.5% reduction in share count over the quarter. Our share conductive today is signed for approximately $13.5 million.
Daniel James McHenry: This capital was deployed through a combination of acquisitions share repurchases and dividends.
Daniel James McHenry: In the first quarter of 2024, we spent $54 million repurchasing approximately 203000 shares at an average price of $264 41.
Daniel James McHenry: Resulting in a one 5% reduction in share count over the quarter.
Daniel James McHenry: Our share count as of today assigned to approximately $13 5 million.
Daniel James McHenry: Our balance sheet, cash flow generation, and leverage position will continue to support a flexible capital allocation approach, including serious consideration of share repurchases in addition to pursuing external growth opportunities. Our rent-adjusted leverage ratio, as defined by our U.S. syndicated credit facility, was 2.45 times at the end of March. Our strong balance sheet will continue to allow for meaningful and balanced capital deployment. Our quarterly floor plan interest of $20.5 million was an increase of $7.9 million from the prior year due to higher inventory holding.
Our balance sheet cash flow generation and leverage position, we will continue to support flexible capital allocation approach, including serious consideration of share repurchases. In addition to pursuing external growth opportunities.
Daniel James McHenry: Our rent adjusted leverage ratio as defined by our U S. Syndicated credit facility was 245 times at the end of March our strong balance sheet will continuously alive for meaningful and balanced capital deployment.
Daniel James McHenry: Our quarterly Floorplan interest up $25 million with an increase of $7 9 million from the prior year due to higher inventory holdings.
Daniel James McHenry: We effectively manage our floor plan interest expense by holding excess cash on our floor plan offset accounts, reducing the balance exposed to interest as well as through our portfolio of interest rate swaps, which saved us $2 million of interest expense versus the comparable prior year quarter.
Daniel James McHenry: We effectively manage our floor plan interest expense by holding excess cash in our floor plan offset account, reducing the balance exposed to interest, as well as through our portfolio of interest rate shops, which saved us $2 million in interest expense versus the comparable prior year quarter. Quarterly non-floor plan interest expense of $29.3 million increased $9.6 million from the prior year quarter, primarily related to higher interest from increased borrowings on our acquisition line.
Daniel James McHenry: Okay.
Daniel James McHenry: Quarterly non floor plan interest expense of $29 3 million increased nine 6 million from the prior year quarter, primarily related to higher interest from increased borrowings on our acquisition line.
Daniel James McHenry: The benefit in the prior year of the de-designated swap increased mortgage-related borrowings and higher interest on existing borrowings. Our floor plan interest rate swap is similar. Our mortgage swap portfolio saved us $0.4 million in the current quarter versus the comparable period. As of March 31st, approximately 56% of our $4.2 billion in floor plan and other debt was fixed. Therefore, the annual EPS impact is only about $1.05 for every 100 basis point increase in the secured overnight funding rate, or SOFR, which is the benchmark rate referenced in our floor plan and mortgage debt instrument.
Daniel James McHenry: Benefit in the prior year of the de designated swaps.
Daniel James McHenry: Increased mortgage related borrowings and higher interest on existing borrowings.
Daniel James McHenry: Our floor plan interest rate swaps similar.
Daniel James McHenry: Our mortgage swap portfolio saved us $4 million in the current quarter versus the comparable period.
Daniel James McHenry: Okay.
Daniel James McHenry: As of March 31st approximately 56% of our $4 2 billion in floor plan and other debt was fixed.
Daniel James McHenry: Therefore, the annual EPS impact is only about one dollar and five for every 100 basis point increase in the secured overnight funding rate are so far which is the benchmark rate referenced in our floor plan on mortgage debt instruments.
Speaker Change: Let's turn to capital allocation.
Daniel James McHenry: Let's turn to capital allocation. We deploy a return-focused capital allocation strategy that balances opportunistic portfolio management and return of capital to our shareholders in the form of quarterly dividends and share buybacks. During the quarter, we acquired expected annual revenues of $1 billion. We spent $54 million to repurchase 1.5% of our outstanding common shares and paid dividends of $6 million.
We deploy our return focused capital allocation strategy that balance that balances opportunistic portfolio management and return of capital to our shareholders in the form of quarterly dividends and share buybacks.
During the quarter, we acquired expected annual revenues of $1 billion.
Speaker Change: We spent $54 million to repurchase one 5% of our outstanding common shares and paid dividends of $6 million.
Speaker Change: We continue to explore ways to consolidate our holdings and highly profitable scalable dealerships and dealership clusters.
Daniel James McHenry: We continue to explore ways to consolidate our holdings in highly profitable, scalable dealerships and dealership clusters. We believe the dealership business is the best use of our capital and have demonstrated our ability to successfully integrate acquisitions very quickly. We continue to explore opportunities to capture immediate growth through acquisition, but we also believe divesting smaller, underperforming stores and brands is a critical part of our strategy as well. We believe this approach is critical to our growth story, which leverages our skills and proven integration capabilities, optimizes our top-line performance, and grows the company in a meaningful and incremental manner.
Speaker Change: We believe the dealership business is the best use of our capital I have demonstrated our ability to successfully integrate acquisitions very quickly.
Speaker Change: We continue to explore opportunities to capture immediate growth through acquisitions.
Speaker Change: We also believe divesting smaller underperforming stores and brands is a critical part of our strategy as well.
Speaker Change: We believe this approach is critical to our growth story, which leverages our scale improvement integration capabilities.
Optimizes, our rooftop performance and grows the company in a meaningful and incremental manner.
For additional detail regarding our financial condition. Please refer to the schedule of additional information attached in the news release as well as our investor presentation posted on our website.
Daniel James McHenry: For additional detail regarding our financial condition, please refer to the schedules of additional information attached in the news release, as well as our investor presentation posted on our website. I will now turn the call over to the operator to begin our question and answer session. Operator.
Speaker Change: I will now turn the call over to the operator to begin our question and answer session operator.
Operator: Ladies and gentlemen, we will now begin the question and answer session.
Operator: Ladies and gentlemen, we will now begin the question and answer session. To ask a question, you may press star and 1 on your telephone keypad. If you are using a speakerphone, we do ask that you please pick up your handset prior to pressing the key.
Speaker Change: To ask a question you May press star and one on your telephone keypad.
Speaker Change: You are using a speakerphone please pick up your handset prior to pressing.
Operator: To withdraw your questions, you may press star and 2. In addition, we do ask that you please limit yourselves to one question and one follow-up. At this time, we'll pause momentarily to assemble the roster. Our first question today comes from... John Murphy from Bank of America. Please go ahead with your question.
Speaker Change: To withdraw your question you May press Star two.
In addition, we do ask that you please limit yourselves to one question and one follow on.
Speaker Change: At this time, we will pause momentarily to assemble the roster.
Speaker Change: Our first question today comes from John Murphy from Bank of America. Please go ahead with your question.
John Joseph Murphy: Good morning, everybody. Daryl, first question on Inchcape and the acquisition. It's an interesting acquisition. I'm just curious if, in addition to the sort of benefit of acquiring a good company and growth, there could be some sort of knock-on benefit of helping solve some of the management issues that you had in the UK towards the end of last year. And this may be if you can update us on sort of the turn and actions that have taken place in that business and where that stands. So it sounds like Inchcape might be a lot more than just a good acquisition. It might help with a lot of management issues.
John Joseph Murphy: Good morning, everybody.
John Joseph Murphy: Daryl just a first question on the inchcape in any acquisition.
John Joseph Murphy: It sounds like it's an interesting acquisition I'm just curious if in addition to sort of the the benefit of acquiring good companies.
John Joseph Murphy: Viewing and growth that there could be sort of a knock on benefit of helping solve some of the management issues that you had in the U K towards the end of last year and just maybe if you can update us on sort of the turn and actions that are taken in that business and where that stands so it.
John Joseph Murphy: Sounds like <unk> might be a lot more than just.
John Joseph Murphy: A good acquisition it might help us a lot of the management issues.
Daryl Adam Kenningham: Thank you, John. You know, we bought eight Inchcape stores a few years ago, and the talent level at Inchcape is fabulous. The heads of business that run those stores for us today all came from EngCape. We are excited about the talent level and the management depth at Inchcape. They really, really, have some fabulous people.
Thank you John.
John Joseph Murphy: You know, we bought eight inchcape stores, a few years ago and the talent level at Inchcape is fabulous.
John Joseph Murphy: The heads of business that run those stores for US today all came from inchcape.
John Joseph Murphy: We are excited about.
John Joseph Murphy: The talent level and the management depth that inchcape. They are they are really really.
John Joseph Murphy: Uh huh.
John Joseph Murphy: Those people and so I can affirm that we are excited about that that is definitely a benefit for us. So.
Daryl Adam Kenningham: And so I can affirm that we are excited about that. That is definitely an add-on benefit for us. And on the specific actions that we took in the fourth quarter and the first quarter to get our issues behind us in our own UK operation. We went through a cost-cutting exercise on an SG&A basis that touched a variety of parts of the company, including headcount. And we also reduced our demo fleets and loaner fleets, which are a huge expense for us as well.
John Joseph Murphy: And on the specific actions that we took in the fourth quarter and the first quarter.
John Joseph Murphy: To get our.
John Joseph Murphy: Issues behind us in our own U K operation.
We went through a cost cutting exercise on an SG&A basis.
John Joseph Murphy: A variety of parts of the company and including head Count and we also.
John Joseph Murphy: Reduce our demo fleets loner fleets, which are a huge expense for us.
John Joseph Murphy: As well and so.
Daryl Adam Kenningham: And so, aside from the SG&A and the headcount issues and the loaner and demo, we also put a great deal more emphasis on our use of our aging and, in turn, made some organizational changes around that to put some more focus on it. And we're pleased with the results we saw in the first quarter. We believe some of those actions will result in improved performance throughout the year.
John Joseph Murphy: Aside from the SG&A and the head count issues and the owner and demo we also put a.
John Joseph Murphy: A great deal more emphasis on our used car aging in turn made some organizational changes around that to put some more focus on it.
John Joseph Murphy: We are pleased with the results we saw in the first quarter. We believe some of those actions will result in improved performance throughout the year.
John Joseph Murphy: And Daryl, if I could just sneak in one follow-up. You mentioned something about the partnerships with OEMs improving. I'm just wondering if you can maybe talk about that a bit and maybe on the level of, you know, what it means for acquisitions, what it means potentially for parts and service, and what it could mean for the used vehicle business. I don't know if you could touch on those three and, generally, kind of what you mean by improved partnerships with OEMs.
Speaker Change: And then if I could just sneak in one follow up you mentioned something about the partnerships with Oems.
Speaker Change: <unk> I was just wondering if you could maybe.
Speaker Change: Talk about that a bit and maybe on the level of what does it mean for acquisitions, what does it mean potentially for for parts and service and what could it mean for the used vehicle business I don't know if you could touch on those three and generally kind of what your what you mean by improved partnerships with Oems.
Daryl Adam Kenningham: Well, I think a lot of the OEMs are in, taking what they do in a market like the UK, where they have fewer partners with bigger footprints, and I think they're bringing that thinking to the US.
Speaker Change: I think.
Speaker Change: A lot of the Oems.
Speaker Change: Our.
Speaker Change: Taking what they do in a market like the UK, where they have fewer partners with bigger footprints and I think they are.
Speaker Change: Bringing that thinking to the U S and.
Daryl Adam Kenningham: And I think they really value the right partner, and I think they are really trying to drive that, specifically in certain brands. They do that through the way they work with us on acquisitions, the creativity that we apply, and the opportunities that are provided. And I can tell you, you know, if you look at the three acquisitions we did in the U.S. in February and early March, fabulous brands across a variety of OEMs in some great markets.
Speaker Change: Think they really value.
Speaker Change: The right partner and I think they are.
Speaker Change:
Speaker Change: Really.
Speaker Change: Are trying to drive that specifically in certain brands and.
Speaker Change: They do that through the way they work with us on acquisitions the creativity.
Speaker Change: We apply and the opportunities that were provided.
Speaker Change: And I can tell you if you look at the three acquisitions, we did in the U S. In February and early March.
Speaker Change: Fabulous brands across a variety of Oems and some great markets and I think I can point to are our great relationship with those Oems.
Daryl Adam Kenningham: And I think I can point to our great relationship with those OEMs that enabled that, and I think they are continuing to look. They understand that there's, you know, our business is a 5% margin business, and it takes capital and great execution at retail to make their brands successful. And I think they're recognizing that more every day. So that's why I say that, and I think that applies not just to, you know, additional acquisitions but in the way they execute across a lot of the tactical elements that you mentioned, like used cars and parts of service. They're looking for dealer groups that can innovate, and I think that helps in those areas. Our next question.
Speaker Change: It enabled.
Speaker Change: I think they are continuing to look they understand that there is.
Our business is a 5% margin business and it takes capital and great execution at retail to make their brands successful and I think they are recognizing that more every day. So that's why I say that and I think that applies not just to.
Speaker Change: Additional acquisitions, but in the way they execute.
Speaker Change: Across a lot of the tactical elements that you mentioned like used cars and parts of service, they're looking for for dealer groups that can innovate and.
Speaker Change: I think that helps in those areas.
Speaker Change: Our next question comes from Michael Ward from Freedom Capital. Please go ahead with your question.
Operator: Our next question comes from Michael Ward from Freedom Capital. Please go ahead with your question. Mr. Ward, is it possible to turn this on?
Speaker Change: Okay.
Okay.
Speaker Change: Okay.
Michael Patrick Ward: Mr where does it carry there.
Michael Patrick Ward: Hey, you there I'm sorry, good morning, everyone.
Michael Patrick Ward: Hey, you there. I'm sorry. Good morning, everyone. Hi, Mike. Can you hear me?
Michael Patrick Ward: Mike can you hear me okay.
Michael Patrick Ward: Daniel could you shed some color on the acquisition cost of <unk>, and maybe even netted out with the sales and then.
Michael Patrick Ward: Okay. Daniel, could you shed some light on the acquisition costs in 1Q and maybe even net them out with the sales? With the Inchcape acquisition, you have the acquisition and the real estate, or is it one price for both?
Michael Patrick Ward: With the Inscape acquisition.
Michael Patrick Ward: You have the acquisition and the real estate or is it one price.
Daniel James McHenry: So let's start with the Inchcape acquisition first. The price that was quoted in our press release included the real estate for Inchcape, so effectively, the £220 million that was quoted was for the real estate, and the balance between the price quoted and the £220 million was effectively the goodwill and all other net assets. [inaudible] For the deals that we've done in the U.S., we typically don't quote the price that we pay for those deals.
Michael Patrick Ward: Both.
Daniel James McHenry: So let's start with the Inchcape acquisition first.
Daniel James McHenry: The price that was quoted in our press release included the real estate for.
Daniel James McHenry: <unk> inscape.
Daniel James McHenry: So effectively the 220 million times that was quoted.
Daniel James McHenry: Was was for real estate.
Daniel James McHenry: And.
Daniel James McHenry: The balance between the price quoted in the $220 million was effectively the goodwill in all other net assets.
Daniel James McHenry: For the deals that we've done in the U S.
Daniel James McHenry: We typically don't quote.
Daniel James McHenry: <unk> is that we don't pay for those deals.
Daniel James McHenry: However, what I will say that all of those deals fell.
Daniel James McHenry: However, I will say that all of those deals fell within our return model. So we model on the basis of a discounted cash flow basis. We have a targeted rate of return of approximately 12% on those acquisitions, and all of those acquisitions fell within those targets.
Daniel James McHenry: Fell within our return model.
Daniel James McHenry: So we model on the basis of a of a discounted cash flow basis.
Daniel James McHenry: We have a targeted rate of return of approximately 12%.
Daniel James McHenry: On those acquisitions and all of those acquisitions fell but within those targets.
Speaker Change: Okay Alright.
Michael Patrick Ward: All right, so netted out, though, it's somewhere in that neighborhood of about $200 million, then, it sounds like, between buying and some of the proceeds from the disposals.
Speaker Change: Alright, so netted out though with somewhere in that neighborhood of about $200 million and it sounds like.
Speaker Change: Between buying in some of the proceeds from the disposals.
Daniel James McHenry: It'll be more than that, Mike, for one cue, for one cue, correct.
Speaker Change: And it'll be more than that Mike.
Speaker Change: Okay.
Speaker Change: For <unk>.
Speaker Change: For <unk> correct, okay. Okay.
Michael Patrick Ward: Okay, okay. And just one last thing on Inchcape.
Speaker Change: Just one last thing on Inchcape I Wonder if you could talk a little bit Daryl about some of the longer term relationships.
Daryl Adam Kenningham: I wonder if you could talk a little bit, Daryl, about some of the longer-term relationships and how that came about. You said you acquired eight other stores from them at some previous point. You have a history of having long relationships with some of the acquisitions you make, and I'm just wondering how this fits in and your confidence level that it's going to be like some of the others that fit it.
Speaker Change: How that came about you said you acquired eight other stores from them at some previous point.
Speaker Change: You have a history of having long relationships with some of the acquisitions you make and I'm just wondering how this fits in your confidence level that it's going to be.
Some of the other sectors, it pretty well like prime has been pretty well to the group one.
Daryl Adam Kenningham: Yeah, we were, you know, we bought some of Inchcape's Ford stores and Volkswagen stores 7 or 8 years ago, and the integration was very good. Inchcape's been in the retail business in the UK for 50 years, and they're a sophisticated operator, and we really benefited from some of the things they brought us on that acquisition. And, you know, the OEM mix that we're getting with this acquisition; we own all of those OEMs today, and we own all but two of them in the UK today.
Speaker Change: Work.
Speaker Change: Yeah, we were.
Speaker Change: When we bought some of inchcape sports stores and Volkswagen stores and.
Speaker Change:
Speaker Change: Seven or eight years ago.
Speaker Change: The integration was.
Speaker Change: Very good inchcape escape spin in the retail business the U K for 50 years.
Speaker Change: They're sophisticated operator, and we really benefited from some of the things they brought us that acquisition.
The OEM mix that we're getting with this acquisition.
Speaker Change: One all of those Oems today, and we own all but two of them.
Speaker Change: In the UK today, the two we don't own today in the UK, a Porsche and Lexus.
Daryl Adam Kenningham: The two we don't own today in the UK are Porsche and Lexus. We own all of the others today, and we've got what I believe are very productive, positive relationships with those OEMs, and that's based primarily on performance, our willingness and ability to invest in their brands, like in facilities, etc. Yeah, those relationships for us go back quite a ways and often bridge both countries.
Speaker Change: We own all of the others.
Speaker Change: Today, and we've got what I believe are very productive positive relationships with those Oems and that's based primarily on performance.
Speaker Change: Sure.
Speaker Change: Our willingness and ability to invest in their brand like in facilities et cetera.
Speaker Change: Yes.
Speaker Change: Those relationships for US go back quite a ways and bridge and often often bridge both both countries.
Operator: And our next question comes from David Whiston from Morningstar. Please go ahead with your question.
Speaker Change: And our next question comes from David Whiston from Morningstar. Please go ahead with your question.
David Whiston: Thanks. Good morning. Just a couple of questions on you. You guys continue to do pretty well there despite all the pressures in that space. Do you have any kind of national algorithm, or is it just more of a data approach that's a bit less central?
Thanks, Good morning.
David Whiston: Just a couple from me on unused you guys continue to do pretty well there. Despite all the pressures in that space.
David Whiston: Do you.
David Whiston: Any kind of national algorithm or is it just more of a data approach that is a bit less centralized.
Speaker Change: We're getting.
Daryl Adam Kenningham: We're getting more centralized, David. One with the technology we use. We switched technologies about a year ago, a year and a half ago, maybe, and I think we're leveraging it better today. We also have made some changes in some of our aging policies, some of our intra-company transfer policies to be able to put vehicles where they will have the highest velocity at the most opportunistic profit on a faster basis. And I think we're seeing the results of all of that.
Speaker Change: More centralized David.
Speaker Change: The one with the technology, we use and we <unk>.
Speaker Change: Switch technology about a year ago.
Year, and a half ago, maybe and I think we're leveraging it better today.
Speaker Change: We also.
Speaker Change: <unk> made some changes in some of our aging policies some of our.
Speaker Change: Intra company transfer policies to be able to put vehicles, where they will have the highest velocity at the most.
Speaker Change: Opportunistic profit on.
Speaker Change: On a faster basis, and I think we're seeing the results of all of that.
Daryl Adam Kenningham: We're able to keep our year-over-year growth rates up even though we have less inventory. We have 26 days of inventory, and we're still able to keep the velocity and the year-over-year improvements in place, and the PRU is holding up well. So I think it's a variety of things that the team is doing. We're approaching it more on a standardized basis than we ever have, and we have more resources on it today than we ever have.
Speaker Change: We're able to keep our year over year growth rates up even though we have less inventory, we have 2006 days of inventory and we're still able to keep the.
Speaker Change: Velocity and the year over year improvements in place and the <unk> is holding up well so I.
Speaker Change: I think it's a variety of things.
Speaker Change: The team is doing well.
Speaker Change: We're approaching it.
Speaker Change: More more on a standardized basis than we ever have.
Speaker Change: And we're we have more resources on it today than we ever have.
Speaker Change: And in the U S market are you seeing any kind of meaningful increase in leasing yet.
Daryl Adam Kenningham: And in the U.S. market, are you seeing any kind of meaningful increase in leasing yet?
Daryl Adam Kenningham: Actually, our leasing was down a tick in the quarter, but it's up significantly from where it's been the last couple of years. We've got the number in our deck, I think. We do.
Speaker Change: Actually our leasing was down a tick in the quarter, but it's up significantly from where its been the last couple of years.
Speaker Change: We've got the number in our deck I think.
Speaker Change: David It's Daniel here, new vehicle leasing year on year, So a quarter $1 24 versus quarter. One 'twenty three we saw 450 basis points and Greece.
Daniel James McHenry: We do. David, it's Daniel here. New vehicle leasing year on year, so quarter 124 versus quarter 123, we saw a 460 basis point increase, so leasing today is up to 18.6% of our new vehicle sales.
Speaker Change: So leasing today is up to 18, 6% of our new vehicle sales.
Speaker Change: And our next question comes from the Charcuterie from Jpmorgan. Please go ahead with your question.
Operator: And our next question comes from Rajat Gupta from J.P. Morgan. Please go ahead with your question.
Charcuterie: Great. Good morning, Thanks for taking the question.
Rajat Gupta: Great. Good morning.
Rajat Gupta: Thanks for taking the questions. The first one was on services. There's pretty good growth, you know, in customer pay and warranty. But it looks like collision and wholesale parts were slow, and especially collision was weak.
Charcuterie: First one was on services, yeah pretty pretty good growth.
Charcuterie: Customer pay and warranty.
Charcuterie: Well, but it looks like collision and wholesale parts or were slow, especially collision was weak.
Daniel James McHenry: Any sense of, you know, what drove that reversion? You know, one of your peers reported yesterday also, which was quite weak in that category. But I was curious, like, how should we think about, you know, that part of the service business recovering, also the wholesale parts, and just in the context of overall service growth as well? You know, how should we see things trending through the course of the year? I have a follow-up question.
Speaker Change: Any sense of you know what what drove.
Speaker Change: But what drove that you're working on you know one of your peers reported yesterday also.
Speaker Change: In that category, but.
Speaker Change: I'm just curious like how should we think about.
Speaker Change: That's part of the service business recovering well also the wholesale parts I mean, just in the context of the overall service growth as well.
Speaker Change: How should we see things trending through the course of the year I have a follow up.
Daniel James McHenry: A couple of comments, Rajat. On collisions, I can't assign a value to this, but what we do seem to be seeing are insurance companies totaling more vehicles because of the used car valuations that have been falling. And so that is certainly impacting the collision business, which will, to some extent, affect the wholesale parts business. Also, we're trying to be smart about our wholesale parts business. That can bring in a lot of revenue and not a lot of margin.
Couple of comments Roger on collision.
Roger: I can't assign a value to this but what we do seem to be seeing our insurance companies totaling more vehicles because of.
Roger: The used car valuations that have been falling.
Roger: So.
Roger: That is that is certainly impacting the collision business, which will have some effect effect.
Roger: Wholesale parts business also.
Roger: We're trying to be smart about our wholesale parts business that can be a lot of revenue and not a lot of margin and so.
Daniel James McHenry: And so we're kind of in the process right now of at least reviewing to make sure that we're generating positive returns on that. So that could be affecting some of that revenue from the wholesale parts business. But we were pleased with the CP performance, as you mentioned, and we added more technicians year over year again, and that continues to be a focus for us.
Roger: We're kind of in the process right now of at least reviewing to make sure that.
Roger: We're generating positive returns on that so.
Roger: That could be affecting some of the some of that revenue on the wholesale parts business, but we were pleased with the CP performance as you mentioned and we were at it we added.
Roger: More technicians year over year again, and that continues to be a focus for us.
Speaker Change: Got it I mean should we expect this kind of like year over year growth rate.
Rajat Gupta: I mean, should we expect this kind of like year-over-year growth rate to continue for the remainder of the year? You know, should we expect, you know, some kind of improvement, or is this a good level to zoom for the remainder of the year on the overall parts? I think we're kind of
Speaker Change: You know to continue for the remainder of the urea should we expect.
Speaker Change: Some kind of like improvement or is this a good level to xyrem.
Speaker Change: The remaining of the year.
Speaker Change: The overall parts and service segment.
Speaker Change: I think we're kind of comfortable with where we are today is trying to estimate where we would be in the future.
Daniel James McHenry: I think we're kind of comfortable with where we are today as opposed to trying to estimate where we will be in the future.
Speaker Change: Our next question comes from Glenn Chin from peak or research partners. Please go ahead with your question.
Operator: Our next question comes from Glenn Chin from Peaport Research Partners. Please go ahead with your question.
Glenn Edward Chin: Hi, good morning folks.
Glenn Edward Chin: Good morning, folks. Just going back to the U.K. cost cuts, can you share with us how much of a benefit was realized in the first quarter? And then can you remind us, I think you mentioned in the fourth quarter you expected annualized savings of $8 to $10 million, if you can just confirm that?
Glenn Edward Chin: Just going back to the U K cost cuts can you share with us how much of that benefit was realized in the first quarter and then.
Glenn Edward Chin: Can you remind us I think you mentioned in the fourth quarter you expected.
Glenn Edward Chin: Annualize savings of was it $8 million to $10 million. If you can just confirm that.
Daniel James McHenry: Glenn, I think that's for our annualized saving of $8 to $10 million. The cost cuts took place throughout the quarter. You know, it takes a little longer in the UK to generate some of these savings just with the employment law that's there, but I would expect to see the full benefit of the cost cuts in the second quarter.
Speaker Change: Glenn and I think Thats fair annualized saving of eight to 10 million the cost cuts took place throughout the quarter. It takes a little longer in the U K to generate some of the savings and just with the employment law.
Speaker Change: There, but I would expect to see the full benefit of the cost cuts and quarter two.
Glenn Edward Chin: But I'm trying to get to how much more incrementally we should expect, so how much was realized in the first quarter, Daniel? I would say 50% of it was realized in the first quarter if you assume that, you know, the redundancies took place, you know, 50% through the quarter effectively. Okay, very good. That's helpful.
Speaker Change: But I'm trying to get to how much more incrementally we should expect so how much was realized.
Speaker Change: Okay.
Speaker Change: I would say 50% of it was realized in the first quarter if you assume.
Speaker Change: That you know the redundancies took place 50% for the quarter effectively.
Speaker Change: Okay very good that's helpful. Thanks, and then just a question on full size pickups Theres. Some stories are rising inventory someday triple digit levels, you saw ram cutting employees in production.
Daryl Adam Kenningham: Then just a question on full-size pickups. There are some stories of rising inventory, some to triple-digit levels. We saw RAM cut employees and production. Have you guys detected a change in the demand profile for full-size pickups?
Speaker Change: You guys have detected a change in the demand profile for full size pickups.
Daryl Adam Kenningham: Um, you know, I wouldn't, I've seen some of that press too. Glenn and, and, you know, when we kind of look across our, our mix, the GM brands were pretty good. The Ram was down a tick, and the F-Series was down a tick. Toyota was up significantly, and actually, so we were, you know, overall, we were up a little bit in large pickup sales year over year. So it's hard for me to square that with what I've seen in some of the press. Glenn, one thing.
You know I wouldn't I've seen some of that press who.
Speaker Change: Glenn and when we kind of look across.
Speaker Change: Our mix.
Speaker Change: The GM.
Speaker Change: Brands were pretty good.
Speaker Change: Ram was down a tick.
Speaker Change: F series is down a tick.
Speaker Change: Toyota was up significantly and actually.
Speaker Change: So we were.
Speaker Change: Overall, we.
Speaker Change: We were up a little bit and then large pickup sales year over year.
Speaker Change: So it's hard for me to square that with what I've seen in some of the press.
Daryl Adam Kenningham: Glenn, one thing I'll add to that is that our Texas exposure makes a big difference for pickup sales.
Speaker Change: And Glenn one thing I'll add to that is our Texas exposure makes a big difference for pickup shelves.
Daryl Adam Kenningham: And if you look at our truck's daily supply compared to the car, it's You know, they're right together.
Glenn Edward Chin: And if you look at our truck day supply compared to the car.
Speaker Change: The right together.
Speaker Change: Okay.
Speaker Change: Our next question is a follow up from Rajat Gupta from Jpmorgan. Please proceed with your follow up.
Operator: Our next question is a follow-up from Rajat Gupta from J.P. Morgan. Please proceed with your follow-up.
Rajat Gupta: Oh, great. Thanks, Thanks for giving you back in the queue.
Rajat Gupta: Great, thanks for getting me back in the queue. Just wanted to clarify on SG&A in the U.S., in particular. If you look at the gross profit versus the SG&A, we saw a slightly higher pickup in the SG&A dollars versus the gross profit. Was that just seasonality, maybe some deleveraging because of the service business? Just curious what happened there. How should we think about, you know, that leverage profile through the course of...
I wanted to clarify on SG&A in the U S in particular.
Rajat Gupta: If you look at like the gross profit versus the SG&A.
Rajat Gupta: We saw a slightly higher pick up on the SG&A dollars.
Rajat Gupta: Versus the gross profit.
Was that just seasonality.
Rajat Gupta: B you know some deleveraging because of the service business just curious what happened there.
Rajat Gupta: Should we think about you know that leverage profile through the course of the year.
Daniel James McHenry: You know, Rajat, there are a couple of things, aren't there, Daniel? You know, what we've always said is, you know, coming out of this, we would expect that SG&A as a percent of gross would drop from 74% pre-pandemic to around 70% with, you know, kind of 400 basis points out of SG&A as a percent of gross going forward. Now, clearly, some of the grosses are dropping on new vehicles, and, you know, we continue to see about $100 a month reduction, and that affects SG&A as a percent of gross.
Speaker Change: Yeah right that there is a couple of things are its Daniel.
Daniel James McHenry: Yeah, what we've always said is key.
Daniel James McHenry: Coming out of this we would expect that SG&A as a percent of gross would drop from 74% pre pandemic to around 70%.
Daniel James McHenry: Kind of a 400 basis points.
Daniel James McHenry: SG&A as a percent of growth going forward.
Daniel James McHenry: Some of the grosses are dropping on new vehicles, and we continue to see about $100, a month reduction and that in and that affects SG&A as a percent of gross.
Daniel James McHenry: There are a couple of other things that I would add. Clearly, we didn't get all of the costs out in the UK in the quarter for its full benefit, which we will see going forward in quarter 2, so we would expect, on an ongoing basis, SG&A as a percent of gross, all things being equal, to continue to reduce in the UK. Taking on some of these new acquisition stores, often there's slightly elevated costs that come as we take on some of these new acquisition stores, and particularly if you buy a store halfway through a month, it's just tougher for SG&A as a percent of gross as we bed those stores in, so I think you need to take some of that into account as well whenever you look at the change in SG&A as a percent of gross Yep.
Daniel James McHenry: There's a couple of other things that I would add clearly we didn't get all of the cost side and the U K in the quarter.
Daniel James McHenry: And for its full benefit that we will see going forward in quarter two.
Daniel James McHenry: So we would expect on an ongoing basis SG&A as a percent of growth.
Daniel James McHenry: All things being equal to continue to reduce in any U K, taking on some of these new acquisition stores.
Daniel James McHenry: Often.
Daniel James McHenry: There's slightly elevated costs that Tom as we take on some of those these new acquisition stores and particularly by store halfway through a month.
Daniel James McHenry: Tougher.
Daniel James McHenry: SG&A as a percent of gross as we bed those stores then.
Daniel James McHenry: So I think you need to take some of that into <unk> as well whenever you look at the change in SG&A as a percent of gross.
Speaker Change: Understood that makes sense thanks for clarifying.
Rajat Gupta: understood. Yep, that makes sense. Thanks for clarifying.
Speaker Change: Thank you Roger.
Operator: And ladies and gentlemen, with that being our final question for today, we'll close out today's conference call and presentation. We do thank you for joining us. You may now disconnect your lines.
Speaker Change: And ladies and gentlemen, with that being our final question for today will close out today's conference call and presentation. We do thank you for joining you may now disconnect your lines.