Q3 2024 Group 1 Automotive Inc Earnings Call
Speaker Change: The
Speaker Change: Good morning ladies and gentlemen and welcome to Group 1 Automotive's 3rd Quarter 24 financial results conference call. Please be advised that this call is being recorded.
Speaker Change: I would now like to turn the floor over to Mr. Pete Lungchach, Group One Senior Vice President, and in fact your relations with the financial services. Please go ahead and Mr. Lungchach.
Pete Lungchach: Thank you, Jamie. Good morning, everyone. Welcome to today's call. The earnings release we issued this morning and a related slide presentation that include reconciliation related to the adjusted results we will refer to on this call. Our comparison purposes have been posted to the Group One website.
Pete Lungchach: Before we begin, I'd like to make some brief remarks about forward-looking statements and the use of non-gap financial measures.
Pete Lungchach: Except for historical information mentioned during the conference call statements made by management at Rupon on a motive, our former lathe statements that are made pursuant to the safe harbor provisions of the private securities litigation reform act of 1995.
Pete Lungchach: Inventory supply due to increased customer demand and reduced manufactured production levels due to component shortages, conditions of markets, successful integration of acquisitions, and adverse developments in the global economy and resulting impacts on demand for new and used vehicles and related services.
Pete Lungchach: 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.
Pete Lungchach: 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 with me on today's call, Daryl Kenningham, our President and Chief Executive Officer, and Daniel McHenry, Senior Vice President and Chief Financial Officer. I'd now like to hand the call over to Daryl.
Daryl Kenningham: Thank you, Pete. Good morning, everyone. Thanks to our great teams in the U.S. and the U.K., we were pleased with our performance in the quarter.
Daryl Kenningham: I'll start with our UK business.
Daryl Kenningham: During the quarter we closed on the previously announced Inchcape retail transaction, adding 2.7 billion dollars in revenue from 54 dealerships in key hubs such as the Midlands, the Northwest of England, and Wales.
Daryl Kenningham: In a separate transaction, we also acquired four additional Mercedes-Benz dealerships north of London. Additionally, we recently closed on a large BMW store in Lincoln, England.
Daryl Kenningham: The brand and geographic mix are outstanding and give us significant scale and reach that will improve our SG&A leverage.
Daryl Kenningham: Because of our size now in the UK, we've been able to significantly strengthen our relationships with great brands like BMW, Volkswagen, Audi, Porsche, Mercedes-Benz, Toyota, Land Rover and Ford.
Daryl Kenningham: A close relationship with our OEM partners based on performance and commitment is critical to our growth focus.
Daryl Kenningham: On October 1st, Mark Rabin joined us as CEO of Group One UK.
Daryl Kenningham: Mark brings with him deep industry and public company knowledge in the UK market. He's both operationally and financially sound.
Daryl Kenningham: Mark has already appointed his leadership team comprised of both legacy Groupon leaders and Inchcape retail leaders.
Daryl Kenningham: We now have the strongest leadership team we've ever had in our UK business.
Daryl Kenningham: We are also working on bringing the rest of the organizations together and hope to have that substantially finished by the end of 2024.
Daryl Kenningham: It's a big task to integrate this many stores and two corporate organizations that quickly.
Daryl Kenningham: But we believe it's important, and we believe integration is a strength at Group 1.
Daryl Kenningham: In his upcoming comments, Daniel McHenry will give several specific examples of the integration activities and their expected benefits.
Daryl Kenningham: Based on what we've seen after 80 days of ownership, we have more confidence today that the Itchcape retail acquisition will be a significant contributor to Group One and our shareholders.
Daryl Kenningham: Turning to the U.S.
Daryl Kenningham: There were slight continuing impacts from the CDK outage on our third quarter operations. There was some business impact on our largest market, Houston, from Hurricane Beryl in July, as some stores were without power for up to a week.
Daryl Kenningham: We felt some moderate impact from Helene in late September. We don't believe there was any impact from Milton since it didn't hit until October 5th.
Daryl Kenningham: In the third quarter, we saw record new and used vehicle units delivered. Our F&I business performed well, and our new vehicle gross profits held up well.
Daryl Kenningham: And our U.S. adjusted SG&A leverage was excellent at 64.3%.
Daryl Kenningham: Our U.S. same-store service business grew a little over 8%, which we consider quite good, coming off of double-digit increases each of the last three year-over-year quarters in customer pay.
Daryl Kenningham: Our UK same-store service business grew over 13% in local currency in the third quarter.
Daryl Kenningham: We continue to view after sales as a way to differentiate Group 1. We believe it is the most under-invested area of our business, and for a number of reasons, we believe there is tremendous opportunity for growth well into the future.
Daryl Kenningham: We continue to be successful adding and retaining technicians.
Daryl Kenningham: adding eight more technicians in the U.S. this year, and we are putting even more focus into this.
Daryl Kenningham: As an example of our commitment, we know that employee engagement scores are higher and turnover is lower in workshops with air conditioning.
Daryl Kenningham: We are well underway with a capital program to install air conditioning in nearly 90% of our shops in the United States, up from just over 55% when we began the project.
Daryl Kenningham: We expect to be substantially finished with this project by the end of 2025.
Daryl Kenningham: Well, we are focused on retaining and hiring technicians. We believe we have a long way to go before we reach the limits of our facility capacity.
Daryl Kenningham: We still have over 400 empty stalls in our U.S. schools.
Daryl Kenningham: However, to make what we feel is an important point, we do not view stall count as a limiter in growing our technician staffing.
Daryl Kenningham: Testament to this is that one-third of our U.S. stores have more technicians on staff than we have stalls. To be more specific...
Daryl Kenningham: Those nearly 50 stores have 19% more technicians than stalls, so we believe we can continue to add technicians far into the future without physical facility limitations.
Daryl Kenningham: And one last word on our after-sales business.
Daryl Kenningham: Over one-third of our customers who come into our stores for warranty work also have some CP work done.
Daryl Kenningham: So as long as we continue to see some of these large recalls and warranty campaigns from major brands, we expect that incremental warranty work is a bit of a tailwind on CP.
Daryl Kenningham: while we regularly evaluate other business adjacencies.
Daryl Kenningham: We continue to believe, in this environment, the best use of our shareholders' capital is investing in new vehicle franchise dealerships.
Daryl Kenningham: We believe that entering other business adjacencies limits our returns, but it also dilutes our focus.
Daryl Kenningham: And fundamentally, we don't believe we should be in any business that potentially competes with our OEM partners.
Daryl Kenningham: As a result of this focus, our performance on our acquisition eligibility criteria is quite strong across nearly all of our OEMs.
Daryl Kenningham: That allows us to engage in acquisition discussions on nearly any brand with the confidence that we will be approved.
Daryl Kenningham: The brands we've grown with just this year, like Lexus, Honda, Mercedes-Benz,
Daryl Kenningham: BMW, Toyota, Porsche, Land Rover, and Audi are all examples of our ability to acquire outstanding brands in desirable markets because we perform well on the OEM eligibility metrics.
Daryl Kenningham: We view those relationships, rooted in performance, as critical to our success.
Daryl Kenningham: Another important element of our capital allocation strategy is shared buybacks.
Daryl Kenningham: We continue to balance acquisitions and dispositions with repurchasing our shares.
Daryl Kenningham: This year, we've bought back another 3.4% of the company for $138 million.
Daryl Kenningham: We've repurchased 24% of our stock in the past 33 months.
Daryl Kenningham: In the months ahead, should we believe repurchasing our stock is a better option to return capital to shareholders? We will certainly pursue that aggressively.
Speaker Change: Now I'll turn the call over to our CFO Daniel McHenry for an operating and financial overview. Daniel?
Daniel McHenry: Thank you, Daryl, and good morning, everyone.
Daniel McHenry: In the third quarter of 2024, Group 1 Automotive reported a adjusted net income of $133.5 million.
Daniel McHenry: quarterly adjusted diluted EPS from continuing operations of $9.90.
Daniel McHenry: Current quarter total revenues of $5.2 billion, an all-time quarterly record.
Daniel McHenry: and all-time quarterly records across all business lines, including new vehicle sales of $2.6 billion.
Daniel McHenry: use vehicle sales of 1.7 billion
Daniel McHenry: We had just over 2,000 new and used vehicles in stop sale at the end of the quarter. These stop sale vehicles were weighted towards higher GPU models.
Daniel McHenry: Lightly, slightly suppressing our third quarter GPU averages.
Daniel McHenry: www.mercierfilms.ca
Daniel McHenry: Starting with our U.S. operations.
Daniel McHenry: We achieved an all-time quarterly record on new vehicle revenues of $2 billion. Driven by record, new vehicle units sold up 7% on a reported basis.
Daniel McHenry: This reflects the resiliency of demand and the continued emphasis on driving volume through new dealership acquisitions.
Daniel McHenry: We are pleased with Nubeckl GPU performance, moderating only $143 and $129 from the sequential quarter on a reported and same store basis respectively.
Daniel McHenry: This was particularly strong given the global stop sell of certain vehicle models from Lexus, BMW and other manufacturers, which impacted sales during the current quarter.
Daniel McHenry: Used cars experienced a volume increase sequentially, with same store units up 1,076, or 3%.
Daniel McHenry: sequentially, pricing up 216 a unit and GPU down only $109.
Daniel McHenry: With our franchise model, the global stop sale did affect certain used vehicle models.
Daniel McHenry: We are pleased with our ability to increase volume and hold pricing. We believe this is testament to our process, discipline, and use of technology with pricing used vehicles.
Daniel McHenry: Our F&I revenues of $185 million were also a quarterly record for the U.S. Our F&I GPU of $2,406 increased on the same store sequential quarter basis and year-over-year.
Daniel McHenry: The performance by our F&I professionals has been outstanding to maintain GPU discipline.
Daniel McHenry: Shifting gears to after sales.
Daniel McHenry: Aftersales third quarter revenues and gross profits were all-time quarterly highs, outperforming sequentially and year over year.
Daniel McHenry: Sam's Store customer pay and warranty revenues for the quarter were up 5% and 19.6% year over year respectively.
Daniel McHenry: These gains demonstrate our ability to add after-sales capacity on the same store basis.
Daniel McHenry: However, our technician had counted us up 20% over the same period.
Speaker Change: As Daryl added earlier, we have added 8% additional technicians this year alone.
Speaker Change: Wrapping up the U.S. that shipped to SG&A.
Speaker Change: U.S. adjusted SG&A as a percentage of gross profit decreased six basis points sequentially to 64.3 percent, demonstrating our continued focus on managing costs.
Speaker Change: at below pre-COVID levels as new vehicle margins continue to normalize.
Speaker Change: [inaudible]
Speaker Change: Returning to the U.K.
Speaker Change: In terms of headline results...
Speaker Change: Acquisition activity fueled an all-time quarterly record in total revenues.
Speaker Change: leading to a 55.2% increase year over year.
Speaker Change: We are pleased to be able to maintain gross profit on a same-store basis, thanks to improvements in after-sales year over year.
Speaker Change: Sequentially, new vehicle GPUs declined $109 and $15 in the same store basis.
Speaker Change: Same store, retail used bagel units increased nearly 4%, however remained challenged with sequential declines in GP use of $71.
Speaker Change: Despite this used vehicle backdrop,
Speaker Change: Same storehold sale losses per unit improved compared to the sequential quarter, evidencing our continued focus to better manage our used vehicle inventory in a tough UK market.
Speaker Change: A Low UK Adjusted Same Store SG&A as a Percent of Gross Profit Improved 48 Basis Points Sequentially
Speaker Change: We recognize that we still have some challenges to overcome for the UK as a whole and will continue to focus on cost control and business process efficiencies as we execute our business integration activities.
Speaker Change: Our integration activities related to InScape have been ongoing for nearly 90 days and principally include efforts aimed at workforce alignment.
Speaker Change: Systems Conversions and Operational Efficiency
Speaker Change: We expect at least a 300 basis points saving in the UK SG&A as a result of these activities.
Speaker Change: Our workforce alignment will primarily involve reductions to leadership and corporate positions, which are duplicative.
Speaker Change: Bringing back office support functions in-house from an outsourced model and increasing staffing at the dealerships where we believe there are opportunities for improvements in gross profit and volume.
Speaker Change: We believe the change from an outsourced model will generate a 50% savings from the cost previously incurred by Inchcape for those services.
Speaker Change: and
Speaker Change: Technician headcount is light in our opinion, leaving room to increase after sales as we onboard additional technicians.
Speaker Change: System conversions will transition us to nearly one single DMS platform in the UK allowing us to create additional transactional processing efficiencies
Speaker Change: and
Speaker Change: Operational activities are expected to yield lower operation-related costs such as banking and credit card fees.
Speaker Change: We will operate under a single brand name, Group 1 in the UK, which is expected to drive marketing savings versus maintaining two separate brands.
Speaker Change: Turning to our balance sheet and liquidity.
Speaker Change: Our strong balance sheet, cash flow generation, and leveraged position will continue to support a capital and flexible allocation approach.
Speaker Change: As of September 30th, our liquidity of $813 million was comprised of accessible cash of $159 million and $655 million available to borrow on our acquisition line.
Speaker Change: Our rent-adjusted leverage ratio as defined by our U.S. syndicated credit facility was 2.98 times at the end of September. We expect this to moderate as we enclose on mortgage-related financing for inch-cape properties.
Speaker Change: Cash flow generation through the third quarter of 2024 yielded $455 million of adjusted operating cash flow and $328 million of free cash flow after backing out $127 million of CapEx.
Speaker Change: This capital was deployed in the same period through a combination of acquisitions, share repurchases and dividends, including the acquisition of $3.8 billion in revenues through September 30th.
Speaker Change: $130 million repurchasing approximately 438,000 shares at an average price of $295.80 resulting in a 3.2% reduction in share count since January 1st.
Speaker Change: and $19.1 million in dividends to our shareholders.
Speaker Change: During the fourth quarter, we repurchased an additional 23,200 shares under a Rule 10b-5-1 trading plan at an average price per common share of $349.30 for a total cost of $8.1 million.
Speaker Change: We currently have $166 million remaining in our board-authorized common share repurchase program.
Speaker Change: As of September 30th, approximately 56% of our $5.2 billion in floor plan and other debt was fixed.
Speaker Change: resulting in an annual EPS impact of $1.30 for every 100 bases and point increase in the secured overnight funding rate.
Speaker Change: 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.
Speaker Change: I will now turn the call over to the operator to begin the question and answer session.
Speaker Change: Thank you.
Speaker Change: Ladies and gentlemen, we'll now begin the question and answer session. To ask a question, you may press star and then one on your telephone keypads.
Speaker Change: If you are using a speakerphone, we do ask that you please pick up your handset prior to pressing the keys.
Speaker Change: To withdraw your questions, you may press star and two.
Speaker Change: We do ask that you please limit yourselves to one question and one follow-up.
Speaker Change: At this time, we'll pause momentarily to assemble the roster.
Speaker Change: And our first question today comes from
Speaker Change: or Jacques Gupta from J.P. Morgan. Please go ahead with your question.
Speaker Change: Great, thanks for taking the question. You know, you just had the one question on you know, you know, all the one-time impacts and then one on UK. So you mentioned, you know, you know, the hurricane impacts, you know, some lingering CDK issues.
Speaker Change: You know, you had some of the stop sale Headwind curious if you could quantify You know some of those buckets or or in an aggregate fashion
Speaker Change: I'm just trying to get a baseline for the third quarter EPS, you know, excluding all those headwinds. And anything you want to flag, you know, that might continue in the fourth quarter, you know, especially with respect to the stop sales and any recall work that might offset that. I'll have a follow-up on UK. Thanks.
Speaker Change: Rajat, hi, good morning. It's Daniel. A couple of things there. You know, we came out of the CDK shortage at the end of June and I think that we were fairly well ahead of our peers in terms of coming out of that.
Speaker Change: Early July, Hurricane hit in our biggest market, which is our Houston market. July, I would say, we performed about 70% of where we would have expected to have performed on a normal basis or a run rate basis.
Speaker Change: I would have thought that cost us somewhere between $0.20 and $0.30 in terms of EPS.
Speaker Change: That modeled a little of the, you know, first week or two in terms of CDK and the CRM outage.
Speaker Change: In terms of stop sell, as I said, we have about 2,000 vehicles on stop sell.
Speaker Change: that on the assumption that we would have sold and delivered you know at least 50% of those, the expectation would have been that cost us about three and a half million in terms of profits.
Speaker Change: for those Beckles, which is another 20 to 30 cents in terms of VPS.
Speaker Change: In terms of the hurricane at the end of the quarter, we had limited exposure to that, but a couple of our stores, one in particular, was closed for a number of days with that hurricane.
Speaker Change: Got it, got it. And just to clarify on that, I mean, did you have any recall where, you know, that may have offset some of the three and a half million top sale impact or is that net of that?
Speaker Change: We did have some recall work that would have netted off some of that.
Speaker Change: The estimate for the recall work, I would have said in terms of
Speaker Change: Gross was, you know, something like $1.2 million in terms of gross profit for the BMW stock sale.
Speaker Change: Got it, got it. That's very clear. But you know, of course, Rajat, we probably would have filled out with normal work anyway.
Speaker Change: Is that, I mean, if you look at your UK SG&A to gross, it's running close to 80% right now.
Speaker Change: You know just based on the third quarter results, and you know what you might do for the full year
Speaker Change: So is that more like going to 77% next year? I mean, can you help us, you know, just size that a little more granularly in terms of, you know, how we should think about, you know, the SG&A opportunity, you know, once all the integration is done. Thanks.
Speaker Change: Good morning, Rajat. This is Daryl. I'm going to answer part of that and then Daniel will. We have just some organic opportunity in the UK on performance.
Speaker Change: And, you know, we've seen better performance. You saw it in some of the used car PRUs, as a matter of fact, this quarter. So we're improving there, but we know there's still improvement, including in SG&A's percentage of growth.
Speaker Change: And now Daniel, he spoke to some of the effect that expense savings we should see.
Speaker Change: When we combine the NGCAPE and Group 1 organizations together, we get them on one DMS and all those things. So there's probably a plus benefit to the 300 basis points based on the organic improvements that we still see. Daniel may want to add some more comments.
Daniel McHenry: So, Raja, that 300 basis points is based around how we're operating today in terms of growth. So, as Daryl says, there is the ability to expand on that should we increase the growth.
Speaker Change: And I think, Raja, just one other, at least, opinion. We've spent a lot of time in the U.K. in the last four months.
Speaker Change: quite a bit of time with the new stores once we closed on them. We feel better today. We really like this acquisition when we first started the discussions early this year.
Speaker Change: Really liked it a lot. And I can tell you, after spending time in all of those stores over the last 80 days, we feel better about that acquisition today than we ever have. And honestly, just feel like...
Speaker Change: Those are great stores and great markets with a great opportunity and we just feel more optimistic today than we ever have.
Speaker Change: And our next question comes from John Murphy from Bank of America. Please go ahead with your question.
John Murphy: Good morning, guys, and Daniel, maybe you could follow up on the UK. As you look at this, you guys have built out a tremendous amount of skill there now with this.
John Murphy: this acquisition. You've added a few more acquisitions post, you know, Inchcape, but...
John Murphy: Have we reached a point where you may be somewhat saturated in the UK market? That might be the pessimist view on it, but the optimistic side might be you're actually built this platform and there might be a lot more.
John Murphy: acquisition opportunity now that you're getting even deeper into the market. I mean, how should we think about the M&A environment or opportunity for you over there now that it's done?
Daniel McHenry: John, it's Daniel here.
John Murphy: I think the number of large acquisitions in the UK are largely over for today.
John Murphy: You know, there's been a number transacted, clearly Lukasz has transacted and Pendragon and they're the larger deals.
Daniel McHenry: It's fair to say that we waited for the Inchcape acquisition. I think the brand portfolio there is just excellent. I think as we continue to grow there, it's more likely we'll add in tuck-ins like we've added with the Mercedes stores that we bought and the BMW stores, because I just don't think there's another large luxury group out there that we would be actively pursuing today.
Speaker Change: Some of the tech ends are really nice stores, John. The BMW store we just closed on in the last couple of weeks is $125 million.
Daniel McHenry: Russ Dollars, which is a big scorer in the UK, the four
Daniel McHenry: Mercedes stores are a little less than that for their agency. So you look at fifty million dollars, those are like hundred million. So there's some decent size stuff even though it's not a giant group.
Speaker Change: So, I mean, just if we think about that, the two main platforms being the UK and the US at this point are the two platforms regionally.
Speaker Change: do you think these sort of these large chunky deals are now done in both regions it's it's more tuck-in or do you think that back across the pond to home your home market that there could be chunky deals that could occur in the U.S.?
Speaker Change: We think there can be chunky deals in the U.S. still, especially in certain markets that aren't as built out as other markets.
Speaker Change: including some that we're already in. So yeah, we think there can be some chunky deals still out there in the United States. Certainly far fewer in the UK. It's much more rolled up in the UK.
Speaker Change: But we are also really pleased with our scale now in the UK, whereas before we were probably vulnerable in our size that we were.
Speaker Change: Now, we're a significant presence with great brands and we feel really good about that.
Speaker Change: So
Speaker Change: We don't think we have to grow anymore in the UK to be competitive and get scale.
Speaker Change: We think there's plenty of opportunities here in the U.S. for some larger deals. Don't know how soon those will come, you know, there's different valuations today.
Speaker Change: Some expectations are very high. You see some deals taking longer to close than they historically have. So I think some of that has to sort its way out. But I still think there's some other stuff to come. I don't know if that will come next week, next month, or next year, but at some point.
Speaker Change: What is your take about where this all ultimately lands? I mean, it's a little bit of guesswork at the moment, and maybe also what are the consumers saying about pricing, which obviously would have implications for the GPUs.
Speaker Change: Thank you.
Speaker Change: I think, you know, the obvious comment is, yeah, the glide path is certainly slowing. And even in some brands where the inventory is too high, the glide path is slow.
Speaker Change: and we saw some of that this quarter.
Speaker Change: and
Speaker Change: where we saw better GPUs on certain brands than we probably expected. And those are the brands with high inventories. So, you know, the resistance from customers, it's nothing that you don't already know, whether it's interest rate.
Speaker Change: created by interest rates that you know the cut that the Fed did you know hasn't fully flowed through yet and you know hopefully there's more to come there but
Speaker Change: Thank you. Thank you.
Speaker Change: interest rate subvention and leasing's up three points as well. So you're seeing some more...
Speaker Change: ammunition pointed at that affordability issue.
Speaker Change: John, there's only one thing that I would add. 11% of our Becker brand mix is BMW and 6% of our brand mix is Lexus.
Speaker Change: Clearly, without those stop cells, and the stop cells generally were at higher GPU models, I think that reduction in GPU for the quarter would have been.
Speaker Change: extremely small if we had have been able to deliver the vehicles that we had sold.
Speaker Change: Our next question comes from Jeff Lick from Stevens Inc. Please go ahead with your question.
Speaker Change: Good morning. Yeah, congrats on a great quarter. Just digging into the inch cape.
Speaker Change: position, and I'm curious if you take the 54 stores you acquired there, you know, you had 56 or so going in, obviously there's one or two that move around every quarter.
Speaker Change: I wonder if you could just give us a
Speaker Change: by way of magnitude of how much bigger those inch-shaped stores are. Pick your metric, whether it's units per store.
Speaker Change: you know, gross, new gross, used gross. I'm just curious, they appear to be a little bigger, so they're having a disproportionate impact on your results, any help there would be great.
Speaker Change: You know, when we looked at it in total, you know, they look similar size to what we have. There's so many different places.
Speaker Change: We don't see, I guess, a material difference, Jeff, between the two, at least at this point, you know, two months in.
Speaker Change: We do believe there's upside in after sales and...
Speaker Change: across the board in the NSCAPE.
Speaker Change: The analysis we've done on their after-sales performance relative to our UK after-sales performance.
Speaker Change: We believe there is more upside there.
Speaker Change: Daryl has some
Speaker Change: Yeah.
Daryl Kenningham: Jeff, the only thing I would add is the stores from Edgecape tend to be slightly more luxury-based than our stores that we have in the UK, so the revenues could be seen as slightly higher. Unit volumes aren't necessarily as high. They just don't have the Fords, the Kias, et cetera, that we have within our operation, so that's the only difference that I would call out there.
Speaker Change: And then one more on just shifting gear to the U.S. and the stop sales. I'm curious if you could give any perspective on, you know, like right now you have Toyota, Lexus, Honda, Hyundai all have ongoing stop sales.
Speaker Change: I'm curious when these happen.
Speaker Change: What's the consumer reaction in terms of how many, what percentage kind of wait to get what they want versus...
Speaker Change: you know, go somewhere else. And I guess a follow-up to that is, how do you even begin to think about where GPUs could settle when you have all this noise that just seems to never go away?
Speaker Change: . . . .
Daryl Kenningham: Your last two words were never go away, I think is the key, right? This is Daryl, Jeff.
Daryl Kenningham: You know, our experience on stop sales is customers that have an order in or are new car shoppers, they tend to stick with it until the stop sale comes off. And sometimes they'll switch to a different model, but we retain that customer. Used car customers, sometimes, you know, they're not as sticky as the new car customers.
Daryl Kenningham: You know, it's hard to predict when all the noise goes away, because, honestly, there's always noise, and what is it? You know, to me, it feels like...
Daryl Kenningham: I'm fairly optimistic, even though there's some macro, you know, headwind issues out there, I'm still pretty optimistic about our business and our model and our structure in general.
Speaker Change: Our next question comes from Michael Ward from Freedom Capital. Please go ahead with your question.
Michael Ward: Thank you. Good morning, everyone. Daryl, I think you said the integration of EngCAPE would be complete by year-end. That seems like a pretty quick integration process.
Michael Ward: Did you start it earlier, or what have been the secrets of that integration?
Speaker Change: Well, it'll be substantially finished by the end of the year, Mike.
Daryl Kenningham: We expect that most of the organizational integration will be done. There will be some that will carry into next year, but it's not as core to the business.
Daryl Kenningham: as well. Thank you. Thank you.
Daryl Kenningham: as the parts that will be done. And then there's some IT integration that most of that should happen here by the end of the year.
Daryl Kenningham: and the DMS integration may spill into next year a little bit, but it's substantially will be this year. Daniel, if Daniel, you may want to add some more color to that.
Daniel McHenry: Mike, let me give you an example of something that could spill into next year a little bit. Inchcape priced all of their used cars centrally. They had a used car pricing team.
Daniel McHenry: that they price all their used cars and all their dealerships centrally.
Daniel McHenry: Our model is we like our stores, we want to give them guidelines and technology to be able to understand where to price on the market, but our stores price their used cars. And that's our model at Group One. And that's what we're transitioning to with the inch cage stores.
Daniel McHenry: You know, it could spill into January, February. We don't expect the impact to be that big, but there's some things that could spill into that. But it's not the majority of the integration effort, so it should be done by the end of the year.
Speaker Change: Well, that's impressive. I wondered if you could talk a little bit about, you touched on it, your strategy as it relates to adjacencies.
Speaker Change: You've stayed away from FinCo's, you've stayed away from some of the other areas standalone use. What are your thoughts on some of those strategies and where do you stand?
Speaker Change: Thanks for tuning in.
Speaker Change: You know, given the interest rate environment, the risk environment, the growth opportunities that we see, you know, we look at should we allocate some capital to adjacencies? To this point, we haven't done that.
Speaker Change: Will we never do that? I don't know. I could see us potentially at some point in the future considering something that it would need to be tied closely to our core business.
Speaker Change: and it would be something that we would never want to compromise an OEM relationship with an adjacency that we're in, ever.
Speaker Change: It's too important for us to perform well with the OEMs because you can't grow.
Speaker Change: if you have a bad relationship with OEMs or your performance is bad in your current stores. So you cannot get their approval to grow. So we're very cautious there, very careful there. You know, today we still see opportunity in the U.S. for acquisitions.
Speaker Change: So, never say never. We never close it off. It's an active discussion with our board on a regular basis. It was part of a review we did just a few months ago, as a matter of fact. And we will continue to keep our mind open to those things, certainly. Today, we just don't see that it fits for us.
Speaker Change: Our next question comes from Glenn Chin from Seaport Research Partners. Please go ahead with your question.
Speaker Change: Thank you. Good morning, folks. First, congratulations on getting the NCHK transaction closed. Some more questions around it?
Speaker Change: So, in certain respects, like service or after sales, revenue as a proportion of total,
Speaker Change: F&I, same thing.
Speaker Change: and then floor plan expense, they seem a bit different versus the rest of the company. Anything that prevents you guys from bringing each of those areas more in line with the company? I guess for service and after sales, you talked about hiring more technicians.
Speaker Change: Anything in here about the diseases that prevents you from doing so?
Speaker Change: I don't feel there's anything inherent that would prevent us from doing that, Glen. The stores are in different markets. They're not, most of them are not around London.
Speaker Change: So they're in a little bit lower cost market for us. They are a little heavier luxury mix
Speaker Change: and they're facilitized generally well.
Speaker Change: And we feel like there's certainly after-sales opportunity. Just philosophically, I think we tended to look at after-sales differently than Inchcape did.
Speaker Change: and so we're trying to implement those things. There's nothing structurally.
Speaker Change: that we're concerned about being able to implement anything.
Speaker Change: and Enschede.
Speaker Change: I'll just pick up on the floor plan point. I agree with you that our floor plan is slightly different. We manage our floor plan in a different way than Inchcape has historically managed.
Speaker Change: their floor plan. We clearly acquired their floor plan as part of the acquisition and it's going to take us probably a few months.
Speaker Change: to turn that inventory over. However, we will realign it to a similar floor plan as we have for the rest of our group and we are in negotiations with our banking partners at the moment for a new floor plan line that will be at a slightly lower rate than HCP currently are operating.
Speaker Change: Okay, very good. Thank you. That's it for me.
Speaker Change: Thank you, Glenn.
Speaker Change: And ladies and gentlemen, with that being our final question, we'll wrap up today's question and answer session as well as today's conference call.
Speaker Change: We do thank you for joining today's presentation.