Q2 2025 Group 1 Automotive Inc Earnings Call
I would now like to turn the call over to Mr. Pete The Longshore group one's senior Vice President manufacturer Relations and financial services. Please go ahead, Mr Dong Shah.
Thank you Nick Good morning, everyone and welcome to today's call. The earnings release, we issued this morning and the related slide presentation that include reconciliations related to the adjusted results. We will refer to on this call for comparison purposes have been posted a group one's website.
Before we begin I'd like to make some brief remarks about forward looking statements and the use of non-GAAP financial measures.
<unk> 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 $19 95.
Forward looking statements involve both known and unknown risks and uncertainties, which may cause the company's actual results in future periods to differ materially from forecasted results.
Those risks include but are not limited to risks associated with pricing.
<unk> inventory supply conditions of market successful integration of acquisitions and adverse developments in the global economy, and resulting impacts on demand for new and used vehicles and related services.
good morning, ladies and gentlemen, welcome to the group 1 Automotive, second quarter, 2025 Financial results conference call,
Please be advised that this call is being recorded.
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 <unk>.
Speaker Change: I would now like to turn the call over to Mr. Pete, the longshaw group 1's, senior vice, president manufacturer relations and financial services. Please go ahead Mr. Dongsha.
Thank you, Nick. Good morning, everyone, and welcome to today's call.
Direct comparable GAAP measures on its website.
Participating with me on today's call Daryl Kingham, our President and Chief Executive Officer, and Daniel Mchenry, Our senior Vice President and Chief Financial Officer, I'd now like to hand, the call over to Darryl.
The earnings release. We issue 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 a group 1's website.
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.
Morning, everyone.
Daryl Kingham: Our U S performance was excellent in the second quarter and our UK team is navigating the integration of operations, while growing our business in a challenging UK market backdrop.
Speaker Change: Except for historical information. Mentioned during the conference call statements made by management of Group 1 Automotive, or forward-looking statements that are made pursuant to the safe harbor, provisions of the private Securities. Litigation Reform, Act of 1995.
Daryl Kingham: Our adjusted net income from continuing operations improved 12, 4% in the quarter.
Daryl Kingham: EPS improved 17, 5% on the same basis.
Speaker Change: Forward-looking statements of all both known and unknown risks and uncertainties, which may cause the company's actual results in future periods to differ materially from 4 forecasted results.
Daryl Kingham: Starting with our U S business.
Daryl Kingham: New car sales were up 6% on a same store basis outpacing the industry.
Daryl Kingham: Our PR use held up versus the second quarter of 2024, and they were up $211 sequentially.
Speaker Change: Those risks include but are not limited to risks associated with pricing volume inventory, Supply conditions of Market successful, integration of Acquisitions, and adverse developments in the global economy and resulting impacts on demand for new and used vehicles and related services.
Daryl Kingham: Our inventories were flat versus the quarter and down.
Daryl Kingham: Nearly 15% compared to the end of 2024 and day supply is healthy at 48 days.
Speaker Change: 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.
Daryl Kingham: Our used car volumes were up nearly 4% year over year.
Daryl Kingham: Gross profits were up $29.
Daryl Kingham: Our F&I performance in the quarter was very solid as well up $90 per unit.
Speaker Change: Tools the company provides reconciliations of any such non-gaap Financial measures to the most directly comparable gaap measures on this website.
Daryl Kingham: And our after sales business is an area. We continue to invest in and believe still has a great deal of opportunity.
Daryl Kingham: In the quarter, our after sales gross profit was up 14, 3%.
Speaker Change: Participating with me on today's call Daryl kenningham, our president and chief executive officer, and Daniel, McHenry our senior vice president and Chief Financial Officer. I'd now like to hand the call over to Daryl.
Speaker Change: Good morning, everyone.
Daryl Kingham: Customer pay revenue was up 13, 6% and warranty up 31, 9%.
Daryl Kingham: While we certainly benefited from an easier comp versus the June 2020 for CDK event.
Speaker Change: Are you as performance was excellent? This second quarter and our UK team is navigating the integration of operations. While growing our business in a challenging UK Market backdrop,
Daryl Kingham: Our after sales business was strong throughout the quarter.
Speaker Change: Our adjusted net income from continuing operations, improved 12.4% in the quarter.
Daryl Kingham: Our may quarter to date performance saw CP revenues up 10, 2% and warranty up 28, 7%.
Speaker Change: And EPS improves 17.5% on the same basis.
Speaker Change: Starting with our us business.
Speaker Change: New car sales were up 6% on a same store. Basis, outpacing the industry.
Daryl Kingham: And we saw an 8% increase in.
Daryl Kingham: And same store.
Daryl Kingham: Ro count for the quarter.
Speaker Change: Our pruss held up versus the second quarter of 2024 and they were up, 2111 sequentially.
Daryl Kingham: And we continue to believe that the potential of the after sales business warrants additional investment.
Speaker Change: Our inventories were flat versus the quarter and down.
Daryl Kingham: And we've continued forward on this front, our flexible scheduling all day Saturday focus improving tech and technician productivity give us significant physical capacity to increase after sales business and our existing dealerships.
Speaker Change: Nearly 15% compared to the end of 2024 and they Supply is healthy at 48 days.
Speaker Change: Our used car volumes were up, nearly 4% year-over-year.
Speaker Change: And gross profits were up 29.
Daryl Kingham: And by the end of 2025, 90% of all group one technicians in the U S will work in an air conditioned shop.
Speaker Change: Our fni performance in the quarter was very solid as well up, 90 dollars per unit.
Speaker Change: and our after sales, business is an area, we continue to invest in and believe
Daryl Kingham: It's a boost of productivity.
Speaker Change: still has a great deal of opportunity.
Daryl Kingham: And employee retention and technician safety.
Speaker Change: In the quarter, our after sales growth profit was up 14.3%.
Daryl Kingham: We're also evaluating our collision footprint and repurposing capacity as that segment of the industry continues to decline.
Speaker Change: Customer pay Revenue was up, 13.6% and warranty up 31.9%.
Daryl Kingham: Lastly, we increased our technician head count by 6% in the U S on a same store basis.
Speaker Change: While we certainly benefited from an easier comp versus the June 2024 cdk event.
Daryl Kingham: And we've continued our branding efforts in the U S. A.
Speaker Change: Our after sales business was strong throughout the quarter.
Daryl Kingham: A number of our dealerships will be rebranded with their group one name.
Daryl Kingham: This project when combined with our integrated marketing and customer data efforts will open opportunities across our footprint.
Speaker Change: Our May quarter to date performance saw CP revenues up, 10.2% and warranty up 28.7%.
Speaker Change: And we saw an 8% increase.
Daryl Kingham: It is important to note that we continue to believe that the retail automotive business is a local business and that's where we'll put our emphasis.
Speaker Change: In same store row count for the quarter.
Daryl Kingham: Learned a great deal about this rebranding from our UK business, where all of our dealerships are already branded with the group one name.
Speaker Change: And we continue to believe that the potential of the after sales business warrants additional investment.
Speaker Change: And we've continued forward on this front, our flexible scheduling all day. Saturday Focus.
Daryl Kingham: There remains movement in the new administration's policies and uncertainty for U S trade partners automotive retailers Oems and consumers.
Daryl Kingham: And we continue to see demand across all lines of service and are focused on remaining operationally agile.
Speaker Change: improving Tech and technician productivity, give us significant physical capacity to increase after sales business, and our existing dealerships,
Daryl Kingham: However, we are being somewhat cautious moving forward expectations remain that new and used vehicle Gpus.
Speaker Change: And by the end of 2025, 90% of all Group, 1 technicians in the US will work in an air conditioned shop, it's a boost to productivity.
Speaker Change: Employee retention.
Daryl Kingham: Should elevate a bit as inventories tightened from imposed tariffs.
Speaker Change: And technician safety.
Daryl Kingham: We have deferred certain capital expenditure projects and have reevaluated some discretionary spending.
Speaker Change: We're also evaluating our Collision footprint and repurposing capacity as that segment of the industry continues to decline.
Daryl Kingham: We also have contingency plans in place should we see a marked change in the competitive environment.
Speaker Change: Lastly, we increased our technician headcount by 6% in the US on a same store basis.
Daryl Kingham: That being said.
Daryl Kingham: We are taking advantage of our strengths during this time.
And we've continued our branding efforts in the US.
Daryl Kingham: By refocusing our efforts on improving productivity.
Speaker Change: A number of our dealerships will be rebranded with a group 1 name.
Daryl Kingham: We recognize our consumers are under pressure from car prices and other cost.
Daryl Kingham: Which have outpaced wage growth and higher interest virtually double the rates. We saw just a few years back now.
Speaker Change: This project when combined with our integrated marketing and customer data efforts will open opportunities across our footprint.
Daryl Kingham: And I'll speak more on these efforts shortly.
Daryl Kingham: Now shifting to our U K business.
Speaker Change: It's important to note that we continue to believe that the retail Automotive business is a local business and that's where we'll put our emphasis.
Daryl Kingham: The UK business was managed well compared to the broader market, which continues to face macroeconomic challenges such as weak economic growth and inflation levels exceeding the bank of England expectations.
Speaker Change: We've learned a great deal about this rebranding from our UK business, where all of our dealerships are already branded with the group 1 name.
Daryl Kingham: We recognize that our customers in the U K share many of the same adverse economic impacts as our U S customers.
Speaker Change: The Remains movement in the new administration's policies and uncertainty for us trade Partners Automotive retailers, oems and consumers.
Daryl Kingham: There is also a drag on gross profits due to the Bev mandates in the U K.
Speaker Change: And we continue to see demand across all lines of service and are focused on remaining operationally agile.
Daryl Kingham: However, the UK government did announce subsidies of up to 30 750 pounds on Bev vehicles. This is a great first step.
Speaker Change: How however we are being somewhat cautious. Moving forward, expectations remain. That new and used vehicle gpus.
Speaker Change: Could elevate a bit as inventory sighting from imposed tariffs.
Daryl Kingham: In terms of our costs in the U K.
Daryl Kingham: Without the benefit of a plate change in the second quarter, our SG&A percentage of growth.
Speaker Change: We have deferred certain capital expenditure projects and have reevaluated some discretionary spending.
Daryl Kingham: Rose to 84, 3%.
Speaker Change: We also have contingency plans in place. Should we see a marked change in the competitive environment?
Daryl Kingham: We also absorbed some new government required cost for insurance and wages.
Speaker Change: that being said,
Speaker Change: we are taking advantage of our strengths during this time.
Daryl Kingham: And we continue to work on our cost structure in the UK and Daniel Mchenry, we'll have more to discuss on this topic.
Speaker Change: By refocusing, our efforts on improving productivity.
Daryl Kingham: We're seeing the benefits of continued progress on our process alignment in the UK and cost reductions.
Daryl Kingham: We performed well in used vehicle volumes and we also added 8% more technicians driving a customer pay an increase of nearly 8% in our UK business.
Daryl Kingham: And our F&I Tru and the U K was up 27% in the quarter.
Daryl Kingham: This quarter, we also marked a major milestone.
Daryl Kingham: With the opening of our new U K headquarters in Milton Keynes.
Daryl Kingham: Centrally located with strong transport links and proximity to key OEM partners like Mercedes Benz and the Volkswagen Group.
Daryl Kingham: The site reflects our deep commitment to the UK market, our employees and our manufacturer partners.
Daryl Kingham: I am incredibly incredibly proud of the work our UK team has done and.
Daryl Kingham: And we're confident group one UK is well positioned for long term growth as a leading force in the U K motor trade.
Daryl Kingham: Now shifting to capital allocation.
Daryl Kingham: We acquired three dealerships in the quarter.
Daryl Kingham: Further strengthening our partnership with Mercedes Benz.
Daryl Kingham: Lexus and Acura.
Daryl Kingham: These dealerships expand existing footprints in Austin, Texas, and Fort Myers, Florida, adding more scale on these proven markets consistent with our cluster strategy.
Daryl Kingham: And we're consistently balancing acquisitions and dispositions with repurchasing our shares in the first half of 2025, we bought back 3% of the company for $167 3 million.
Daryl Kingham: And we will continue to optimize our portfolios in the U S and the UK.
Daryl Kingham: Since the beginning of 2023, we bought assets generating $5 $4 billion in annual revenue and disposed of assets generating $1 3 billion.
Daryl Kingham: In revenue.
Daryl Kingham: We will continue to be acquisitive, but we're also being very disciplined in valuing acquisitions engaging only in deals that we feel provide long term value for group one shareholders.
Daryl Kingham: Now, let me close with a word about the future.
Daryl Kingham: Our belief is that in the future those retailers, who can drive scale productivity and lower cost per transaction will be the winners our customers can no longer simply absorb higher pricing and in turn.
Daryl Kingham: That will create margin pressure.
Daryl Kingham: We're committed to lowering our transaction costs through productivity gains by increasing our use of technology.
Daryl Kingham: First party data and process improvements throughout our enterprise.
Daryl Kingham: We're making investments in technology to improve our customer experience and drive industry leading productivity.
Daryl Kingham: We believe artificial intelligence has the capability to improve our business, including elevating the customer experience within our sales and service processes utilizing robotics to operate to automate operational functions transaction processing and analysis.
Speaker Change: At the beginning of 2023, we bought assets generating $5 $4 billion in annual revenue and disposed of assets generating $1 3 billion.
Daryl Kingham: With AI, we can connect with and interact with our customers anytime they want to do business. We're testing some very exciting things, which will help us elevate the customer experience at groupon.
Speaker Change: Revenue.
Speaker Change: We will continue to be acquisitive, but we're also being very disciplined in valuing acquisitions engaging only in deals that we feel provide long term value for group one shareholders.
Daryl Kingham: And now I'd like to turn the call over to our CFO, Daniel Mckenzie for an operating and financial overview.
Speaker Change: And let me close with a word about the future.
Daniel Mckenzie: Thank you Daryl and good morning, everyone.
Speaker Change: Our belief is that in the future those retailers, who can drive scale productivity and lower cost per transaction will be the winners.
Daniel Mckenzie: In the second quarter of 2025 group, one automotive reported quarterly record revenues of $5 7 billion.
Speaker Change: Our customers can no longer simply absorb higher pricing and in turn.
Daniel Mckenzie: We're getting record gross profit of $936 million.
Speaker Change: That will create margin pressure.
Speaker Change: We're committed to lowering our transaction costs through productivity gains by increasing our use of technology.
Daniel Mckenzie: Adjusted net income of $149 6 million.
Daniel Mckenzie: On quarterly adjusted diluted earnings per share from continuing operations of $11 52.
Speaker Change: First party data and process improvements throughout our enterprise.
Speaker Change: We're making investments in technology to improve our customer experience and drive industry leading productivity.
Daniel Mckenzie: <unk>.
Daniel Mckenzie: Starting with our U S operations.
Daniel Mckenzie: Revenue growth on an as reported and same store basis, a card across all lines of business over the comparable prior year quarter.
Speaker Change: We believe artificial intelligence has the capability to improve our business, including elevating the customer experience within our sales and service processes utilizing robotics to operate to automate operational functions transaction processing and analysis.
Daniel Mckenzie: Notably parts and service revenues reached a quarterly high increasing 11, seven and 12 eight on an as reported and same store basis, respectively over the prior year comparable quarter and F&I revenues reached a quarterly high of $199 million.
Speaker Change: With AI, we can connect with and interact with our customers anytime they want to do business. We're testing some very exciting things, which will help us elevate the customer experience at groupon.
Daniel Mckenzie: We experienced higher new vehicle units sold and an as reported and same store basis of $4, six and 6% respectively over the comparable prior year quarter.
Speaker Change: And now I'd like to turn the call over to our CFO, Daniel Mchenry for an operating and financial overview.
Daniel McHenry: Thank you Daryl and good morning, everyone.
Daniel McHenry: In the second quarter of 2025 group, one automotive reported quarterly record revenues of $5 7 billion.
Daniel Mckenzie: This reflects the resiliency of demand on our operational execution and the value generated from the ability to drive <unk> pulled volume through our dealership acquisitions.
Daniel McHenry: Record gross profit of $936 million.
Daniel McHenry: Adjusted net income of $149 6 million.
Daniel Mckenzie: At the same time volumes increased we saw prices increased by one 5% and 1% on a reported and same store basis.
Daniel McHenry: And quarterly adjusted diluted earnings per share from continuing operations of $11 52.
Daniel Mckenzie: Coupled with a slight decline in Gpus, a 0.3 on <unk>, 9% respectively.
Daniel McHenry: Starting with our U S operations.
Daniel McHenry: Revenue growth on an as reported and same store basis with card across all lines of business over the comparable prior year quarter.
Daniel Mckenzie: The higher volume more than offset the lower Gpus and contributed to an as reported and same store gross profit increases of four three and 5% respectively versus the prior year comparable period.
Daniel McHenry: Notably parts and service revenues reached a quarterly high increasing 11, seven and 12 eight on an as reported and same store basis, respectively over the prior year comparable quarter and F&I revenues reached a quarterly high of $199 million.
Daniel Mckenzie: Used vehicle revenues for the third highest quarter on record and volume in the second quarter with 11 vehicles shy of the quarterly record growing to seven and 939% on an as reported and same store basis.
Daniel McHenry: We experienced higher new vehicle units sold and an as reported and same store basis of $4, six and 6% respectively over the comparable prior year quarter.
Daniel Mckenzie: Since the prior year comparable periods respectively.
Daniel Mckenzie: Gpus were also up increasing 25 and $29 on an as reported and same store basis.
Daniel McHenry: This reflects the resiliency of demand on our operational execution and the value generated from the ability to drive <unk> pulled volume through our dealership acquisitions.
Daniel Mckenzie: Our processes discipline and use of technology with pricing of used vehicles helped create this gross profit growth, while driving volume against higher prices.
Daniel McHenry: At the same time volumes increased we saw and prices increased by one 5% and 1% on a reported and same store basis.
Daniel Mckenzie: The prior year comparable period.
Daniel Mckenzie: Our second quarter F&I Gpus up $2465 was just $3 off the quarterly record high and is up 104 and $90 on an as reported and same store basis versus the prior year comparable period.
Daniel McHenry: Coupled with the slight decline in Gpus, the three and 9% respectively.
Daniel McHenry: The higher volume more than offset the lower Gpus and contributed to an as reported and same store gross profit increases of four three and 5% respectively versus the prior year comparable period.
Daniel Mckenzie: Respectively.
Daniel Mckenzie: Our performance by our F&I professionals has been outstanding to maintain GPU discipline and drive product penetration.
Daniel McHenry: Used vehicle revenues for the third highest quarter on record.
Daniel McHenry: <unk> volume in the second quarter was 11, <unk> shy of the quarterly record growing to seven and 939% on an as reported and same store basis versus the prior year comparable periods respectively.
Daniel Mckenzie: Shifting gears to after sales after sales revenues had double digit increases of 11, seven and $12 eight on an as reported and same store basis, respectively.
Daniel Mckenzie: These revenue increases coupled by slight margin increases generated growth in gross profit of $13, one and $14 three on a reported and same store basis, respectively.
Daniel McHenry: Gpus were also up increasing 25 and $29 on an as reported and same store basis.
Daniel McHenry: Our processes discipline and use of technology with pricing of used vehicles helped create this gross profit growth, while driving volume against higher prices versus the prior year comparable period.
Daniel Mckenzie: Same store customer pay and warranty revenues comprised of 72, 2% of same store after sales revenues for the second quarter versus $69 one for the prior comparable quarter.
Daniel McHenry: Our second quarter F&I Gpus up $2465 was just $3 off the quarterly record high and is up 104 and $90 on an as reported and same store basis versus the prior year comparable peer.
Daniel Mckenzie: Customer pay dollars per Aro increased seven 4% over the prior year.
Daniel Mckenzie: With that exiting the aging U S car park, and increasing prices, partly due to higher prices from tariffs.
Daniel Mckenzie: Warranty work is up for Toyota BMW and Honda.
Daniel McHenry: <unk> respectively.
Daniel Mckenzie: Warranty work continues to increase due to the number of new vehicles sold in recent years, requiring warranty service on an increase in the warranty recall campaigns by manufacturers.
Daniel McHenry: Our performance by our F&I professionals has been outstanding to maintain GPU discipline and drive product penetration.
Daniel Mckenzie: Recent examples include the tundra and GM engine recalls.
Daniel McHenry: Shifting gears to after sales after sales revenues had double digit increases of 11, seven and $12 eight on an as reported and same store basis, respectively.
Daniel Mckenzie: <unk> recently announced a recall of up to 850000 vehicles.
Daniel Mckenzie: Wrapping up the U S that shift to SG&A.
Daniel McHenry: These revenue increases coupled by slight margin increases generated growth in gross profit of $13, one and $14 three on a reported and same store basis, respectively.
Daniel Mckenzie: U S. Adjusted SG&A as a percent of gross profit decreased by 265 basis points sequentially.
Daniel Mckenzie: 64, 2%.
Daniel Mckenzie: We are seeing the benefits of our re focusing efforts on operational efficiency.
Daniel McHenry: Same store customer pay and warranty revenues comprised of 72, 2% of same store after sales revenues for the second quarter versus $69 one for the prior comparable quarter.
Daniel Mckenzie: Resource management to bring these metrics in line with recent historical levels.
Daniel Mckenzie: Turning to the U K.
Daniel Mckenzie: Acquisition activity led to a 96, 9% on 109, 6% increase year over year in revenues and gross profit respectively.
Daniel McHenry: Customer pay dollars per Aro increased seven 4% over the prior year.
Daniel McHenry: With that electing the aging U S car park, and increasing prices, partly due to higher prices from tariffs.
Daniel Mckenzie: We are pleased with double digit growth in gross profit on a same store basis with used vehicles parts and service and F&I growing 16%, 12% and 28, 7% respectively.
Daniel McHenry: Warranty work is up for Toyota BMW and Honda.
Daniel McHenry: Warranty work continues to increase due to the number of new vehicles sold in recent years, requiring warranty service and an increase in the warranty recall campaigns by manufacturers.
Daniel Mckenzie: Same store retail used vehicle units sold increased over 8% year over year, while Gpus remained relatively flat.
Daniel McHenry: Recent examples include the tundra and GM engine recalls.
Daniel McHenry: <unk> recently announced a recall of up to 850000 backups.
Daniel Mckenzie: Same store wholesale losses per unit improved to $414 from $842 compared to the prior year quarter, respectively.
Daniel McHenry: Wrapping up the U S then shift to SG&A.
Daniel McHenry: U S. Adjusted SG&A as a percent of gross profit decreased by 265 basis points sequentially.
Daniel Mckenzie: After sales is continuing on a positive growth path with a two 4% increase in same store revenues on a constant currency basis, and almost 6% increase in same store gross profit on a constant currency basis over the prior year quarter.
Daniel McHenry: 64, 2%.
Daniel McHenry: We are seeing the benefits of RV focusing efforts on operational expectancy and resource management to bring these metrics in line with recent historical levels.
Daniel Mckenzie: Same store adjusted SG&A as a percent of gross profit increased 216 basis points versus the prior year quarter.
Daniel McHenry: Turning to the U K.
Daniel McHenry: Acquisition activity led to a 96, 9% on 109, 6% increase year over year in revenues and gross profit respectively.
Daniel Mckenzie: However, on a year to date basis adjusted SG&A as a percent of gross profit was 78, 6% an increase of only 70 basis points.
Daniel McHenry: We are pleased with double digit growth in gross profit on a same store basis with used vehicles parts and service and F&I growing 16%, 12% and 28, 7% respectively.
Daniel Mckenzie: Reported adjusted SG&A as a percent of gross profit was 84, 3%. However on a year to date basis adjusted SG&A as a percent of gross profit was 81% near the 80% expert expectation we believe achievable.
Daniel McHenry: Same store retail used vehicle units sold increased over 8% year over year, while Gpus remained relatively flat.
Daniel Mckenzie: Effective April 2025, the U K government increased the national minimum wage for our employees and national insurance for employers.
Daniel McHenry: Same store wholesale losses per unit improved to $414 from $842 compared to the prior year quarter, respectively.
Daniel Mckenzie: This increase resulted in approximately $4 million of additional cost in the second quarter or one 9% in additional SG&A as a percent of gross profit.
Daniel McHenry: After sales is continuing on a positive growth path with a two 4% increase in same store revenues on a constant currency basis, and almost 6% increase in same store gross profit on a constant currency basis over the prior year quarter.
Daniel Mckenzie: To date, we have removed approximately 800 headcount from the UK business lowering our overall costs and reducing the exposure to these government imposed increases.
Daniel Mckenzie: We will continue to focus on cost control and business process efficiency.
Daniel McHenry: Same store adjusted SG&A as a percent of gross profit increased 216 basis points versus the prior year quarter.
Daniel Mckenzie: As we execute our business integration activities in order to offset some of these increases in employee compensation.
Daniel McHenry: However, on a year to date basis adjusted SG&A as a percent of gross profit was 78, 6% an increase of only 70 basis points.
Daniel Mckenzie: We incurred $7 6 million of restructuring costs in quarter, two 2025 in relation to our ongoing U K restructuring plan.
Daniel McHenry: Reported adjusted SG&A as a percent of gross profit was 84, 3%. However on a year to date basis adjusted SG&A as a percent of gross profit was 81% near the 80% expedite expectation we believe achievable.
Daniel Mckenzie: Turning to our balance sheet and liquidity are strong balance sheet cash flow generation and leverage position will continue to support flexible capital allocation approach as.
Daniel Mckenzie: As of June 30, our liquidity of $1 1 billion was comprised of assessable cash of $374 million and $739 million available to borrow on our acquisition line.
Daniel McHenry: Effective April 2025, the U K government increased the national minimum wage for our employees and national insurance for employers.
Daniel Mckenzie: Our rent adjusted leverage ratio as defined by our U S. Syndicated credit facility was 272 times at the end of June.
Daniel McHenry: This increase resulted in approximately $4 million of additional cost in the second quarter or one 9% in additional SG&A as a percent of gross profit.
Daniel Mckenzie: Cash flow generation through the second quarter of 2025 yielded $350 million of adjusted operating cash flow.
Daniel McHenry: To date, we have removed approximately 800 head kind from the UK business lowering our overall cost and reducing the exposure to these government imposed increases.
Daniel Mckenzie: And $267 million of free cash flow after backing out $83 million of capital expenditure.
Daniel McHenry: We will continue to focus on cost control and business process efficiency.
Daniel Mckenzie: This capital was deployed in the quarter through a combination of acquisitions share repurchases and dividends, including the acquisition of $330 million in revenues.
Daniel McHenry: As we execute our business integration activities in order to offset some of these increases in employee compensation.
Daniel McHenry: We incurred $7 6 million of restructuring costs in quarter, two 2025 in relation to our ongoing U K restructuring plan.
Daniel Mckenzie: $45 million repurchasing approximately 115000 shares at an average price of $387 39.
Daniel Mckenzie: And $6 5 million in dividends to our shareholders.
Daniel McHenry: Turning to our balance sheet and liquidity are strong balance sheet cash flow generation and leverage position will continue to support flexible capital allocation approach.
Daniel Mckenzie: As of June 30th approximately 60% of our $5 2 billion in Floorplan and other debt with fixed <unk>.
Daniel Mckenzie: Resulting in an annual EPS impact of about $1 31 for every 100 basis points increase in secured overnight funding rate.
Daniel McHenry: As of June 30th our liquidity of $1 1 billion was comprised of necessity cash of $374 million and 739 million available to borrow on our acquisition line.
Daniel Mckenzie: For a detailed regarding our financial condition. Please refer to the schedules of additional information in our news release as well as our investor presentation posted on our website.
Daniel McHenry: Our rent adjusted leverage ratio as defined by our U S. Syndicated credit facility was 272 times at the end of June.
Speaker Change: I will now turn the call over to the operator to begin the Q&A Q&A section.
Daniel McHenry: Cash flow generation through the second quarter of 2025 yielded $350 million of adjusted operating cash flow.
Daniel Mckenzie: The writer.
Daniel Mckenzie: We will now begin the question and answer session to ask a question you May Press Star then one on your telephone keypad.
Daniel McHenry: And $267 million of free cash flow after backing out $83 million of capital expenditure.
Daniel Mckenzie: If you are using a speakerphone. Please pick up your handset before pressing any keys to withdraw your question. Please press Star then two.
Daniel McHenry: This capital was deployed in the quarter through a combination of acquisitions share repurchases and dividends, including the acquisition of $330 million in revenues.
Daniel Mckenzie: We ask that you please limit yourself to one question and one follow up at this time, we will pause momentarily to assemble our roster.
Speaker Change: And your first question today will come from Rajat Gupta with Jpmorgan. Please go ahead.
Daniel McHenry: 45 million repurchasing approximately 115000 shares at an average price of $387 39.
Rajat Gupta: Great. Thanks for taking the questions.
Daniel McHenry: And $6 5 million in dividends to our shareholders.
Speaker Change: And good results.
Speaker Change: Uh huh.
Speaker Change: One question on the on the new car Gpus.
Daniel McHenry: As of June 30th approximately 60% of our $5 2 billion in floor plan and other debt with fixed resulting in an annual EPS impact of about $1 31 for every 100 basis points and face and secured overnight funding rate.
Speaker Change: Pretty strong pick up sequentially here in the quarter.
Speaker Change: Could you give us a sense of how the.
Speaker Change: <unk> Gpus progress through the course of the quarter.
Speaker Change: Maybe like how was April may June.
Speaker Change: No.
Daniel McHenry: More detail regarding our financial condition. Please refer to the schedules of additional information in our news release as well as our investor presentation posted on our website.
Speaker Change: Before averaging out to the 2665 that you reported for the quarter and I have a quick follow up thanks.
Speaker Change: We can get you a little more detail on that after but they were fairly strong all quarter, we didn't see a spike due to.
Daniel McHenry: I will now turn the call over to the operator to begin the Q&A.
Daniel McHenry: <unk> AG section.
Daniel McHenry: Operator.
Speaker Change: Necessarily any change in inventories or any change in manufacturer incentives support or anything like that so.
Daniel McHenry: We will now begin the question and answer session to ask a question you May Press Star then one on your telephone keypad.
Speaker Change: Yes.
Daniel McHenry: If you were using a speakerphone please pick up your handset before pressing any keys to withdraw your question.
Speaker Change: They stayed fairly fairly strong through the quarter.
Speaker Change: Understood.
Daniel McHenry: Question. Please press Star then two.
Speaker Change: I just had a couple of clarifications on the UK.
Daniel McHenry: We ask that you please limit yourself to one question and one follow up at this time, we will pause momentarily to assemble our roster.
Speaker Change: It looks like you took up your cost out target there.
Speaker Change: 22 pounds to 2007 pounds for the full year, just comparing the two slide decks.
Speaker Change: And your first question today will come from Rajat Gupta with JP Morgan. Please go ahead.
Speaker Change: Could you.
Rajat Gupta: Oh, great. Thanks for taking the questions.
Speaker Change: Is that primarily to offset some of the government in both cross increases or.
Speaker Change: And good results.
Speaker Change: Uh huh.
Speaker Change: Or are there like other changes youre, making just in light of just the weak macro backdrop there.
Speaker Change: One question on the on the new car and Gpus.
Speaker Change: So a pretty strong pick up sequentially here in the quarter.
Speaker Change: I had one more quick follow up.
Speaker Change: Can you give us a sense of how you know.
Daniel: Yes, Rajat, it's Daniel here.
Speaker Change: Both Gpus progress through the course of the quarter.
Speaker Change: We expanded I guess some of our head count reduction in the head count reduction.
Speaker Change: Maybe like how was April may June.
Speaker Change: Today is linking circa 800 people.
Speaker Change: You know.
Speaker Change: It's higher than we initially projected.
Speaker Change: Before averaging out to the $26 65 that you reported for the quarter and I have a quick follow up thanks.
Speaker Change: Couple of reasons for that is that we have decided to close a couple of additional stores that are very close to other stores at the same brand that we have.
Speaker Change: So that we can get you a little more detail on that after but they were fairly strong all quarter, we didn't see a spike due to.
Speaker Change: Got it got it okay.
Speaker Change: Necessarily any change in inventories or any any change in manufacturer incentives support or anything like that so.
Speaker Change: This is Daryl I just confirmed on the new car <unk> in the U S.
Speaker Change: There wasn't any spike between the months it was fairly even April was actually pretty good in May and June held up very well, so pretty pretty flat through the quarter.
Speaker Change: They stayed fairly fairly strong through the quarter.
Speaker Change: I missed it.
Speaker Change: I just had a couple of clarifications on the U K.
Speaker Change: It looks like you took up your cost out target there.
Speaker Change: Understood. Thanks, Thanks for clarifying that quickly.
Speaker Change: And just lastly, just on the parts and services business in the UK.
Speaker Change: 22 pounds to 2007 pounds for the full year, just comparing the two slide decks.
Speaker Change: Pretty strong tungsten.
Speaker Change: Constant currency growth there 6%.
Speaker Change: Could you.
Speaker Change: Is that primarily to offset some of the government in both cross increases or.
Speaker Change: Given the productivity improvements.
Speaker Change: You're starting to see at Inchcape.
Speaker Change: Or are there like other changes youre, making just in light of just the weak macro backdrop there.
Speaker Change: Any color you could give us that's to be expected run rate here on that into the second half maybe early next year is this a sustainable number could have accelerates further.
Speaker Change: I had one more quick follow up okay.
Speaker Change: Yes, Rajat, it's Daniel here, and we expanded I guess some of our head count reduction the head count reduction.
Speaker Change: Any color there would be helpful. Thank you.
Speaker Change: We believe there's more room to run in the quarter, we added 8% more technicians to a technician base and the increase that we saw in after sales there was actually a decline in warranty in the quarter in the U K.
Speaker Change: Today is linking circa 800 people and that's higher than we initially projected a couple of reasons for that is that we have decided to close a couple of additional stores that are very close to other stores at the same brand that we have.
Speaker Change: That was more than offset by a higher increase.
Speaker Change: CP of 8%.
Speaker Change: Yeah.
Speaker Change: Got it got it okay Yep Yep. This is Daryl I just confirmed on the on the new car <unk> in the U S.
Speaker Change: We do have opportunity to increase our customer count Roger.
Speaker Change: There is a lot of that increase that we saw was.
Speaker Change: There wasn't any spike between the months it was fairly even April was actually pretty good in May and June held up very well, so pretty pretty flat through the quarter.
Speaker Change: For Aro.
Speaker Change: And so what we're focused on is trying to drive more car count, especially since we have.
Speaker Change: 8% more technicians to be able to accommodate it.
Speaker Change: Yes.
Speaker Change: Thanks, Thanks for clarifying that quickly.
Daniela Hagan: And your next question today will come from Daniela Hagan with Morgan Stanley. Please go ahead.
Speaker Change: And just lastly, just on the parts and services business in the U K.
Daniela Hagan: Hi, good morning.
Speaker Change: Pretty strong.
Daniela Hagan: Good morning and service.
Speaker Change: Constant currency growth there 6%.
Speaker Change: It tends to be a ballast for group one you see continued strength customer pay margins up technician head counts up.
Speaker Change: Given the productivity improvements.
Speaker Change: Starting to see at Inchcape.
Speaker Change: Any color you can give us as to the expected run rate here on that into the second half maybe early next year is this a sustainable number could have absolutely it's weather.
Speaker Change: But thinking out the next one to three years or so what are the key puts and takes to think about the top line you have on one hand vehicle on affordability weighing on Saar, which can increase mileage create demand for reconditioning, but it also may limit the origination of newer cars that tend to have that stickiness on the service side. So what are the crew.
Speaker Change: Any color there would be helpful. Thank you.
Speaker Change: We believe there's more room to run in the quarter, we added a 8% more technicians to a technician base and the increase that we saw in after sales there was actually a decline in warranty in the quarter in the U K.
Speaker Change: <unk> vintages to look out for and how can groupon navigate that.
Speaker Change: A term feeling.
Speaker Change: A key to growth in the next.
Speaker Change: That was more than offset by a higher increase.
Speaker Change: Three years after sales Daniela.
Speaker Change: U S. Specifically is us reaching deeper into the owner base and <unk>.
Speaker Change: C P of 8%.
Speaker Change: We do have opportunity to increase our customer count Roger.
Speaker Change: <unk>.
Speaker Change: People, who have owned their cars longer.
Speaker Change: A lot of that increase that we saw was.
Speaker Change: And we have to be able to increase our share of that market. So call. It four plus years of ownership.
Speaker Change: For Aro <unk>.
Speaker Change: And so what we're focused on is trying to drive more car town, especially since we have.
Speaker Change: And.
Speaker Change: 8% more technicians to be able to accommodate it.
Speaker Change: We need to be able to reach into that market deeper penetrated deeper increase our penetration there increase our spend there are ways to do that.
Speaker Change: And your next question today will come from Daniela Hagan with Morgan Stanley. Please go ahead.
Daniela Hagan: Hi, good morning.
Speaker Change: We're looking at are make sure our labor rates are attractive to that customer segment.
Daniela Hagan: So tomorrow and service tends to be a ballast for Groupon, you see continued strength customer pay margins up.
Speaker Change: It's a sensitive customer segment on pricing. So we have to make sure that were attractive we have to make sure that we're not over price for what they're looking for and then also.
Daniela Hagan: Technician head counts up but thinking out the next one to three years or so what are the key puts and takes to think about the top line you have on one hand vehicle on affordability weighing on Saar, which can increase mileage create demand for reconditioning, but it also may limit the origination of newer cars that tend to have that stickiness on the server.
Speaker Change: The restructuring of our marketing group one to where we are now using first party data, we know more about those customers than we ever have and so our focus and I think success moving into the years ahead is going to be how do we how do we reach out to those customers who own their cars longer than three years, and thats where were putting a lot of folks.
Speaker Change: S side. So what are the critical vintages to look out for and how can groupon navigate that.
Daniela Hagan: Period of turbulence.
Speaker Change: On right now.
Daniela Hagan: A key to growth in the next three years and after sales Daniela and the U S. Specifically is us reaching deeper into the owner base in terms of.
Speaker Change: Daniela just Daniel here, just to add to what Darrel said that the average car coming into our store.
Speaker Change: At 2022 vehicles versus the 2019 vehicle, which is the average age average quality age of a car within our store it's over a third higher average.
Daniela Hagan: People, who have owned their cars longer.
Daniela Hagan: And we have to be able to increase our share of that market. So call. It four plus years of ownership.
Speaker Change: Average <unk> value that we get from that vehicle. So it's vitally important that we keep those within our ecosystem.
Daniela Hagan: And we.
Speaker Change: Got it got it makes sense.
Daniela Hagan: We need to be able to reach into that market deeper penetrated deeper increase our penetration there increase our spend there are ways to do that.
Speaker Change: Second question is around the youth business.
Speaker Change: A large online only retailer growing volume, 50% year over year in the market. They are pushing for 3 million used cars sold annually in the next five to 10 years I know, it's an incredibly fragmented market. How do you view the competition from the likes of these online pure play retailers and is there a greater opportunity to grow and consolidate in the U K.
Daniela Hagan: We're looking at our make sure our labor rates are attractive to that customer segment.
Daniela Hagan: So sensitive customer segment on pricing. So we have to make sure that were attractive we are to make sure that we're not over price for what they're looking for and then also.
Speaker Change: Isn't it.
Speaker Change: There's probably opportunity to consolidate yes agreed.
Daniela Hagan: The restructuring of our marketing group, one to where we're now using first party data, we know more about those customers than we ever have and so on.
Speaker Change: We try to learn from those online retailers they are great competitors, especially.
Daniela Hagan: Our focus and I think success moving into the years ahead is going to be how do we how do we reach out to those customers who own their cars longer than three years, and that's where we're putting a lot of focus on right now.
Speaker Change: And the shopping process.
Speaker Change: Those are things that.
Speaker Change: We pay attention to and try to learn from.
Speaker Change: We feel like.
Speaker Change: At least today.
Speaker Change: Danielle just Daniel here, just to add to what Darren said that the average car coming into our store our 2022 vertical versus the 2019 vehicle, which is the average age average multi age of a car within our store it's over a third higher than the.
Speaker Change: We still have tremendous opportunity to grow our used business inside the footprint of our converged storage today, especially as used car sales become.
Speaker Change: More digital and there is as good as any part of our business today.
Speaker Change: Average order value that we get from that vehicle. So it's vitally important that we keep those within our ecosystem.
Speaker Change: So we feel like we can still grow inside of our footprint. We have grown if you were to look at our used to new ratio five years ago. It was much less than it is today.
Speaker Change: Got it got it makes sense.
Speaker Change: Second question is around the youth business.
Speaker Change: And we've improved our used car performance, but there are still there's still room to run and I think youre right I think those those.
Speaker Change: A large online only retailer growing volumes, 50% year over year in the market. They are pushing for 3 million used car sold annually in the next five to 10 years I know, it's an incredibly fragmented market. How do you view the competition from the likes of these online pure play retailers and is there a greater opportunity to grow and consolidate in the youth.
Speaker Change: Digital retailers are proving that.
Federico Miranda: And your next question today will come from Federico Miranda with Bank of America. Please go ahead.
Federico Miranda: Good morning, guys.
Speaker Change: So we've heard that.
Speaker Change: Isn't it.
Speaker Change: Ams for model year 'twenty six.
Speaker Change: There's probably opportunity to consolidate yes agreed.
Speaker Change: Take some of the feature that the prior model year, where basically stand there then put.
Speaker Change: We try to learn from those online retailers, they're great competitors, especially.
Speaker Change: Option.
Speaker Change: So basically there would be a higher price to get the same features last year vehicle.
Speaker Change: And the shopping process and those are things that.
Speaker Change: But have you seen on your order sheet so far.
Speaker Change: We pay attention to and try to learn from.
Federico Miranda: Federico said Darryl kingham.
Speaker Change: We feel like.
Speaker Change: They are just announcing.
Speaker Change: At least today.
Speaker Change: Six contenting.
Speaker Change: We still have tremendous opportunity to grow our used business inside the footprint of our converged storage today, especially as used car sales become.
Speaker Change: In sum.
Speaker Change: And pricing.
Speaker Change: Some are still waiting to see what happens with the tariffs the Japan announcement this week and there's still not enough specifics around that I don't think for.
Speaker Change: More digital and there is there is digital is any part of our business today.
Speaker Change: For the Oems to make pricing decisions.
Speaker Change: So we feel like we can still grow in <unk>.
Speaker Change: And then Europe is supposed to be finalized very soon we don't.
Speaker Change: Side of our footprint, we have grown if you were to look at our used to new ratio five years ago. It was much less than it is today.
Speaker Change: What we believe will happen in <unk>.
Speaker Change: And we've improved our used car performance, but there is still there's still room to run and I think youre right I think so.
Speaker Change: I think this will absolutely happen is you will see Oems platelets trim levels content.
Speaker Change: Repricing.
Speaker Change: Digital retailers are proving that.
Speaker Change: Price swaps between grades things.
Speaker Change: Things like that to optimize.
Speaker Change: And your next question today will come from Federico Miranda with Bank of America. Please go ahead.
Speaker Change: Margins and reduce the impact of the tariffs.
Federico Miranda: Good morning, guys.
Speaker Change: What you stated in your in your question I think is absolutely true and I think that will happen and then.
Speaker Change: So we've heard that.
Speaker Change: Oh, yes for model year 'twenty six.
Speaker Change: Standard equipment may become optional in the future in order to keep the base car more competitively price.
Speaker Change: Take some of the features that the prior model year, where basically stand there then.
Speaker Change: Then there's the option of <unk>.
Speaker Change: Thank you Darren and my follow up would be on parts and service.
Speaker Change: Basically there would be a higher price to get the same features last year vehicle.
Speaker Change: Did a great job to increase your head count.
Speaker Change: But have you seen on your order sheet so far.
Speaker Change: I was wondering.
Speaker Change: For every 1% of incremental head count.
Federico Miranda: Federico sterile Cunningham.
Speaker Change: We're just announcing 26 contenting and.
Speaker Change: Yeah.
Speaker Change: What's the translation into earnings or like gross profit.
Federico Miranda: In sum.
Federico Miranda: And pricing.
Speaker Change: For.
Speaker Change: For every technician that you add to your PR.
Federico Miranda: In the.
Federico Miranda: Some are still waiting to see what happens with the tariffs and the Japan announcement. This week and there's still not enough specifics around that I don't think for for.
Speaker Change: Head count.
Speaker Change: Well, we can get you some more detail around it but generally a group one how we how we look at it a technician.
Federico Miranda: For the Oems to make pricing decisions, but we and then Europe is supposed to be finalized very soon we don't.
Speaker Change: <unk>.
Speaker Change: They're worth about $15000 and gross profit per month average.
Federico Miranda: What we believe will happen in <unk>.
Speaker Change: Across our brands some some brands it's more some brands is less.
Speaker Change: I think this will absolutely happen is you will see Oems platelets trim levels contenting.
Speaker Change: But when we can put a technician in a stall and have them work for a month, that's like another $15000 and gross profit.
Federico Miranda: Repricing.
Federico Miranda: Price walks between grades.
Federico Miranda: Things like that to optimize.
Speaker Change: That's how we kind of look at our cost.
Federico Miranda: Margins and reduce the impact of the tariffs so.
Speaker Change: We look at the cost of not having a technician rather than the cost of water cost to acquire a technician. So and then if you can give us some more depth on that later today if you like.
Federico Miranda: What you stated in your in your question I think is absolutely true and I think that will happen and then.
Federico Miranda: Standard equipment may become optional in the future in order to keep the base car more competitively price.
Speaker Change: And your next question today will come from Michael Ward with Citi Research. Please go ahead.
Speaker Change: Thank you Dara and my follow up would be on parts and service. So you did a great job to increase your head count.
Michael Ward: Thanks, very much good morning, everyone.
Speaker Change: Good morning.
Speaker Change: How does the.
Federico Miranda: So I was wondering.
Federico Miranda: For every 1% of incremental head count.
Speaker Change: How did the EV mandates from the UK affect your growth what happens there.
Federico Miranda: Yeah.
Speaker Change: Yeah.
Federico Miranda: What's the translation into earnings or like gross profit.
Speaker Change: A lot of the Bev volume, Mike is going into corporate fleets.
Federico Miranda: For.
Federico Miranda: For every technician to chat to you are they are.
Speaker Change: If you were to look at the retail mix.
Federico Miranda: Head count in the evening.
Federico Miranda: Well, we can get you some more detail around it but generally a group one how we how we look at it a technician.
Speaker Change: <unk> mix and just the street retail consumer.
Speaker Change: Slide 10, or 11% of the mix if you look at it.
Federico Miranda: <unk>.
Federico Miranda: Yeah.
Speaker Change: In the corporate fleets.
Federico Miranda: They're worth about $15000 and gross profit per month average.
Speaker Change: It's much higher than that and it blends out I'd like 26% today and when we sell cars to the corporate fleets, we still make positive margin on it but it is less than what we make in retail and so as long as there is all of that it's kind of like in the U S. When theyre, putting a lot of beds and rental car service right now similar.
Federico Miranda: Across our brands some some brands it's more some brands is less.
Federico Miranda: But when we can put a technician in a in a stall and have them work for a month, that's like another $15000 in gross profit and.
Federico Miranda: That's how we kind of look at our costs, we look at the cost of not having a technician rather than the cost of what it cost to acquire a technician so and Daniel can give you some more depth on that later today if you like.
Speaker Change: So it's just corporate fleets, there and it drives the margin down as a result.
Speaker Change: Okay.
Speaker Change: You made a few more acquisitions in two <unk> one is the environment like out there further.
Speaker Change: And your next question today will come from Michael Ward with Citi Research. Please go ahead.
Speaker Change: Lumpy acquisitions out there.
Speaker Change: The Herb chambers, one Asbury trickles, a big chunk of or any big acquisition opportunities out there do you think or is it more tuck ins that we're seeing.
Michael Ward: Thanks, very much good morning, everyone.
Speaker Change: Good morning.
Speaker Change: Can you how does the how.
Speaker Change: I think there's a generals as a general statement I think there will be.
Speaker Change: The EV mandates from the UK affect your gross what happens there.
Speaker Change: Over the next few years, so it will be larger ones.
Speaker Change: Yes.
Speaker Change: A lot of the Bev volume, Mike is going into corporate fleets.
Speaker Change: Interested in upward right now the year has been fairly quiet.
Speaker Change: Because of the uncertainty it feels like in the last couple of weeks there is a little more activity.
Speaker Change: If you were to look at the retail mix of the Bev mix and just the street retail consumer.
Speaker Change: We're starting to see some more inbound.
Speaker Change: 10, or 11% of the mix if you look at it.
Speaker Change: Here I mean literally in the last few days. So we'll see if that is okay.
Speaker Change: In the corporate fleets.
Speaker Change: A blip or a harbinger of.
Speaker Change: It's much higher than that and it blends out at like 26% today and when we sell cars to the corporate fleets, we still make positive margin on it but it's less than what we make at retail and so.
Speaker Change: More active we'll see I'm not sure yet.
Speaker Change: Your next question today will come from Jeff <unk> with Stephens, Inc. Please go ahead.
Speaker Change: Good morning, guys, congrats on a great quarter again.
Speaker Change: As long as there is all of that it's kind of like in the U S. When they're putting a lot of beds and rental car service right. Now is somewhat similar so its just corporate fleets there and it drives the margin down as a result.
Speaker Change: So I was just kind of curious this quarter.
Speaker Change: The metrics were.
Speaker Change: A little more variable if you will.
Speaker Change: Okay.
Speaker Change: If you tried to predict all these.
Speaker Change: You made a few more acquisitions in <unk>, what is the environment like out there are the big lumpy acquisitions out there.
Speaker Change: If you look at new gross new unit service and parts used.
Speaker Change: Just kind of curious as you.
Speaker Change: Each one has surprised you the most and as we look into Q3, and Q4, which ones kind of are sustainable in kind of predictive for our models and which ones might tail off.
Speaker Change: Herb Chambers, one Asbury took was a big chunk are there any big acquisition opportunities out there do you think or is it going be more tuck ins that we're seeing.
Speaker Change: Well I think as a general as a general statement I think there will be similar.
Speaker Change: Oh.
Speaker Change: I Wouldnt, we were really pleased with the after sales performance in both markets.
Speaker Change: And the next few years, so it'll be larger ones.
Speaker Change: Interesting and upward right now the year has been fairly quiet.
Speaker Change: I cannot tell you that we would expect to maintain what was a 13% customer pay growth.
Speaker Change: Because of the uncertainty it feels like over the last couple of weeks there is a little more activity.
Speaker Change: On an ongoing basis.
Speaker Change: We're starting to see some more inbound.
Speaker Change: Generally we plan for.
Speaker Change: Mid single digits, maybe high mid single digits on that so.
Speaker Change: Here I mean literally in the last few days. So we'll see if that is okay.
Speaker Change: A blip or a harbinger of.
Speaker Change: Wouldn't lean on the on the on the.
Speaker Change: Current after sales growth like it is when.
Speaker Change: More active we'll see I'm not sure yet.
Speaker Change: When you look at the warranty numbers.
Speaker Change: Your next question today will come from Jeff <unk> with Stephens, Inc. Please go ahead.
Speaker Change: They won't be 31%.
Speaker Change: In the quarters ahead, I don't think.
Speaker Change: Good morning, guys, congrats on a great quarter again.
Speaker Change: Might be great. If they are but we don't want we would plan on so.
Speaker Change: So I was just kind of curious this quarter.
Speaker Change: I think I think there is resilience in the.
Speaker Change: The metrics were.
Speaker Change: And I'll ask Pete to comment on this especially on used cars and F&I, but on the new car side.
Speaker Change: You know a little more variable.
Speaker Change: If you tried to predict all these.
Speaker Change: If you look at new gross new units service and parts used.
Speaker Change: Yes.
Speaker Change: Think there's resilience in the new car margin Jeff.
Speaker Change: I'm just kind of curious as you, which one surprised you the most and as we look into Q3, and Q4, which ones kind of are sustainable in kind of predictive for our models and which ones might tail off.
Speaker Change: It's held up now for a year.
Speaker Change: And there isn't doesn't seem to be.
Speaker Change: The weakening in the day supply in total anyway is still reasonable and the Oems seem to be managing that well and Pete may have some comments on F&I and used cars in terms of.
Speaker Change: Oh.
Speaker Change: I Wouldnt, we were really pleased with the after sales performance in both markets.
Speaker Change: Jeff I think.
Speaker Change: I wouldn't say we were surprised we've got our processes in place. The team is in place and I think we've executed on the strategy that.
Speaker Change: I cannot tell you that we would expect to maintain what was a 13% customer pay growth.
Speaker Change: We've laid out.
Speaker Change: On an ongoing basis.
Speaker Change: To you over the last few years so.
Speaker Change: Generally we planned for.
Speaker Change: The demand.
Speaker Change: Mid single digits, maybe high mid single digits on that so that I wouldn't lean on the on the on the current after sales growth like it is.
Speaker Change: Is still there for us acquisitions very difficult.
Speaker Change: We ended the quarter with a 31 day supply so we.
Speaker Change: We are consistent there and then I think if you look at the F&I win whether it's the <unk>.
Speaker Change: When you look at the warranty numbers.
Speaker Change: They won't be 31%.
Speaker Change: Our revenue that we're getting from.
Speaker Change: In the quarters ahead, I don't think.
Speaker Change: The finance piece of the business and along with our increased margins are increasing percentages on an product it turned out to be a great quarter for us so.
Speaker Change: Might be greatest they are but we don't we wouldn't plan on it so.
Speaker Change: I think that I think there's resilience in the.
Speaker Change: And I'll ask Pete to comment on this especially on used cars and F&I, but on the new car side.
Speaker Change: I think there is there is still demand out there for us and facilitation of finance and insurance.
Speaker Change: Yeah.
Daniel: Yes, its Daniel.
Speaker Change: I think there's resilience in the new car margin Jeff.
Daniel: Only thing I would add around SG&A and UK in particular, there wasn't a plate change month.
Speaker Change: It's held up now for a year.
Daniel: This quarter saw.
Speaker Change: And there isn't doesn't seem to be.
Daniel: I'd expect SG&A as a percentage of growth to come down slightly.
Speaker Change: Weakening in the day supply in total anyway is still reasonable and the Oems seem to be managing that well and Pete may have some comments on F&I and used cars in terms of.
Daniel: Three versus quarter, two just because of that additional growth.
Daniel: And then just a quick follow up.
Daniel: The lease return issue, obviously this year down below $1 million looks like you're down 30%, 40% year over year that should flip.
Speaker Change: Jeff I think.
Speaker Change: I wouldn't say that we were surprised we've got our processes in place. The team is in place and I think we've executed on the strategy that.
Daniel: Depending on what the buyout turning rate is next year, but it's going to be.
Speaker Change: We've laid out.
Daniel: That should be a good source of traffic.
Speaker Change: To you over the last few years so.
Daniel: Yes.
Speaker Change: The demand.
Daniel: At 2026 that much given what's going on in 2025, but if you could just speak to that.
Speaker Change: Is still there for us acquisitions very difficult.
Speaker Change: Do you guys think.
Speaker Change: We ended the quarter with a 31 day supply so we.
Speaker Change: Turning to an issue.
Speaker Change: Thats exactly what effect it has in 2026.
Speaker Change: We are consistent there and then I think if you look at the F&I win whether it's the <unk>.
Pete: I think it is going to be very Jeff. This is Pete.
Speaker Change: It's difficult to forecast that because you don't know what the equity situation is going to look like next year and it could be very good on especially the ice vehicles.
Speaker Change: Our revenue that we're getting from.
Speaker Change: The finance piece of the business and along with our increased margins are increasing percentages on an product as it turned out to be a great quarter for us so.
Speaker Change: The wildcard in that is what the lease returns look like but.
Speaker Change: I think there is there is still demand out there for used and facilitation of finance and insurance.
Speaker Change: What's the situation with acquisition and availability.
Speaker Change: We are taking as many off lease vehicles as possible and I think that will continue through next year, depending on pricing.
Speaker Change: Yeah, the only thing I would add to around SG&A and U K in particular, there wasn't a plate change month.
Speaker Change: This quarter, so I'd expect SG&A as a percentage of gross debt to come down slightly in quarter three versus quarter, two at just because of that additional growth.
Speaker Change: And your next question today will come from David Whiston with Morningstar. Please go ahead.
David Whiston: Thanks. Good morning, I was just curious on the divestiture of those two UK Mercedes stores is that more of a geographic reason a factory reason or you are not happy with proceedings prospects in the UK going forward.
Speaker Change: And then just a quick follow up.
Speaker Change: The lease return issue, obviously this year down below 1 million it looks like you're down 30%, 40% year over year that should flip.
David Whiston: We're very happy with Mercedes Benz in the UK, we're the largest Mercedes retailer in the UK and we're happy about that.
Speaker Change: Depending on what the buyout churn in rate is next year, it's going to be.
Speaker Change: Yes.
Speaker Change: That should be a good source of traffic.
David Whiston: And we have a terrific relationship with the OEM there was some.
Speaker Change: We focus on 2026 that much given what's going on in 2025, but if you could just.
David Whiston: Some.
David Whiston: In those two cases those stores.
Speaker Change: How do you guys think.
Speaker Change: Return issue.
David Whiston: Closer of other stores that we owned in just in partnership with the OEM.
Speaker Change: Please.
Speaker Change: Effective as of 2026.
David Whiston: We closed those consolidated them into another point so.
Speaker Change: I think it's going to be bad Jeff. This is Pete it's good it's difficult to forecast that because you don't know what the equity situation is going to look like next year and it could be very good on especially the ice vehicles I think the wildcard in that is what the lease returns look like but.
Daniel Mckenzie: No no no dissatisfaction whatsoever from us for Mercedes Benz or their agency model Daniel May have something yes. The one store in particular was only seven miles.
Daniel Mckenzie: Away from another one of our stores and we're actually going to redevelop that store into a larger store.
Speaker Change: What's the situation with acquisition and availability.
Speaker Change: We are taking as many off lease vehicles as possible and I think that will continue through next year, depending on pricing.
Daniel Mckenzie: In the coming future. So we see some cost benefit from that and we don't expect to lose any of our customer base.
Speaker Change: And your next question today will come from David Whiston with Morningstar. Please go ahead.
Speaker Change: Okay, and just curious if your Toyota inventory is.
Speaker Change: Abnormally low given.
Speaker Change: Thanks. Good morning, I was just curious on the divestiture of those two UK Mercedes stores is that more of a geographic reason a factory reason.
Speaker Change: The reluctance platinum export vehicles from Japan right now.
Speaker Change: Well it's slow.
Speaker Change: And basically what we have is Tacoma tundra some.
Speaker Change: Not happy with proceedings prospects in the UK going forward.
Speaker Change: Would we like little more yes, we probably would but oral.
Speaker Change: We're very happy with Mercedes Benz in the UK, we're the largest Mercedes retailer in the UK and we're happy about that.
Speaker Change: We're okay with tight supplier Toyota that's for sure.
Speaker Change: And we have a terrific relationship with the OEM there was some.
Speaker Change: And your next question today will come from Ron <unk> with Guggenheim Securities. Please go ahead.
Speaker Change: Some.
Speaker Change: And those two cases those stores.
Speaker Change: Yeah, good morning team.
Speaker Change: Closer to other stores that we owned in just in partnership with the OEM.
Speaker Change: Nice quarter and thanks for taking my question.
Speaker Change: On the the UK SG&A piece.
Speaker Change: We closed those consolidated them into another point so.
Speaker Change: Daniel I think you mentioned $4 million of higher costs related to <unk>.
Speaker Change: No no no dissatisfaction whatsoever from us for Mercedes Benz or their agency model Daniel May have something yeah. You know the one store in particular was only seven miles away from another one of our stores and we're actually going to redevelop that store into a larger store.
Speaker Change: Required national insurance contribution changes.
Speaker Change: Was there anything else noteworthy this quarter, because I know you've kind of had.
Speaker Change: This ongoing integration effort post inchcape and cost savings underway.
Speaker Change: But dollars were up more than that $4 million sequentially. Despite.
Speaker Change: In the coming future. So we see some cost benefit from that and we don't expect to lose any of our customer base.
Speaker Change: Despite lower gross profit.
Speaker Change: When I look when I look at the dollars I think some of it is January and February generally a lower.
Speaker Change: Okay, and just curious if your Toyota inventory is.
Speaker Change: Cost base.
Speaker Change: It's kind of more even in quarter two.
Speaker Change: Abnormally too low given any reluctance on the export vehicles from Japan right now.
Speaker Change: Expectation always was that we would be slightly above 80%.
Speaker Change: Well it's slow.
Speaker Change: SG&A as a percentage of gross on the basis on an annualized basis, we expected it.
Speaker Change: Basically what we have is Tacoma tundra.
Speaker Change: To be closer to 80, but there is nothing really unusual in an hour apart from the increases in national insurance and <unk>.
Speaker Change: Would we like little more yeah, we probably would but.
Speaker Change: We're okay with tight supply Toyota that's for sure.
Speaker Change: National minimum wage.
Speaker Change: Okay. No that's super helpful. And then on parts and service FLAC, just kind of if if warranty slows and I understand they're probably structural tailwind for warranty going forward.
Speaker Change: And your next question today will come from Ron <unk> with Guggenheim Securities. Please go ahead.
Ron: Yes, good morning team.
Ron: Nice quarter and thanks for taking my question.
Speaker Change: But in the event warranty workflows, just trying to stress test our model.
Ron: On the the UK SG&A piece.
Speaker Change: Are you confident theres kind of enough built up demand from customer pay to offset.
Speaker Change: Daniel I think you mentioned $4 million of higher costs related to <unk>.
Ron: Required national insurance contribution changes.
Speaker Change: If there is a slowdown in warranty work or how should we think about the two I don't I'm just not sure if youre wall to wall and your service departments right now are or.
Ron: Was there anything else noteworthy this quarter, because I know you've kind of had.
Ron: This ongoing integration effort post inchcape and cost savings underway.
Speaker Change: How to think about that.
Speaker Change: You know I don't think we can cover a 31% increase in warranty with CP, but we think there's still room to improve CP.
Ron: But dollars were up more than that $4 million sequentially. Despite.
Ron: Despite lower gross profit.
Ron: Okay.
Speaker Change: As we look back on prior quarters were warranty was lower.
Ron: You know when I look when I look at the dollars I think some of it is January and February January a lower.
Speaker Change: We were able to deliver a CP growth there as well so.
Ron: Cost base.
Ron: And it's kind of more even in quarter two.
Speaker Change: I can't tell you would be dollar for dollar.
Ron: Expectation always was that we would be slightly above 80%.
Speaker Change: But.
Speaker Change: We certainly think there is room, there and we generally feel like.
Ron: SG&A as a percentage of gross under basis on an annualized basis, we expected it.
Speaker Change: <unk> is the key to driving after sales growth.
Ron: To be closer to 80, and but there's nothing really unusual in an hour apart from the increases in national insurance and.
Speaker Change: And your next question today will come from Bret Jordan with Jefferies. Please go ahead.
Ron: National minimum wage.
Bret Jordan: Hey, good morning, guys.
Bret Jordan: On <unk> I guess, you saw a $29 lifting cost.
Speaker Change: Okay. No that's super helpful. And then on parts and service FLAC, just kind of if if warranty slows and I understand they're probably structural tailwind for warranty going forward.
Bret Jordan: Does that was that pulled forward or is that their demand surge around liberation day or do you see as gpus are able to stable or expand from here.
Ron: But in the event warranty workflows, just trying to stress test our model.
Bret Jordan: I think I think Brian if you take a look at our trend has been pretty consistent on the use and.
Ron: Are you confident theres kind of enough built up demand from customer pay to offset.
Ron: If there is a slowdown in warranty work or how should we think about the two I don't I'm just not sure if youre wall to wall and your service departments right now are or.
Bret Jordan: I would expect that to continue.
Bret Jordan: Yes.
Bret Jordan: The used business is all about the acquisition and our team has done a spectacular job navigating.
Ron: Or how to think about that.
Ron: You know I don't think we can cover a 31% increase in warranty with CP, but we think there's still room to improve CP and.
Bret Jordan: Whether it's trades auction purchases or outside purchases.
Bret Jordan: So I think from a gross profit standpoint, it's been pretty consistent over the last year.
Ron: As we look back on prior quarters, where warranty was lower.
Ron: We were able to deliver a CP growth there as well so.
Bret Jordan: Okay, and then I guess parts and service could you sort of carve out how much was the benefit of CDK, sorry, obviously late in the quarter last year, there was very little parts and service.
Ron: I can't tell you would be dollar for dollar.
Ron: But.
Bret Jordan: For us as a company I think whenever we made our earnings call last year.
Ron: We certainly think there is room, there and we generally feel like.
Ron: <unk> is the key to driving after sales growth.
Bret Jordan: We said that the fact that the CDK for parts and service specifically with about $12 million.
Speaker Change: And your next question today will come from Bret Jordan with Jefferies. Please go ahead.
Bret Jordan: In terms of.
Bret Jordan: In terms of our pretax income so I would run on that kind of estimate Brett.
Bret Jordan: Hey, good morning, guys.
Bret Jordan: On the GPU I guess, you saw a $29 lifting cost.
Bret Jordan: Does that was that pulled forward or is that their demand surge around liberation day or do you see as gpus are able to stable or expand from here.
Speaker Change: Thank you. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines and have a great day.
Bret Jordan: I think I think Brian if you take a look at our trend has been pretty consistent on the use and.
Bret Jordan: I would expect that to continue.
Bret Jordan: And the used business is all about the acquisition and our team has done a spectacular job navigating.
Bret Jordan: Whether it's trades auction purchases or outside purchases.
Bret Jordan: So I think from a gross profit standpoint, it's been pretty consistent over the last year.
Speaker Change: Okay, and then I guess parts and service could you sort of carve out how much was the benefit of CDK sort of obviously late in the quarter last year, there was very little parts and service.
Speaker Change: You know for us as a company I think whenever we made our earnings call last year.
Speaker Change: We said that the fact that the CDK for parts and service specifically with about $12 million.
Speaker Change: In terms of.
Speaker Change: In terms of our pretax income so I I would run on that kind of estimate Brett.
Speaker Change: Thank you. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines and have a great day.