Group 1 Automotive, Inc. (NYSE: NYSE:GPI), a leading automotive retailer, has reported a strong start to 2024 in its first-quarter financial results, with the highlight being the acquisition of Inchcape (OTC:INCPY) Retail. This strategic move marks the largest dealership transaction in the company's history and is expected to be immediately accretive to earnings.
Group 1 Automotive achieved record revenues of $4.5 billion and an adjusted net income of $130 million. The U.S. operations surpassed industry sales growth, and the U.K. operations displayed an uptick from the prior quarter. The company's balance sheet remains robust, and plans for capital deployment include share repurchases and exploring external growth opportunities.
Key Takeaways
- Group 1 Automotive's acquisition of Inchcape Retail promises new market access and scale enhancement.
- Q1 2024 saw record revenues of $4.5 billion and adjusted net income of $130 million.
- U.S. operations outperformed industry sales; U.K. operations improved from the last quarter.
- The company maintains a strong balance sheet, with a rent-adjusted leverage ratio of 2.45 times.
- Capital deployment strategies include share repurchases and pursuing external growth.
- Group 1 Automotive repurchased 1.5% of outstanding shares and paid $6 million in dividends.
- The company is focused on dealership consolidation, divestiture of underperforming stores, and growth through acquisitions.
- In the U.S., leasing accounted for 18.6% of new vehicle sales, indicating a significant increase.
- The collision and wholesale parts businesses faced challenges due to insurance companies totaling more vehicles.
Company Outlook
- Group 1 Automotive plans to continue with dealership consolidation and strategic divestitures.
- The company will focus on growth through acquisitions, leveraging strong OEM relationships.
- Cost-cutting measures in the U.K. are expected to show full benefits in the second quarter.
Bearish Highlights
- Non-floorplan interest expense increased due to higher borrowings and mortgage-related borrowings.
- The collision and wholesale parts businesses were negatively impacted by insurance companies' actions.
- Elevated costs associated with new acquisition stores contributed to higher SG&A dollars.
Bullish Highlights
- The acquisition of Inchcape Retail is expected to add significant value and market penetration.
- Group 1 Automotive's U.S. operations performed strongly, with leasing seeing a notable increase.
- The company's strong balance sheet supports ongoing share repurchases and growth initiatives.
Misses
- SG&A as a percent of gross profit is expected to decrease post-pandemic, although new vehicle grosses are reducing.
- The full impact of cost reductions in the U.K. has yet to materialize within the quarter.
Q&A Highlights
- Leasing trends in the U.S. are high compared to previous years, with a slight dip in the quarter.
- Full-size pickup demand remains healthy, with Texas market exposure influencing sales.
- The company is adjusting its parts and service segment strategies without projecting future growth rates.
- SG&A expenses are being managed with expectations of a continued reduction in the U.K. market.
The earnings call underscored Group 1 Automotive's strategic initiatives and financial discipline in navigating the automotive retail landscape. With the acquisition of Inchcape Retail and a focus on operational efficiency, the company is poised for continued growth in its key markets.
InvestingPro Insights
Group 1 Automotive, Inc. (NYSE: GPI) has demonstrated a robust start to the year, amplified by its strategic acquisition and solid financial performance. To further understand the company's market position and future potential, let's look at some key metrics and insights from InvestingPro.
InvestingPro Data highlights that Group 1 Automotive has a market capitalization of $3.95 billion and is trading at an attractive earnings multiple with a P/E ratio of 7.03. The adjusted P/E ratio for the last twelve months as of Q4 2023 stands even lower at 6.43, suggesting the company's earnings are potentially undervalued compared to the overall market. Additionally, the company has experienced a revenue growth of 10.18% over the last twelve months, indicating a healthy expansion in its business operations.
One of the InvestingPro Tips that stands out for Group 1 Automotive is its consistent dividend history, having maintained dividend payments for 15 consecutive years. This track record, combined with a recent dividend growth of 20.51%, showcases the company's commitment to returning value to its shareholders. Moreover, analysts predict the company will remain profitable this year, which is supported by its profitability over the last twelve months.
While the company is trading near its 52-week high, with a price 96.66% of the peak, this could be reflective of the market’s positive response to its strategic moves and solid financials.
For those interested in a deeper dive into Group 1 Automotive's performance and forecasts, InvestingPro offers additional tips and insights. There are currently 9 additional InvestingPro Tips available for Group 1 Automotive, which can be accessed by visiting: https://www.investing.com/pro/GPI. Remember to use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription.
Full transcript - Group 1 Automotive Inc (GPI) Q1 2024:
Operator: Good morning, ladies and gentlemen. Welcome to Group 1 Automotive's First Quarter 2024 Financial Results Conference Call. Please be advised that this call is being recorded. I'd now like to turn the floor over to Mr. Pete DeLongchamps, Group 1 Senior Vice President of Manufacturer Relations, Financial Services, and Public Affairs. Please go ahead, Mr. DeLongchamps.
Pete DeLongchamps: Thank you, Jamie. And good morning, everyone, and welcome to today's call. The earnings release, we issued this morning and a related slide presentation that include reconciliations related, to the adjusted results, we will refer to on this call for comparison purposes, have been posted to Group 1's website. Before we begin, I'd like to make some brief remarks about forward-looking statements and the use of non-GAAP financial measures. Except for historical information mentioned during the conference call, statements made by management of Group 1 Automotive are forward-looking statements that are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve both known and unknown risks and uncertainties, which may cause the company's actual results in future periods to differ materially from forecasted results. These risks include, but are not limited to, risks associated with pricing, volume, inventory supply due to increased customer demand and reduced manufacture production levels, due to some component shortages, conditions of markets, successful integration of our pending Inchcape acquisition, and adverse developments in the global economy, and resulting impacts on demand for new and used vehicles and related services. Those and other risks are described in the company's filings with the Securities and Exchange Commission. In addition, certain non-GAAP financial measures, as defined under SEC rules, may be discussed on this call. As required by applicable SEC rules, the company provides reconciliations of any such non-GAAP financial measures, to the most directly comparable GAAP measures on its website. Participating on the call today, Daryl Kenningham, our President and Chief Executive Officer, and Daniel McHenry, Senior Vice President and Chief Financial Officer. I'd now like to turn the call over to Daryl.
Daryl Kenningham: Good morning, everyone. Last week, we announced our acquisition of Inchcape Retail, the largest dealership transaction in Group 1's history. We're thrilled to have successfully come to an agreement, with Inchcape plc on this generational acquisition. There are several benefits to Group 1. One, we'd like to grow. The acquisition gives us access to markets, where we previously had no presence, and it also adds scale to markets where we have existing presence. The brand mix at Inchcape is outstanding. Very low facility investment is required, and we felt the valuation was exceptional. The Inchcape business is well run, and our culture is aligned very well. We believe that combining Group 1 U.K. with Inchcape will benefit all of our U.K. stores. And Inchcape is accretive from day one, and we believe we will see an immediate EPS impact. Properly allocating our shareholders' capital is our highest priority. When evaluating an acquisition, we run disciplined valuation models with realistic expectations, incorporating growth and investment. The return generated through that modeling, is compared to the expected return of repurchasing our stock, paying down debt, or using the capital for other uses. From our perspective, the valuation on the Inchcape transaction was excellent, and provided an outstanding use of our shareholders' capital. In a four-week period during the first quarter of this year, we closed on three transactions that were similarly attractive in the U.S. What's also important to note, is that we passed on a number of acquisitions that didn't meet, our investment hurdles. Some of those were in great markets, with great brands. However, we will not chase revenue, just for the sake of growing. We will chase returns. In the first quarter, it's important to note, we also disposed the stores that did not meet our return expectations. As you've seen over the last two years, we've balanced acquisitions and dispositions, with repurchasing our shares. We've bought $3 billion of revenue, disposed of $945 million of revenue, and repurchased 23% of the company. Although, we had some operating bumps in the fourth quarter in the U.K., our teams reacted well. Our used car inventory is very healthy. Our grosses have returned. And we've implemented significant expense reductions. Daniel McHenry will speak more specifically, to those actions in a moment. We are a pure-play dealership group. While we regularly evaluate other business opportunities, we believe the best use of capital to grow the company, is in new vehicle franchise dealerships. It may not be that way forever, but that is what we see in today's economic and competitive environment. We also believe close partnerships, with OEMs has never been more important. OEMs need great retail partners now, more than ever. The great ones admit that, and execute against that. They need our capital, professionalism, and execution to win in this ultra-competitive environment. We don't see that changing in the future. We actually see that OEM relationship growing in importance. And we believe the Inchcape acquisition, allows Group 1 an outstanding opportunity to demonstrate that. Now I'll turn the call over to Daniel McHenry, for an operating and financial overview. Daniel?
Daniel McHenry: Thank you, Daryl, and good morning, everyone. In the first quarter of 2024, Group 1 Automotive reported $130 million in adjusted net income, and delivering a quarterly adjusted diluted EPS, from continuing operation of $9.49. Current quarter total revenues of $4.5 billion were the highest first quarter revenues in company history, supported by all lines of business. And parts and service revenue of $576.2 million were an all-time high. Starting with our U.S. operations, new vehicle units sold outpaced the industry, up 8% on a same-store basis and 14%, on a reported basis. During the first quarter, 17% of our new vehicle sales in the U.S. were pre-sales, down from 24% in the prior quarter. These strong unit sales reflect the resiliency of demand, and our emphasis on driving volume. GPUs performed about as expected, and continue on their slow glide path down as inventories return. In used cars, GPUs increased $245 sequentially, with units sales up 8%. Giving the speed and depth that the industry used car valuations declined in the U.S., during the latter half of 2023, we are pleased with our ability to hold margins and increased volume. We believe this is testament to our process discipline with pricing and our use of technology. Our F&I gross profit per unit of $2,340, only minimally declined on a same-store sequential quarter basis, and increased 3% year-over-year. We expect some continued pressure on used vehicle finance penetration, due to existing interest rates and higher lender requirements for some buyers. However, we expect continued improvement on new vehicle finance penetration, due to increasing OEM incentives. After sales first quarter revenues and gross profits, outperformed the prior year comparable quarter on a same-store basis, and we achieved a record U.S. parts and service revenues of approximately $500 million. We continue to believe that after sales, is an area for Group 1 to differentiate, and we will continue to invest in that part of our business. Wrapping up the U.S., let's shift to SG&A. Adjusted SG&A as a percentage of gross profit, increased 260 basis points year-over-year to 65.7%, but remains considerably from pre-COVID levels of around 70%, as new vehicle margins continue to normalize. Let's turn to the U.K. The U.K. improved from fourth quarter of 2023. Our U.K. team delivered record quarterly revenues, driven by new vehicles and parts and service, which grew 10% and 9%, respectively. We experienced declining new vehicle margins, a continuation at the initial onset of the quarter, of the difficult used market first experienced in the fourth quarter of 2023, and improved cost control as we work to remove costs, throughout the quarter. While wholesale losses were down 34% per unit versus the sequential quarter, we experienced an even steeper improvement in February and March. Used vehicle gross profit per unit improved $229, or 20% on a sequential quarter basis. We believe vehicle demand remains resilient and new vehicles availability is still constrained, keeping new vehicle pricing and GPUs elevated. As of March 31, our new vehicle order bank, was approximately 12,500 units. As a reminder, our U.K. business mix is predominantly luxury, and those consumers are more resilient during times of economic uncertainty. Our U.K. operations, began rebalancing of its used vehicle inventory during the fourth quarter of 2023, and continued into the first quarter of 2024. This continued rebalancing resulted in an $840 loss, per vehicle sold through the wholesale channels in the first quarter, an improvement from the $1,300 loss, per vehicle in the fourth quarter. We have improved our used vehicle agency, and reduced our used vehicle inventory by 12 days, from 58 days in December 31 to 46 days. U.K. adjusted SG&A as a percent of gross profit, decreased by 772 basis points sequentially, reflecting the impact of our cost-cutting efforts that, began in the fourth quarter of 2023. Cost-cutting took place throughout the entirety of the first quarter 2024, resulting in an elevated adjusted SG&A, which was 1,020 basis points higher year-over-year. We also experienced the impact of the decline in gross margins, across all lines of our business, as compared to the prior year quarter. Turning to our balance sheet and liquidity. As of March 31, we had $42 million of cash on hand, and another $180 million invested in our floorplan offset accounts, accessible immediately, bringing total cash liquidity to $222 million. We also had $241 million available to borrow on our acquisition line, bringing total immediate available liquidity to $463 million. In the first quarter of 2024, we generated $171 million of adjusted operating cash flow, and $128 million of free cash flow after backing out $43 million of CapEx. This capital was deployed through a combination of acquisitions, share repurchases and dividends. In the first quarter of 2024, we spent $54 million, repurchasing approximately 203,000 shares at an average price of $264.41, resulting in a 1.5% reduction in share count over the quarter. Our share count as of today, is down to approximately $13.5 million. Our balance sheet, cash flow generation and leverage position, will continue to support flexible capital allocation approach, including serious consideration of share repurchases, in addition to pursuing external growth opportunities. Our rent-adjusted leverage ratio as defined by our U.S. syndicated credit facility was 2.45 times at the end of March. Our strong balance sheet will to allow, for meaningful and balanced capital deployment. Our quarterly floorplan interest of $20.5 million, was an increase of $7.9 million from the prior year, due to higher inventory holdings. We effectively manage our floorplan interest expense, by holding excess cash in our floorplan offset accounts, reducing the balance exposed to interest, as well as through our portfolio of interest rate shops, which saved us $2 million of interest expense, versus the comparable prior year quarter. Quarterly non-floorplan interest expense of $29.3 million increased $9.6 million, from the prior year quarter, primarily related to higher interest from increased borrowings on our acquisition line, the benefit in the prior year of the de-designated swap, increased mortgage-related borrowings, and higher interest on existing borrowings. Our floorplan interest rate swaps similar, our mortgage swap portfolio, saved us $0.4 million in the current quarter, versus the comparable period. As of March 31, approximately 56% of our $4.2 billion in floorplan, and other debt was fixed. Therefore, the annual EPS impact is only about $1.05 for every 100 basis point increase in the secured overnight funding rate or SOFR, which is the benchmark rate referenced in our floorplan, and mortgage debt instruments. Let's turn to capital allocation. We deploy a return-focused capital allocation strategy that balances opportunistic portfolio management, and return of capital to our shareholders in the form of quarterly dividends, and share buybacks. During the quarter, we acquired expected annual revenues of $1 billion, we spent $54 million to repurchase 1.5% of our outstanding common shares, and paid dividends of $6 million. We continue to explore ways, to consolidate our holdings in highly profitable, scalable dealerships and dealership clusters. We believe the dealership business is the best use of our capital, and have demonstrated our ability, to successfully integrate acquisitions very quickly. We continue to explore opportunities to capture immediate growth through acquisitions. We also believe divesting smaller underperforming stores and brands, is a critical part of our strategy as well. We believe this approach is critical to our growth story, which leverages our scale and proven integration capabilities, optimizes our rooftop performance, and grows the company in a meaningful and incremental manner. For additional detail regarding our financial condition, please refer to the schedules of additional information attached in the news release, as well as our investor presentation posted on our website. I will now turn the call over to the operator, to begin our question-and-answer session. Operator?
Operator: [Operator Instructions] Our first question today comes from John Murphy from Bank of America. Please go ahead with your question.
John Murphy: Good morning, everybody. Daryl, just a first question on Inchcape and the acquisition. It's an interesting acquisition. I'm just curious if in addition to sort of the benefit of acquiring a good company and growth that there could be sort of the knock-on benefit of helping solve some of the management issues that you had in the U.K. towards the end of last year. And just maybe if you can update us on sort of the turn and actions that have taken in that business and where that stands. So it sounds like Inchcape might be a lot more than just a good acquisition. It might help with a lot of the management issues. Thank you.
Daryl Kenningham: John. We bought eight Inchcape stores a few years ago and the talent level at Inchcape is fabulous. The heads of business that run those stores for us today all came from Inchcape, and we are excited about the talent level and the management depth at Inchcape, they really have some fabulous people. And so I can affirm that we are excited about that, and that is definitely an add-on benefit for us. And on the specific actions that we took in the fourth quarter and the first quarter to get our issues behind us in our own new car operation. We went through a cost-cutting exercise on an SG&A basis that touched a variety of parts of the company including headcount. And we also reduced our demo fleets, loaner fleets, which are a huge expense for us as well. And so aside from the SG&A and the head count issues and the loaner and demo, we also put a great deal more emphasis on our used car aging in turn, made some organizational changes around that to put some more focus on it. And we're pleased with the results we saw in the first quarter. We believe some of those actions will result in improved performance throughout the year.
John Murphy: And Daryl, if I could just sneak in one follow-up. You mentioned something about the partnerships with OEMs improving. I was just wondering if you can maybe talk about that a bit. And maybe on the level of what does it mean for acquisitions, what does it mean potentially for parts and service? And what could it mean for the used vehicle business? I don't know if you could touch on those three and generally kind of what you're -- what you mean by improved partnerships with OEMs?
Daryl Kenningham: Well, I think a lot of the OEMs are taking what they do in a market like the U.K. where they have fewer partners with bigger footprints. And I think they're bringing that thinking to the U.S. And I think they really value the right partner. And I think they really are trying to drive that, specifically in certain brands. And they do that through the way they work with us on acquisitions, the creativity that we apply and the opportunities that were provided. And I can tell you, if you look at the three acquisitions we did in the U.S. in February and early March, fabulous brands across a variety of OEMs in some great markets. And I think I can point to our great relationship with those OEMs that enable that. And I think they are continuing to look -- they understand that there's -- our business is a 5% margin business, and it takes capital and great execution at retail to make their brands successful. And I think they're recognizing that more every day. So that's why I say that. And I think that applies not just additional acquisitions, but in the way they execute across a lot of the tactical elements that you mentioned, like used cars and parts of service. They're looking for dealer groups that can innovate, and I think that helps in those areas.
Operator: Our next question comes from Michael Ward from Freedom Capital. Please go ahead with your question.
Michael Ward: Good morning everyone. Daniel, could you shed some color on the acquisition cost in 1Q and maybe even netted out with the sales. And then with the Inchcape acquisition, you have the acquisition and the real estate? Or is it one price or both?
Daniel McHenry: So let's start with the Inchcape acquisition first. The price that was quoted in our press release included the real estate for Inchcape, so effectively GBP 220 million that was quoted was for real estate. And the balance between the price quoted and the GBP 220 million was effectively the goodwill and all other net assets. For the deals that we've done in the U.S., we typically don't quote the price that we pay for those deals. However, what I will say that all of those deals fell within our return model. So we model on the basis of a discounted cash flow basis. And we have a targeted rate of return of approximately 12% on those acquisitions and all of those acquisitions fell within those targets.
Michael Ward: Okay. All right. So netted out, though, with somewhere in that neighborhood of about GBP 200 million that it sounds like between buying and some of the proceeds from the disposal?
Daniel McHenry: It will be more than that, Mike, for...
Michael Ward: For 1Q?
Daniel McHenry: For 1Q. Correct.
Michael Ward: Okay. Okay. And just one last thing on Inchcape. I wonder if you could talk a little bit, Daryl, about some of the longer-term relationships and how that came about. You said you acquired eight other stores from them at some previous point. You have a history of having long relationships with some of the acquisitions you make. And I'm just wondering how this fits in and your confidence level that it's going to be like some of the others that fit in pretty well like Prime fit in pretty well to the Group 1 network.
Daryl Kenningham: Yes. We were -- when we bought some of Inchcape's Ford (NYSE:F) stores and Volkswagen (ETR:VOWG_p) stores, seven or eight years ago. And the integration was very good. Inchcape been in the retail business in the U.K. for 50 years. And they're a sophisticated operator. And we really benefited from some of the things they brought us on that acquisition. And the OEM mix that we're getting with this acquisition. We own all of those OEMs today, and we own all but two of them in the U.K. today. The two we don't own today in the U.K. are Porsche and Lexus. We own all of the others today, and we've got what I believe are very productive, positive relationships with those OEMs, and that's based primarily on performance, and our willingness and ability to invest in their brand like in facilities, et cetera. So, yes, those relationships for us go back quite a ways and bridge, and often bridge both countries.
Operator: And our next question comes from David Whiston from Morningstar. Please go ahead with your question.
David Whiston: Thanks. Good morning. Just a couple for me. On used, you guys continue to do pretty well there despite all the pressures in that space. Do you have any kind of national algorithm? Or is it just more of a data approach that's a bit less centralized?
Daryl Kenningham: We're getting more centralized, David. One, with the technology we use, and we switched technology about a year ago, 1.5 years ago maybe. And I think we're leveraging it better today. We also have made some changes in some of our aging policies, some of our intracompany transfer policies to be able to put vehicles where they will have the highest velocity at the most opportunistic profit on a faster basis. And I think we're seeing the results of all of that. And we're able to keep our year-over-year growth rates up even though we have less inventory. We have 26 days of inventory, and we're still able to keep the velocity and the year-over-year improvements in place and the PRU is holding up well. So I think it's a variety of things that the team is doing. We're approaching it more on a standardized basis than we ever have, and we have more resources on it today than we ever have to.
David Whiston: And in the U.S. market, are you seeing any kind of meaningful increase in leasing yet?
Daryl Kenningham: Actually, our leasing was down a tick in the quarter, but it's up significantly from where it's been in the last couple of years. So we've got the number in our deck, I think.
Daniel McHenry: We do. David, it's Daniel here. New vehicle leasing year-on-year. So quarter 1, '24 versus quarter 1, '23, we saw 460-basis-point increase. So leasing today is up to 18.6% of our new vehicle sales.
Operator: Our next question comes from Rajat Gupta from JPMorgan. Please go ahead with your question.
Rajat Gupta: Great. Good morning. Thanks for taking the question. First one was on services. Pretty good growth in customer pay and warranty. But it looks like collision and wholesale parts were slow. I mean especially collision was weak. Any sense of what drove that reversion? One of your peers reported yesterday also, it was just quite weak in that category. But I was curious, like, how should we think about that part of the service business recovering, also the wholesale parts and just in the context of the overall service growth as well, how should we see things trending through the course of the year? And I have a follow-up.
Daryl Kenningham: A couple of comments, Rajat. On collision, I can't assign a value to this. But what we do seem to be seeing are insurance companies totaling more vehicles because of the used car valuations that have been falling. And -- so that is certainly impacting the collision business, which will, to some affect effect the wholesale parts business. Also, we're trying to be smart about our wholesale parts business. That can be a lot of revenue and not a lot of margin. And so we're kind of in the process right now of at least reviewing to make sure that we're generating positive returns on that. So that could be affecting some of that revenue on the wholesale parts business. But we were pleased with the CP performance, as you mentioned, and we added more technicians year-over-year again, and that continues to be a focus for us.
Rajat Gupta: Got it. I mean should we expect this kind of like year-over-year growth rate to continue for the remainder of the year? Should we expect some kind of like improvement? Or is this a good level to assume for the remaining of the year on the overall parts and service segment.
Daryl Kenningham: I think we're kind of comfortable with where we are today as trying to estimate where we would be in the future.
Operator: Our next question comes from Glenn Chin from Seaport Research Partners. Please go ahead with your question.
Glenn Chin: Good morning, folks. Just going back to the U.K. cost cuts. Can you share with us how much of a benefit was realized in the first quarter? And then can you remind us -- I think you mentioned in the fourth quarter, you expected annualized savings of -- was it $8 million to $10 million, if you can just confirm that?
Daniel McHenry: Glenn, I think that's for our annualized savings of $8 million to $10 million. The cost cuts took place throughout the quarter. It takes a little longer in the U.K. to generate some of these savings just with the employment law that it's there. But I would expect to see the full benefit of the cost cuts in quarter two.
Glenn Chin: But I'm trying to get to how much more incrementally we should expect. So how much was realized in first quarter, Daniel...
Daniel McHenry: I would say 50% of it was realized in the first quarter, if you assume that the redundancies took place 50% through the quarter effectively.
Glenn Chin: Okay. Very good. That's helpful. Then just a question on full-size pickups. There's some stories of rising inventory, some to triple-digit levels. You saw Ram cutting employees and production have you guys detected a change in the demand profile for full-size pickups?
Daryl Kenningham: I wouldn't -- I've seen some of that press too, Glenn, and when we kind of look across our mix, the GM brands were pretty good. The Ram was down a tick and F-Series was down a tick. Toyota (NYSE:TM) was up significantly and actually -- so we were -- overall, we were up a little bit in large pickup sales year-over-year. So it's hard for me to square that with what I've seen in some of the press.
Daniel McHenry: Glenn, one thing I'll add to that is our Texas exposure makes a big difference for pickup sales.
Daryl Kenningham: And if you look at our truck day supply as compare to the car, it's -- they're right together.
Operator: Our next question is a follow-up from Rajat Gupta from JPMorgan. Please proceed with your question.
Rajat Gupta: Great. Thanks for getting me back in the queue. I just wanted to clarify on SG&A in the U.S. in particular. If you look at like the gross profit versus the SG&A, we saw a slightly higher pickup on the SG&A dollars versus the gross profit. I mean, was that just seasonality, maybe some deleveraging because of the service business? Just curious what happened there? And how should we think about that leverage profile through the course of the year.
Daniel McHenry: Rajat, there's a couple of things, it's Daniel. What we've always said is coming out of this, we would expect that SG&A as a percent of gross, we drop from 74% pre-pandemic around 70% with kind of 400 basis points out of SG&A as a percent of gross going forward. Clearly, some of the grosses are dropping on new vehicles, and we continue to see about $100 a month reduction in that. And that affects SG&A as a percent of gross. There's a couple of other things that I would add. Clearly, we didn't get all of the cost out in the U.K. in the quarter and for its full benefit that we will see going forward in quarter two. So we would expect, on an ongoing basis, SG&A as a percent of gross, all things being equal to continue to reduce in the U.K. taking on some of these new acquisition stores often there's slightly elevated costs that come as we take along some of these new acquisition stores and particularly to buy store halfway through a month, it's just tougher. SG&A as a percent of gross as we've added those stores in. So I think you need to take some of that into a kind as well whenever you look at the change in SG&A as a percent of gross.
Rajat Gupta: I understood, yes, that makes sense. Thanks for clarifying.
Daniel McHenry: Thank you, Raja.
Operator: And ladies and gentlemen, with that being our final question for today, we'll close out today's conference call and presentation. We do thank you for joining. You may now disconnect your lines.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.