LAD
#You bet, Steve.
<UNK> again.
There's no question that we believe that ---+ in other sizable acquisition.
Now, only there's only about nine other ones that are larger than DCH in the country.
So those may be a little hard to come by.
But ones that are about half that size, or maybe a quarter that size are out there.
We believe that the integration of DCH has went very smoothly.
I think we proved to ourselves and the combination of the two teams that we're open-minded.
We challenge each other with best practices, that the idea of bringing in a management team that has slightly different cultures and blending them together is something that management teams can handle, and can challenge and be inspired by.
So we really believe that those are definitely on the radar.
We're not solely looking at a $500 million or a $1 billion acquisition.
We're still looking at our typical strategies where we buy a $50 million to $70 million store size.
And there is a pretty active market in that arena, both in our exclusive markets and now in the metropolitan markets.
I think I mentioned we really increased our availability of candidates from about 1200 to about 2600 when we went into those metropolitan markets.
Now, we still focus on a dominant manufacturer in what we would call a dominant area of influence, even in the metropolitan areas.
Yes, you bet.
This is <UNK>.
As <UNK> mentioned in our prepared remarks our revenues were up 66%, or almost $700 million in the quarter.
So obviously we have lots of opportunities to work on.
And based on the beat that we saw in the first quarter, we are optimistic about what the future holds.
However, consistent with the way that we've laid out our guidance historically, as we look at our current store performance and we look at current trends, and we make sure that we are executing before we actually promise the results for the year.
So we have three quarters left as far as the runway for 2015.
And we feel that incrementally improving the guidance and as items come to fruition on the execution, is going to be our strategy.
And we hope to continue to rise throughout the year.
Hi, this is <UNK> again.
When we decided to combine with DCH we really saw that there was opportunities.
And I think as we outlined over the last few quarters, we expected that a lot of those synergies and the ability to tweak their operating model when they were already producing great revenues and fairly solid growth, but the ability of them to be able to bring it to the bottom line has taken effect a little quicker than expected.
Their West Coast stores have been very expedient on being able to make changes that quickly reflect on the bottom line.
The East Coast stores over the last few months are starting to take hold as well.
So we're pretty pleased with where that's at.
It's probably a little ahead of where we planned.
And in addition I would say this, that George, TY and their teams, our divisional leaders of DCH, when it comes to those ideas of corporate synergies that we were really looking at, and I think I mentioned really briefly about it last call, we expected those synergies to happen over the first two years or so.
We actually believe that we're about 75%, 80% of the way through those corporate synergies.
And the idea of the Company really working together as one, while still sharing best practices that are maybe volume focused with DCH, where they're net focused with Lithia, are blending quite nicely.
So I think the overall result is being reflected a little sooner than expected in our bottom line profits.
Thanks.
That's a good question, <UNK>.
This is <UNK>.
I think when we look at our opportunities in the coming few years, we break it down into three key factors that are going to be able to drive the performance upward.
Used cars, obviously you hit on, is probably the largest part of that.
And at 57 units per store, we still strongly believe that the 75 is within our sights, excluding having DCH come in, in another three quarters which will raise it a little bit because their stores are a little bit bigger.
When we look at that one factor, the supply of vehicles is getting better.
And in those three- to seven-year-old vehicles which we call core product, which if you recall is also the driver of value auto product, is starting to loosen.
So there's becoming a greater supply because the SAAR rates that are starting to push through now are starting to become higher.
And we really see that continuing for some number of years, three to five years.
We really believe that that's a pretty easily accomplished task.
The other two key drivers are really that flow-through business in service and parts, which we still believe there's tons of opportunity to become that all-in-one type of shopping experience for our consumers.
And then lastly, we would say that the opportunities within our existing stores in terms of productivity, cost management, as well as new vehicle market share in our underperforming stores, which is a sizable amount still, we believe that that is the third driver that can help take us to the $7 and beyond marks.
You bet you, <UNK>.
You know I've got some extra color.
I think it's fair to say if we look at the ability of the Lithia stores, they've become pretty balanced on how they stock and drive the three segments of value, core and certified.
However, we still probably have a third of the stores that don't play very heavily in the value auto products.
Our Texas stores are starting to do that a little more, which is good.
And I think with a slight moderation of vehicle sales ---+ they're at 9% up ---+ they're starting to look for more opportunities, so that's good.
If we look at the DCH side, value autos in many of their stores hasn't really been part of their formula.
So as we look at the year going forward and we look at the supplies that are there, I think it really comes down to a belief that they can start to find these vehicles and buy those core products that take in those value vehicles.
And I know their general manager and service management teams are working closely to be able to recondition those cars and then market those cars to consumers that may not have looked towards the DCH stores in the past for that type of vehicle.
So it is a slow process, and it was with Lithia.
But no matter what, they have lots of opportunity.
And their top-of-funnel trade-ins is probably the easiest way to get to those value auto cars.
So we're really excited to see the early stages of some of the stores to start to take hold in that value auto segment.
Thanks, <UNK>.
Diego.
Hi <UNK>t.
<UNK>t, this is <UNK>.
I would say that the current state continues to become more accelerated in terms of candidates that are out there.
I think it's accurate that the pricing on those deals has also grown some.
There's some hot air there.
I really believe that, because we're still not seeing a lot of those acquisitions break loose at those numbers.
However, I do believe that there's a lot of people out there with a lot of cash in their pockets that are looking for deals.
And I think it really boils back down to the ability to operate those stores and have people that are on the benches ready to run those.
And then your operating, what I would call your forecasting and your ROEs will fall into line a little easier.
And I think with the talent that we have sitting on the bench we can be competitive and continue to grow at a pretty good clip on acquisitions at whatever pricing may or may not be out there.
That's okay.
Yes, I think that's a fair statement.
I mean, we obviously have fairly high hurdle rates on what we expect out of acquisitions.
We're typically looking at average performing stores, if you recall, because for us to hit our hurdle rate we need to be able to double or triple the profit potential of where they currently exist to be able to pay a goodwill multiple that's usually accepted by a seller.
So it's a little bit different candidate than we're looking for than maybe even some of the ---+ some of our peer group.
And I think because of that ability to be able to bring value to those acquisitions and be able to operate them at a higher level of profitability, it makes it a little easier for us to still stay in the game on buying stores.
Thanks <UNK>t.
<UNK>, this is <UNK>.
I think nationally ---+ it had nothing to do with our acquisition of DCH or the mix of our type of stores.
I mean, on a same-store basis, if you recall, our unit sales were up 7% in domestic as compared to the nation at 4%, which is a delta of 3%.
The imports were up 10% and the nation was up 6%, which is a delta of 4%.
And luxury was up 12% with the nation at 11%, which is a 1% delta.
So our stores kind of performed a little bit above national in all three categories.
This is <UNK> again.
So we're about a quarter Honda, a little less than a quarter Toyota and about 17%, 18% Chrysler products, followed by a Ford and Chevrolet and Subaru, with some luxuries and BMW.
But when we look at acquisitions, we like the balance of our current portfolio.
So I think when we look towards targets we're looking for that balanced approach as well, whereas I would say pre-DCH acquisition it may have been a little bit more import and luxury focused.
But being that they were almost 95% import luxury, that helped balance us out pretty quickly where we aren't having to stretch on one type of brand or another.
So we're pretty balanced in that arena now.
Yes, <UNK> this is <UNK>.
We've said that our optimized leverage would be somewhere between 2.5 and 3 times, and at 2.2 times we're definitely below that.
I think that our primary use of capital is going to continue to be deploying it on acquisitions.
And we feel pretty optimistic that midterm we're going to continue to bring leverage down until those acquisitions come to fruition.
As an example, pre-DCH our leverage ratio was somewhere near 1.3 times and post acquisition it popped up to, I think, 2.7 times.
Optically I think that we're going to continue to see leverage fall for a few quarters.
But with our acquisition team and the acquisitions that are out there in the market, there's plenty of headroom ahead of us and we're going to continue to deploy capital in that arena.
However, we did buy back some shares in the quarter.
I think we bought back about 77,000 shares.
We also raised our dividend in the quarter.
And we invested $25 million in our existing stores.
So we're going to continue to stay balanced, but focused on the acquisition front.
Hi <UNK>.
<UNK>, this is <UNK>.
I think the idea when you look at a used-to-new ratio on DCH it might be a little bit different.
However, I do believe that there's huge growth opportunity within DCH.
But remember, many of their stores are high volume.
In fact, it was neat to hear when I was driving in this morning on Sirius radio ---+ I listen to K100 New York so I can hear about traffic reports now that we're spending time out with a lot of the investment community.
And I heard a DCH ad and they talked about the four New York Honda stores, which was pretty cool.
Anyway, so when you start to look at that, you go, you know what.
We can spin that into used cars and we can continue to grow those things.
But the idea of a 0.9 to 1, I think it's fair to say that we still strive for Lithia to get to a 1.5 to 1 on our used-to-new ratio.
And I think if DCH was pushing in the 0.8, 0.9 to 1 that'd be a pretty solid job considering that Brian Lam's store, Paramus Honda, sold 466, I believe, new Hondas last month.
That's a pretty hard number to achieve, a 1 to 1 at 466, when I think the best Honda store in the country probably sells 250 to 300 used cars.
It's currently at 0.5 to 1.
You bet, <UNK>.
<UNK>, hold on one second.
We're trying to get that.
Yes, absolutely.
I think we spoke to it a little bit last time.
That the DCH's ability to lease cars, it continues to grow.
They're in the mid-30 percentile range on their new vehicle leasing.
I think in terms of Lithia outlook, it's starting to take hold within Lithia.
It could have had something to do with a little bit better new vehicle quarter.
I don't believe that we hit double digits yet.
I think it's high single digits in the 8% to 9% range.
So we still have lots of opportunity to be able to expand our market share by providing leasing opportunities to our consumer base.
Yes, this is <UNK> again.
That's really a function again of some turnover in management in two stores in Texas, which are two large body shops.
I think it's a short-term blip.
We since have new leaders within those two stores, and hopefully see that trend there reverse itself.
Yes, <UNK>, and to answer your first question.
Then so Alaska was up 25%, California was up 22% in the quarter.
Oregon was up 24% and Washington was up 16%.
So overall with sales up 11%, those markets definitely performed a little better than our other markets.
Showing that there were still opportunities.
Great, <UNK>.
Thank you for joining us today.
We look forward to talking to you again in July.
