GPI
#Jamie, as you know, we have had a strategy to consolidate our lender base, which I think we have done a great job with and been able to leverage the opportunities with our lenders.
And we haven't seen any changes sequentially or year over year.
It continues to be a favorable credit market for us and our consumers.
Our banks are performing very well.
<UNK> and I have met with the majority of them at NADA over the last ---+ at the end of February.
So as far as we can tell, the lending situation continues to remain very favorable.
Thanks.
I will talk to the stair-steps while <UNK> is trying to see if he can find some data on your gross profit question.
The stair-step programs are everywhere across the board now, and they have even grown in the last year or so, which is not helpful to anyone when you are trying to fight this margin compression.
Of course, the high inventory doesn't contribute to arresting the margin compression either.
But I would say the prevalence of these stair-step programs is greater than ever and not something that most retailers are going to tell you is beneficial.
<UNK>, this is <UNK>.
On your question on the gross profit, as we said, the biggest change we saw was on imports.
It's actually improved about $136 a unit and the offset basically in domestic was down about $100 and luxury was down about $80.
Since we're obviously heavier on import, the mix among ends up favorable in total.
I think it is possible that it will grow again for that exact reason.
That's a very valid point.
I think it's true.
No, we haven't seen it in this quarter.
Of course, it's also skewed toward luxury brands.
Because you lease more luxury brands and a higher percent of your used vehicle sales in a luxury brand business are CPO.
So some of it is brand mix as well.
As we remodel and build new facilities, it generally includes capacity expansion, but it's not really a capacity issue in terms of growing our service business.
And we measure our service productivity and we have some that are full up and some that are 80% or 85%, but it's quite easy to do 1.5 shifts or 2 shifts if you have more business than you can run through in a normal day.
So very seldom is the physical capacity in terms of number of service bays going to put a lid on our business.
It's much more a human element.
And nowadays it is also a parts availability element in many of these recalls.
We have work waiting to be done if we can get parts as well.
Well, I am not sure I can give you a good target on SG&A, but our goal has always been, <UNK>, to get to an operating margin of 3% in the UK and we are at 2.5% now.
That's the best we've ever done.
So maybe if we did some math we could kind of tell you what the SG&A would be if we got to 3% operating margin.
But clearly it's a couple hundred basis points lower than what we achieved at 74.5 or thereabouts this quarter.
So the scale will certainly benefit us.
But that's kind of how we've been looking at it is trying to get to a 3% operating margin.
It's <UNK> <UNK>el.
I would just add that there are a few structural impediments to get all the way to the US levels.
It tends to be less of the F&I income, which is obviously, we've had 100% [margin stuff] which is really helpful.
There's less of that over there for a variety of reasons.
Your rent tends to be a bit more expensive and we tend to be just a little less overall kind of gross margin.
But I think <UNK> is right that something in the low [70s] is probably not a bad overall target over time.
<UNK>, this is <UNK> <UNK>el.
The target we've set out there is that we want to try to live with our total rent adjusted leverage at kind of 4 times or less.
We were under that at the end of the quarter, we were at [3.86] so there is still room on the balance sheet.
As you say, the stock we thought was an incredible value in the first quarter, and we stepped up the repurchase.
We've got $68 million left on the repurchase authorization.
And certainly have balance sheet capacity to do all of that and then some.
So let us work on that piece and then when we get through that, we will give you an update.
Store throughput ---+ this is <UNK> <UNK>el.
I think that gets back to the question that <UNK> <UNK> was asking.
We think that there is a bit more if we're going to get to that 3% longer-term goal on operating margin, some of that's going to come out of SG&A.
As for basically the volume gains, I think it just continues to be great execution by our management team there.
Relative to the color on the profit impact of the energy markets, it's actually all across the board.
Although our sales are only down about 1% in Houston, our profits are down almost 10%.
But we have markets like Oklahoma where we are continuing to slightly grow our profit due to a strong used vehicle performance.
So the profits are kind of all over the board, but probably the most pressure is on the Houston market, which is near a double-digit profit drop.
I'm sorry, what was the other part of the question.
Well, when you say trading down, I think these ---+ I am not sure exactly what that means, but my interpretation would be that there are some customers who maybe a year or two ago had they entered the market would have been shopping and buying new and in this situation they are buying used.
That's the way I kind of see it.
No, I think things are actually very consistent in both the energy markets with being sticky, and outside, it's still a good US auto market.
So we're doing quite well in the Northeastern US and California and outside of the Gulf Coast in the Southeast.
So I think the market is still generally strong on an absolute basis, but there's a lot of reaction to the fact that it is not growing like it has been the last four years.
But I think there's still a lot of strength outside the energy markets.
Let me add to that, kind of specific on the SG&A, I think we made good progress on the advertising costs.
Done a good job controlling there.
The areas of opportunity for us, as <UNK> alluded to, is there is a lot of ancillary costs that come with having too much inventory.
And kind of the big thing that got to our flow through, normally we would have expected 40%-ish flow through, and we clearly didn't deliver that this quarter, is there's a lot of higher insurance costs that go with having that much inventory and there's a lot of additional cost right now around loaner vehicles.
Because of everybody we've got to have in loaners as we are awaiting some of these parts coming in on the safety recalls.
So we think there actually continues to be more opportunity to leverage SG&A as we go forward in the year, but those were kind of the two headwinds, if you will, for this quarter.
<UNK>, this is <UNK> <UNK>el.
Basically, we saw a similar pattern on the inventory this year as you would last year.
Traditionally, you are going to build a bit of inventory in January and February as you come into the spring selling season, so day supply at the end of February 2016 was at 94-day supply.
Same as we were in February of 2015.
We just didn't sell down quite as much in March as we did March of last year.
So some of it was I think maybe this Easter weekend shift was maybe a piece of it, and some of it is just there's been some extra supply, as <UNK> has explained.
So I think that's really kind of the story on day supply.
Our assumption on margins is I think we've done a good job of finding stability and we are thinking that [1750] level is the assumption that I would use for the rest of the year on new margins.
I can't give you full-year cash flow, because that would imply a profit forecast, which we are not going to do.
I'm happy to work with you on the CapEx piece, but overall cash flow has got to have a profitability assumption and we are not going to get into that game.
Good morning.
Well, the key growth metrics we gave you were same-store, which was kind of 13%-ish.
It seems that it takes us quite a bit longer to integrate and improve the performance of our acquisitions in the UK.
So we are continuing to get leverage from the Audi dealerships we bought several years ago.
And then about 15 or 16 months ago, we bought three BMW dealerships up around the Cambridge area.
And those are starting to produce much better now.
So it's really harvesting some of the previous investments we made.
This new acquisition is only 60 days old and it has a lot of potential and probably half the stores already perform very well, and I imagine it will take a year or two to get the other ones up to the level that we will be able to achieve.
But we are basically continuing to improve the existing businesses we have had.
And some of them we have had for one or two years, and they are still starting to pay dividends.
This is <UNK> <UNK>el.
I think those levels are kind of what I would continue to model.
We will continue to focus on growing same-store revenue, but there are some structural differences, reimbursement rates on warranty, things like that just make it a bit of a different business in the UK than the US.
And one thing I guess I seldom mention is we actually have four Ford businesses in the UK and they have continually performed better and better than even though most in the UK, I believe we had a record first quarter with those Ford businesses.
They continue to improve also.
And there's ---+ that by nature is a lower-margin business, but it's actually ended up being a very, very valuable business for our Company.
This is <UNK> <UNK>.
In the UK, Mark [Bridgelin] has done a marvelous job of trying to integrate some of our programs; not every product is applicable in the UK.
As far as Brazil, it is certainly an area of opportunity for us, and it's something that we know we can improve on and there's measures in place to get that done with the operating team there.
Oh, sure.
In fact, one of the best businesses is in our markets are used pickup trucks.
In fact, the biggest issue there is they are always in short supply.
You don't see a lot of leases on pickup trucks.
Pickup trucks don't get pumped into rental car companies.
People who buy trucks keep them a long time.
So the used truck business is always good and very price sensitive in Texas and Oklahoma.
Well, I would say very difficult in the volume brands.
But we are somewhat fortunate, our brands tend to be luxury brands and so that loyalty is good.
And there's not a lot of aftermarket expertise in repairing BMWs and Land Rovers and such.
And then our volume brands are more and more tending to be Toyota and Honda.
And just like the US, those customers are quite loyal in terms of service, retention and brand loyalty to the dealership.
So if we were selling the big four volume brands, which we are not, Fiat, Volkswagen, Ford and General Motors, I believe service retention would be a much more challenging proposition in Brazil.
No, some of that is the exchange rate impact and some of that is the mix piece that <UNK> alluded to, the growth in the Ford stores.
There is some margin pressure on the luxury brands.
You've got a similar issue going on in the UK that you have in the US, there's oversupply.
It's one of the areas where BMW and Audi have diverted some of their production that was headed for either China or Russia.
So there is a piece of that, but I don't think it's as severe as what the US dollar impact would look like because of the FX impact.
Thanks, everyone, for joining us today.
We look forward to updating you on our second-quarter earnings call in July.
Have a good day.
