Group 1 Automotive, Inc.

Good morning, ladies and gentlemen. Welcome to Group 1 Automotive's 2021 First Quarter Financial Results Conference Call. Please be advised, today's conference call is being recorded. At this time, I'd like to turn the conference call over to Mr. Pete DeLongshaw, Group 1 Senior Vice President of Manufacturer Relations, Financial Services, and Public Affairs. Please go ahead, Mr. DeLongshaw.

Thank you, Jamie. 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 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 harboring 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 and future peers to differ materially from forecast results. Those risks include, but are not limited to, risks associated with pricing, volume, conditions of markets, adverse developments in the global economy, as well as the public health crisis related to COVID-19, and resulting impacts on demand for new and used vehicles and related services. Uncertainty regarding the duration and severity of COVID-19 and its impact on U.S. and international authorities to ease current restrictions on various commercial and economic activities. Uncertainty regarding the timing, pace, and extent of economic recovery in the U.S. and elsewhere from the unknown current and future impacts of COVID-19 and unknown future impacts of oil producers and the effects of such can have on travel, transportation, oil prices, which in turn will likely adversely affect demand for our vehicles and service. Also, our ability to obtain and inventory desirable new and used vehicles and the impact of supply chain disruptions which may occur from time to time. Also, our ability to maintain vehicle margins and implement and maintain expense controls and maintain sufficient liquidity to operate. Those risks and other risks are described in the company's filings with the Securities and Exchange Commission over the last 12 months. Copies of these filings are available from both the SEC and the company. 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 with me on today's call, Earl Hesterberg, our President and Chief Executive Officer, Darrell Kenningham, our President of U.S. and Brazilian Operations, Daniel McHenry, Senior Vice President and Chief Financial Officer, and Michael Welch, our Vice President and Corporate Controller. I'd now like to take the time to hand the call over to Earl.

Thanks, Pete, and good morning, everyone. I'm pleased to report that for the quarter, Group 1 generated adjusted net income of $103 million. This equates to adjusted earnings per share of $5.57 per diluted share, an increase of 236% over the prior year, and an increase of 170% over the pre-pandemic first quarter of 2019. Our adjusted net income results exclude non-core items of $1.7 million of after-tax disaster pay provided to employees who couldn't work during our February Texas store closures, partially offset by an $800,000 after-tax benefit from legal settlements and a $200,000 after-tax net gain on dealership and real estate transactions. These profit results were particularly impressive given the fact that our Texas operations, which typically represent around 40% of our total revenues, were severely impacted due to a record-setting February winter weather event. Our stores effectively lost about the equivalent of a full week of business. It is likely that vehicle sales were largely deferred into subsequent months, but the available service job hours were permanently lost. Also, the UK remained under lockdown throughout the entire first quarter. With so many restrictions in all our markets in 2020, it was difficult to generate revenue growth. Therefore, the 11.9% increase in our total consolidated revenue in the first quarter was a welcome improvement in our trend line. This improvement was driven by new and used vehicle revenue increases in the US of well over 20% in the first quarter. Of course, we should remember that the pandemic did start to negatively impact traffic and sales during the second half of March last year. But the important fact is that consumer demand for vehicles in the U.S. remains extremely strong and hits an even higher year in March. It is true that sales have and will be hampered to a certain degree by low inventory levels, but this continues to support above average margin levels. Daryl will speak more about our inventory situation shortly. Our after-sales business has suffered throughout the pandemic from less driving and a variety of lockdown conditions in all our markets. In particular, our U.S. business started 2021 very slowly in January but exploded in March. Again, Darrell will provide more detail, but this gives us great confidence that we will enjoy very strong parts and service business this spring and summer in both the U.S. and also likely the U.K. as those facilities are now completely open. In the U.S., we are especially pleased that our service results have now returned to pre-pandemic levels. On a same-store basis, our U.S. total after-sales gross profit increased 3% versus the first quarter of 2019, and customer pay gross profit increased 14% over that same pre-pandemic time period. These are very encouraging signs for continued after-sales improvement in 2021. Daryl will provide more detail on our U.S. results in a moment. Relative to the U.K., mandatory lockdowns began on November 5, 2020, and lasted through the entire first quarter. They have since been lifted as of April 12. Like the U.S., our U.K. operations have shifted heavily to online selling via our Acceleride platform since our showrooms have been closed for five months. Despite not having the benefit of physical sales departments or the ability to conduct test drives, we were able to deliver over 13,000 new and used vehicles during the quarter. Limited new vehicle availability increased our same store new vehicle margins by 160 basis points to 5.6% during the first quarter. Our after-sales margin increased by almost 400 basis points to 58.4% as most service work at our dealerships was heavy repair work as customers chose to defer routine maintenance until after the lockdown. The strong new vehicle and after-sales margins combined with strong cost discipline evidenced by an 1,800 basis point same-store SG&A improvement over last year enabled us to generate a meaningful level of profit in the UK despite closed showrooms. As we were permitted to open showrooms again on April 12th, we've seen very strong sales and service traffic levels back in our dealerships. This gives us a high level of confidence in our UK business during the remainder of 2021. To provide some color on the US and Brazil first quarter performances, I will now turn the call over to Daryl Scanninghack.

Thank you, Earl. A number of factors contributed to our outstanding U.S. first quarter results, mainly new and used vehicle sales growth, after sales growth, and continued strong cost discipline, all of which are a continuation of the trends from the second half of 2020. Compared to the pre-pandemic first quarter of 2019, Our same store new and used unit sales increased by 11% and 5% respectively. This 11% increase in new outperformed the retail industry. U.S. new vehicle inventory levels finished the quarter at 14,500 units, a 34-day supply. We anticipate inventories remaining tight and will continue to adjust our operations as necessary. Our same-store used vehicle unit sales improved sequentially by 14%, along with a 5% growth over the first quarter of 2019. Used inventories remained constrained as well. However, we've made a number of changes in our merchandising, sourcing, reconditioning, and acquisition processes that have resulted in higher velocity and better inventory term. Although we are around record-high monthly levels of 90 units sold cold rooftop in the quarter, we continue to believe there is a great deal of opportunity in used vehicles in our dealerships going forward. The second and most encouraging profit driver was our after-sales performance. Warranty and collision sales were still very depressed in January and February, but we saw improvement in March. Our customer pay business is very strong. As Earl mentioned, Our same-store CP customer-paid gross profit was up 14% versus the first quarter of 2019. This allowed us to grow total after-sales gross profit by 3% versus pre-pandemic levels, despite the significant headwinds and warranty and collision, both of which will reverse in time. We saw a significant expansion in gross profit per repair order in the quarter, offsetting RO decline. In March, traffic counts increased, and our same store customer pay RO count grew 23% versus March of 2020. We foresee after sales continuing to ramp up in the near term. The third major factor driving our outstanding profit performance was continued cost discipline. Our first quarter adjusted SG&A as a percentage of gross profit was 63%. down from 74% in the pre-pandemic first quarter of 2019. Part of the decline is certainly due to higher vehicle margins, which we don't believe to be fully permanent, but a material part of the improvement is due to productivity gains. For example, because of tools like Acceleride, our salespeople are more productive. Because of a higher mix of flat rate techs, our techs are more productive. These examples of permanent productivity gains will allow for us a significant ongoing reduction in our cost structure. I would like to provide another quarterly update on Acceleride, our digital retailing platform. We continued our upward trajectory in the first quarter by selling a record 4,000 vehicles through Acceleride, an increase of 124% over the prior year and 7% of total retail units sold. customers choosing Acceleride continue to close at a much higher rate than our other sources. Additionally, I would like to share with you a number of enhancements we have made or will make soon to the Acceleride platform. First, we've integrated real-time loan payout quotes within the platform. Second, we launched an Android app in addition to our existing Apple app. Third, customers now have the ability to toggle between English and Spanish. And fourth, in addition to be able to reserve a vehicle with a credit card, customers also now have the ability to process down payments for any amount directly through the app. And fifth, over the next couple of months, we will introduce dynamic delivery fees live within the customer workflow. This will introduce delivery fees earlier in the process and include them in the monthly payment calculation based on the customer's delivery address. We're also working through numerous other enhancements and will provide future updates as appropriate. We believe our digital retailing process is second to none in the industry, and we continue making improvements to remain at the forefront of this transformative technology. Turning quickly to Brazil, despite a 7% decline in new vehicle industry sales driven by tight inventories and additional COVID lockdowns, Our team did a tremendous job growing margins and aggressively thinning the cost structure in order to realize a very strong quarterly profit in what is seasonally the weakest quarter of the year. We easily set a record for the most profitable first quarter over the entire eight years of Group 1's ownership and are well-positioned to benefit from a sales rebound coming out of the pandemic. I'll now turn the call over to our CFO, Daniel McHenry, to provide a balance sheet and liquidity review. Daniel.

Thank you, Darrell, and good morning, everyone. As of March 31, we had 83 million of cash on hand and another 245 million invested in our floor plan offset accounts, bringing total cash liquidity to 328 million. There was also another 283 million of additional borrowing capacity on our U.S. syndicated acquisition line. bringing total immediate liquidity to over 600 million. We also generated 157 million of adjusted operating cash flow in the first quarter and 134 million of free cash flow after backing out CapEx. Our rent-adjusted leverage ratio, as defined by our U.S. syndicated credit facility, was reduced to two times at the end of March, leaving plenty of flexibility for capital deployment. On a net basis, which considers all US cash on hand, our leverage was 1.6 times as of March 31. Finally, related to interest expense, our quarterly floor plan interest of 7.6 million with a decrease of 5.3 million, our 41% from the first quarter of 2020. This decline was primarily driven by lower inventory levels and related borrowings. Non-floor plan interest expense decreased by 4.3 million, or 24% from prior year, primarily due to the last year's bond debt refinancing. As a reminder, we continue to manage our interest risk conservatively. We have floor plan swaps averaging 550 million in place through 2026. We also, considering our mortgage swaps and bond debt, over 75% of our debt is at fixed rates. As a result, 100 basis point increase in interest rates would only have an approximate 20 cent negative impact on our annual EPS. Our balance sheet and liquidity position have never been stronger, and we look forward to growing the company through M&A. We are seeing a strong flow of potential deals and anticipate closing or entering into contracts to acquire additional dealerships this year. For additional detail regarding our financial condition, please refer to the schedules of additional information attached to the news release, as well as the investor presentation posted on our website. I will now turn the call back over to Earl.

Thanks, Daniel. Related to our corporate development efforts, we previously announced the March acquisition of two Toyota franchises on Cape Cod that increased our New England platform to 10 stores and will contribute $120 million in incremental annual revenues. We also previously announced the January dispositions of a Cadillac franchise in the Dallas-Fort Worth market area and a mini-franchise in the El Paso market. We've also since completed the termination of a UK Ford franchise in March and the disposition of a Mississippi Kia franchise in April. As Daniel mentioned, we continue to prioritize external growth in our capital allocation process. We're optimistic that we will have beneficial opportunities as the year progresses. This concludes our prepared remarks. I'll now turn the call over to the operator to begin the question and answer session. Operator?

Ladies and gentlemen, we will now begin the question and answer session. To ask a question, you may press star and then 1 using a touch-tone telephone. To withdraw your questions, you may press star and 2. If you are using a speakerphone, we do ask that you please pick up the handset before pressing the numbers to ensure the best sound quality. Once again, that is star and then 1 to join the question queue. We'll pause momentarily to assemble the roster. And our first question today comes from Michael Ward from Benchmark. Please go ahead with your question. Thanks. Good morning, everyone.

One thing that I always seem to miss as it relates to the dealer group is just the resilience of the business model. I'm wondering if you can talk about some of the levers you can pull to keep the profitability at the elevated levels that we've seen over the last few quarters.

Sure, Michael. This is Earl. Yeah, that is a good point, and it does seem to get lost. sometimes in the shuffle. I think by now the 08 financial crisis and then the lockdowns last year, and now we're going to be going into a little tougher inventory situation. This model is extremely flexible. And we have had to learn over the years how to shift our focus. And You know, the real backbone is parts and service, which is starting to bloom again, which is good, because that was really suppressed during the lockdowns, whether it was the UK or the US. People weren't driving as far, and they didn't really feel like going out, particularly for regular maintenance and such. So that is one of the levers we're going to lean on heavily here as the year progresses. and try to offset some of the new vehicle inventory pressure that we're going to see in the next couple of months. And the other thing is used vehicles. And you've seen the whole world jump into used vehicles, obviously. That market is much bigger. The inventories we generally carry are lower on that. And hence, we're able to be responsive and adjust to market pricing conditions, either on the way up or the way down. And then the real key is our ability which many businesses do not have, to flex our cost structure. And so much of our cost structure is people that you've seen we have been able to flex down extremely quickly last March and April, and we've been able to adjust upward as the business returns. So I think those levers are the key levers to our success.

So in the release, you talked about the U.S., parts and service being up 25% in March. What type of, what can we expect for the rest of the year from parts and service? I guess you have easy comps for most of the year.

I'm sorry? I can't tell you a specific number, but we expect good things out of parts and service for the rest of the year. We see the traffic counts building. Our gross per RO is quite good as we've made some adjustments during the pandemic on that. better inspections, better reporting, better selling skills with customers. And we've added over 300 technicians back to our dealership base in the last 12 months. And they're productive technicians. We're approaching this as we want, we're trying to improve the productivity of our shops So very few hourly technicians, which tend to be less productive than flat rate technicians, and that helps us be more productive as a business so we can put more throughput through our footprint. And we expect good things as miles driven continue to increase, and if vehicle supplies do become an issue, people will hold on to their cars and they will be in our shops more often.

So it's reasonable to assume double-digit gains in parts and services for the rest of 2021 anyway.

This is Earl. I don't know if it will get to double-digit or not. The customer pay business is extremely strong. And the chance of that being double-digit in terms of increases is very, you know, very good. But warranty, we don't control. And warranty's been a bit weak. Warranty's been a bit weak in recent quarters. So I don't know how that's going to move around. But the customer pay business is going to be strong this year, I'm quite confident.

In March, it's a smaller piece of our business, Mike. But in March, our collision business came back, and it was almost the same level as last March, just a hair below. So we're seeing that business return as well.

Yeah, it's been collision and warranty, which have been soft over recent quarters, Mike. Certainly good news. Thank you, everyone. Thanks, Mike.

And our next question comes from John Murphy from Bank of America. Please go ahead with your question.

Good morning, guys. I just wanted to follow up on your comments, Earl, in the beginning about the inventory constraints potentially hitting sales. To date, dealers have been doing a very good job, including yourselves, of turning inventory into much faster and not really impairing sales yet. So I'm just wondering what sort of level you think we need to get to on inventory before it actually starts to hit sales. And, you know, what we heard from Ford last night was a pretty dire outlook on the second quarter with some, you know, relative relief sequentially going into the second half of the year. So, you know, is this, you know, constraint really going to be isolated to the second quarter? And then we see some relief in the second half of the year. How are you thinking about this? And and where does it become a real problem on sales?

John, this is Earl. Kind of back to Mike's point he just made, the resilience of our people and the model always amazes me. I've been amazed in the recent months how we've continued to maintain pretty impressive sales levels with declining inventory levels. But it does seem that we'll get to a level as we get into the second half of the second quarter where we're going to be constrained in sales from new vehicle inventory. And I would guess that's going to go into the first part of the third quarter. I really don't know much more about the shipments than you do because I read in the press and so forth. But it's the same on used. We're all of a sudden just moving cars through the shop more quickly than we ever have and maintaining sales rates with with a little more than half of our normal inventory. Also, the OEMs have adjusted, it seems, that the only vehicles they're making are the ones that sell the fastest. So when they come off the truck, they go right to a retail customer. So there's some mitigating things in there that are or prolonging our volume a bit. But yeah, we'll start to get hit, I think, as we get into the latter part of the second quarter. And that'll probably carry into the first part of the third quarter. But as we all know, the biggest companies in the world are all trying to address this problem. So sooner or later, I expect they will.

And a follow-up, Earl, I mean, this is the trillion-dollar question, is that the demand is there. So we're looking at something that's a supply, you know, disruption. So it's not such a scary thing from a macro standpoint, and you've shown the ability to manage through it, you know, very well. So, you know, as you get to the other side of this, and given sort of the record profitability that you've been putting up and the automakers have been putting up, is there the potential from some of the lessons learned here on, you potentially sticking at the dealer level and at the automaker level. We've all been looking at this, and certainly for the last few decades, and saying, hey, this is the way things should be run, and now it's been kind of forced. Do you think some of the lessons are learned here? I mean, absolute profits are higher, so it seems like they should be, but what do you think?

I do think there's lessons learned here, and You know, we're going to make sure that some of the things we've learned carry through, like increased efficiency of salespeople, technicians, and being able to sell more with a lower day supply on used vehicles. In other words, getting them, you know, through our process and system faster. So I'm sure we're going to learn some of those lessons permanently and carry those through. And I think you've heard some of the OEMs talk about about trying to operate with lower inventory. Again, you saw Ford profits yesterday. And, you know, they're obviously in dire straits when it comes to being able to produce vehicles in the second or third quarter. But that wasn't a very bad profit in the first quarter. When these vehicles, you know, are balanced supply and demand, the auto manufacturers make more money. And so I think there will be a material change in the way the distribution network works with the OEMs when the dust settles. I think we'll both be more productive and efficient.

Roger. And then on parts and service, it seems like there's a backlog that's starting to build with deferred maintenance that's going to get released. Is there any friction as that gets released? Meaning, I mean, you've staffed down on technicians. can you staff up reasonably quickly or do you have the capacity to absorb what you think is going to be coming at you? And you'll just get, you know, really strong operating leverage off that return. I'm just trying to understand if there are any, you know, negative or positive surprises here. It seems like it'll be a good thing, but just trying to understand.

John, this is Daryl. We're ready for more business. And there, as it relates to part shortages and, Those tend to be isolated in certain brands, and we can, once those get, and some of that is what's affecting the warranty business right now, and once those get freed, I think you'll see the warranty numbers come back, but we will be able to handle more volume. We're pleased with our progress on our technician rehiring and our four-day work week and the ability to drive capacity, and will continue to be. So we don't have any concerns about that.

Okay. And then just lastly, on page seven of the deck, you know, acquisitions are, you know, the growth strategy are listed, you know, obviously top of list. And it says the first priority for capital is growing through acquisitions. You've been alluding to that, but I mean, you're putting it in black and white. Seems like you started heading in that direction, but there's a lot more room to go, you know, given the pace of acquisitions that you're doing relative to other folks in the industry. When are we going to see that acceleration? You know, are you getting a little bit twitchy because, you know, some of the valuations are getting a little bit on the high side, so it might get harder to do that. But, you know, how should we think about this, and when do we see the sort of lift-off point? You know, and how are you thinking about, or how should we think about the levels that you'll actually execute on?

Yeah, John, this is Earl. I mean, you made the valid points. It's clearly our intent, but I think it's also clear to most people that there's a little bit of a frenzy at the moment with an awful lot of buyers in the market. It's kind of like going to the used car auction when there's too many buyers. You know, the way you come away with the car is you paid more than everybody else. So we're trying to be very disciplined about this. And history tells me we will be successful over time. But it's never good to let money burn a hole in your pocket. So we're going to stay after it. I'm very confident that we'll find things that work for Group 1 and our shareholders. But this is a fairly unique acquisition. market environment. In fact, it's the most unique I've seen in 16 years. So there's a little bit of a frenzy right now, and I'm sure it'll calm down.

Okay. Thank you very much, guys.

Our next question comes from Rick Nelson from Stevens. Please go ahead with your question.

Thanks. Good morning. Congrats on another great quarter. I would like to ask you about the winter storms. What do you think that cost in the quarter? What results might have been, if not for those storms, any way to quantify it?

Rick, this is Earl. We didn't really try to quantify it. It's kind of hard. We did lose a week of business in Texas and Oklahoma, bits of Louisiana, kind of the south central U.S. I expect we picked up most of those car sales You know, if not later in the quarter, we'll get them around this quarter. And, you know, we didn't try to figure out those lost shop hours and what they were for. But, you know, I guess it would be 10 or 20 cents, but we haven't calculated that. And, you know, the business is so dynamic, it's hard to put a number on that.

Rick, Darrell. We studied some of it, and some of those markets that were hardest hit, our vehicle volumes performed quite well for the quarter, and so I don't know that on a total quarter basis it affected us a lot on the variable side, maybe on the after-sales side, as Earl mentioned, because those shop hours are gone forever. The variable side held up very well in those markets.

I'd like to follow up on the UK as well. You know, the quarterly decline, unit decline new, down 26%. How do you think that compared to the overall market and also what you're seeing in April, especially, you know, since the stores reopened April 12th?

Yep. Rick, you picked up on a number that's a little bit of anomaly. We had to change some accounting on some fleet units we sold for an agency basis. So I would say that we performed about in line with the market. And the key in the UK and the US is that there's strong demand. There's strong underlying consumer demand. And I think this is going to be a very strong year in the UK if the OEMs can supply the vehicles. And we're in the same position there. The order take is obviously growing as the customers come back out into the market. But many of these orders are going into the factory cube for the third quarter and fourth quarter. And so that's still settling out. But there is very strong customer demand in the UK as well as the US.

Great. Finally, if I could ask a follow up on Acceleride with the OEMs now launching their own digital strategies. Toyota's got SmartPath. Lexus has their own. You're a big Toyota Lexus dealer. I'm curious how that dovetails with Acceleride and the investments that you're making there.

You know, we've always anticipated that the OEMs would be in this business. And we felt like that was only a natural thing for them to go pursue. And That's one of the reasons that we haven't made Acceleride a marketing brand. It's a digital retailing tool. Our goal is to enable our customers to have a much easier transaction and interface with us. And if and when the OEMs get to a point that their tool is functionally the same We're certainly prepared to do that, and I believe that's where it's headed. And I think they will come up with some great tools and great support to be able to do that. We're ahead of them by a couple of years, and we have more integration on things like finance and used cars and down payments and things like that. So we don't really want to go backwards, but we talk to the OEMs every day, and you just mentioned one of them. We had a meeting with them last week on... on SmartPath and Monogram, and we're not going to shy away from that. We believe that's where that's going to head, and we're prepared for it.

Great. Thanks a lot, and good luck.

Thanks, Rick.

And our next question comes from Rujat Gupta from JPMorgan. Please go ahead with your question.

Great echo Rick's comments and congrats on a very strong quarter. I just wanted to follow up on the capital allocation question. Obviously, it's a tough environment for the bills to get done and with pricing and earnings and everything. But as you progress through the year, you're building cash on the balance sheet. Will you still, will you just get on that cash till the right deal comes through? Do we see some of that being deployed back into buyback? Or, you know, just curious as to when you would like to pull the trigger on that cash. You know, how should we think about the timing of that? And I will follow up.

Yeah, Rajat, this is Earl. Yeah, we have always been very conscious of returning cash to shareholders when we couldn't deploy it to grow the business. So we don't forget that for a single day. But as we have stated, we continue to believe that the best use of our capital at this point in time is to grow the business. So that continues to be our priority. But should we not be able to execute that over some extended period of time, we'll look at ways to return it to shareholders.

Got it. Just on the acquisition front, what kind of assets are you typically targeting? Is it more around the Texas area? Is it more in your region? Where are you seeing most of the valuation of the frequencies? Any comment on that?

Well, we're pretty wide open in terms of geography to expand assets. our company, but we do believe we benefit the most if we can diversify our footprint more from outside of the South Central U.S. Just because of the way the company was founded, we're somewhat concentrated in Texas and Oklahoma, as we discussed when we were mentioning the winter storm. It's best for us if we can diversify our footprint within the U.S. around the Gulf states, outside of the Gulf states, towards the southeast U.S., the east coast, and the southwestern U.S.

Got it. That's helpful. And just as a follow-up on April, you mentioned about the recovery in thoughts and services. you can give us how April has been tracking, you know, on the unit side, you know, both new and used, and also, you know, U.S. versus U.K. Any rough call there would be really helpful.

Rajat, this is Daryl. I'll comment on the U.S., and Earl can comment on the U.K. In the U.S., we're pleased with April on both the new and the used side.

Yeah, in the U.K., obviously, we saw... a massive movement back into our places of business after we were allowed to open our showrooms again. And, of course, in the U.K., the service write-up areas tend to be within the showroom. So we're back to normal business in the U.K., and in the first couple weeks, there's been a lot of customers back out in our businesses.

So in the U.S., I mean, is April – well ahead of 2019 levels as well. I'm just curious as to how the response is tracking.

Well, I would just point you to some of the public forecasts that have been out the last few days on the SAR, and that's probably the guidance I'd give you is what you see publicly there. Rajat?

Got it. Got it. And just lastly, on SG&A to gross, Given the really strong straw to the year and the likelihood of these gross margin tailwinds persisting through the rest of the year, where should we expect the full year if you need to gross your land? Any rough range you could provide?

I think if margins continue at the current level and, more importantly, volumes continue at the current level, I think SG&A will be in line with where we're currently operating.

Got it. Got it. Okay. That's really helpful, and good luck. Thanks. Thanks for the job.

And our next question comes from David Whiston from Morningstar. Please go ahead with your question.

Thanks. Good morning. Going back to inventory and Earl, you talked about everyone's making more money and whatnot, but I'm going to ask you the same thing I've asked all the dealers so far, which is, do you really want more inventory or are you kind of happy with how things are now?

Well, I would say that we're getting to the point where inventory is a problem, if not at this moment, very soon. So ideal for us is about 45 days supply when we mix all of our different brands together. And as you saw, we ended the quarter at a little over 30. And we're actually fine in the 30s. But because it's a big truck market, when you get very far below 30 days of supply, you have trouble having many of the configurations that the truck customers want. And so that's That's where it starts to get a little challenging for some of our brands. Toyota dealerships operated for a decade or more below 30 days, if you go back to the 80s and 90s. And so we're kind of getting back to that where, you know, we sell off the incoming trucks and trains and things. But the truck brands need a little bit more inventory.

Okay, and... somewhat related to that then, is in the U.S., I was just curious how you guys were able to get a 44% increase in new vehicle GPU when the new vehicle ASP was only up 6%. So is that just all a favorable mix shift?

Well, a mix shift may be part of that, but it's basically a supply and demand situation. I mean, that drives margins more than anything else, is when supply and demand are in balance or the favor is demand over supply. That's what drives those higher margins.

Okay. And in the U.K., did you do a lot of home delivery? And was there any big difference in the consumer behavior between Brazil and U.K. consumers, given they both had their stores closed in the quarter?

Well, relative to the U.K., we did an awful lot of home delivery. And the only other place we could legally deliver a car was in our repair shop, which doesn't work out very well. So, yes, we did a lot of home delivery in the U.K. over the last five months.

But in Brazil, is that not really an option?

We do some. Our showrooms have been closed quite a bit in Brazil as well. And so we do what we are selling. The unit volumes in Brazil are quite small, but we are selling a lot of this home delivery.

Last question, I was just curious why you sold the Cadillac store in Dallas, given Texas seems to be a really good market economically right now.

It was a return on investment situation. It just never reached our hurdle rates. It was located within our BMW campus. it wasn't generating enough financial return to be worth the disruption in our site there. Okay, thank you very much.

And ladies and gentlemen, with that, we'll conclude today's question and answer session. I'd like to turn the conference call back over to Earl Hesterberg for any closing remarks.

Okay, thanks to everyone for joining us today. We look forward to updating you on our second quarter earnings call in July.

And, ladies and gentlemen, with that, we'll conclude today's conference call. We do thank everyone for joining. You may now disconnect your lines.