Group 1 Automotive, Inc. (GPI) Q1 2021 Earnings Report, Transcript and Summary

Good morning, ladies and gentlemen. Welcome to Group one Automotive's 2021 First Quarter Financial Results Conference Call. [Operator Instructions] At this time, I'd like to turn the conference call over to Mr. Pete DeLongchamps, Group 1's, Senior Vice President of Manufacturer Relations, Financial Services and Public Affairs. Please go ahead, Mr. DeLongchamps.

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 one 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. 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 the 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 an 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 an inventory desire for 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 in our 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; Daryl 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 one 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 noncore 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 shop 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 U.S., 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 hit 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 aftersales 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 and February, but exploded in March. Again, Daryl, 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 UK 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 aftersales gross profit increased 3% versus the first quarter of 2019, and customer paid gross profit increased 14% over that same pre-pandemic time period. These are very encouraging signs for continued aftersales improvement in 2021. Daryl will provide more detail on our U.S. results in a moment. Relative to the UK, 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 UK 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 aftersales 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 aftersales 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 12, 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 our U.S. and Brazil first quarter performances, I will now turn the call over to Daryl Kenningham.

Thank you, Earl. A number of factors contributed to our outstanding U.S. first quarter results, namely, new and used vehicle sales growth, aftersales 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, of 34 days supply. We anticipate inventories remaining tight and we'll 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 remain 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 return. Although we are around record high monthly levels of 90 units sold core 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 aftersales 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 pay gross profit was up 14% versus the first quarter of 2019. This allowed us to grow total aftersales gross profit by 3% versus pre-pandemic levels, despite the significant headwinds in 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 declines. In March, traffic counts increased and our same-store customer pay RO count grew 23% versus March of 2020. We foresee aftersales 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 our mix, the 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 payoff 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 of 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, Daryl. And good morning, everyone. As of March 31, we had $83 million of cash on hand and another $245 million invested in our floorplan 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 which reduced to two times at the end of March, leaving plenty of flexibility for capital deployment. On a net basis, which considers all U.S. cash on hand, our leverage was 1.6 times as of March 31. Finally, related to interest expense, our quarterly floorplan interest of $7.6 million was a decrease of $5.3 million or 41% from the first quarter of 2020. This decline was primarily driven by lower inventory levels and related borrowings. Non-floorplan 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 floorplan swaps averaging $550 million in place through 2026. We also are considering our mortgage swaps on bond debt, over 75% of our debt is at fixed rates. As a result, a 100-basis point increase in interest rates would only have an approximate $0.20 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 ten stores and will contribute $120 million in incremental annual revenues. We also previously announced the January dispositions of the 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 the 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 and 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. [Operator Instructions] 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. Yes, that is a good point. And it does seem to get lost sometimes in the shuffle. I think by now the 2008 financial crisis, and then the lockdowns of 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 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 U.S., people weren't driving as far and they didn't really feel like going out, particularly for regular maintenance and such. So that is when 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 have 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 can we expect for the rest of the year from parts and service? It should have easy comps for most of the year? I'm sorry?

Mike this is Earl. 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 for 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 are about three – 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 is 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.

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

Yes, 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, very good. But warranty, we don't control and warranty has been a bit weak. Warranty has 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. It was almost the same level as last March. Just the [indiscernible] so we're seeing that business return as well.

Yes. It's been collision and warranty, which had 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. Just wanted to follow-up on your comments, Earl, in the beginning about the inventory constraints potentially hitting sales. To date, the dealers have been doing a very good job, including yourselves, of turning inventory much faster and not really impairing sales yet. So I was just wondering what sort of level you think we need to get to on inventory before it actually starts to hit sales. And what we heard from Ford last night was a pretty dire outlook on the second quarter with some relatively sequentially going into the second half of the year. So is this 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 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 in 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 same on use. We're all of a sudden, just moving cars through the shop more quickly than we ever have and maintaining sales rates with a little less or 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 are some mitigating things in there that are prolonging our volume a bit. But yes, we'll start to get hit, I think, as we get into the latter part of the second quarter. And that will 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 the demand is there. So we're looking at something that's a supply disruption. So it's not such a scary thing from a macro standpoint, and you've shown the ability to manage through it very well. So 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 this higher throughput with lower inventory, 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 we're going to make sure that some of the things we've learned carried 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 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 trying to operate with lower inventory. Again, you saw Ford profits yesterday. And they're obviously in dire straits when it comes to being able to produce vehicles in the second and third quarter, but that wasn't a very bad profit in the first quarter. When these vehicles 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.

Got you. And then on parts and service, it seems like there's a backlog that's starting to build the 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 really strong operating leverage off that return? I'm just trying to understand if there's any negative or positive surprises here? It seems like it will 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 parts shortages, those tend to be isolated in certain brands. And – but 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 we'll continue to be. So we don't have any concerns about that.

Okay. And then just lastly, on Page 7 of the deck, acquisitions or the growth strategy are listed, obviously, top of list. And this is 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. It seems like you started heading in that direction, but there's a lot more room to go, given the pace of acquisitions that you're doing relative to other folks in the industry. Just when are we going to see that acceleration? Are you getting a little bit twitchy because some of the valuations are getting a little bit on the high side. So it might get harder to do that. But how should we think about this? And when do we see the sort of lift off point? And – I mean what – how are you thinking about – how should we think about the levels that you'll actually execute on?

Yes, John, this is Earl. It's – 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 frenzy at the moment with not a lot of buyers in the market. It's kind of like going to the used car auction. When there's too many buyers and on the way you come away with the cars, 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, and I'm very confident that we'll find things that work for Group one 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 will calm down.

Okay, thank you very much guys.

Our next question comes from Rick Nelson from Stephens. 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 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. If not, later in the quarter, we'll get them already this quarter. And we didn't try to figure out those lost shop hours and what they will work, but I guess it would be $0.10 or $0.20, but we haven't calculated that. And it's – the business is so dynamic, it's hard to put a number on that.

Rick, Daryl. We studied some of it in some of those markets that were hard to stand, our vehicle volumes performed quite well for the quarter. And so I don't know that on a total quarter basis, that affected us a lot on the variable side, maybe on the aftersales side, as Earl mentioned, because those shop hours are gone forever. The variable side held up very well in those markets.

Great. Great. I'd like to follow-up on the UK as well. The quarterly decline, unit declined new, down 26%. How you think that compared to the overall market? Also what you're seeing in April, especially since the stores reopened April 2012.

Yes. Rick, you picked up on a number that's a little bit of anomaly. Our – we had to change some accounting and on some fleet units we sold for an agency basis. So I would say that we – I would say that we performed about in line with the market. And the key in the UK. and the U.S. is that there's strong demand. There's strong underlining – 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 U.S.

Great. Finally, if I could ask a follow-up on Acceleride. With the OEMs now launching their own digital strategy. Toyota has got SmartPath, Lexus has their own big Toyota Lexus dealer. I'm curious how that dovetails were Acceleride that the investments that you're making there?

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, Rick. And I think they will come up with some great tools and great support to be able to do that. And 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 SmartPath and Monogram. And we're not going to shy away from that. We don't – 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 Rajat Gupta from JPMorgan. Please go ahead with your question.

Great, congrats on a very strong quarter. I just wanted to follow-up on the capital allocation question. Obviously, it's the top environment for the used to get done and the pricing and earnings and everything. But as you progress to the year, you're building cash on the balance sheet. Will you still – will you just sit on that cash till the right deal comes through? Or do we see some of that being deployed back into buybacks? Or just curious as to when you would like to pull the trigger on that cash? Like how should we think about the timing of that? And then I have a follow-up.

Rajat, this is Earl. Yes, we have always been very conscious of returning cash to shareholders and 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. And just on the acquisition front, like what kind of assets are you typically targeting? Is it more around the Texas area? Is it more in your regions? Where are you seeing most of the valuation discrepancies? Any color on that?

Well, we're pretty wide open in terms of geography to expand our company, but we do believe we benefit the most if we can diversify our footprint from 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. So it's best for us if we can diversify our footprint within the – within the U.S., around the Gulf states outside of the Gulf states toward the Southeast U.S., East Coast, in the Southwestern U.S.

Got it. Got it. And just if I could follow-up on April. You mentioned about the recovery in parts and services. Any color you can give us how April has been tracking on the unit side, both new and used and also U.S. versus UK? Any rough color there would be really helpful?

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

Yes. In the UK, 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 UK, the service write-up areas tend to be within the showroom. So we're back to normal business in the UK. And in the first couple of weeks, there's been a lot of customers back out in our businesses.

Got it. So in the U.S., I mean, is April well ahead of 2019 levels as well? Just curious as to how those comps are tracking?

Well, I would just point you to some of the public forecasts that have been out the last few days on the SAAR, 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 start to the year the likelihood, I think the gross margin tailwinds persisting through the rest of the year. When should we expect the full year SG&A to gross to land? [ph] Any rough range you could provide? That's all I had.

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 very helpful and good luck. Thanks.

Thanks, Rajat

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 talk 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 little over 30. And we're actually fine in the 30s. But when – because we're – 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 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 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 oversupply, that is – that's what drives those higher margins.

Okay. And in the UK, did you do a lot of home delivery? And was there any big difference in the consumer behavior between Brazil and UK consumers, given they both have their source lows in the quarter?

Well, relative to the UK, 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 were – we did a lot of home delivery in the UK over the last five months.

But in Brazil, is that not really an option? Or...

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. We are selling a lot of this home delivery.

Okay. And then last question. I was just curious why you sold the catalog store in Dallas, given Texas seems to be a really good market economically right now?

Well, it was a return on investment situation that just never reached our hurdle rates. So – and it was located within our BMW campus. So it wasn't generating enough financial return to be worth a 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, 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 will conclude today’s conference call. We do thank everyone for joining. You may now disconnect your lines.