Peter C. Delongchamps - Vice President of Financial Services and Manufacturer Relations Earl J. Hesterberg - Chief Executive Officer, President, Executive Director and Member of Finance/Risk Management Committee John C. Rickel - Chief Financial Officer, Chief Accounting Officer and Senior Vice President.

Elizabeth Lane - BofA Merrill Lynch, Research Division N. Richard Nelson - Stephens Inc., Research Division Brett D. Hoselton - KeyBanc Capital Markets Inc., Research Division David H. Lim - Wells Fargo Securities, LLC, Research Division William R. Armstrong - CL King & Associates, Inc., Research Division.

Good morning, ladies and gentlemen, and welcome to Group 1 Automotive's 2014 First Quarter Conference Call. Please be advised that this call is being recorded. I would now like to turn the call over to Mr. Pete Delongchamps, Group 1's Vice President of Financial Services and Manufacturer Relations. Please go ahead, Mr. Delongchamps..

Earl Hesterberg, our President and Chief Executive Officer; John Rickel, our Senior Vice President and Chief Financial Officer; and Lance Parker, our Vice President and Corporate Controller. Please note that all comparisons in the prepared remarks are to the same prior period, unless otherwise stated. I would now like to turn the call over to Earl..

Thank you, Pete, and good morning, everyone. I'm pleased to announce that due to an extremely strong performance in March, Group 1 earned $31.3 million in the first quarter. This equates to $1.19 per diluted share, a 2.6% increase versus our adjusted results last year.

It is appropriate to compare our results to our adjusted results in 2013, as our Q1 results last year included $7.1 million in onetime costs, primarily associated with the acquisition of our Brazilian business. So on a GAAP basis, our $31.3 million net income represents a 41.5% increase, but on an adjusted basis, equates to a 7.1% increase.

As we noted in our February 18 release, our business was severely hampered by extreme weather during the first quarter, causing store closures, reduced traffic and incremental costs. In total, we lost about 9% of our total available selling days through the 16th of February.

Our businesses in New Hampshire, Massachusetts, New York, New Jersey and Maryland bore the brunt of the lost business, but we also saw multiple closures in South Carolina, Georgia and North Texas, which is very unusual. This is evident in some of our same-store growth metrics, as well as the impact on our cost leverage.

With the severe winter behind us, we expect to return to a more normalized cost leverage for the remainder of this year. Fortunately, the quarter ended strongly, with March delivering an extremely strong sales month across the U.S. and in the U.K.

On a consolidated basis for the quarter, we retailed 37,749 new vehicles, and 26,877 used retail units, driving a $297 million increase in revenue to $2.3 billion. New vehicle revenue rose 14.3%, as the average retail sales price increased $66 per unit. Used vehicle -- retail revenues grew 16.7%, as the average retail sales price rose $174 per unit.

Group 1's new vehicle unit sales mix was 79.4% U.S., 10.7% Brazil and 9.9% U.K. Toyota/Lexus sales accounted for 25.8% of our new vehicle unit sales, while Ford, Honda/Acura and BMW/MINI all represented over 10% of our new vehicle unit sales, while Nissan Infiniti was just below 10% at 9.7%.

New vehicle inventory came down to a 67-day supply, or 34,400 units at the end of the first quarter, compared to a 72-day supply at the end of 2013. Used vehicle inventory stood at 13,700 units, or a 30-day supply, compared to a 35-day supply as of December 31, 2013.

It's not possible to recover much of the parts and service business lost to bad weather, as many of our shops run at or near full capacity. And even with the extensive closures across our network, we delivered strong same-store revenue growth of 6.3% in parts and service. We also generated a 15.4% increase in finance and insurance revenue.

Both of these were important contributors to our 15.1% total consolidated revenue growth, as well as a 5.9% improvement in same-store revenue. Our same-store finance and insurance income per retail unit increased $136 to $1,391.

Relative to our cost performance, on a consolidated basis, selling, general and administrative expenses, as a percent of gross profit, increased an adjusted 80 basis points to 76.2%, primarily reflecting a full quarter of Brazil's results. Total SG&A as a percent of gross profit in the U.S. and U.K. improved 10 and 470 basis points, respectively.

The impact of added costs and lost days from the severe winter weather negatively affected the U.S. SG&A leverage and flow-through. We continue to monitor and adjust our cost structure as we've had in recent quarters to address the ongoing pressure on new and used vehicle margins.

I'll now turn the call over to our CFO, John Rickel, to go over our first quarter financial results in more detail.

John?.

Thank you, Earl, and good morning, everyone. Our net income for the first quarter of 2014 was $2.1 million over our adjusted 2013 results of $31.3 million, and our earnings per diluted common share increased $0.03 from the adjusted prior year results to $1.19.

While no adjustments were made to the first quarter 2014 figures, the 2013 results excluded $7.1 million of net after-tax costs primarily associated with the acquisition in Brazil. As Earl mentioned, severe weather during the first 2 months of the quarter significantly disrupted operations.

While a good portion of the lost vehicle sales business was recaptured during the strong month of March and we were aided by record results from our U.K. operations, the severe weather did have an overall negative impact on the quarter for our U.S. operations. Starting with a summary of our consolidated results.

For the quarter, we generated $2.26 billion in total revenues. This was an improvement of $297 million, or 15.1%, over the same period a year ago and reflects increases in each of our business units. Our gross profit increased $37.6 million, or 12.5%, from the first quarter a year ago, to $338.1 million.

For the quarter, SG&A, as a percent of gross profit, increased an adjusted 80 basis points to 76.2%, and operating margin was 3.1%. The increase in SG&A as a percent of gross profit relates primarily to having a full 3 months in Brazil in the consolidated results versus only 1 month in the first quarter a year ago.

It should be noted that the SG&A in our foreign operations runs relatively higher, mainly due to both the higher cost of real estate and the lack of similar scale advantages we benefit from here in the U.S. Floorplan interest expense increased $1.5 million, or 16.5%, from prior year to $10.9 million.

This increase is primarily explained by a full 3 months of Brazil operations now included in our consolidated results. Other interest expense increased $1.3 million, or 13.8%, to $10.5 million.

This increase is attributable to an increase in weighted average debt outstanding of $122.9 million, primarily explained by additional real estate-related financing, including mortgage borrowings associated with recent dealership acquisitions and an increase in borrowings on our acquisition line.

As a reminder, our consolidated interest expense for the first quarter of 2014 includes incremental noncash discount amortization of $2.8 million, related to our convertible notes. Our consolidated effective tax rate for the quarter of 36.4% is positively affected by country mix, with the U.K. contributing record results, as previously mentioned.

We expect our tax rate to increase to approximately 38% over the remainder of 2014. Now turning to the first quarter same-store results, which now include 1 month of Brazil results from each period. In the first quarter, we reported revenues of $2 billion, which was $111.7 million, or a 5.9% increase, from the comparable 2013 period.

Within this total, new vehicle revenue was up 4.2% and used vehicle retail revenues improved 7.4%. Both finance and insurance, and parts and service, delivered another strong quarter, growing revenues 15.4% and 6.3%, respectively.

Although difficult to quantify, the selling days lost to winter weather did negatively impact these metrics, with the biggest impact being in parts and service. New vehicle revenue increased to $1.11 billion on 3.5% higher unit sales and an increase in our average new vehicle sales price of $239 to $34,087 per unit.

Our used retail revenues improved to $490.9 million on 5% more units and an increase in our average used vehicle retail sales price of $465 to $20,810. F&I revenue per retail unit rose 10.8% to $1,391, driven by increases in both penetration rates and income per contract for most of our major product offerings.

The 6.3% revenue growth in parts and service is explained by increases of 2% in customer pay, 5.2% in warranty, 11.6% in collision and 14.1% in wholesale parts. As a reminder, our parts and service revenues are not impacted by increases in internal business. The revenue associated with internal work is eliminated upon consolidation.

This varies across the sectors. Some of our competitors account for internal work differently. In aggregate, our same-store gross profit grew $15.1 million, or 5.2%, to $304.9 million. Our same-store new vehicle gross profit dollars declined 4.5%. The slightly higher volumes were more than offset by a $150 decline in gross profit per unit to $1,785.

Our used vehicle retail gross profit dollars declined slightly, as increased volume was offset by a $126 decline in gross profit per unit to $1,611. Our F&I gross profit grew $10.4 million, or 15.4%, reflecting unit volume growth in the improved PRU previously mentioned.

Finally, parts and service gross profit grew $8 million, or 6.7%, primarily reflecting the strong revenue growth and a 20-basis-point improvement in margins to 52.8%. For the first quarter, we grew our total gross profit by $15.1 million, while adjusted SG&A expenses rose $11.5 million.

As a result, our adjusted SG&A, as a percent of gross profit, increased 10 basis points to 74.9%, primarily due to the impact of the winter weather, which drove -- added snow removal costs and wage costs for lost days. Our same-store adjusted operating margin remained steady at 3.4%. Turning now to our geographic segments, starting with the U.S.

market on an actual basis. As a reminder, we've rebalanced our U.S. dealership portfolio over the last 12 months, and as a result, acquired a net of 8 franchises, representing additional annualized revenues of approximately $340 million. As a result, our consolidated results are not fully reflective of underlying same-store performance in the U.S.

In addition, the weather impacts were all related to our U.S. operations. Total U.S. revenues grew 6.6% to $1.83 billion, primarily driven by increases of 7.7% in used retail revenue, 6.5% in parts and service revenue, and 5.2% in new vehicle revenue.

The increase in used vehicle retail revenues is fully explained by the 7.7% growth in retail units sold, as the average retail sales price per unit remained unchanged. The increase in our parts and service revenues reflects growth in all areas of the business.

Our F&I revenue growth of 15% reflects the increase in retail vehicle sales volume, coupled with the improved profitability per retail unit, which grew $119, or 8.9%, to $1,458. Total gross profit improved 6.2%, driven by a 6.5% increase in parts and service, as well as the F&I increase that I just mentioned.

For the first quarter, we grew gross profit by $16.8 million, while adjusted SG&A expense rose $12.3 million. As a result, our adjusted SG&A, as a percent of gross profit, improved 10 basis points to 74.7%. Adjusted operating margin for the U.S.

business segment decreased 10 basis points to 3.5%, with both the SG&A and operating margin negatively impacted by the severe weather experienced during the first 2 months of the quarter. Related to our U.K.

segment, we are pleased to announce that we delivered a record March, with profit up nearly 50% from the previous record that was set in the prior year. As a reminder, the months of March and September are by far the most profitable months of the year in the U.K., because that is when the license plates change over to a new numbering sequence.

Total revenues for the U.K. segment were up 44.8% for the quarter. It should be noted that while a portion of this increase is due to the 2 additional months of operating our 4 Ford dealerships acquired in the first quarter of 2013, same-store revenue growth of 29.7% is the main driver of this increase.

New vehicle revenues grew 37.7% on 32.5% more retail unit sales, and an increase of $1,331 in the average sales price per unit to $34,873. Used vehicle retail revenues improved 59% on 58.5% more retail units. Parts and service revenues improved 44.6%, of which 24.4% related to same-store growth.

Our F&I income growth of 67.7% reflects the 42.3% increase in total retail unit sales and a 17.9% increase in gross profit per retail unit to $712. During the first quarter, total gross profit grew 49.9%, reflecting healthy increases across each business segment.

We also leveraged our costs, and adjusted SG&A, as a percent of gross profit, improved 470 basis points to 78.2%. Operating margin for the U.K. business segment improved 50 basis points to 2.2%. Related to our Brazil segment, as only 1 month of activity is reflected in prior year results, all metrics will be discussed on a same-store basis.

On a macro basis, the economy has slowed from the beginning of last year, and Carnival was 23 days later this year, which also served to push business out of the first quarter. For the month of March, we retailed 1,243 new units, compared to 1,491 in March 2013. We also retailed 334 used units, versus 394 units in the prior year.

We generated $54.4 million in total revenues and $6.1 million in gross profit, compared to $71 million and $8.4 million, respectively, in the previous year's period. Our adjusted SG&A as a percent of gross profit was 93.9% in the 1 month, compared to 80% a year ago, while our operating margin decreased 160 basis points to 0.4%.

Seasonally, the first quarter is the weakest in Brazil. In total, we lost money this quarter, but still expect to be profitable for the full year. Turning to our consolidated liquidity and capital structure.

As of March 31, 2014, we had $17.7 million of cash on hand and another $33.6 million that was invested in our floorplan offset account, bringing immediately available funds to a total of $51.3 million. In addition, we had $198.8 million available on our acquisition line that can also be used for general corporate purposes.

As such, our total liquidity at March 31, 2014, was $250.1 million. Year-to-date, for 2014, we have generated $69.7 million of operating cash flow on an adjusted basis. With regards to our real estate investment portfolio, we own $642 million of land and buildings at March 31, which represents approximately 40% of our dealership locations.

To finance these holdings, we've utilized our mortgage facility and executed borrowings under other real estate-specific debt agreements. As of March 31, we had $67.2 million outstanding under our mortgage facility and $278.4 million of other real estate debt, excluding capital leases.

During the first quarter, we used $4.1 million to pay dividends of $0.17 per share, an increase of $0.02 per share over the first quarter of last year. We also repurchased approximately 270,000 shares of our outstanding stock at an average price of $62.74, for a total of $16.9 million.

As of March 31, we had $54.5 million of share repurchase authorization remaining. 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. With that, I'll now turn it back over to Earl..

Thanks, John. Related to our 2014 corporate development efforts, we've previously announced the acquisition of a Ford dealership and Hyundai dealership in Southern California in January. Since then, we opened a new Peugeot franchise in Brazil. We estimate total annualized revenues from these 2014 acquisitions to be $155 million.

We've also been granted 2 additional franchises, both of which we expect to open late next year, a Nissan franchise in Austin, Texas and a Land Rover franchise in Brazil. We will provide annualized revenue estimates when we announce the opening of these dealerships.

We also disposed of a franchise in April, a Hyundai franchise in New Orleans, Louisiana with annualized revenues of $20 million. I'll now turn the call over to the operator for your questions.

Operator?.

[Operator Instructions] Our first question comes from John Murphy, Bank of America Merrill Lynch..

This is Liz Suzuki on for John. In February, you had estimated a $0.15 to $0.20 negative EPS impact due to lost selling days for weather.

How much of that, if any, do you think was recaptured in March? Or do you think that your earnings would have been closer to $1.34 to $1.39 if January and February hadn't been so severe?.

Yes, Liz. This is John Rickel. We certainly did do better in March, I think than what we'd anticipated when we put that release out in February. Some of that definitely was recaptured, the business that got pushed out.

If I had to give you a rough estimate, I would tell you that I think the weather ended up, net, probably impacting us by about $0.10 in the quarter..

Great. And regarding recalls, in the Toyota recall back in 2010, your parts and service operations got a pretty nice boost in same-store sales volume and gross margin. Now we have another Toyota recall that's about 3x the size of that 2010 recall and Group 1 has the largest exposure to Toyota of the public dealers.

So should we expect to see another short-term boost in parts and service for recalls on top of the underlying improvement in UIOs?.

This is Earl. I think it will certainly contribute to what's already a strong business. But I believe, in this case, the cars are a bit older and that there may not be the same financial benefit per unit. But it's certainly a positive factor. I think the overall quality, however, of Toyota vehicles on the warranty side has improved somewhat also.

So there's a couple of moving pieces within the Toyota business that may both show up in warranty..

Okay. And I'm just going to squeeze in one more quick one. On your cost structure in Brazil, the SG&A as a percent of gross profit was obviously much higher than the overall business, and seasonally, a lighter quarter there in a structurally higher-cost region.

But what are the biggest opportunities in Brazil to cut costs? And is there any low-hanging fruit that can improve the cost structure over the next year or so?.

Yes, Liz. This is John. We're very focused on working with our Brazil team. And clearly, as you indicate, basically, the numbers I quoted were for 1 month, which was a very light volume month because of where Carnival fell, so that kind of distorts it. But the cost areas are similar to what we would have here in the U.S.

It's in personnel, there's probably a little bit in advertising, though advertising isn't as big a part of the equation down there. And then it's in outside services, are the primary areas that we're focused on. And beyond that, even though it's not an SG&A item, we also think there is some pretty healthy opportunities in floorplan interest expense..

The next question comes from Rick Nelson at Stephens..

The U.S. has performed well, particularly of late, as has the U.K. Brazil, obviously more challenging.

Can you discuss the outlook for sales in each of the 3 markets?.

Let me begin, Rick, this is Earl, with the U.S. We had a projection before the year started of 16.3 million units for the U.S. industry and I really don't see any reason to change that. I still think that's a good number and a reasonably significant growth over last year's 15.6 million. So I think the U.S. market is still quite solid.

I know a lot of us got skittish with the bad weather in the first 45 days of the year, but it seems that the underlying trend is still one of growth. So that's solid. The U.K.

industry continues to kind of defy logic, particularly given all the economic issues that have been on the continent in the last few years, even though the continent's starting to bounce back a little bit. And the nice thing about the U.K.

is that it's been driven by the retail market increase, not the fleet increase, and half of that market or thereabouts is fleet. So we would see the same percentage year-over-year increase in the U.K. this year as last, but you can tell from the first quarter in the March plate change, it's still -- there's still some growth going on in the U.K.

So we're still optimistic about the U.K. Brazil, in the first quarter this year, Brazil is very difficult for anyone to predict in any way, whether it's politics or GDP or commodity prices and so forth. In the first quarter, the Brazilian market was down a couple of percent, 2% or 3%.

In March, it was down 15%, because as John mentioned, there was a Carnival shift and that messed up March this year, where some of those sales, I guess, were moved from February -- from March into February. There's also a presidential election, there's all these, this bit about Olympics and World Cup. So Brazil is very, very choppy.

But I think the market is not strong. I think the economy is flat at best and auto sales are probably less than flat. But our business is a little different from the typical auto business in Brazil because there's 4 big brands there that dominate the market.

They also have enough muscle to create sales that maybe shouldn't be sales, whether it's rental cars or other kinds of push tactics. Our brands are smaller brands, Toyota, Nissan, BMW and Land Rover. So we can't outperform the market, so we're mostly concentrated on our business and getting it rationalized and strong.

I think there is no opinion that the Brazilian auto market is going to be strong in the foreseeable future..

And Earl, is there anything structural over there that would challenge you on the SG&A side to get that more in line with the volume declines and the margin pressures in Brazil?.

The challenge, I don’t know that it will prevent us, but one of the more frustrating things is a lack of a single DMS provider that's available in that market. Computer systems, like we use ADP in the U.S., there is no dominant provider.

What we're concentrating on right now is getting a standard chart of accounts, which is the same thing we did in the U.S. many years ago, so we have apples-to-apples cost reporting across all of our brands and businesses, which we're starting to make some progress on. So the lack of IT support is one of the bigger challenges.

But at the end of the day, we will benefit from a little bit more scale there in terms of selling more cars and in anything we can do to grow the business and in having more of a management process to control costs, like we use in the U.S. and the U.K. It's more challenging, but clearly we believe it's doable..

Yes, Rick. This is John. The only other structural thing I'd mention is that we lease all of our property there. So that kind of gives you just a higher cost base to begin with and maybe a little less flexibility..

Can I turn to the -- if I could squeeze in one more on the SG&A.

As I look at the consolidated 76.2% ratio, the same-store SG&A, 74.9%, is that acquisitions that are coming in that are less efficient and some opportunities there from an SG&A point?.

Yes, yes. Basically, I mean, that's the main difference, Rick..

The next question comes from Brett Hoselton at KeyBanc..

Wanted to talk about 2 questions here. First, can you maybe go into a little bit more detail on gross profit throughput for the quarter? I calculated a fairly low number. Maybe my calculation is incorrect.

But what kind of a number are you looking at? But then secondly, can you talk about maybe some of the drivers for what appears to be a lower gross profit throughput?.

Yes, Brett, this is John Rickel. You're right. I mean, we were not satisfied with the throughput, but it was largely driven by the impact of the weather. We certainly paid wages on days when we had stores closed. We had higher snow removal costs. You didn't have the gross generation from parts and service.

So basically, I think a lot of it was driven by that. When I parsed out the impact of the weather, I'd tell you, kind of the $0.06 of that earnings impact that I quoted to Liz, it was really on the cost front. And if you adjust for that, you're kind of more into the 40%, 45% flow-through that you would normally expect from us..

Okay.

And then as we think about the outlook -- changing gears, as we think about the outlook for acquisitions, can you talk a little bit about the current environment, whether it be the deal flow relative to where we were maybe a year ago, and valuation relative to where we were maybe a year ago, have things improved, deteriorated, favorable, unfavorable?.

This is Earl. I think, overall, there are still a lot of sellers in the market. In fact, maybe even more this year than last year.

I think part of that is motivated by the recognition that some of these franchise values have peaked, or more than peaked, due to market share trends and things like that and also a lot of capital expenditure requirements in a lot of brands that have recovered after the recession.

So I think there is probably as many or more opportunities as past years. I think the pricing is more challenging than ever, to get something that works, based on looking at the future 3 years instead of the past 3 years. The sellers look at the past, the buyers look at the future.

And so I think there'll be more opportunities for everyone in our sector, but I think that they become increasingly difficult to put together..

And then can you just talk briefly about kind of gross profit per unit trends in the U.S. in new and used. They've kind of gotten a little softer here -- again here in the first quarter.

What are your thoughts there? What are the primary drivers? And then secondly, when do these bottom out? What's your outlook there?.

Well, I think there is still extreme pressure on new vehicle margins, particularly in the volume brands, and even within that, the import volume brands. We continue to try to fight that.

We've been working to improve our margins on the new vehicle side, but I have to tell you we haven't done very well, and it's just highly competitive out there right now. I think the luxury brands still do reasonably well. And to a lesser degree, the bigger vehicles, such as in small-sized trucks and SUVs.

But it's still very difficult and I don't see any change on the new vehicle margin pressure. Used vehicle margins, I don't think we did a particularly good job in the first quarter. But again, much of that came from the Eastern half of the country.

After we had 45 days of dreadful sales, we started to really move out a lot of our used vehicle inventory. We keep a 30-day supply and we had a lot of aging vehicles. So I think we retailed some at margins that we wouldn't normally. And we also wholesaled more than we normally would.

And to give you some flavor for the pressure we felt in the East Coast in the first quarter, we had a decent same-store new vehicle sales increase in the first quarter, but the Eastern half of the U.S., even after a great March, was still down double digits in the same-store new vehicle sale.

And in New York and New Jersey, we were down for the quarter 25%. That was after a good March. So when your activity backs up like that, it really damages your business, which is what we were concerned about when we made our announcement in mid-February..

The next question comes from David Lim at Wells Fargo..

So the question that I have is momentum from March through April. Our channels are basically saying that it hasn't really petered out going into April.

I mean, can you sort of comment on how April is sort of trending for you guys?.

Well, I don't want to make any specific comments about our business, but my general observations and what I read in the press and hear from everyone and I don't have anything that would make me feel differently, is that April is very consistent with what we experienced in March and that's also what we experienced before the problems in January and February.

So I think that your observation is similar to mine and that is that the underlying demand for new and used vehicles in the U.S. is still pretty strong, on a growth trend..

And then when we talk about the new vehicle gross margin pressure, how much of that is -- or if you could bucket that, how much of that is due to consumers being better informed about invoice prices versus, let's say, incentive actions from the OEMs and whether it be a stair-step or volume bonus?.

That is a brilliant question, and I don't know, but those are the 2 factors. I guess I'd just simplify it and say it's 50-50..

50-50..

It's just the extreme pressure from market share from all the OEMs, and that includes the luxury brands. And you do have -- you have a much more transparent marketplace nowadays with the digital media..

And then, finally, my last question. Earl and John and Pete, when it comes to the UIOs, are we going to see like double-digit growth relative to your same-store parts and service.

I know that you guys said roughly 6%, 7% last quarter and I was thinking as the UIO numbers consistently grow, I would think that it would start materially outpacing, let's say, your used vehicle or new vehicle retail sales on a same-store basis?.

David, yes, we get that question about double digit all the time..

Yes, I'm sure you do..

I can't quite bring myself to mouth that with all of you on the call. But I would expect an above average performance for us in the coming quarter. And we've had pretty powerful comps for a long time. I did look back and notice we had an 8.8% growth in the second quarter last year in parts and service.

So I get a little bit nervous about piling 8% and 9% on top of 8% and 9%, but that is still clearly a strong part of our business model at the moment. And we did lose parts and service business in the first part. There's no doubt about it.

And you can only have so many loan cars and so many hours and you can sell so many service days, so many technicians. So we definitively lost some business in Q1 in parts and service..

[Operator Instructions] And our next question comes from Bill Armstrong at CL King & Associates..

Forgive me if you addressed this already, I missed a little bit. But U.K., your SG&A percentage had a huge improvement, 470 basis points.

I was wondering if you could just run through the drivers of that?.

Yes, Bill, this is John Rickel. I mean, the biggest piece is just driven by the growth of the business. We had huge increases in revenues and gross profit generated and the guys were able to do a good job controlling costs. They didn't have to add it in as fast as they grew the top line and we really started to lever.

One of the things we've been hampered with over there is just not enough scale, and as we've added stores and now the market is starting to rebound, we're finally starting to get enough scale that we can lever that growth. And that's really what the team delivered, which is a fabulous result in the first quarter for us..

To what extent was that improvement driven by having a full quarter of those 4 Ford dealerships under your belt?.

Yes, that was a small piece of it. The bigger piece was just the overall same-store growth with the existing stores and being able to lever that..

Yes, the Ford stores are very good performers. But the gross margins on the Ford business are not what they are in Audi and BMW business. So when you're looking at SG&A as a percent of gross, Ford inherently isn't going to give you a big mix benefit when you look at SG&A as a percent of gross, because it's a volume brand..

So it sounds like this improvement sounds pretty sustainable then..

Yes, we think so..

Yes..

At this time, we show no further questions..

All right, well, thank you..

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

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect..