Group 1 Automotive, Inc. Aktie

Good morning, ladies and gentlemen. Welcome to Group 1 Automotive's First Quarter 2026 Financial Results Conference Call. Please be advised that this call is being recorded. I would now like to turn the floor over to Mr. Peter DeLongchamps, Group 1's Senior Vice President, Manufacturer Relations and Financial Services. Please go ahead, Mr. DeLongchamps.

Thank you, Jamie, and good morning, everyone, and welcome to today's call. The earnings release we issued this morning and a related slide presentation that includes reconciliations related to the adjusted results that 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 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, inventory supply, conditions of the market, successful integration of acquisitions, and adverse developments in the global economy and resulting impacts on demand for new and used vehicles and related services. 

Those and other risks are described in the company's filings with the Securities and Exchange Commission. 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 are Daryl Kenningham, our President and Chief Executive Officer, and Daniel McHenry, Senior Vice President and Chief Financial Officer. I'd now like to hand the call over to Daryl.

Thank you, Peter. At Group 1, we pride ourselves on performing effectively in challenging times. We successfully navigated economic recessions, the COVID pandemic, and the CDK outage in 2024. We focus on what we can control, and by remaining a pure-play retailer, we minimize distractions and remain focused on what we feel are our core competencies. 

We estimate that Q1 2026 weather impacted our results by about $7 million in gross profit, driven largely by our after-sales business. Important to note is that Group 1 typically pays our employees during weather closures. And in some markets, our stores were closed for as long as a week this year. 

In the first quarter of 2026, we continue to focus on our strengths, where our performance did not meet our expectations. We acted promptly to address those issues, and I will provide further details on those areas later in my remarks. 

In the U.S., our new vehicle margins remained robust at over $3,300 per car, exceeding $3,250 for the third consecutive quarter. We saw sequential improvement in used vehicle PRUs and a $95 same-store year-over-year increase in adjusted F&I PRU. Two years ago, we introduced a virtual F&I process in our U.S. stores, giving customers the opportunity to conduct their transactions with a virtual agent. This innovation is now installed in 1/3 of our U.S. stores, doing 20% of our deals in those stores. 

We're very pleased with the results of virtual F&I. Our PRU results are strong. Transaction times have improved, improving customer convenience and the overall experience. Thus far, customer feedback is very positive. In addition, compensation costs are lower than compared to our in-store transactions. We anticipate continued growth in virtual F&I through the remainder of this year and into 2027. 

In after-sales, we're committed to setting ourselves apart. This quarter, we increased same-store customer pay gross profits by nearly 6% -- and we're pleased that in our U.S. business, our customer pay repair order count rose by 2.5%. Our growth in after-sales is driven by marketing initiatives utilizing artificial intelligence, vertically integrated customer data management, decreased technician turnover, completion of our workshop air conditioning project, and the addition of 130 new technicians on a same-store basis. 

Turning to a progress update on our Group 1 U.S. store rebranding initiative. We successfully completed the rebranding of half of our U.S. stores and anticipate being complete by the end of the year. Our team is actively gathering insights from each converted market, allowing us to refine our approach and apply our learning as we go. In the long term, we believe rebranding will improve the effectiveness of our marketing investments and drive greater customer retention, particularly as we focus on engaging households under the Group 1 brand, especially in cluster markets. 

Our U.K. operation is demonstrating notable progress across key segments. New vehicle margins remained steady year-over-year, while same-store volumes increased 2%. Same-store used volumes rose nearly 5%, accompanied by sequential PRU improvements. F&I continued its positive trajectory, up year-over-year and sequentially on a same-store constant currency basis. 

Our U.K. parts and service business continues to accelerate, increasing 20% year-over-year in same-store gross profit, and customer pay increased 18%. We're applying many of the same principles we use in our U.S. business, opening our workshop schedules, expanding our hours, pricing our maintenance offerings on the aftermarket competition, eliminating diagnosis fees, and increasing capacity by hiring technicians. 

Turning to our U.K. SG&A performance. We incurred $3 million in incremental costs due to government-mandated national insurance and minimum wage increases. Without this headwind, we improved our leverage, but we continue to focus on further efficiency there. In the U.S., SG&A performance did not meet our expectations. 

Currently, consequently, in early April, we implemented cost reduction measures in our U.S. business, cutting our headcount by nearly 700 full-time employees and reducing SG&A costs by approximately $14 million through contract and vendor elimination. We expect that these efforts will remove $50 million of annual costs from our U.S. operations, which will return our SG&A leverage to a more acceptable level. 

In both markets across all areas of our business, we continue to look for ways to leverage technology, including artificial intelligence, to improve our returns. Many of these investments are still in the early stages, but they are beginning to demonstrate real benefits. AI can support customer acquisition and retention, enhance inventory optimization through more informed sourcing decisions, drive efficiencies by digitizing processes to reduce SG&A and put more consistency and performance across all of our rooftops, a key strategic focus for Group 1. We will continue to drive these efforts and look forward to sharing more details in the future.

In the first quarter, we also continued our commitment to disciplined capital allocation, particularly in M&A and share buybacks. We divested 2 Mercedes-Benz dealerships in California. These stores were high-cost operations with significant real estate and operating constraints. In the U.K., aligned with the Volkswagen Group's ideal network plan, we acquired one Skoda and 2 Volkswagen dealerships while also disposing of one underperforming Volkswagen and one underperforming Skoda dealership. And in the U.K., we finalized a framework agreement with Chinese OEM Geely, and we will open 3 Geely dealerships in Q2 in facilities that we already own. We are in additional discussions with Geely and other Chinese OEMs about further representation.

Our primary intention is to develop direct understanding of the retail model of Chinese brands. We also believe there is significant profit and sales opportunity with these brands and leveraging our large corporate fleet business in the U.K. During the quarter, we repurchased 205,190 shares or approximately 1.7% of our outstanding shares. We are managing the business with discipline and purpose, ensuring we deliver strong, resilient performance that our shareholders expect even in today's dynamic environment.

I'll now turn the call over to our CFO, Daniel McHenry.

Thank you, Daryl, and good morning, everyone. In the first quarter of 2026, Group 1 Automotive reported revenues of $5.4 billion, gross profit of $878 million, adjusted net income of $104 million and adjusted diluted EPS of $8.66 from continuing operations.

Starting with our U.S. operation. First quarter performance remained solid across most business despite continued pressure on volumes and margins. New vehicle unit sales declined both on a reported and same-store basis, reflecting not only ongoing affordability concerns, but a tough comparative period, which saw elevated new vehicle sales ahead of tariffs. However, new vehicle GPUs increased sequentially from $3,260 to $3,313. We continue to maintain strong operational discipline through effective cost management and process consistency.

Our used vehicle operations performed in line with the broader market environment. Used vehicle retail units declined both on a reported and same-store basis, which were partially offset by higher selling prices. GPUs declined approximately 3% on a same-store and as reported basis, reflecting continued pressure on vehicle acquisition costs in a more competitive sourcing environment. We continue to leverage our scale and operational flexibility to strengthen used vehicle acquisition while executing disciplined sourcing and pricing dynamic used vehicle market.

Our first quarter adjusted F&I GPUs were up nearly 4% on an as-reported and same-store basis versus prior year comparable period. Aftersales stood out as a key bright spot with both parts and service gross margin reaching a new quarterly high. Gross profit continues to benefit from our efforts to optimize our collision footprint, shifting collision space opportunistically to additional traditional service capacity and closing collision centers where returns do not meet our requirements. Same-store customer pay and warranty revenues increased approximately 3% and 5%, respectively, with corresponding gross profit growth of approximately 6% and 9%. Our technician recruiting and retention efforts continue to pay off with same-store technicians up 3% year-over-year. Overall, our U.S. business continues to demonstrate resilience with strong aftersales performance and disciplined execution helping offset ongoing normalization in vehicle margins.

Turning to the U.K. While the U.K. remains a challenging operating environment, performance improved across several key areas. New vehicles performed in line with expectations. Used vehicle same-store revenues were up over 6% on a local currency basis with volumes up nearly 5%. Same-store GPUs declined 2% on a local currency basis, leading to an increase in same-store used vehicle gross profit.

Performance reflects improved demand and throughput despite continued margin pressure in a competitive used vehicle market. After-sales delivered year-over-year growth in both revenue and gross profit on an as-reported and same-store basis, but F&I delivered year-over-year growth in revenue and gross profit on a same-store basis. The after-sales business remains an important stabilizer within the U.K. operations. And along with F&I is a key area of focus as we work to enhance profitability by bringing best practices from the U.S.

Same-store technicians are up 3%, adding significant capacity to our shops. Same-store customer pay and warranty revenues were up over 6% and 12% year-over-year on a local currency basis. Same-store F&I PRU reached 1,128 with an as reported and same-store PRU both increasing over 8% year-over-year. We are continuously taking decisive actions in both the U.S. and U.K. to control costs, strengthen operational efficiency and position the business for improved returns as market conditions stabilize.

Turning to our balance sheet and liquidity. Our strong balance sheet, cash flow generation and leverage position will continue to support flexible capital allocation approach. As of March 31st, our liquidity of $714.3 million was comprised of accessible cash of $191 million and $523 million available to borrow on our acquisition line. Our rent-adjusted leverage ratio as defined by our U.S. syndicated credit facility was 3.09x at the end of March. Cash flow generation year-to-date yielded $147 million of adjusted operating cash flow and $95 million of free cash flow after backing out $53 million of CapEx. This capital was deployed in the same period through a combination of acquisitions, share repurchases and dividends, including the acquisition of $135 million of revenues through March 31, $72 million spent repurchasing 205,000 shares at an average price of $353.08 and $7 million in dividends to our shareholders. 

We currently have $306.3 million remaining on our Board authorized common share repurchase program. 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 over to the operator to begin the question-and-answer session. Operator?

[Operator Instructions] Our first question today comes from Alex Perry from Bank of America.

I guess just first, I was wondering if you can walk us through the cost savings plan in more detail. It looks like $50 million in annualized savings with benefits beginning in the second quarter. Maybe if you could help us parse out sort of what the expected second quarter benefit is and what we should expect in the back half as well as well as just provide a bit more color on the overall plan.

Alex, it's Daniel here. I would say coming out of January and February, we could see some weakness in the market and our SG&A leverage at that point was much lower than we would have expected. Going into March, we went about developing a cost-cutting program. 700 heads to come out of the business. They have all been completed by the end of April. Total cost effective of that headcount reduction is approximately $35 million. In addition to that, we've taken cost cutting exercises around contracts, as Daryl talked about earlier, and that's close to $15 million in terms of cost. So, on an annualized basis or a quarterly basis, we would expect that to be about $12.5 million a quarter. 

Now what would that have done for us in terms of quarter 1, if we have taken that cost it on the 1st of January quarter 1, U.S. SG&A that was circa 70.5%. We would have expected that to have been about 68.5%. So, it's about 200 basis points out of cost in terms of the U.S. Additionally, we continue to take cost out in the U.K., but we do have that additional national insurance in quarter 1 that we didn't have last year.

Really helpful. And then my second question is I just wanted to ask about the used business. And what is the path in sort of getting the used profitability back up to historical levels? I know you mentioned some of the sourcing costs on the used side, but maybe just talk through the path there and if we should expect any sort of near-term improvements on the used GPUs.

Well, this is Daryl. We saw some nice sequential improvement in used PRU. Sourcing is a big challenge right now, one, because the SAAR was depressed in the first quarter. So there were fewer trades. We ended the quarter with 26 days. We don't rely very heavily on auctions. 11% of our sourcing comes from auctions. So we really work hard on the organic sourcing. The problem there is it's heavily late model vehicles. Our mix of cheaper, higher-margin used cars in our inventory is very light compared to what it's been historically. And everybody is scrambling for those. Everybody really wants those because, obviously, one of the reasons people buy used cars is because they're more affordable. 

So, as we get better at that, I expect we'll see margin improvement. I think we're better and more disciplined in our inventory acquisition. We're much better in more disciplined in both the U.S. and the U.K. on aging management, pricing decisions to market, trying to use more technology in both markets. So while I don't think you'll see leaps and bounds of improvement, I do think this additional discipline and the lack of supply provides a floor on used cars.

Our next question comes from Bret Jordan from Jefferies.

This is Patrick Buckley on for Bret. There have been some recent headlines around rising negative equity values. Have you seen similar trends with your customers? And has there been any impact on converting a potential customer to buy on the sales floor when they realize they've got to write a check to make the transaction happen?

There's a lot of -- the short answer is yes. I think it's a fact negative equity is at a high and can be a headwind. We try to watch affordability measures quite a bit. And the average car payment is high, insurance rates are high, negative equity is high. But also, there's evidence that affordability is actually a little better now than it has been in some time when you look at car payments as a percentage of people's salary and people's pay. It actually takes fewer weeks. on the measure that a lot of people watch. It's better in 2026 than it has been. So, I think there's a lot of things going on with affordability right now. Negative equity is one piece of that puzzle. Things like tax rebate checks are another piece of that puzzle. 

And so I think there's puts and takes on both of that. But to answer your specific question on negative equity, I think that's yes, we see that, but we also see that I don't think it's a huge limiter. It's just another piece of the affordability puzzle right now.

Great. That's helpful. And then focusing on the U.K., there's been a bit more of a prominent impact from recent energy spikes there. How has the consumer held up into Q2? It sounded like Q1 was a pretty healthy quarter from a demand side. But has there been any signs of a pullback more recently?

One of the things that we were really pleased with in the U.K. in the first quarter was our order take rate going into the plate change month in March was very high, higher than we've seen in honestly, several years. And so when you go into a plate change month, you really know how it's going to come out by about the middle of February, you know what the end of March is going to look like because the order bank is dictates what kind of volume you're going to do. you really know how it's going to come out by about the middle of February, you know what the end of March is going to look like because the order bank is dictates what kind of volume you're going to do. And we were really pleased all through January and February with our March order take. And I don't see that, that has -- on a relative basis, April is not a plate change month, so don't get me wrong. But on a relative basis, I don't see that, that has changed materially.

One thing we're really pleased about going into the second quarter in the U.K. is the health of our used car inventory is significantly better than it was a year ago. One of the challenges in the U.K. market is when you have two months, March and September, which drives so much of your new car volume, it creates these huge used car inventories in April and October. And if you don't have a lot of discipline in the way you manage your used car inventories, you can get caught. And candidly, in the past, we've been caught. And I'm really pleased with our aging. I'm really pleased with our inventory levels and our discipline this year in the U.K. on our used car inventories, and we hope that, that means better things for us in used cars this year there.

Our next question comes from John Babcock from Barclays.

The first one, just on your plan to exit the JLR brand, where does that stand? And also, did that impact your U.K. operations? Or is that now considered part of discontinued ops?

It's not discontinued ops because materially, it's not -- it's a very small part of our business. We're in active negotiations on a number of them, both with the OEM and with potential buyers. We've closed one of the nine. We're in active discussions on several more and very close to contract finalization. So once we get those finalized, we'll be able to announce those. But we're pleased with where we are on that.

And then just back to the cost actions. With the 700 people that you, I guess, caught from the workforce, where were those where those -- I'm sure they're probably spread across different teams, but were those more weighted to the sales side? Were those more in the back office? I don't know if you could provide any more color on that, that would be useful.

It was across the board. And what we did was we took SG&A as a percentage of gross targets by -- literally by store and market and business unit and assigned headcount targets based on that. And so, it came from across the enterprise, in the stores, in the corporate level. And fortunately, in some of our corporate activities, we've been able to implement some technology, which helps us keep our productivity up, and so we didn't need some of that headcount. But it was across the board, and that's done. I mean that's not what we're going to do. We have already done that and executed that on the headcount side.

Yes. Understood. Are you able to provide any split between U.S. and U.K.?

That's all U.S. It's Daniel here, sorry. The all $50 million, it was all U.S. headcount reduction.

And our next question comes from Rajat Gupta from JPMorgan.

I had a follow-up on the disposal question. The California stores that you divested, can you give us a sense of proceeds and any EBITDA earnings impact we should dial in from that? And I have a couple of quick follow-ups.

Rajat, we don't typically declare what the proceeds were. But I think it's fair to say the multiple that we got from those stores was much higher than the multiple that the company trades at. Both the stores needed CapEx and significant CapEx. They had a fairly expensive real estate attached to those stores. And I would say, for us as a company, we were pleased with the outcome for selling those stores.

And then on parts and service, thanks for calling out the weather impact. If I adjust for that, the U.S. business would have grown roughly 4% versus the 2% that you reported. I'm curious like how we should think about that in context of just the general outlook you've given in the past around mid-single-digit type rate. Maybe there's some warranty headwind. I just curious how we should think about that going forward?

Part of -- there's a little warranty headwind. I mean, on a year-over-year basis, warranty was only up 4% for us. The mid-single digits is still safe to model, Rajat. Two things to keep in mind with us. We've converted some of our collision center into shop space. And you can't necessarily just turn that off one day as a collision center and turn it on the next day as a service workshop because you have to put all new equipment in there and you have to restaff it. So, there's some transition time between when it stops being a collision center when it starts being a productive workshop. So, you see a big negative on our collision pumps because of some of those collision centers that we've closed.

And there's -- at least what we're seeing and what we see in the sector is there's a decline in the collision business in general, which exacerbates that, but you see that in our wholesale parts numbers that we were only up 2.8%, not very much lower margin part of our business, which you take the collision decline, which is a lower margin part, you take the slower growth in wholesale parts and you mix that into CP and warranty and you see a slower number on after sales growth. So, we had almost 6%, I think, gross profit growth in the same-store gross profit growth on customer pay in the U.S. Pleased with that. I always want it to be more. But when we try to pull all of our after-sales levers, that's generally directed at customer pay. I hope that helps.

That's helpful. Just one clarification. The F&I adjustment, the $6.8 million, what was that tied to?

So Rajat, that was effectively an adjustment. It represented a onetime nonrecurring adjustment to our revenue calculations for retrospective rebates effectively.

Our next question comes from Jeff Lick from Stephens.

Daryl, I was just wondering, as you look at this -- the first 4 months of this year has been pretty noisy. I was curious if you could just kind of parse out where you think the consumer is and maybe bifurcate the typical mass affluent luxury consumer versus maybe the volume consumer as we get through it. We've heard from some of your peers that April has been okay, but maybe it feels a little weak like people are being cautious because of the war. Just kind of curious your thoughts on where things are at.

I wouldn't disagree with what I've heard so far from our peers or some of the industry experts on the consumer. There's no shortage of distractions for consumers these days, which, as you know, in our industry, consumer confidence and the SAAR run right together. And so, as consumers lack confidence, I think it is a headwind to us. I do think there's evidence that consumers are still spending. We've seen it in ex-weather, we've still seen some decent performance. But there's no shortage of distractions for consumers right now. That's for sure. And that's one of the reasons we took the cost actions we did, Jeff, because we want to make sure that we're lean enough. If the SAAR does stay in this range, mid-50s, 56, 57, something like that, that we're able to compete there and there effectively.

And then just a follow-up for whoever wants to take this. On the 700 headcount, as you guys look at that, obviously, in the back of your mind, you're always thinking, well, gee, if we do this, it's conceivable it could come back to haunt us in terms of operational ability either on the cost side or on the gross margin side. What are some of the areas where you might be worried about? And then maybe you could talk about just as you think about the dealership of the future, because obviously, I think some of that's in this as well. You're not just looking at getting rid of people as a knee-jerk reaction to cut costs. The dealerships are evolving in terms of functions that can be performed by software and whatnot. But I'm just curious, where are you worried that if you cut to the muscle, it might show up negatively?

Well, I don't think we cut muscle on this one. We tried to be very logical about it, where we did touch on what I'll call productive, which is not a perfect descriptor, but people who sell and service vehicles. Where we did touch that, we focused on very low productivity areas of our business. And are there places where we're using technology, which we're using a lot, especially our sales department, to manage customers, and inbounds and leads and sales and conversions. And so, we feel like we have enough technology overlay that's going to compensate for those lower productivity salespeople that we might have separated with. 

And then on a technician basis, we touched very few technicians. And if we did, it was really around some who were very low productivity. But we've actually leaned into more technician investment during this period. There are some things we didn't touch. We didn't touch any of our people development initiatives, any of our training initiatives, any of our people retention initiatives. 

We're continuing to finish out our air conditioning project across our dealerships. We continue our technician mentoring program. 3/4 of our techs are part of a mentoring program now, our hourly techs, which we feel is vital to retention and growth. So, we didn't touch anything that touched what we consider longer-term growth opportunities, especially in aftersales.

Jeff, it's Daniel here. I can give you one really typical example where we cut costs. This quarter, quarter 1, we rolled out the digital deal jacket across 100% of our dealerships. Effectively, all of the deals are either signed online or held online. Traditionally, we would have had a scanner and a dealership scan in 100-ish pieces of paper that would have formed the deal jacket. Clearly, going to 100% digital meant that the scanner was no longer required.

Scanner being a person?

Being a person, correct.

Our next question comes from David Whiston from Morningstar.

The upcoming Geely U.K. locations, are they going to be stand-alone or in the existing Group 1 footprint somewhere?

In buildings we already own, that's usually part of either a franchise that we have or in a cluster of dealerships that we have, where we might have -- as an example, north of London, we have a site near Watford, BMW store, where we had a MINI stand-alone store and a BMW stand-alone store. MINI is now part of the BMW operation, left us an empty showroom and service facility on the same campus, and we were able to put Geely in there. So, we don't have to go sell Geelys and BMWs in the same showroom, and it gives us a separate facility, but it's one we already own. There's no incremental cost to do that except for some minor imaging investment.

And then on the virtual F&I, I mean, just trying to balance it's great for perhaps efficiency and speed for the customer, but are F&I managers losing some opportunities here financially?

No, they are not. And this is Peter DeLongchamps. And actually, they're gaining opportunities because they become much more efficient. They're actually doing more deals at the store level. But the key to this is that customer convenience was the driving factor. And as we perfected this, what's happened is we've lowered turnover, we've lowered comp, we've actually increased the PRU on what I'd say the bottom performers. So, this has really been a terrific initiative that has paid off in 4 different ways.

One way to look at it is on the productivity of the F&I producers. And many of the folks who are virtual F&I managers for us used to work in our stores. They are now virtual F&I managers doing deals all over the country. But in an average day, an F&I manager might do 3 deals. As a virtual agent, they can do 7, 8, 9, 10, and that's kind of the numbers we see. 

And so, we're really pleased with that. And we think we're able to attract a different type of employee because now we can offer things like part-time work, and they can work from home, and it's taken us 2 years to get here. I don't want to make it sound like it was simple. The team has worked really hard through our learning process on this. It was a long ramp-up, and that's one of the reasons we haven't talked about it until now. But we feel like there's certainly some productivity gains as well as quality of life for our team.

Our next question comes from John Saager from Evercore.

I wanted to just dig into a little bit of the divergence between the U.K. and the U.S., and where you think you might have more impact on the SG&A cost savings over time?

In either market or in one specific area?

Yes. Is there, like, basically more low-hanging fruit in one region or the other?

I don't think there's low-hanging fruit in any region, honestly. I feel like since COVID, we've been pretty disciplined with our SG&A. And I think we've demonstrated that. Our headcount is still lower than it was pre-COVID. And I think in the U.K., there's still opportunity. There's still things for us to do as we've -- one of the things we're really pleased with in the first quarter was our growth in our lines of business. We saw F&I grow aftersales grow quite a bit. We had nice same-store sales growth in new cars and preowned. And so, we got to just make sure we contain the cost there as we grow.

And that's a real focus for us and whether it's marketing costs or people costs and transaction costs, we don't have as much automation in our U.K. business as we have in our U.S. business. That's a focal area for us. And so, I think there's opportunity there. In the U.S., it's about people productivity. It really is whether it's a technician or a salesperson, and that's where most of our headcount is in our stores and how do we put them in a position to be as productive as possible. And so those are areas that we're really focused on in both markets.

John, it's Daniel here. One thing that I would note would be in the U.S. specific, January and February SG&A as a percent of gross was outsized and some of that was around the weather that we had in the U.S. March SG&A as a percent of gross was a lot more healthy. And clearly, with some of the actions that we have taken, hopefully, that will continue into quarter two and three.

That makes sense. Yes. And then relative to the 84% in the U.K. for the full year '25, you guys did have some, obviously, improvement in Q1. I would expect that to come back again in Q3. Do you think that we could end the year materially lower than that 84%? Or is the 80% still a bridge too far for this year?

John, it's Daniel again. The aim is to get as close to the 80% stated SG&A as a percent of gross as possible. On the basis of where we were in quarter one, I think that that's possible, but it clearly will require consistent work.

Our next question comes from Mike Ward from Citigroup.

I just want to double check and make sure I'm doing the math right on this. The $7 million impact from weather was all on parts and service in the U.S. Is that correct?

That's correct, Mike. That was our estimate, Mike. It's probably a little conservative. We tried to be conservative with it. But yes, we assume that all the vehicles that we lost were replaced, whether that's true or not, who knows.

Right. But there is parts and service, you don't get back.

We felt like no.

Yes. Okay. And so, if I'm doing the walk right with SG&A, you still paid your people. So that had about an 80-basis point impact inflating the SG&A as a percentage of growth. So that's our start point at 70.5%. Is that right, Daniel? Is that what you're alluding to?

That's correct.

Okay. And so, then you have the cost savings, which knock it down 150 to 200 basis points. And then I'm assuming that with the brand rollout, there are some additional operating costs that are unusual as we go through this year. But if we're at like kind of a status state, we're getting down to somewhere in the mid-60s as a percentage of SG&A as a percentage of growth in the U.S. Is that the right way to think about it?

You know Mike, I think if you think about the walk and let's just reverse the effect of the weather and assume that we had the $12.5 million cost reduction, we're somewhere close to the high 67%. Now that doesn't include any of the rebranding or any of the other stuff that's in there.

Mike, on your question on rebranding, we did have some incremental costs for signage and uniforms and things like that, that we've done in the stores that we've done. One thing I was really pleased to see in March was we had real leverage on our operating advertising spend. We saw some really good leverage on it in March. Now some of that is because it's March, you got more volume to spread it over. But two, what I'm -- I don't want to call it a trend yet because we don't know, but we're doing more with Group 1 advertising than we ever have because we have about 50 stores that are on it. So rather than advertising 50 different brands, we can now advertise and get more leverage on it. So hopefully, we'll see that continue as we go through the year. And we're trying to do more advertising from one voice rather than 148 different store.

Makes sense. Turning to the U.K. a little bit. What is your current position with the China brands? And I saw that you're expanding kind of your relationship with Geely. How many stores do you have? And like what do they represent? And where are we going, do you think?

We have three that we signed agreements with that will become live in Q2. We have a framework agreement with Geely, so we can go beyond three. We have three stores that were -- have dealer -- specific dealer agreements with Geely that will be operational in Q2. And we're talking to Geely about more than three. We're also talking with some other OEM -- Chinese OEMs about representing them. We've taken a little slower pace. We got a little concerned. I mean, their fast growth is great, good for them. That's great. But we're a little concerned they got over-dealered in some brands, which you could -- we could say -- we could have gone and signed some dealer agreements last year and been part of that sales growth, but it might have actually hurt profitability because the UIO is still growing.

Really, they've only done any grill volume for 6, 8 months in the U.S. So, there's not a lot of UIO yet to drive service departments. So, we were taking a little slower approach, but we're in now, and we're excited to learn how the retail model really works for Geely, and we're watching some of the other brands, and we're in really active discussions with some of the other brands. And we think we're going to rely on our formula, Mike. We feel like we're good dealers. We're good representatives of OEMs, and they will want us to do business for them, and they will come to us and try to enable us expanding our footprint with them. And that's a formula that's worked for us in both markets. We feel like it will work well with the Chinese as well.

And with that, everyone, we'll be concluding today's question-and-answer session. I'd like to turn the floor back over to Daryl Kenningham at Group 1 for closing remarks.

Thank you, Jamie. In summary, we remain committed to our strategic initiatives, local focus, operating excellence, differentiated aftersales and disciplined capital management. We'll continue to build on our results from the first quarter. U.K. remains a priority as we build on improving our operating performance, executing on our various initiatives there and shaping the portfolio to drive better returns. We believe consistent execution against these priorities positions us to navigate near-term challenges, but while also building long-term value. Thank you for your time today. We look forward to discussing our second quarter results on our call in July.

And with that, ladies and gentlemen, we'll be concluding today's conference call and presentation. We thank you for joining. You may now disconnect your lines.

Good morning, ladies and gentlemen. Welcome to Group 1 Automotive's Fourth Quarter and Full Year 2025 Financial Results 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 Senior Vice President, Manufacturer Relations and Financial Services. Please go ahead, Mr. DeLongchamps.

Thank you, Nick, and good morning, everyone, and welcome to today's call. The earnings release we issued this morning and a 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 are forward-looking statements and 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, inventory supply, conditions of markets, successful integration of acquisitions and adverse developments in the global economy and resulting impacts on demand for new and used vehicles and related services.

Those and other risks are described in the company's filings with the Securities and Exchange Commission. 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, Daryl Kenningham, our President and Chief Executive Officer; and Daniel McHenry, Senior Vice President and Chief Financial Officer. I'd now like to hand the call over to Daryl.

Thank you, Pete, and good morning, everyone. In 2025, Group 1 achieved record revenues across all major business lines and record gross profits in parts and service and F&I, underscoring the strength and resilience of our diversified business model and our relentless focus on operational excellence.

During the quarter, we delivered impressive parts and service results and strong F&I performance in both the U.S. and the U.K. Parts and service continues to be a differentiator for Group 1, providing both growth and stability while we leverage our scale and execution flexibility to further build out our used vehicle business.

Our F&I teams have done an outstanding job maintaining gross profit discipline while driving higher product penetrations across nearly all categories. For the full year, we generated an all-time high gross profit of more than $3.6 billion, including record parts and service gross profit of nearly $1.6 billion.

We sold 459,000 new and used vehicles in 2025, another record. In the U.S., new vehicle PRUs moderated by just $62 sequentially, reflecting a slower pace of normalization. Throughout the year, we remain focused on deploying capital toward the highest and best use for our shareholders. 2025 was a great example of that strategy.

In the U.S., we acquired outstanding brands in growth markets, Lexus and Acura Fort Myers, Florida; and Mercedes-Benz dealerships in Austin, Texas and Atlanta, Georgia. In the U.K., we acquired 3 Toyota and 1 Lexus dealership. We expect these acquisitions to generate approximately $640 million in annual revenue.

At the same time, we disposed of 13 dealerships comprising 32 franchises, which have generated approximately $775 million in annualized revenue. In addition, we repurchased more than 10% of our outstanding shares in 2025. In the U.K., the macroeconomic environment remains challenging with weak economic growth, persistent inflation, increased competition from new entrants and margin pressure from the BEV mandate.

In response, we reduced headcount by an additional 537 positions in 2025. And during the quarter, we continued to execute on our previously announced restructuring initiatives, including working with a number of interested parties on the exit of the JLR brand. We also completed our U.K. systems integration, which we expect will improve visibility, operational consistency and data-driven decision-making across the business.

In addition, we consolidated 10 customer contact centers into 2 and fully onshored our transactional accounting operations. We continue to focus on opportunities to further shape our U.K. portfolio and improve operations, consistent with the playbook we have successfully executed in the U.S. We are seeing positive impact of our U.S. operating practices in the U.K., particularly in aftersales.

On a same-store basis, we increased our technician headcount by 9.5% in the U.K., reducing customer wait times and driving a nearly 6 percentage point increase in customer pay mix and higher fixed absorption. We've made changes to our service pricing to move more closely to the aftermarket. At the same time, we've eliminated diagnosis fees in many brands.

Daniel McHenry will speak to the positive results that these initiatives are having on our RO counts. In F&I, PRU increased 13% in the U.K. or $123, largely through better adoption of all of our products. Our focus in the U.K. remains on driving this type of operational improvement across the entire business, and we realize there is still more work to do.

In the U.S., the macro environment remains dynamic with volumes and GPUs continuing to normalize from post-pandemic highs, particularly in the luxury segment. While the policy and trade uncertainty we saw last year has largely subsided, we remain vigilant and focused on staying nimble as macroeconomic conditions evolve.

In response, our teams remain disciplined and agile, sharpening execution at the dealership level, managing our costs and prioritizing the areas of the business that generate the most durable returns. We believe this focus on controlling what we can control from inventory and pricing discipline to aftersales performance, capital allocation and costs positions Group 1 to navigate near-term challenges while continuing to build a stronger, more resilient platform for the long term.

I'll now turn the call over to our CFO, Daniel McHenry, for an operating and financial overview.

Thank you, Daryl, and good morning, everyone. In the fourth quarter of 2025, Group 1 Automotive reported revenues of $5.6 billion, gross profit of $874 million, adjusted net income of $105 million and adjusted diluted EPS of $8.49 from continuing operations.

Starting with our U.S. operations. Fourth quarter performance was strong across all lines of business with a slight decline in new vehicle sales. New vehicle unit sales declined both on a reported and same-store basis. Average selling prices continue to increase and consumers are increasingly concerned about affordability. While new vehicle GPUs continue to moderate from the highs of the past few years, we have maintained strong operational discipline through effective cost management and process consistency.

Our used vehicle operations performed well, holding volumes basically flat versus the comparable year quarter while increasing revenues approximately 4% and 1% on an as-reported and same-store basis. GPUs declined approximately 8% on a same-store basis, reflecting higher costs to acquire used inventory. We continue to leverage our scale and operational flexibility to strengthen used vehicle acquisition while executing disciplined sourcing and pricing in an increasingly competitive market.

Our fourth quarter F&I GPUs grew nearly 3% or $67 and $65 on a reported and a same-store basis versus prior year comparable period, respectively. The disciplined performance by our F&I professionals and improvements to our virtual finance operations has helped grow GPUs while driving higher product penetration across nearly all product categories. Aftersales again stood out as a major contributor.

Gross profit continues to benefit from our efforts to optimize our collision footprint, shifting collision space opportunistically to additional traditional service capacity and closing collision centers where the returns do not meet our requirements. Revenues from customer pay and warranty increased approximately 5% and 11%, respectively, and gross profits from customer pay and warranty increased over 8% and 13%, respectively.

Our technician recruiting and retention efforts continue to pay off with same-store technicians up 2.3% year-over-year. Overall, our U.S. business continues to perform exceptionally well, demonstrating both resiliency of customer demand and the effectiveness of our disciplined process-driven operating model.

Wrapping up the U.S., let's shift to SG&A. While U.S. adjusted SG&A as a percent of gross profit increased 200 basis points sequentially to 67.8%. Higher employee expense was the primary driver. We continue to focus heavily on resource management and technology investments to try to maintain SG&A as a percent of gross profit below pre-COVID levels, as vehicle GPUs continue to normalize.

Turning to the U.K. Results reflected the ongoing challenge of the U.K. operating environment. However, same-store revenues grew almost across every business line. New vehicle same-store volumes declined 8.2% and local currency GPUs moderated 3.2% versus the prior year quarter, leading to an 11% decline in local currency same-store new vehicle revenues. Used vehicle same-store revenues were up over 9% on a local currency basis with volumes up nearly 8%.

Same-store GPUs declined almost 19% on a local currency basis, leading to a decline in used vehicle GP, reflecting the ongoing challenging used market in the U.K. Aftersales and F&I delivered year-over-year growth in both revenue and gross profit on an as-reported and same-store basis. The aftersales business remains an important stabilizer within U.K. operations and along with F&I is a key area of focus as we work to enhance profitability.

We saw an outsized uplift in RO count of nearly 36% year-over-year as we bring best practices from the U.S. Same-store technicians are up 9.5%, reflecting significant capacity to our shops. Customer pay revenue was up 9% year-over-year. Same-store F&I PRU reached $1,060 with an as-reported and same-store PRU increasing over 13% year-over-year.

On expenses, SG&A declined from prior year, reflecting cost improvements despite significant headwinds from inflation and cost increases, some of which is government-imposed through payroll tax and related charges. While we've executed targeting restructuring initiatives to improve efficiency and return the business to more sustainable cost levels, the environment remains difficult.

During the quarter, we incurred modest nonrecurring restructuring costs tied to our restructuring efforts. We are executing additional restructuring plans in the future periods as we exit select OEM sites. We are continuously taking decisive actions in the U.K. to control costs, strengthen operational efficiency and position the business for improved returns as market conditions stabilize.

Turning to our balance sheet and liquidity. Our strong balance sheet, cash flow generation and leverage position continue to support flexible capital allocation approach. As of December 31, our liquidity of $883 million was comprised of accessible cash of $537 million and $346 million available to borrow on our acquisition line.

Our rent-adjusted leverage as defined by our U.S. credit facility was 3.1x at the end of December. Cash flow generation year-to-date 2025 yielded $699 million of adjusted operating cash flow and $494 million of free cash flow after backing out $205 million of CapEx. This capital was deployed in the same period through a combination of acquisitions, share repurchases and dividends, including the acquisition of $640 million of revenues through December 31, $555 million repurchasing approximately 1.3 million shares at an average price of $413.05 and $26 million in dividends to our shareholders.

Subsequent to the fourth quarter, we repurchased an additional 71,750 shares under a Rule 10b5-1 trading plan at an average price per common share of $394.20 for a total cost of $28.3 million, resulting in an approximate 0.6% reduction in our share count since January 1.

We currently have $350 million remaining on our Board authorized common share repurchase plan. For additional detail regarding our financial condition, please refer to the schedules of additional information attached to our news release as well as our investor presentation posted on our website.

I will now turn the call over to the operator to begin the question-and-answer session.

[Operator Instructions] And the first question today will come from Rajat Gupta with JPMorgan.

Just one clarification. Could you give us a sense of what the impairments were tied to this quarter? I know we had a large one last quarter. But were there any significant assets or brands that the impairment was tied to this quarter? And I have a follow-up.

Rajat, it's Daniel. We do an annual impairment for all of our assets within quarter 4 on an annual basis. The impairments related virtually totally to the U.S. business as the impairments in quarter 3 were related to the U.K. business.

The principal brand, I guess, that we had impairments within was within the Audi brand. And we've had various discussions on that on previous calls. Other impairments, the Maryland stroke DC market has been a difficult market, I think, for both us and the other consolidators this year, and there was an impairment taken within that market.

Understood. That's very clear. Maybe a bit of a broader question as we go into 2026 around SG&A. I know you've talked about a lot of initiatives in the U.K., just both on the productivity side and some of the cost actions.

But curious, are there any specific productivity type actions that you might be undertaking in the U.S. today that could meaningfully move the needle, especially with more and more AI tools likely to get deployed. I'm curious like where do you see the opportunity? Are you already working on some? And how should we think about the impact to the SG&A to gross?

Rajat, we are using AI in every part of our business, both customer interface as well as in our back office. And we're also deploying productivity tools in a number of areas. Like as an example, when you look at our aftersales growth this quarter, it was 6% up, 5% up on a same-store basis on customer pay and 9% on warranty. We only added 2.5% to our technician base. So our technicians are more productive now.

One of the reasons is because our turnover is down 10 points in our technician population, which we've been working on. We've talked to you about the investments in things like air conditioning and things like that in our shops. And so we're seeing tangible results, which is resulting in less turnover and more productivity and takes some pressure off of all the hiring we do on technicians.

So that's a productivity gain for us. Initiatives like virtual F&I, which we've got in a ton of stores now. We're rolling that out nationwide. We're seeing lower cost per transaction on virtual F&I across our footprint and wide adoption there. And we are using AI in our sales operations with lead management and CRM control. We're using it in parts and service and in marketing and reaching out to customers and using more predictive analytics in that area. And so as we've made investments, especially in marketing, where we're now owning our own data, managing our own customer data, it's going to allow us to be much more efficient with how we reach customers and what our costs are and we hope in a more productive way than in the past.

So short answer is yes, we're using it and we're using it in a number of areas. And offline, I'd be happy to talk to you more specifically about that.

The next question will come from Brett Jordan with Jefferies.

This is Patrick Buckley on for Bret.

As we look at the U.K. restructuring plan, you spoke a bit about recent progress there. Could you talk a bit more about what inning that's in? And how long of a process do you expect that to be? And I guess, is there a lot of front-loaded progress there? Or is there more of a steady schedule work to be done?

There's more work to do. We don't see -- it's a dynamic environment, especially Europe. And so we adjust every quarter with our expectations. And we will get cost to a place where it has to be to make that business at an acceptable profit level for us. So I would say we're in the earlier innings, not the later innings, and Daniel has some thoughts.

Brett, the one thing that I would add was the costs came out in 2024 over the year. It wasn't all really front-loaded into quarter 1, let's say, of 2025. So as we roll into 2026, we should see the benefit of those costs that have been taken out throughout the year fully baked in for the year in 2026.

Got it. That's helpful. And I guess staying on the U.K. here, could you talk a bit more about the dynamics between the broader economy headwinds versus increased penetration from Chinese OEMs? Any way to quantify the headwinds between the two?

Well, the Chinese OEMs are the Q4 share leveled off at around a little under 12%. They had a big spike from Q4 '24 to Q4 '25, it leveled off a bit. They're not slowing down. I don't mean to make that sound that way, but -- and we're not expecting they will. But it appears that it's leveled off.

When we look at the brands we're in, we feel like we're well positioned because we're heavy luxury, which typically the Chinese aren't in at this point. And so it's something we're continuing to watch, and I expect we'll continue to make moves to try to offset their impact.

What that specific impact is, I mean, their market share, I think, speaks the most. And they're using a dealer model, which is, I think, good news for dealers. So as long as there's a viable model there, we're looking at that business.

The next question will come from John Saager with Evercore ISI.

Obviously, a lot of focus on the portfolio management in the U.K. Can you give us a sense of the magnitude of restructuring as you see it today? Or are we talking anywhere near the $28 million that we saw this quarter?

It's Daniel. I don't see it being anything like that this quarter or this year, 2026. We've done significant work. Daryl talked about it in the call earlier today around what we've done around our DMS, what we've done around our property portfolio, the JLR, the decision that we took to dispose of those stores over the next period.

A lot of that heavy lifting and cost has gone effectively in terms of restructuring costs that were taken in 2025.

Okay. Makes sense. And then post restructuring, what's a good trend or range going forward for used GPUs and also SG&A as a percent of GP? Could you give us a sense of a range there and then the timing that it will take to get there?

Is that the U.K. Pacific or U.S?

Both. But I guess, primarily, I was focused on the U.K. here.

Our used GPUs in the U.S. are higher today than they were pre-COVID. They're lower than they were a year ago. We'd like to see some improvement in the U.S. And we definitely know we have some upside in U.K. GPUs in preowned. We're trying to instill a different level of discipline in our pre-owned business in the U.K. and we expect the output of that to be better GPU performance.

On SG&A, what we've talked about historically in the U.K. is 80% on a long-range basis. It will be higher than that in the non-plate change quarters and it will be hopefully a little lower than that in the plate change quarters. So those are kind of round numbers what we've targeted.

In terms of U.S., you would think mid- to high 60% for U.S. on an annualized basis. So somewhere below 70%.

The next question will come from David Whiston with Morningstar.

Just looking at your store disposal activity last year. I mean, by definition, there's always going to be, say, a bottom 10% or bottom quartile. But by divesting these stores, you are raising the low end of the bar, so to speak, higher and higher. So do you see the need to do a lot of divestitures perhaps every year? Or do you think '25 was more of an outlier year?

I think '25 was more of an outlier year, David. much of our disposition work was in the U.K. around underperforming stores, around consolidation efforts in concert with our OEM partners. There will be some more of that in '26. But on a long-term basis, it won't be nearly that active.

In the U.S., we're still -- we still dispose of some stores that are in markets that aren't favorable for us or are underperforming. We had relatively few in 2025 in the U.S.

But we will always want to have that discipline to review our portfolio and stores that don't help us on SG&A leverage or don't help us on EPS contribution are subject to us disposing.

All right. And on capital allocation for this year, any strong preference between acquisitions, buybacks or perhaps reducing leverage below 3?

Let's go from the leverage first. Our preference is to keep our leverage below 3x, and we're going to continue to work to that.

In terms of capital allocation, we really want to grow the company and continue to grow the company through acquisition. We are not going to, however, buy stores that aren't instantly accretive to us as a company in terms of EPS, and we're not going to overpay for acquisitions whenever you look at the valuation of our company in terms of where it's currently sitting.

We were very active in terms of buybacks last year, buying back over 10% of the company. You can see in the first quarter so far, we've bought back 0.6% of the company in circa 20 days, and we will continue to be aggressive in both terms of acquisitions and buybacks as and when the time is right.

The next question will come from Jeff Lick with Stephens Inc.

Daryl and team, I was wondering if you just take 2025 as your baseline year, obviously, there was an awful lot that went on this year with tariffs, the EV tax credit expiration, the U.K. and whether it was the road tax, Chinese OEMs.

If you look at 2025 as your base year and you think about working through 2026, maybe you just talk about how you see the year progressing in terms of GPU lapping the EV tax credit. Where do you see kind of the easier part of the year versus the harder part of the year?

Well, I think on the EV question. Last quarter, our EV mix was 1.3%. That's down a little -- I mean, we were 3-ish percent before that. So for us, the EV impact, just given our footprint in the United States anyway is not that big.

The margins on EVs are not bad now compared to where they were a year ago when they were disaster. So hopefully, that is a tailwind a little bit. It's on a very small part of our volume, though. On the rest of it, yes, plenty of uncertainty out there, obviously. And what we try to focus our teams on is stay focused on what we can control because there's plenty of distractions and plenty of things that can lead you to focus on things outside of what we can affect.

What we're hoping for is to build on 2025 to try to get to your question, Jeff. We want to build on 2025. We want to grow. If that's organically grow, we feel like there's opportunity at Group 1 to organically grow, especially in the U.K. But we still have opportunities in our business in the U.S., too, as well as we perform in aftersales and F&I, there's still opportunities in our used car business.

So we -- and in our cost structure. So we're continuing to feel like there's opportunity in 2026 on those in the U.S.

And then just a quick follow-up. This year, we're going to see a lot of lease returns. Actually, percentages could be pretty big as we get into the back half. I'm curious, Daryl, in your career, if you've seen anything similar to this, I mean, we're going to be talking about lease returns in excess of 30%, 40%.

What that's going to mean for your business, both in terms of ups and also in terms of potential used car supply. How big of a deal do you view this? Am I thinking about it maybe in 2 grandiosa terms? And if any kind of historical context would be very helpful.

Well, I think 2 things will happen this year, which will help the used car business. One is the uptick in lease returns, which a good solid controlled source of premium used cars is really great. If you look at the kind of used cars we sell today compared to what we sold pre-COVID, we're selling a much richer mix of preowned cars.

And the profits are good on those cars. So I hope and expect that, that will help us later in the year. Another thing is there's a lot of discussion around the tax returns and tax refunds in the first and second quarter and what kind of impact will that have on the used car business. And we're hopeful it buoys it. And how much, I don't know, but there's plenty of optimism around that. So we'll see how that affects us. We continue to focus heavily on sourcing, especially organic sourcing out of our service drives and out of our trade processes with appraisals and capture, and we continue to put a ton of focus on that using technology to try to increase that as well.

The next question will come from John Babcock with Barclays.

Just firstly on the used vehicle market in the U.S., at least the indicators that we've seen seem to show that volumes have been pretty good to start the year. But I'm just kind of curious, what are you guys seeing? And what are your expectations for the year? And particularly as we -- as you remember, like last year, there was the tariffs that impacted timing in March and April. And just kind of curious how you're thinking about the cadence of that demand and whether you think it's sustainable from current levels?

Sure. John, this is Pete DeLongchamps. I'll take that question. So we're certainly bullish on the used car opportunity this coming year. And you're correct, January traditionally does start off well because you get the nice trades from November and December that you can work with. And then you're ready for the spring selling season, which kicks off about President's Day through March.

So we think the volumes are sustainable. And I think that what we're really focusing on is disciplined acquisition, whether that's service sales coming out of the plane. We've got to be smarter this year, and we're using AI to know exactly what cars to buy from the auction, not just based on personal preference.

So there's things that we've put in place that we think that will continue to help our used business grow. But all in all, you always have to remember, this is a 38 million to 40 million car market, and we talk about SAAR at 16 million and retail at 13 million for new, but the used car market is continually a great source for our company's revenue and gross profits.

Okay. And then just my last question, just on GPUs. They were down in 4Q. And I think at least most of the people I talked to expected a recovery in the quarter. Obviously, luxury demand was a little bit soft, and I had heard that there was some increased competition, at least among dealers just given the broadly softer volumes. But I'm just kind of curious, were there any other factors that we're missing that maybe we should be paying attention to? And what should we be mindful of in terms of thinking about GPUs in 1Q and '26 more broadly?

Is your question on new car GPUs or used car?

Sorry, new car specifically.

We saw some softening on the luxuries in the fourth quarter, GPUs, and that was affected us more than normal. I would think that we'll see some moderation of that. I don't know that they'll stay where they were. And the Mercedes of the world, their inventory is in much better shape today than it was a year ago, and BMW's inventory is in really good shape with some new products coming out this year.

So I believe that we'll see firming of the -- but the mass market GPUs are holding up pretty well. I mean our big brand is Toyota held up pretty well.

This will conclude our question-and-answer session. I would like to hand the call back over to Mr. Daryl Kenningham for any closing remarks.

Thank you. In summary, we remain committed to our strategic initiatives. We focus on our local customers, operating excellence, differentiated aftersales and disciplined capital management. We'll continue to build on the strong operating results in the U.S. U.K. remains a priority as we execute on restructuring initiatives, improving operating discipline and shaping the portfolio to drive better returns. We believe consistent execution against these priorities positions Group 1 to navigate near-term challenges while continuing to build long-term value for our shareholders. Thank you all for joining the call.

This will conclude our -- pardon me, the conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Good morning, ladies and gentlemen. Welcome to Group 1 Automotive's Third Quarter 2025 Financial Results Conference Call. Please be advised that this call is being recorded. At this time, I'd like to turn the call over to Mr. Pete DeLongchamps, Group 1's Senior Vice President, Manufacturer Relations and Financial Services. 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 a 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 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, inventory supply, conditions of market, successful integrations of acquisitions and adverse developments in the global economy and resulting impacts on demand for new and used vehicles and related services.

Those and other risks are described in the company's filings with the Securities and Exchange Commission. 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, Daryl Kenningham, our President and Chief Executive Officer; and Daniel McHenry, Senior Vice President and Chief Financial Officer. I'd now like to hand the call over to Daryl.

Good morning, everyone. Let me start with a few highlights from the quarter before discussing our regional performance. Group 1 delivered an all-time record quarterly revenues driven by record results in parts and service and used vehicles, along with another quarter of very strong F&I performance in both the U.S. and the U.K.

New vehicle PRU gross profit performance was solid and customer pay in both markets performed well, supported by healthy repair order growth. We've maintained cost discipline in the U.S. with good SG&A leverage less than 66% on an as-reported and same-store basis.

Now turning to our U.K. operation. The U.K. environment remains challenging with inflation, wage and insurance cost pressures and the BEV mandate, which continues to compress margins. While the broader SAAR improved slightly in the quarter, much of that growth was fleet-driven and retail conditions remain soft. New lower-cost entrants are seeing increasing market share performance with cost-conscious consumers. However, this is not yet a significant factor in our business given our luxury leaning portfolio.

Despite these headwinds, there are some bright spots in our U.K. business. Our aftersales business continues to expand with healthy customer pay operations. We are applying our U.S. aftersales playbook across our U.K. dealerships. For example, in the U.K., our stores now welcome walk-in customers, which we had previously limited. And we have fully reopened shop schedules, cutting appointment wait times from nearly 2 weeks to just a few days.

And we're extremely pleased with the progress we're making in reshaping our U.K. aftersales business. New vehicle margins in the quarter remained steady year-over-year. Our used vehicle volumes in the U.K. were up nearly 4%. Our U.K. used vehicle teams have been successful exercising discipline in our aging and reconditioning process.

F&I also delivered an excellent quarter with same-store PRU up $155 or greater than 16% year-over-year. Our team is focused on improving product penetration, which has resulted in same-store financing penetration increasing by over 4%. We're continuing to strengthen our business with initiatives to offset our cost increases.

Since the acquisition of Inchcape, we've implemented a series of headcount reductions, systems-integration activities and selective franchise closures and divestitures to improve operational efficiency and to better align our cost structure with current market conditions.

Our headcount reductions have included approximately 700 positions across the U.K. and our responsible portfolio management has resulted in the closure of 4 dealerships and the termination of 8 franchises. We're making meaningful progress on systems integration.

Across our U.K. business, we've completed the consolidation of 11 DMS platforms, and we're rolling out a new business intelligence system now. We are also completing the final stages of our U.S., U.K. systems integration review spanning approximately 90 different systems company-wide. These actions are improving visibility, operational consistency and data-led decisions across the organization.

In the third quarter, we formally notified Jaguar Land Rover of our decision to exit this brand in the U.K. within 24 months. We feel our efforts and some of our real estate can be more effectively utilized elsewhere. We are collaborating closely with our OEM partners at JLR to achieve a positive outcome for them and for Group 1 shareholders. It's our intention that this achieves a positive result for all concerned.

Due to this decision, our U.K. portfolio was required to be tested for impairment. As a result, we took a $123.9 million asset impairment in the quarter. Also important to note, this decision was unrelated to the JLR cyberattack, which separately impacted our U.K. profitability by approximately GBP 3 million during the quarter.

Those actions reflect our commitment to optimize our portfolio, control costs and focus our resources on winning through operational excellence. We will continue to refine the U.K. business, managing our headcount, rightsizing our network and prioritizing aftersales and F&I while leaning into our luxury platform and geographic diversity. This will position our U.K. business for long-term success.

Now turning to our U.K. operation. Our U.S. teams continue to execute very well, maintaining operational discipline and customer focus across our dealerships. As a result, the business delivered another solid quarter of growth with healthy performance across all major lines. Demand remained consistent throughout the quarter, supported by balanced inventory levels and steady consumer interest, which we believe to be relatively healthy in the U.S.

Our used vehicle units sold nearly set a record, only 40 units off of our all-time quarterly volume record. Our same-store sales in used vehicle outpaced the industry. F&I was outstanding once again with an all-time quarterly high PRU of nearly $2,500, combined with an impressive 77% new vehicle finance penetration. Aftersales achieved record quarterly revenue and gross profit, underscoring the strength and stability of this high-margin business. Our investment in our aftersales operation continues to capture growth and our initiatives around flexible scheduling, all-day Saturday operations and technician productivity continue to create new capacity and improve retention across our U.S. stores.

Same-store technician headcount increased by over 4% due to our recruitment and retention efforts. On a same-store basis, our customer pay revenue increased nearly 8%. Warranty was up 16% versus a prior year comp that saw 20% growth. We continue to believe in the potential of our aftersales business, and we also believe that capacity and productivity are the keys to success.

The overall U.S. environment remains dynamic with ongoing policy and trade uncertainty. We're maintaining a cautious but confident stance, balancing discipline in spending with targeted investment where we see long-term return. Our operational excellence is a key advantage, giving us the ability to adjust quickly to changing conditions.

Now a word about our capital allocation. In August, we added Mercedes-Benz of Buckhead in Atlanta, Georgia to our portfolio. It's expected to be one of the best-performing stores in the U.S. for Group 1. It's positioned in a growing market and consistent with our cluster strategy and our disciplined focus on pursuing only those opportunities that will create long-term shareholder value.

Just as importantly, we continue to opportunistically buy back shares of our company. Since the beginning of 2022, we've repurchased nearly 1/3 of the company's outstanding common shares. The acquisition landscape has been fairly quiet in recent months, and we continue to engage in researching opportunities in the U.S., but we are holding on further U.K. acquisition investment.

We expect consolidation to continue in the future in both markets, and we believe we're well positioned with our OEM partners to capitalize on those kind of opportunities. Now I will turn the call over to our CFO, Daniel McHenry, for an operating and financial overview.

Thank you, Daryl, and good morning, everyone. In the third quarter of 2025, Group 1 Automotive reported quarterly record revenues of $5.8 billion, gross profit of $920 million, adjusted net income of $135 million and adjusted diluted EPS of $10.45 from continuing operations.

Starting with our U.S. operations. Performance was strong across all business lines, both reported and same-store. Revenue growth was broad-based, led by record quarterly records in used vehicle, parts and service and F&I. New vehicle unit sales rose mid-single digits on both a reported and same-store basis, reflecting healthy demand and steady inventory flow.

While new vehicle GPUs continue to moderate from the highs of the past few years, we have maintained strong operational discipline through effective cost management and process consistency. Expiring tax credits lead to increased BEV deliveries in the quarter at lower GPUs, negatively affecting U.S. new vehicle GPUs by approximately 6%.

Our used vehicle operations performed well with record quarterly revenue and GPUs holding up well with only a slight 3% decline on a same-store and as-reported basis. These results reflect the benefits of our scale and operational flexibility, combined with our team's focus on disciplined sourcing and pricing in a competitive market.

Our third quarter F&I GPUs grew over 5% or $135 and $126 on a reported and same-store basis versus the prior year comparable period, respectively. The performance by our F&I professionals has been outstanding to maintain GPU discipline while driving higher product penetration across nearly all product categories.

Aftersales once again stood out as a major contributor, achieving record quarterly revenue and gross profit. Gross profit continues to benefit from our efforts to optimize our collision footprint, shifting collision space opportunistically to additional traditional service capacity and closing collision centers where returns do not meet our requirements. Aftersales remains one of our strongest engines of growth and stability.

Overall, our U.S. business continues to perform exceptionally well, demonstrating both the strength of the consumer demand and the effectiveness of our disciplined process-driven operating model.

Wrapping up the U.S., let's shift to SG&A. While U.S. adjusted SG&A as a percentage of gross profit increased 160 basis points sequentially to 65.8%, we view this as a good performance. We continue to focus on resource management and technology investments to maintain SG&A as a percent of gross profit below pre-COVID levels as vehicle GPUs further normalized.

Turning to the U.K. Results reflected a challenging operating environment. However, same-store revenues grew across almost every line of business. New vehicle same-store volumes declined 4% and local currency GPUs moderated by 1% versus the prior year quarter, leading to a 6% decline in local currency same-store new vehicle revenues.

Used vehicle same-store revenues were up over 5% on a local currency basis with volumes up 4%. However, same-store GPUs declined by over 24% on a local currency basis, leading to a similar decline in same-store used vehicle GPU, reflecting the challenging used vehicle market in the U.K.

Aftersales and F&I year-over-year growth in both revenue and gross profit. The aftersales business remains an important stabilizer within the U.K. operations, along with F&I is a key area of focus as we work to enhance profitability. Same-store F&I PRU reached $1,106 with as reported and same-store PRU both increasing more than 15% year-over-year.

On expenses, SG&A increased from the prior period, reflecting cost inflation and integration-related impacts as well as a lack of gross profit for the full quarter from our JLR operations due to the cyberattack.

While we have executed target restructuring initiatives to improve efficiency and return the business to more sustainable cost levels, costs continue to increase, some of the government imposed through increased payroll tax-related charges.

During the quarter, we also incurred modest nonrecurring restructuring charges tied to our restructuring efforts. In response to current market conditions, we are taking further actions to reduce our corporate headcount by approximately an additional 10%, and we are taking additional expense actions to save an expected $8 million in our stores. We will benefit from these savings in 2026.

We will also be executing additional restructuring plans in future periods as we exit select OEM sites. In connection to the notification with JLR, we recognized a franchise rights impairment charge of $18.1 million, which is included in the impairment charge that Daryl mentioned earlier.

We are taking decisive actions in the U.K. to control costs, strengthen operational efficiency and position the business for improved returns as market conditions stabilize.

Turning to our balance sheet and liquidity. Our strong balance sheet, cash flow generation and leverage position will continue to support flexible capital allocation approach. As of September 30, our liquidity of $1 billion was composed of accessible cash of $434 million and $555 million available to borrow on our acquisition line.

Our rent-adjusted leverage ratio as defined by our U.S. syndicated credit facility was 2.9x at the end of September. Cash flow generation through the third quarter of 2025 yielded $500 million of adjusted operating cash flow and $352 million of free cash flow after backing out $148 million of CapEx. This capital was deployed in the quarter through a combination of acquisitions, share repurchases and dividends, including the acquisition of $210 million in revenues, $82 million repurchasing approximately 186,000 shares at an average price of $443.81 and $6.4 million in dividends to our shareholders.

Subsequent to the third quarter, we repurchased an additional 140,000 shares under a Rule 10b5-1 trading plan at an average price of $433.48 for a total cost of $60.9 million, resulting in an approximate 5% reduction in share count since January 1. We currently have $165.4 million remaining on our Board-authorized common share repurchase program.

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 over to the operator to begin the question-and-answer session.

[Operator Instructions] And our first question today comes from Bret Jordan from Jefferies.

Some of your peers have talked about a U.S. luxury trend softening. Could you sort of give us any color on what you're seeing at the consumer, maybe luxury versus import versus domestic demand trends and GPUs?

Bret, I wouldn't say that what we've seen is material enough yet to call it a trend. You've seen a little bit of shift between some of the big bakes. Audi is certainly a challenge. I'm not sure that's consumer related. But we saw a little bit of inventory build in some of the luxury makes in the third quarter. I think the real tell will be fourth quarter, which typically is the largest quarter of the year for the luxury makes and especially the Germans.

And so before I think we would say we see a softening there, I'd want to see how the fourth quarter kind of shakes out and where that heads, to be honest with you. And Peter or Daniel may have another view based on their perspective.

Bret, this is Pete DeLongchamps. I would tell you that our Lexus business remains very, very strong. BMW dealerships did well in the quarter. Like of Daniel's or Daryl's comment on the Audi business is certainly difficult.

Okay. And then a question on the JLR exit, I guess, within 24 months. It sounded as if you might be reallocating some of those properties to other brands? Or is this -- when you think about business?

Yes, we own the vast majority of those -- that real estate. And we've had some reviews of how it might be used in better ways, primarily automotive, other brands potentially. Some of them will stay JLR and transition to another owner. And then others, just through the consolidation work going on in the U.K. with all the OEMs, it might provide an opportunity for us in some of our cluster markets and other brands. Some of that is still undetermined. But that is an outcome that's a possibility. Yes, absolutely, Bret.

Okay. And the housekeeping, I guess, of the $124 million impairment, $18 million of that was JLR...

So it's Daniel here, Bret. It's a combination there. So in terms of our franchise rights, $18 million was JLR. Now what that did was by terminating the JLR franchise, it triggered us to have to look at the U.K. entity as a whole and take a goodwill impairment. Now that goodwill impairment is not just JLR specific, it's the entity as a whole. So some percentage of the circa $100 million remaining will be relating to JLR. So 18-plus some percentage of the total business unit.

Our next question comes from Rajat Gupta from JPMorgan.

Just to follow up on Bret's question on the U.K., just the reallocation-of-capacity question. Would you consider partnering with some of the Chinese brands here? It clearly looks like they're gaining a lot of share, putting some pressure on the legacy brands that you own. Curious if there's any thought process around that of maybe increasing exposure there? And I have a quick follow-up.

Rajat, there, we have met with some of the Chinese OEMs about representing them. And we continue to consider that and review that. And we've also looked at that part of the industry and where we believe it's going in the U.K. We believe for the next several years, it will be primarily mass market focus and not luxury.

At some point, we certainly get the luxury business. Our focus in the U.K. is primarily luxury. But we have looked at it. What we want to make sure that we are comfortable with is that the retail model is a good one for our shareholders. The rooftop throughput at retail for the Chinese brands is still quite low and the economics around these rooftop aren't what our other stores can generate at this point. But we realize, obviously, they're growing. We want to make sure that we're positioned well to take advantage of that if there's an opportunity. We are having some active dialogue.

Got it. Got it. That's helpful. And then just on the used GPUs in the U.S., it seems like it pulled back quite a bit sequentially, also down year-over-year. I'm wondering if you could elaborate a little bit more on that. Was it just some of the tariff tailwinds from the previous quarter going away, maybe some higher priced inventory that came with the quarter? Or is there -- or is it just a sign of just more competitive landscape on the used car side? Any thoughts there would be helpful.

Rajat, it's Pete DeLongchamps. We've certainly seen stabilization through the used car -- in the used car business. But it does remain very competitive in the acquisition landscape of used cars. I think we've done a really good job of maintaining discipline with our auction purchases. The majority of our cars come from trades and customer outside purchases. But it's a business right now that it is dependent on how well you can acquire and how quickly you can turn. I think we maintained a 30 -- 31-day supply again. So we're comfortable with the performance of the used car operation in the current landscape.

Our next question comes from Jeff Lick from Stephens Inc.

I was wondering, Daniel or Daryl, if you wouldn't mind just giving some detail on the parts and service in the U.S. and the dynamics here, customer pay and warranty up 16%. Just as we go forward, is there anything that would skew the gross margin percentage, which obviously flows into gross profit dollars? Just the dynamics and we're lapping some tough compares now. Just any color would be helpful.

Well, the encouraging thing, Jeff, this is Daryl, and I'm sure Daniel has a comment. The encouraging thing is our customer count grew. In the U.K., it grew almost 6% year-over-year. In the U.S., it grew 3%. So we were really pleased that we're adding customers to our shops, not just dollars. And so we feel like our CP business is still healthy, and we still feel like there's a lot of opportunity there. Warranty is really tough to predict sometimes, obviously.

And we don't see any reason for necessarily a mix change. One thing that is happening is the -- I mean, a margin mix change, I should say. As the collision business is -- it's getting weaker and that can affect margin because a lot of the our wholesale parts sales go to the collision industry. And so overall aftersales margin may be helped by that on a percentage basis. So if the wholesale parts continue to climb. So at least the collision sector.

But on CP and on warranty, we haven't seen that. I know there's been some discussion on margin percentages by some in the industry, but we haven't necessarily seen that. We don't necessarily really predict that either. So Daniel, I don't know if you have anything to add.

Jeff, the only thing that I would add around was customer pay, as Daryl said, continues to be strong. U.S. specific, we've grown by about 8% year-on-year. In terms of warranty, we've grown by just over 16% year-on-year. Now as we talked about in the earnings call, collision is down. We closed a number of our smaller collision centers turning those into customer pay work, and it's down about 11% in the quarter. Now the result of that is that our margin mix as a total company is trading upwards and our margin mix has gone up from about 54% to 55.2% in the quarter.

CP margin was up year-over-year for us and so was warranty margin.

Just a quick follow-up. I think maybe this is one for Pete. On your Slide 14, you guys do a good job of always disclosing the retention by model year, which I don't think your peers necessarily disclose that. Could you talk a little bit about -- I believe you guys are well north of what would be typical and just the dynamics there.

This is on parts and service overview, retention?

Yes.

Yes, I think what we're working on, and it starts with the sale. And then if you take a look, Jeff, at our overall consistency with vehicle service contracts, maintenance, we are completely focused on getting our customers back into our shops, and we do that through constant follow-up. We do that by ensuring that pricing is right, making sure that schedules are wide open for appointments. And I think that when you take a look at the trend we've had over the years, and we've done a remarkable job with it, and this is where we've landed at 68-plus percent.

Jeff, one of the things that we focus on, the way we measure retention is 2 visits in a year. Other people measure it differently. OEMs all measure it differently. we wanted a standard number we could use inside Group 1 across all our stores. The key in the future as the average mileage goes up, the age of the cars is still going up. Our average mileage on our service drives is almost 70,000 miles. And really, the key for us to continue to grow customer pay is in reaching those higher mileage, older vehicles.

And one of the keys to doing that is when we vertically integrated our own data management with our customers starting about a year ago so that we now have a much clearer view, much better view of where our customers are going and when they're likely to need service next using propensity modeling and things like that, that help us do that. And so we have to be able to reach deeper into that ownership cycle as time goes, and we're really working hard on that, really working hard.

Well, the results show. Best of luck in the next quarter.

Our next question comes from Daniela Haigian from Morgan Stanley.

So one on forward demand. We've kind of passed through the peak tariff fear from April. We're now seeing OEMs revise up their guidances, clearing the bar on these improved gross tariff impacts. Are you seeing any decontenting or changing in pricing on new model year vehicles in excess of the normal price hikes? And how are you thinking about that going into next year?

We haven't seen anything in excess of normal price hikes, Daniela. We've seen a little recontenting not -- I wouldn't -- I would say it's normal. there hasn't been any broad announcements about major pricing. There's been a couple of specific pricing actions with smaller OEMs.

As we think about it and in more discussions we have with our OEM partners is they are taking a longer view on it, and they're going to try to recover the tariff impacts over a longer period of time and some of that -- and they will absorb most of it in general. And we're seeing very little pricing that can be attributable to tariff increases. And I think that will continue, to be honest with you, unless something radically changes with the tariffs, we think that's probably what will happen. And Pete may have some more.

No, I think, Daryl, you just covered it. The only thing I would add is you take a look at the financial services companies and the strength of the financial services companies can bring down those -- some of those additional costs through leasing subbing rates, which bodes well for those OEMs that have strong financial services companies.

Got it. That's helpful. And then one more, maybe, Pete, for you.

Our captive lenders are really -- a real advantage, we feel like. And we -- they drive loyalty, they drive finance attachment, and that's a real key for Group 1.

Absolutely. Absolutely. And then in that vein on auto credit, obviously, there's a lot of headlines out there. And obviously, Group 1 skew is much higher on the credit quality curve. But just as investors continue to focus on risk to the consumer, have you seen any change in consumer behavior in the last few weeks starting the fourth quarter?

We have not seen a change in consumer behavior. And actually, we're seeing increased penetration rates on new and used. And then most of the headlines are centered around the deep subprime, which we don't play in. So a channel checked the majority of our lenders prior to this call and the business continues to be robust, and there's still a lot of appetite with the lenders to make car loans with us and our customers.

And our next question comes from Glenn Chin from Seaport Research.

I guess just a couple of questions on the U.K. So just broadly on the macro. I mean, this used to be close to 25-million-unit market. Can I just ask where you see it settling out? And what needs to be done to improve it? I mean, is it lower energy costs or government incentives? And does it need to get worse before it gets better?

It doesn't need to get worse before it gets better. What has to happen is the throughput through per rooftop has to grow. The margins were steady year-over-year. The aftersales business is healthy. We've got work to do on costs, as we've mentioned. And the OEMs are all working to try to rationalize their networks to a level that meets today's SAAR of around 2 million rather than the 2.5 million that you referenced, Glenn.

So as we take rooftops out, that should improve the throughput of the remaining networks, and they're all working feverishly on that. Some of them are in our opinion, taking a healthier approach than others. Groups like Volkswagen, groups like Mercedes-Benz, groups like BMW are doing a really great job working with their dealer partners to try to affect that.

And I think their outcomes are going to be really good, really healthy. But that's a real key is to try to get the throughput per rooftop up to a better level. And then while we continue to take costs out, we'll continue to do that and focus on that. Daniel may have something to add.

Glenn, there's a couple of things that I would add. If you look at the forward-looking SAAR curve for the U.K., it's pretty static out over the last -- the next 5 years in terms of approximately 2 million. I think the important thing for us as a company is that the premium sector within that 2 million remains pretty constant with a little uptick over the next 5-year period.

In terms of the U.K. government at this moment in time, they continue to be taxing both the consumer and the business fairly heavily. And I can't really see that changing in the short term. But as Daryl rightly said, there's a lot that we can still do around cost. And equally so, we bought a lot of stores over the last 18 months, and we are working on portfolio rationalization, which I think will make the business a much stronger business coming out of that in 18 months' time.

And can you -- with respect to that rationalization, Daniel, can you give us a feel or some perspective on how much more needs to be done? I mean, you took $124 million in impairment this quarter. How much more needs to go?

In terms of impairment, that's -- we've taken impairment for JLR as a franchise, and we took effectively a goodwill impairment on our whole company. If I look at our forward-looking projections for that, I would say I would be fairly confident, all things being equal, that we have taken the impairment that's required for us to take as a company.

In terms of other things that we would dispose of, typically, they're going to be smaller stores or underperforming stores that have little or no goodwill attributed to those stores, certainly in terms of franchise rights. So I wouldn't expect there to be any additional impairment.

Equally so, we've totally impaired the Jaguar Land Rover franchise, and we will be able to sell those for some element of goodwill or some element of value. So we should see some upside coming out of that.

And Glenn, if you look at how we've managed our portfolio in the U.S. over the last 4 years, we've sold smaller underperforming stores in the U.S. or divested of those or closed some of those. And so it's a similar approach that we're taking in the U.K.

Portfolio rationalization -- we're optimizing, I should say.

Just one last question on JLR. So what is different about the franchise in the U.K. versus in the U.S. or your stores for that matter? Do you have a different view of the JLR franchise in the U.S.

Well, when you look at where some of our U.K. JLR stores are, they're close to London. And London had some of the highest theft issues in the -- which affected insurability on those vehicles. And we saw the order banks dry up very quickly in those brands and then in those ZIP codes right around London. And so that was -- and that didn't recover really, Glenn.

And so when you look at that and when you look at how much those stores are contributing or losing, and what we really firmly believe at Group 1 is we've got to put our focus and attention and efforts in the areas that are going to drive the best shareholder return for our constituencies.

And so when we looked at it and assessed it, and it wasn't an overnight decision, obviously, it was something we've considered for some time. We just felt like our efforts are better with some of our other partners. And we also hope and believe in my conversations with the OEM on this, that they can go get partners that they feel like they can be successful with. But given the real estate that we have with JLR and given the location of those sites and just the outlook in general of it, we felt like our efforts were going to be much better utilized and the return is much better in our other brands.

And ladies and gentlemen, with that, we'll conclude today's question-and-answer session. We do thank you for joining today's presentation. You may now disconnect your lines.

Good morning, ladies and gentlemen. Welcome to the Group 1 Automotive Second Quarter 2025 Financial Results 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 Senior Vice President, Manufacturer Relations and Financial Services. Please go ahead, Mr. DeLongchamps.

Thank you, Nick. 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 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, inventory supply, conditions of market, successful integration of acquisitions and adverse developments in the global economy and resulting impacts on demand for new and used vehicles and related services. Those and other risks are described in the company's filings with the Securities and Exchange Commission.

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, Daryl Kenningham, our President and Chief Executive Officer; and Daniel McHenry, our Senior Vice President and Chief Financial Officer.

I'd now like to hand the call over to Daryl.

Good morning, everyone. Our U.S. performance was excellent in the second quarter, and our U.K. team is navigating the integration of operations while growing our business in a challenging U.K. market backdrop.

Our adjusted net income from continuing operations improved 12.4% in the quarter and EPS improved 17.5% on the same basis. Starting with our U.S. business. New car sales were up 6% on a same-store basis, outpacing the industry. Our PRUs held that versus the second quarter of 2024, and they were up $211 sequentially.

Our inventories were flat versus the quarter and down nearly 15% compared to the end of 2024 and days supply is healthy at 48 days. Our used car volumes were up nearly 4% year-over-year and gross profits were up $29. Our F&I performance in the quarter was very solid as well, up $90 per unit. And our aftersales business is an area we continue to invest in and believe still has a great deal of opportunity.

In the quarter, our after sales gross profit was up 14.3%. Customer pay revenue was up 13.6% and warranty up 31.9%. While we certainly benefited from an easier comp versus the June 2024 CDK event, our after sales business was strong throughout the quarter. Our May quarter-to-date performance saw CP revenues up 10.2% and warranty of 28.7%. And we saw an 8% increase in same-store RO count for the quarter.

And we continue to believe that the potential of the aftersales business warrants additional investment, and we've continued forward on this front. Our flexible scheduling, all day, Saturday focus, improving technician productivity give us significant physical capacity to increase after sales business in our existing dealerships.

And by the end of 2025, 90% of all group 1 technicians in the U.S. will work in an air-conditioned shop. It's a boost to productivity, employee retention, and technician safety. We're also evaluating our collision footprint and repurposing capacity as that segment of the industry continues to decline. Lastly, we increased our technician headcount by 6% in the U.S. on a same-store basis.

And we've continued our branding efforts in the U.S. A number of our dealerships will be rebranded with the Group 1 name. This project, when combined with our integrated marketing and customer data efforts will open opportunities across our footprint. It's important to note that we continue to believe that the retail automotive business is a local business, and that's where we'll put our emphasis.

We've learned a great deal about this rebranding from our U.K. business where all of our dealerships are already branded with the Group 1 name. There remains movement in the new administration's policies and uncertainty for U.S. trade partners, automotive retailers, OEMs and consumers. And we continue to see demand across all lines of service and are focused on remaining operationally agile. However, we are being somewhat cautious moving forward.

Expectations remain that new and used vehicle GPU and could elevate a bit as inventories tighten from imposed tariffs. We have deferred certain capital expenditure projects and have reevaluated some discretionary spending. We also have contingency plans in place should we see a marked change in the competitive environment. That being said, we are taking advantage of our strengths during this time by refocusing our efforts on improving productivity.

We recognize our consumers are under pressure from car prices and other costs, which have outpaced wage growth and higher interest virtually double the rates we saw just a few years back. And I'll speak more on these efforts shortly.

Now shifting to our U.K. business. The U.K. business was managed well compared to the broader market, which continues to face macroeconomic challenges such as weak economic growth and inflation levels exceeding the Bank of England expectations. We recognize that our customers in the U.K. share many of the same adverse economic impacts as our U.S. customers.

There's also a drag on gross profits due to the bad mandates in the U.K. However, the U.K. government did announce subsidies of up to GBP 3,750 on BEV vehicles. This is a great first step. In terms of our costs in the U.K. Without the benefit of a plate change in the second quarter, our SG&A percentage of gross rose to 84.3%. We also absorbed some new government required costs for insurance and wages. And we continue to work on our cost structure in the U.K. and Daniel McHenry will have more to discuss on this topic.

We're seeing the benefits of continued progress on our process alignment in the U.K. and cost reductions. We performed well in used vehicle volumes, and we also added 8% more technicians, driving a customer pay increase of nearly 8% in our U.K. business. And our F&I PRU in the U.K. was up 27% in the quarter.

This quarter, we also marked a major milestone with the opening of our new U.K. headquarters in Milton Keynes centrally located with strong transport links and proximity to key OEM partners like Mercedes-Benz and the Volkswagen Group. The site reflects our deep commitment to the U.K. market, our employees and our manufacturer partners. I'm incredibly proud of the work our U.K. team has done and we're confident Group 1 U.K. is well positioned for long-term growth as a leading force in the U.K. motor trade.

Now shifting to capital allocation. We acquired 3 dealerships in the quarter. further strengthening our partnership with Mercedes-Benz, Lexus and Acura. These dealerships expand existing footprints in Austin, Texas and Fort Myers, Florida adding more scale in these proven markets consistent with our cluster strategy. We're consistently balancing acquisitions and dispositions with repurchasing our shares. In the first half of 2025, we bought back 3% of the company for $167.3 million.

And we will continue to optimize our portfolios in the U.S. and the U.K. Since the beginning of 2023, we bought assets generating $5.4 billion in annual revenue and disposed of assets generating $1.3 billion in revenue. We will continue to be acquisitive, but we are also being very disciplined in valuing acquisitions, engaging only in deals that we feel provide long-term value for Group 1 shareholders.

And let me close with a word about the future. Our belief is that in the future, those retailers who can drive scale, productivity and lower cost per transaction will be the winners. Our customers can no longer simply absorb higher pricing and in turn, that will create margin pressure. We're committed to lowering our transaction costs through productivity gains by increasing our use of technology first-party data and process improvements throughout our enterprise. We're making investments in technology to improve our customer experience and drive industry-leading productivity.

We believe artificial intelligence has the capability to improve our business, including elevating the customer experience within the sales and service processes utilizing robotics to automate operational functions, transaction processing and analysis. With AI, we can connect with and interact with our customers any time they want to do business. We're testing some very exciting things, which will help us elevate the customer experience at Group 1.

And now I'd like to turn the call over to our CFO, Daniel McHenry for an operating and financial overview.

Thank you, Daryl, and good morning, everyone. In the second quarter of 2025, Group 1 Automotive reported quarterly record revenues of $5.7 billion. Quarterly record gross profit of $936 million, adjusted net income of $149.6 million and quarterly adjusted diluted earnings per share from continuing operations of $11.52.

Starting with our U.S. operations. Revenue growth on an as-reported and same-store basis occurred across all lines of business over the comparable prior year quarter. Notably, parts and service revenues reached a quarterly high increasing 11.7% and 12.8% on an as-reported and same-store basis, respectively. Over the prior year comparable and F&I revenues reached a quarterly high of $199 million. We experienced higher new vehicle units sold in an as reported and same-store basis, of 4.6% and 6%, respectively, over the comparable prior year quarter. This reflects the resiliency of demand and our operational execution and the value generated from the ability to drive increpenul volume through our dealership acquisitions.

At the same time, volumes increased, we saw prices increase by 1.5% and 1% on a reported and same-store basis, coupled with a slight decline in GPUs of 0.3% and 0.9%, respectively. The higher volume more than offset the lower GPUs and contributed to an as-reported and same-store gross profit increases of 4.3% and 5%, respectively, versus the prior year comparable period.

Used vehicle revenues were the third highest quarter on record and volume in the second quarter was 11 vehicle shy of the quarterly record, growing 2.7% and 3.9% on an as-reported and same-store basis versus the prior year comparable period, respectively. GPUs were also up, increasing $25 and $29 on an as-reported and same-store basis.

Our processes, discipline and use of technology with pricing of used vehicles helped create this gross profit growth while driving volume against higher prices versus the prior year comparable period. Our second quarter F&I GPUs of $2,465 was just $3 off the quarterly record high and is up $10,490 on an as-reported and same-store basis versus the prior year comparable period, respectively.

Our performance by our F&I professionals has been outstanding to maintain GPU discipline and drive product penetration. Shifting gears to aftersales. Aftersales revenues had double-digit increases of 11.7% and 12.8% on an as-reported and same-store basis, respectively. These revenue increases, coupled by slight margin increases generated growth and gross profit of 13.1% and 14.3% on a reported and same-store basis, respectively.

Same-store customer pay and warranty revenues comprised of 72.2% of same-store after-sales revenues for the second quarter versus 69.1% for the prior comparable quarter. Customer pay dollars per RO increased 7.4% over the prior year reflecting the aging U.S. car park and increasing prices partly due to higher prices from tariffs.

Warranty work is up for Toyota, BMW and Honda. Warranty work continues to increase due to the number of new vehicles sold in recent years, requiring warranty service and an increase in the warranty recall campaigns by manufacturers. Recent examples include the Tundra and GM engine recalls. Ford recently announced a recall of up to 850,000 vehicles.

Wrapping up the U.S., let's shift to SG&A. U.S. adjusted SG&A as a percent of gross profit decreased by 265 basis points sequentially to 64.2%. We are seeing the benefits of our refocusing efforts on operational efficiency and resource management to bring these metrics in line with recent historical levels.

Turning to the U.K. Acquisition activity led to a 96.9% and 109.6% increase year-over-year in revenues and gross profit, respectively. We are pleased with double-digit growth in gross profit on a same-store basis with used vehicles, parts and service and F&I growing 16% and 12% and 28.7%, respectively. Same-store retail used vehicle units sold increased over 8% year-over-year while GPUs remained relatively flat.

Same-store wholesale losses per unit improved to $414 from $842 compared to the prior year quarter, respectively. After sales is continuing on a positive growth path with a 2.4% increase in same-store revenues on a constant currency basis an almost 6% increase in same-store gross profit on a constant currency basis over the prior year quarter.

Same-store adjusted SG&A as a percent of gross profit increased 216 basis points versus the prior year quarter. However, on a year-to-date basis, adjusted SG&A as a percent of gross profit was 78.6%, an increase of only 70 basis points. Reported adjusted SG&A as a percent of gross profit was 84.3%. However, on a year-to-date basis, adjusted SG&A as a percent of gross profit was 81% and near the 80% expectation, we believe, achievable.

Effective April 2025, the U.K. government increased the national minimum wage for employees and national insurance for employers. This increase resulted in approximately $4 million of additional costs in the second quarter or 1.9% and additional SG&A as a percent of gross profit. To date, we have removed approximately 800 headcount from the U.K. business, lowering our overall cost and reducing the exposure to these government-imposed increases. We will continue to focus on cost control and business process efficiency as we execute our business integration activities in order to offset some of these increases in employee compensation. We incurred $7.6 million of restructuring costs in quarter 2 2025 in relation to our ongoing U.K. restructuring plan.

Turning to our balance sheet and liquidity. Our strong balance sheet, cash flow generation and leverage position will continue to support flexible capital allocation approach. As of June 30, our liquidity of $1.1 billion was comprised of accessible cash of $374 million and $739 million available to borrow on our acquisition line.

Our rent-adjusted leverage ratio as defined by our U.S. syndicated credit facility was 2.72x at the end of June. Cash flow generation through the second quarter of 2025 yielded $350 million of adjusted operating cash flow and $267 million of free cash flow after backing out $83 million of capital expenditure. This capital was deployed in the quarter through a combination of acquisitions, share repurchases and dividends, including the acquisition of $330 million in revenues, $45 million repurchasing approximately 115,000 shares at an average price of $387.39 and $6.5 million in dividends to our shareholders.

As of June 30, approximately 60% of our $5.2 billion in floorplan and other debt was fixed resulting in an annual EPS impact of about $1.31 for every 100 basis points increase in secured overnight funding rate. For detail regarding our financial condition, please refer to the schedules of additional information in our news release as well as our investor presentation posted on our website.

I will now turn the call over to the operator to begin the Q&A section. Operator, will now begin the question-and-answer session.

[Operator Instructions] And your first question today will come from Rajat Gupta with JPMorgan.

And good results. I had 1 question on the new car GPUs. A pretty strong pickup sequentially here in the quarter. Could you give us a sense of how those GPUs progressed through the course of the quarter? Maybe like how was April, May, June, before averaging out to the 36-65 that you reported for the quarter? And I have a quick follow-up.

We can get you a little more detail on that after. But we -- they were fairly strong all quarter. We didn't see a spike due to necessarily any change in inventories or any change in manufacturer incentives support or anything like that. So they stayed fairly strong through the quarter.

Understood. And just -- I just had a couple of clarifications on the U.K. It looks like you took up your cost-out target there from GBP 22 to GBP 27 for the full year, just comparing the 2 slide decks. Could you -- is that primarily to offset some of the government in those cost increases? Or are there like other changes you're making just in light of just a weak macro backdrop there? And just had 1 more quick follow-up on U.K.

Rajat, it's Daniel here. We expanded, I guess, some of our head reduction. The headcount reduction now today is looking circa 800 people. That's higher than we initially projected. A couple of reasons for that is that we have decided to close a couple of additional stores that are very close to other stores of the same brand that we have.

This is Darryl. I just confirmed on the new car PRU in the U.S. there wasn't any spike between the months. It was fairly even. April was actually pretty good. And -- but May and June held up very well. So pretty flat through the quarter.

Understood. And just lastly, just on the parts and services business in the U.K. pretty strong -- so there, 6%. Given the productivity improvement, you're starting to see at Inchcape -- any color you can give us as to the expected run rate here on that into the second half, maybe early next year? Is this a sustainable number? Could it accelerate further? Any color there would be helpful.

We believe there's more room to run in the quarter, we added 8% more technicians to our technician base and the increase that we saw in after sales, there was actually a decline in warranty in the quarter in the U.K. that was more than offset by a higher increase in CP of 8%.

We do have opportunity to increase our customer count, Rajat. There's a lot of that increase that we saw was per RO dollars -- and so what we are focused on is trying to drive more car count, especially since we have 8% more technicians to be able to accommodate it.

Your next question today will come from Daniela Haigian with Morgan Stanley.

So parts and service tends to be a ballast for Group 1. You see continued strength, customer pay, margins up, technician headcounts up. But thinking out the next 1 to 3 years or so, what are the key puts and takes to think about the top line? You have, on 1 hand, vehicle unaffordability weighing on which can increase mileage, create demand for reconditioning, but it also may limit the origination of newer cars that tend to have that stickiness on the service side. So what are the critical vintages to look out for? And how can Group 1 navigate that period of turbulence.

A key to growth in the next 3 years and after sales, Daniela in the U.S. specifically is us reaching deeper into the owner base in terms of people who have owned their cars longer. And we have to be able to increase our share of that market. So call it, 4-plus years of ownership and we need to be able to reach into that market deeper penetrated deeper, increase our penetration there, increase our spend there.

Ways to do that are -- we're looking at our -- make sure our labor rates are attractive to that customer segment. It's a sensitive customer segment on pricing. So we have to make sure that we're attractive. We have to make sure that we're not over price for what they're looking for. And then also the restructuring of our marketing at Group 1 to where we're now using first-party data, we know more about those customers than we ever have. And so our focus and I think success moving into the years ahead is going to be how do we reach out to those customers who've owned their cars longer than 3 years. And that's what we're putting a lot of focus on right now.

Daniela, just -- Daniel here, just to add to what Daryl said. The average car coming into our store a 2022 vehicle versus the 2019 vehicle, which is the average age -- average model the inch of a car within our store. It's over 1/3 higher, the average RO value that we get from that vehicle. So it's slightly important that we keep those within our ecosystem. .

Got it. Makes sense. Second question is around the used business. Large online-only retailer growing volumes 50% year-over-year in the market. They're pushing for 3 million used cars sold annually in the next 5 to 10 years. I know it's an incredibly fragmented market. how do you view the competition from the likes of these online pure-play retailers? And is there greater opportunity to grow and consolidate in the used business?

That's probably opportunity to consolidate. Yes, agreed. We try to learn from those online retailers. They're great competitors, especially in the shopping process. And those are things that we pay attention to and try to learn from. We feel like, at least today, we still have tremendous opportunity to grow our used business inside our footprint of our stores today, especially as used car sales become more digital. And there was any part of our business today.

So we feel like we can still grow inside of our footprint. We have grown, if you were to look at our used to new ratio 5 years ago, it was much less than it is today and we've improved our used car performance, but there's still room to run. And I think you're right. I think those digital retailers are proving that.

And your next question today will come from Federico Morandi with Bank of America.

So we've heard that OEMs for model year '26 may take some of the feature that in prior model year were basically standard and put them as optional. So basically, there will be a higher price to get the same features of last year vehicle. What have you seen on your order sheet so far?

Federico, this is Daryl Kenningham. They're just announcing 2026 contenting in some in pricing. And some are still waiting to see what happens with the tariffs. I mean the Japan announcement this week, and there's still not enough specifics around it, I don't think, for the OEMs to make pricing decisions. But we -- and then Europe is supposed to be finalized very soon.

We don't -- what I -- what we believe will happen, and I think this will absolutely happen is you will see OEMs play with trim levels, contenting, repricing price walks between grades, things like that to optimize margins and reduce the impact of the tariffs. So what you stated in your question, I think, is absolutely true, and I think that will happen.

And then standard equipment may become optional in the future in order to keep the base car more competitively priced.

And my follow-up would be on parts and service. So you did a great job to increase your head count. So I was wondering for every 1% of incremental headcount, what the translation into earnings or like gross profit for every technician that you had to your headcount basically?

Well, we can get you some more detail around it. But generally, at Group 1, how we look at a technician -- they're worth about $15,000 in gross profit per month average across our brands. Some brands, it's more, some brands it's less. But when we can put a technician in a stall and have them worked for a month, that's like another $15,000 in gross profit. And that's how we kind of look at our cost.

We look at the cost of not having a technician rather than the cost of what it costs to acquire a technician. So -- and Daniel can give you some more depth on that later today, if you like.

And your next question today will come from Michael Ward with Citi Research.

How do the BEV mandates in the U.K. affect your growth? What happens there?

A lot of the EV volume, Mike, is going into corporate fleets. If you were to look at the retail mix of the BEV mix and just the straight retail consumer, it's like 10%, 11% of the mix. If you look at it in the corporate fleets, it's much higher than that. And it blends out at like 26% today. .

And when we sell cars to the corporate fleets, we still make positive margin on it, but it's less than what we make at retail. And so as long as there's all that it's kind of like in the U.S. when they're putting a lot of beds in rental car service right now, is similar. So it's just corporate fleets there, and it drives the margin down as a result.

Okay. You made a few more acquisitions in 2Q. What is the environment like out there? Are there big lumpy acquisitions out there? I mean the Herb chamber is 1 that Asbury took was a big chunk. Are there any big acquisition opportunities out there, do you think? Or is it a more tuck-ins that we're seeing?

Well, I think as a general statement, I think there will be in the next few years, there will be larger ones. And up to right now, the year has been fairly quiet because of the uncertainty. It feels like in the last couple of weeks, there's a little more activity. We're starting to see some more inbound here, I mean literally in the last few days. So we'll see if that is a blip or a harbinger of it getting more active. We'll see. I'm not sure yet. .

Your next question today will come from Jeff Lick with Stephens, Inc.

Congrats on a great quarter again. So I was just kind of curious, this quarter, the metrics were a little more variable if you if you try to predict all these. If you look at new gross new units, service and parts used. I'm just kind of curious, as you which 1 surprised you the most? And as we look into Q3 and Q4, which ones kind of are sustainable and kind of predictive for our models and which ones might tail off.

Well, I wouldn't -- we were really pleased with the aftersales performance in both markets. I cannot tell you that we would expect to maintain what was a 13% customer pay growth on an ongoing basis. Generally, we plan for mid-single digits, maybe high mid-single digits on that. So that -- I wouldn't lean on the current after sales growth like it is.

And when you look at the warranty numbers, they won't be 31% in the quarters ahead, I don't think might be great if they are, but we wouldn't -- haven't planned on it. So I think there's resilience in the -- and I'll ask Pete to comment on this, especially on new cars and F&I. But on the new car side, I think there's resilience in the new car margin, Jeff. It just -- it's held up now for a year. And doesn't seem to be weakening and the days supply in total anyway is still reasonable and the OEMs seem to be managing that well. And Pete may have some comments on F&I and used cars in terms of...

Sure. Jeff, I think that -- I wouldn't say that we were surprised. We've got our processes in place. The team is in place, and I think we've executed on the strategy that we've laid out to you over the last few years. So -- the demand is still there for us. Acquisition is very difficult. And we ended the quarter with a 31 day supply. So we were consistent there.

And then I think if you look at the F&I when -- whether it's the revenue that we're getting from the finance piece of the business and along with our increased margins or increased percentages on product, it turned out to be a great quarter for us. So I think there's still demand out there for used and facilitation of finance and insurance.

It's Daniel. The only thing I would add around SG&A and U.K., in particular, there wasn't a plate change month this quarter. So I'd expect SG&A as a percent of growth to come down slightly in quarter 3 versus quarter 2 just because of that additional growth.

And then just a quick follow-up. The lease return issue, obviously, this year, down below $1 million, it looks like they're down 30%, 40% year-over-year. That should flip depending on what the buyout turn in rate is next year, but it's going to be up. That should be a good source of traffic. I don't think really focused on 2026 that much given what's going on in 2025. But if you could just speak to how you guys think lease turn-in issue, how that plays out and what effect it has in 2026.

I think it's going to be a -- Jeff, this is Pete. It's difficult to forecast that because -- you don't know what the equity situation is going to look like next year, and it could be very good on especially the ICE vehicles. I think the wildcard on that is what the beblease returns look like. But with the situation with acquisition and availability, we are taking as many off-lease vehicles as possible.

And I think that will continue through next year depending on pricing.

And your next question today will come from David Whiston with Morningstar.

Just curious on the divestiture of the 2 U.K. Mercedes stores? Is that more of a geographic reason a factory reason? Or are you not happy with Mercedes prospects in the U.K. going forward?

We're very happy with Mercedes-Benz in the U.K. We're the largest Mercedes retailer in the U.K., and we're happy about that and we have a terrific relationship with the OEM. There was some -- in those two cases, those stores were closer to other stores that we owned and just in partnership with the OEM. We closed those consolidated them into another point. So no dissatisfaction whatsoever from us for Mercedes-Benz or their agency model. Daniel may have something...

Yes. The 1 store in particular was only 7 miles away from another one of our stores. And we're actually going to redevelop that store into a larger store in the coming future. So we see some cost benefit from that, and we don't expect to lose any of our customer base.

Okay. And just curious if your Toyota inventory is abnormally too low given any reluctance memento export vehicles from Japan right now?

Well, it's low. And basically, what we have is Tacomas and Thunders -- would we like a little more? Yes, we probably would, but we're okay with tight supply at Toyota. That's for sure. .

And your next question today will come from Ron Jewsikow with Guggenheim Securities.

Yes, nice quarter. On the U.K. SG&A piece, Daniel, I think you mentioned $4 million of higher costs related to required national insurance contribution changes. Was there anything else noteworthy this quarter? Because I know you've kind of had this ongoing integration effort post Inchcape and cost savings underway, but dollars were up more than that $4 million sequentially despite lower gross profits.

When I look at the dollars, I think some of it is January and February is generally a lower cost base it's kind of more even in quarter 2. The expectation always was that we would be slightly above 80%. SG&A as a percent of gross on the basis on an annualized basis. We expected it to be closer to 80%. But there's nothing really unusual in there apart from the increases in national insurance and national minimum wage.

Okay. No, that's super helpful. And then on parts and service slack, just kind of if warranty slows, and I understand there are probably structural tailwinds for warranty going forward. But in the event warranty workflows, just trying to stress test our model.

Are you confident there's kind of enough built-up demand from customer pay to offset if there is a slowdown in warranty work? Or how should we think about the two? I don't -- I'm just not sure if you're wall to wall in your service departments right now or how to think about that?

I don't think we can cover 31% increase in warranty with CP, but we think there's still room to improve CP and as we look back on prior quarters where warranty was lower, we were able to deliver CP growth there as well. So I can't tell you be dollar for dollar. But we certainly think there's room there.

And we generally feel like capacity is the key to driving after sales growth.

And your next question today will come from Bret Jordan with Jefferies.

On U.S. GPU, I guess you saw a $29 lift in comp -- does that -- was that pulled forward? Or is that -- was there a demand surge around liberation day? Or do you see the GPU sort of able to stable or expand from here?

I think, Bret, if you take a look at our trend has been pretty consistent on the use, and I would expect that to continue. It's -- in the used business, it's all about the acquisition and our team has done a spectacular job of navigating whether it's trades, auction purchases or outside purchases. So I think from a gross profit standpoint, it's been pretty consistent over the last year.

Okay. And then I guess, parts and service, can you sort of carve out how much was the benefit of CDK? -- sort of obviously, late in the quarter last year, there was very little parts and service.

For us as a company, I think whenever we made our earnings call last year, we said that the effect of the CDK for parts and service, specifically was about $12 million in terms of -- in terms of our pretax income. So I would run that kind of estimate, Bret.

Thank you. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines, and have a great day.