Item 2. Management’s Discussion and Analysis
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Management’s Discussion and Analysis of Financial Condition and Results of Operations, or MD&A, should be read in conjunction with the accompanying unaudited Condensed Consolidated Financial Statements and the notes thereto, as well as our 2021 Form 10-K.
Unless the context requires otherwise, references to “we,” “us” and “our” are intended to mean the business and operations of Group 1 Automotive, Inc. and its subsidiaries.
Overview
We are a leading operator in the automotive retail industry. Through our omni-channel platform, we sell new and used cars and light trucks; arrange related vehicle financing; sell service and insurance contracts; provide automotive maintenance and repair services; and sell vehicle parts. We operate in geographically diverse markets that extend across 17 states in the U.S. and 35 towns and cities in the U.K. As of March 31, 2022, our retail network consisted of 146 dealerships in the U.S. and 55 dealerships in the U.K.
On November 12, 2021, we entered into a Share Purchase Agreement (the “Brazil Agreement”) with Original Holdings S.A. (“Buyer”). Pursuant to the terms and conditions set forth in the Brazil Agreement, Buyer will acquire 100% of the issued and outstanding equity interests of our Brazilian operations (the “Brazil Disposal Group”) for approximately BRL 510 million in cash (the “Brazil Disposal”). The transaction is expected to close before the end of the second quarter of 2022. The Brazil Disposal Group met the criteria to be reported as discontinued operations. Therefore, the related assets, liabilities and operating results of the Brazil Disposal Group are reported as discontinued operations (the “Brazil Discontinued Operations”) for all periods presented. Effective as of the fourth quarter of 2021, we are aligned into two reportable segments: the U.S. and the U.K. Refer to Note 4. Discontinued Operations and Other Divestitures within the Notes to Condensed Consolidated Financial Statements within this Form 10-Q, for additional information regarding business dispositions. Unless otherwise specified, disclosures in this Form 10-Q reflect continuing operations only.
Recent Events
There has continued to be widespread impact from the COVID-19 pandemic. Infection rates and regulations continue to fluctuate in various regions and there are ongoing global impacts resulting from the pandemic, including challenges and increases in costs for logistics and supply chains, such as increased port congestion, intermittent supplier delays and a shortfall of semiconductor and other parts supplies, all of which impact our business either directly or indirectly.
Additionally, our manufacturers’ production is currently at reduced levels as a result of global semiconductor and other parts shortages, which is impacting new vehicle sales and inventory levels in all our markets. The increased demand for new vehicles and reduced production levels have significantly reduced our new vehicle inventory levels. Our new vehicle days’ supply of inventory was approximately 11 days as of the quarter ended March 31, 2022 (“Current Quarter”), as compared to 12 days as of the quarter ended December 31, 2021, and 33 days as of the quarter ended March 31, 2021 (“Prior Year Quarter”).
On February 24, 2022, Russia launched a military invasion of Ukraine (the “Russia and Ukraine Conflict”). The ongoing Russia and Ukraine Conflict has provoked strong reactions from the U.S., the U.K., the European Union and various other countries around the world, including the imposition of broad financial and economic sanctions against Russia. While the precise effects of the ongoing military conflict and these sanctions on the Russian and global economies remain uncertain, they have already resulted in significant volatility in financial markets, an increase in energy and commodity prices globally and further disruption of the global supply chain for certain raw materials and manufactured goods, including vehicle parts.
Critical Accounting Policies and Accounting Estimates
For discussion of our critical accounting policies and accounting estimates, refer to Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations of our 2021 Form 10-K. There have been no material changes to our critical accounting policies or accounting estimates since December 31, 2021.
Results of Operations
The “same store” amounts presented below include the results of dealerships and corporate headquarters for the identical months in each period presented in comparison, commencing with the first full month in which the dealership was owned by us and, in the case of dispositions, ending with the last full month it was owned by us. For example, the results for a dealership acquired on August 15, 2020, will appear in our same store comparison beginning in 2021 for the period September 2021 through December 2021, when comparing to September 2020 through December 2020 results. If we disposed of a store on August 15, 2020, the results from this store would be excluded from same store results beginning in August 2020 as July 2020 was the last full month the dealership was owned by us. Same store results provide a measurement of our ability to grow revenues and profitability of our existing stores and also provide a metric for peer group comparisons. For these reasons, same store results allow management to manage and monitor the performance of the business and is also useful to investors.
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We evaluate our results of operations on both an as reported and a constant currency basis. The constant currency presentation, which is a non-GAAP measure, excludes the impact of fluctuations in foreign currency exchange rates. We believe providing constant currency information provides valuable supplemental information regarding our underlying business and results of operations, consistent with how we evaluate our performance. We calculate constant currency percentages by converting our current period reported results for entities reporting in currencies other than USD using comparative period exchange rates rather than the actual exchange rates in effect during the respective periods. The constant currency performance measures should not be considered a substitute for, or superior to, the measures of financial performance prepared in accordance with U.S. GAAP. Additionally, we caution investors not to place undue reliance on non-GAAP measures, but also to consider them with the most directly comparable U.S. GAAP measures. Our management also uses constant currency and adjusted cash flows from operating, investing and financing activities in conjunction with U.S. GAAP financial measures to assess our business, including communication with our Board of Directors, investors and industry analysts concerning financial performance. We disclose these non-GAAP measures and the related reconciliations because we believe investors use these metrics in evaluating longer-term period-over-period performance. These metrics also allow investors to better understand and evaluate the information used by management to assess operating performance.
Certain amounts in the financial statements may not compute due to rounding. All computations have been calculated using unrounded amounts for all periods presented.
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The following tables summarize our operating results on a reported basis and on a same store basis:
Reported Operating Data — Consolidated
(In millions, except unit data)
Three Months Ended March 31,
2022 2021 Increase/ (Decrease) % Change Currency Impact on Current Period Results Constant Currency % Change
Revenues:
New vehicle retail sales $ 1,745.1 $ 1,509.2 $ 235.9 15.6 % $ (11.1) 16.4 %
Used vehicle retail sales 1,359.9 888.1 471.8 53.1 % (9.5) 54.2 %
Used vehicle wholesale sales 93.5 78.2 15.2 19.5 % (1.0) 20.8 %
Total used 1,453.4 966.3 487.0 50.4 % (10.5) 51.5 %
Parts and service sales 472.9 352.8 120.1 34.0 % (1.9) 34.6 %
F&I, net 173.0 125.6 47.4 37.7 % (0.6) 38.2 %
Total revenues $ 3,844.4 $ 2,953.9 $ 890.4 30.1 % $ (24.1) 31.0 %
Gross profit:
New vehicle retail sales $ 201.3 $ 95.7 $ 105.6 110.4 % $ (1.1) 111.5 %
Used vehicle retail sales 87.8 58.5 29.4 50.2 % (0.6) 51.1 %
Used vehicle wholesale sales 2.8 3.8 (0.9) (25.1) % — (25.6) %
Total used 90.7 62.3 28.4 45.6 % (0.5) 46.5 %
Parts and service sales 259.8 197.7 62.1 31.4 % (1.2) 32.0 %
F&I, net 173.0 125.6 47.4 37.7 % (0.6) 38.2 %
Total gross profit $ 724.7 $ 481.3 $ 243.4 50.6 % $ (3.4) 51.3 %
Gross margin:
New vehicle retail sales 11.5 % 6.3 % 5.2 %
Used vehicle retail sales 6.5 % 6.6 % (0.1) %
Used vehicle wholesale sales 3.0 % 4.8 % (1.8) %
Total used 6.2 % 6.4 % (0.2) %
Parts and service sales 54.9 % 56.1 % (1.1) %
Total gross margin 18.9 % 16.3 % 2.6 %
Units sold:
Retail new vehicles sold 36,733 35,692 1,041 2.9 %
Retail used vehicles sold 43,806 37,543 6,263 16.7 %
Wholesale used vehicles sold 9,099 9,578 (479) (5.0) %
Total used 52,905 47,121 5,784 12.3 %
Average sales price per unit sold:
New vehicle retail $ 47,509 $ 42,285 $ 5,224 12.4 % $ (301) 13.1 %
Used vehicle retail $ 31,043 $ 23,656 $ 7,387 31.2 % $ (217) 32.1 %
Gross profit per unit sold:
New vehicle retail sales $ 5,479 $ 2,680 $ 2,799 104.4 % $ (30) 105.5 %
Used vehicle retail sales $ 2,005 $ 1,558 $ 447 28.7 % $ (13) 29.5 %
Used vehicle wholesale sales $ 310 $ 394 $ (83) (21.2) % $ 2 (21.7) %
Total used $ 1,714 $ 1,321 $ 392 29.7 % $ (10) 30.5 %
F&I PRU $ 2,148 $ 1,715 $ 432 25.2 % $ (8) 25.7 %
Other:
SG&A expenses $ 418.5 $ 311.4 $ 107.1 34.4 % $ (1.8) 35.0 %
SG&A as % gross profit 57.7 % 64.7 % (6.9) %
Floorplan expense:
Floorplan interest expense $ 5.3 $ 7.5 $ (2.2) (29.9) % $ — (29.3) %
Less: floorplan assistance (1)
14.0 13.2 0.8 6.3 % — 6.3 %
Net floorplan expense $ (8.8) $ (5.7) $ (3.1) $ —
(1) Floorplan assistance is included within New vehicle retail sales Gross profit above and New vehicle retail sales Cost of sales in our Condensed Consolidated Statements of Operations.
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Same Store Operating Data — Consolidated
(In millions, except unit data)
Three Months Ended March 31,
2022 2021 Increase/ (Decrease) % Change Currency Impact on Current Period Results Constant Currency % Change
Revenues:
New vehicle retail sales $ 1,440.7 $ 1,490.4 $ (49.6) (3.3) % $ (10.1) (2.7) %
Used vehicle retail sales 1,163.1 878.3 284.8 32.4 % (8.4) 33.4 %
Used vehicle wholesale sales 79.6 77.5 2.1 2.8 % (0.9) 4.0 %
Total used 1,242.7 955.8 287.0 30.0 % (9.3) 31.0 %
Parts and service sales 405.0 347.1 57.9 16.7 % (1.7) 17.2 %
F&I, net 148.7 123.9 24.8 20.0 % (0.6) 20.4 %
Total revenues $ 3,237.2 $ 2,917.1 $ 320.1 11.0 % $ (21.7) 11.7 %
Gross profit:
New vehicle retail sales $ 163.6 $ 94.6 $ 69.0 72.9 % $ (1.0) 74.0 %
Used vehicle retail sales 73.9 58.0 15.9 27.5 % (0.5) 28.3 %
Used vehicle wholesale sales 1.8 3.8 (2.0) (51.8) % — (52.3) %
Total used 75.7 61.7 14.0 22.7 % (0.5) 23.4 %
Parts and service sales 218.9 194.7 24.2 12.4 % (1.1) 13.0 %
F&I, net 148.7 123.9 24.8 20.0 % (0.6) 20.4 %
Total gross profit $ 606.9 $ 474.9 $ 132.0 27.8 % $ (3.1) 28.4 %
Gross margin:
New vehicle retail sales 11.4 % 6.3 % 5.0 %
Used vehicle retail sales 6.4 % 6.6 % (0.2) %
Used vehicle wholesale sales 2.3 % 4.9 % (2.6) %
Total used 6.1 % 6.5 % (0.4) %
Parts and service sales 54.0 % 56.1 % (2.0) %
Total gross margin 18.7 % 16.3 % 2.5 %
Units sold:
Retail new vehicles sold 30,260 35,263 (5,003) (14.2) %
Retail used vehicles sold 37,415 37,092 323 0.9 %
Wholesale used vehicles sold 7,377 9,457 (2,080) (22.0) %
Total used 44,792 46,549 (1,757) (3.8) %
Average sales price per unit sold:
New vehicle retail $ 47,612 $ 42,264 $ 5,348 12.7 % $ (334) 13.4 %
Used vehicle retail $ 31,087 $ 23,679 $ 7,408 31.3 % $ (224) 32.2 %
Gross profit per unit sold:
New vehicle retail sales $ 5,407 $ 2,683 $ 2,724 101.5 % $ (33) 102.8 %
Used vehicle retail sales $ 1,975 $ 1,563 $ 412 26.4 % $ (13) 27.2 %
Used vehicle wholesale sales $ 246 $ 398 $ (152) (38.2) % $ 2 (38.8) %
Total used $ 1,691 $ 1,326 $ 364 27.5 % $ (10) 28.3 %
F&I PRU $ 2,197 $ 1,712 $ 484 28.3 % $ (8) 28.8 %
Other:
SG&A expenses $ 367.0 $ 306.5 $ 60.5 19.7 % $ (1.8) 20.3 %
SG&A as % gross profit 60.5 % 64.5 % (4.1) %
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Reported Operating Data — U.S.
(In millions, except unit data)
Three Months Ended March 31,
2022 2021 Increase/(Decrease) % Change
Revenues:
New vehicle retail sales $ 1,433.1 $ 1,246.0 $ 187.1 15.0 %
Used vehicle retail sales 1,037.9 696.5 341.4 49.0 %
Used vehicle wholesale sales 57.2 50.4 6.8 13.5 %
Total used 1,095.1 746.9 348.2 46.6 %
Parts and service sales 408.4 296.3 112.1 37.8 %
F&I, net 154.7 115.1 39.7 34.5 %
Total revenues $ 3,091.3 $ 2,404.3 $ 687.0 28.6 %
Gross profit:
New vehicle retail sales $ 173.3 $ 80.9 $ 92.5 114.3 %
Used vehicle retail sales 68.7 50.3 18.3 36.5 %
Used vehicle wholesale sales 3.2 3.9 (0.7) (17.5) %
Total used 71.9 54.3 17.7 32.5 %
Parts and service sales 221.0 165.1 55.9 33.8 %
F&I, net 154.7 115.1 39.7 34.5 %
Total gross profit $ 620.9 $ 415.3 $ 205.6 49.5 %
Gross margin:
New vehicle retail sales 12.1 % 6.5 % 5.6 %
Used vehicle retail sales 6.6 % 7.2 % (0.6) %
Used vehicle wholesale sales 5.7 % 7.8 % (2.1) %
Total used 6.6 % 7.3 % (0.7) %
Parts and service sales 54.1 % 55.7 % (1.6) %
Total gross margin 20.1 % 17.3 % 2.8 %
Units sold:
Retail new vehicles sold 29,498 29,152 346 1.2 %
Retail used vehicles sold 33,940 30,431 3,509 11.5 %
Wholesale used vehicles sold 6,001 6,440 (439) (6.8) %
Total used 39,941 36,871 3,070 8.3 %
Average sales price per unit sold:
New vehicle retail $ 48,583 $ 42,743 $ 5,840 13.7 %
Used vehicle retail $ 30,580 $ 22,888 $ 7,692 33.6 %
Gross profit per unit sold:
New vehicle retail sales $ 5,876 $ 2,774 $ 3,102 111.8 %
Used vehicle retail sales $ 2,023 $ 1,654 $ 369 22.3 %
Used vehicle wholesale sales $ 540 $ 610 $ (70) (11.5) %
Total used $ 1,800 $ 1,471 $ 329 22.4 %
F&I PRU $ 2,439 $ 1,931 $ 508 26.3 %
Other:
SG&A expenses $ 353.6 $ 261.7 $ 91.9 35.1 %
SG&A as % gross profit 56.9 % 63.0 % (6.1) %
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Same Store Operating Data — U.S.
(In millions, except unit data)
Three Months Ended March 31,
2022 2021 Increase/(Decrease) % Change
Revenues:
New vehicle retail sales $ 1,155.8 $ 1,227.6 $ (71.8) (5.8) %
Used vehicle retail sales 878.0 687.7 190.4 27.7 %
Used vehicle wholesale sales 46.3 49.7 (3.4) (6.9) %
Total used 924.4 737.4 187.0 25.4 %
Parts and service sales 347.8 293.3 54.5 18.6 %
F&I, net 131.9 113.4 18.5 16.3 %
Total revenues $ 2,559.8 $ 2,371.6 $ 188.2 7.9 %
Gross profit:
New vehicle retail sales $ 138.3 $ 79.9 $ 58.5 73.2 %
Used vehicle retail sales 57.0 49.8 7.2 14.4 %
Used vehicle wholesale sales 2.2 3.9 (1.7) (42.9) %
Total used 59.3 53.7 5.5 10.3 %
Parts and service sales 184.4 163.2 21.2 13.0 %
F&I, net 131.9 113.4 18.5 16.3 %
Total gross profit $ 513.9 $ 410.2 $ 103.7 25.3 %
Gross margin:
New vehicle retail sales 12.0 % 6.5 % 5.5 %
Used vehicle retail sales 6.5 % 7.2 % (0.8) %
Used vehicle wholesale sales 4.8 % 7.8 % (3.0) %
Total used 6.4 % 7.3 % (0.9) %
Parts and service sales 53.0 % 55.7 % (2.6) %
Total gross margin 20.1 % 17.3 % 2.8 %
Units sold:
Retail new vehicles sold 23,769 28,739 (4,970) (17.3) %
Retail used vehicles sold 28,901 30,037 (1,136) (3.8) %
Wholesale used vehicles sold 4,639 6,344 (1,705) (26.9) %
Total used 33,540 36,381 (2,841) (7.8) %
Average sales price per unit sold:
New vehicle retail $ 48,625 $ 42,714 $ 5,912 13.8 %
Used vehicle retail $ 30,381 $ 22,894 $ 7,488 32.7 %
Gross profit per unit sold:
New vehicle retail sales $ 5,819 $ 2,779 $ 3,041 109.4 %
Used vehicle retail sales $ 1,974 $ 1,660 $ 314 18.9 %
Used vehicle wholesale sales $ 477 $ 611 $ (134) (21.9) %
Total used $ 1,767 $ 1,477 $ 290 19.7 %
F&I PRU $ 2,504 $ 1,929 $ 575 29.8 %
Other:
SG&A expenses $ 306.5 $ 258.7 $ 47.9 18.5 %
SG&A as % gross profit 59.6 % 63.1 % (3.4) %
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U.S. Region — Three Months Ended March 31, 2022 Compared to 2021
The following discussion of our U.S. operating results is on an as reported and same store basis. The difference between as reported amounts and same store amounts is related to acquisition and disposition activity, as well as new add-point openings.
Revenues
Total revenues in the U.S. during the Current Quarter, increased $687.0 million, or 28.6%, as compared to the Prior Year Quarter, driven by increases across all business lines. Total same store revenues in the U.S. during the Current Quarter, increased $188.2 million, or 7.9%. New and used vehicle retail sales revenues benefited from the sale of approximately 5,800 units from our online digital platform, AcceleRide®, during the Current Quarter, a 44.0% increase as compared to the Prior Year Quarter.
New vehicle retail same store sales revenues declined modestly, driven by a shortage in new vehicle supply, leading to fewer units sold. The shortage of new vehicle inventory continues to drive strong pricing, which mitigated the sales revenue impact of lower unit sales. Supply chain issues, including an ongoing semiconductor and vehicle parts shortage, and other logistics challenges, continued into the Current Quarter for OEMs, leading to sustained lower vehicle production and deliveries of fewer vehicles to dealerships. We ended the Current Quarter with a U.S. new vehicle inventory supply of 9 days, 26 days lower than the Prior Year Quarter, and consistent with the December 31, 2021 days’ supply of 9.
Used vehicle retail same store sales revenues outperformed the Prior Year Quarter, despite a modest decline in units sold, as increased demand drove prices higher. Used vehicle wholesale same store sales revenues declined only modestly as increased used vehicle demand drove higher prices, which partially offset a decline in units sold.
Parts and service same store revenues outperformed the Prior Year Quarter, driven by increases in customer pay revenues, wholesale revenues and collision revenues, partially offset by a slight decline in warranty revenues.
F&I, net same store revenues outperformed the Prior Year Quarter, primarily driven by higher income per contract on finance, VSCs and other insurance product offerings and higher penetration rates. These increases were partially offset by a decrease in same store total retail unit sales and an increase in our overall chargeback experience.
Gross Profit
Total gross profit in the U.S. during the Current Quarter, increased $205.6 million, or 49.5%, as compared to the Prior Year Quarter. Total same store gross profit in the U.S. during the Current Quarter, increased $103.7 million, or 25.3%, as compared to the Prior Year Quarter.
New vehicle retail same store gross profit increased 73.2%, driven by a 109.4% increase in new vehicle retail same store gross profit per unit sold, partially offset by a 17.3% decrease in new vehicle retail same store unit sales. The increase in new vehicle retail same store gross profit per unit sold reflects the strong demand resulting from the shortage of new vehicle inventory discussed above.
Used vehicle retail same store gross profit increased 14.4%, driven by an increase of 18.9% in used vehicle retail same store gross profit per unit sold, partially offset by a 3.8% decrease in used vehicle retail same store unit sales. The increase in used vehicle retail same store gross profit per unit sold reflects a combination of higher market prices and strong demand. Our used vehicle wholesale same store gross profit decreased 42.9%, driven by a 21.9% decrease in used vehicle wholesale same store gross profit per unit sold, coupled with a decrease in used vehicle same store wholesale units.
Parts and service same store gross profit increased 13.0%, primarily driven by the increase in our customer-pay business reflecting increased business activity.
F&I, net same store gross profit increased 16.3%, driven by increases in revenue discussed above.
Total same store gross margin increased 278 basis points, primarily driven by higher new vehicle retail sales prices outpacing new vehicle costs of sales.
SG&A Expenses
SG&A as a percentage of gross profit declined 607 and 341 basis points on an as reported and same store basis, respectively, compared to the Prior Year Quarter.
Total SG&A expenses in the U.S. during the Current Quarter, increased $91.9 million, or 35.1%, as compared to the Prior Year Quarter. Total same store SG&A expenses in the U.S. during the Current Quarter, increased $47.9 million, or 18.5%, as compared to the Prior Year Quarter, primarily driven by increased variable commission payments as a result of improvements in gross profits in our operations and an increase in other variable expenses associated with the rise in certain business activities as described above.
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Total same store SG&A expenses in the U.S. for the Prior Year Quarter, included $2.2 million in disaster pay and insurance deductible expense associated with the February winter storm in Texas and a $1.0 million gain related to a favorable legal settlement.
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Reported Operating Data — U.K.
(In millions, except unit data)
Three Months Ended March 31,
2022 2021 Increase/ (Decrease) % Change Currency Impact on Current Period Results Constant Currency % Change
Revenues:
New vehicle retail sales $ 312.0 $ 263.2 $ 48.9 18.6 % $ (11.1) 22.8 %
Used vehicle retail sales 322.0 191.6 130.4 68.1 % (9.5) 73.0 %
Used vehicle wholesale sales 36.3 27.8 8.4 30.3 % (1.0) 33.9 %
Total used 358.3 219.4 138.8 63.3 % (10.5) 68.0 %
Parts and service sales 64.5 56.5 8.0 14.2 % (1.9) 17.5 %
F&I, net 18.3 10.6 7.7 72.9 % (0.6) 78.7 %
Total revenues $ 753.0 $ 549.6 $ 203.4 37.0 % $ (24.1) 41.4 %
Gross profit:
New vehicle retail sales $ 27.9 $ 14.8 $ 13.2 89.0 % $ (1.1) 96.3 %
Used vehicle retail sales 19.2 8.2 11.0 134.7 % (0.6) 141.4 %
Used vehicle wholesale sales (0.4) (0.2) (0.3) NM — NM
Total used 18.8 8.0 10.7 134.1 % (0.5) 140.8 %
Parts and service sales 38.8 32.6 6.2 19.0 % (1.2) 22.6 %
F&I, net 18.3 10.6 7.7 72.9 % (0.6) 78.7 %
Total gross profit $ 103.8 $ 66.0 $ 37.8 57.3 % $ (3.4) 62.5 %
Gross margin:
New vehicle retail sales 9.0 % 5.6 % 3.3 %
Used vehicle retail sales 6.0 % 4.3 % 1.7 %
Used vehicle wholesale sales (1.2) % (0.6) % (0.6) %
Total used 5.2 % 3.7 % 1.6 %
Parts and service sales 60.2 % 57.8 % 2.4 %
Total gross margin 13.8 % 12.0 % 1.8 %
Units sold:
Retail new vehicles sold 7,235 6,540 695 10.6 %
Retail used vehicles sold 9,866 7,112 2,754 38.7 %
Wholesale used vehicles sold 3,098 3,138 (40) (1.3) %
Total used 12,964 10,250 2,714 26.5 %
Average sales price per unit sold:
New vehicle retail $ 43,129 $ 40,240 $ 2,889 7.2 % $ (1,528) 11.0 %
Used vehicle retail $ 32,638 $ 26,941 $ 5,697 21.1 % $ (962) 24.7 %
Gross profit per unit sold:
New vehicle retail sales $ 3,861 $ 2,261 $ 1,600 70.8 % $ (150) 77.4 %
Used vehicle retail sales $ 1,944 $ 1,149 $ 795 69.2 % $ (56) 74.0 %
Used vehicle wholesale sales $ (135) $ (51) $ (84) NM $ 6 NM
Total used $ 1,447 $ 782 $ 666 85.1 % $ (41) 90.4 %
F&I PRU $ 1,068 $ 773 $ 294 38.1 % $ (36) 42.7 %
Other:
SG&A expenses $ 64.9 $ 49.6 $ 15.2 30.7 % $ (1.8) 34.3 %
SG&A as % gross profit 62.5 % 75.2 % (12.7) %
NM — Not Meaningful
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Same Store Operating Data — U.K.
(In millions, except unit data)
Three Months Ended March 31,
2022 2021 Increase/ (Decrease) % Change Currency Impact on Current Period Results Constant Currency % Change
Revenues:
New vehicle retail sales $ 285.0 $ 262.8 $ 22.2 8.4 % $ (10.1) 12.3 %
Used vehicle retail sales 285.1 190.6 94.4 49.5 % (8.4) 53.9 %
Used vehicle wholesale sales 33.3 27.7 5.6 20.1 % (0.9) 23.4 %
Total used 318.4 218.4 100.0 45.8 % (9.3) 50.1 %
Parts and service sales 57.3 53.9 3.4 6.3 % (1.7) 9.4 %
F&I, net 16.8 10.5 6.2 59.4 % (0.6) 64.8 %
Total revenues $ 677.3 $ 545.5 $ 131.8 24.2 % $ (21.7) 28.1 %
Gross profit:
New vehicle retail sales $ 25.3 $ 14.8 $ 10.5 71.4 % $ (1.0) 78.1 %
Used vehicle retail sales 16.9 8.1 8.7 107.5 % (0.5) 113.4 %
Used vehicle wholesale sales (0.4) (0.1) (0.3) NM — NM
Total used 16.5 8.0 8.4 105.4 % (0.5) 111.2 %
Parts and service sales 34.4 31.4 3.0 9.5 % (1.1) 12.9 %
F&I, net 16.8 10.5 6.2 59.4 % (0.6) 64.8 %
Total gross profit $ 93.0 $ 64.7 $ 28.2 43.6 % $ (3.1) 48.4 %
Gross margin:
New vehicle retail sales 8.9 % 5.6 % 3.3 %
Used vehicle retail sales 5.9 % 4.3 % 1.7 %
Used vehicle wholesale sales (1.2) % (0.4) % (0.8) %
Total used 5.2 % 3.7 % 1.5 %
Parts and service sales 60.1 % 58.4 % 1.8 %
Total gross margin 13.7 % 11.9 % 1.9 %
Units sold:
Retail new vehicles sold 6,491 6,524 (33) (0.5) %
Retail used vehicles sold 8,514 7,055 1,459 20.7 %
Wholesale used vehicles sold 2,738 3,113 (375) (12.0) %
Total used 11,252 10,168 1,084 10.7 %
Average sales price per unit sold:
New vehicle retail $ 43,903 $ 40,282 $ 3,621 9.0 % $ (1,557) 12.9 %
Used vehicle retail $ 33,483 $ 27,023 $ 6,460 23.9 % $ (986) 27.6 %
Gross profit per unit sold:
New vehicle retail sales $ 3,898 $ 2,262 $ 1,635 72.3 % $ (153) 79.0 %
Used vehicle retail sales $ 1,981 $ 1,152 $ 829 71.9 % $ (57) 76.8 %
Used vehicle wholesale sales $ (146) $ (36) $ (110) NM $ 6 NM
Total used $ 1,463 $ 788 $ 675 85.6 % $ (41) 90.8 %
F&I PRU $ 1,117 $ 774 $ 343 44.3 % $ (38) 49.1 %
Other:
SG&A expenses $ 60.5 $ 47.9 $ 12.7 26.4 % $ (1.8) 30.1 %
SG&A as % gross profit 65.1 % 73.9 % (8.8) %
NM — Not Meaningful
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U.K. Region — Three Months Ended March 31, 2022 Compared to 2021
The following discussion of our U.K. operating results is on an as reported and same store basis. The difference between as reported amounts and same store amounts is related to acquisition and disposition activity, as well as new add-point openings. The U.K. experienced a surge in COVID-19 cases at the end of 2020, which led to a government-mandated closure of all non-essential businesses beginning January 4, 2021 through April 12, 2021. The national lockdown impacted our new and used vehicle sales as our showrooms were closed the entire Prior Year Quarter, but had a lesser impact on our service operations as they remained open.
Revenues
Total revenues in the U.K. during the Current Quarter, increased $203.4 million, or 37.0%, as compared to the Prior Year Quarter. Total same store revenues in the U.K. during the Current Quarter, increased $131.8 million, or 24.2%, as compared to the Prior Year Quarter. On a constant currency basis, total same store revenues increased 28.1%, driven by out performances across all revenue streams.
New vehicle retail same store revenues, on a constant currency basis, outperformed the Prior Year Quarter due to an increase in new vehicle retail same store average sales price per unit sold. New vehicle units sold remained consistent amid an ongoing semiconductor shortage and other logistics challenges, which continued into the Current Quarter for OEMs, leading to sustained lower vehicle production and deliveries of fewer vehicles to dealerships. We ended the Current Quarter with a U.K. new vehicle inventory supply of 17 days; 12 days lower than the Prior Year Quarter and 16 days lower than December 31, 2021 days’ supply of 33. The increase in the average new vehicle retail same store sales price was driven by both supply shortages and strong vehicle demand, which was pent-up over past years due to Brexit and the COVID-19 pandemic.
Used vehicle retail same store revenues, on a constant currency basis, outperformed the Prior Year Quarter due to increased used vehicle retail same store unit sales, coupled with higher used vehicle retail same store average sales prices, benefited by strong consumer demand and new vehicle inventory shortages.
Parts and service same store revenues, on a constant currency basis, outperformed the Prior Year Quarter, driven by increases in our customer-pay, collision and wholesale businesses reflecting increased business activity with the reduction of COVID-19 restrictions compared to the Prior Year Quarter.
F&I, net same store revenues, on a constant currency basis, outperformed the Prior Year Quarter, driven by higher income per contract, as well as improved penetration rates on all of our product offerings, coupled with an increase in used vehicle retail sales same store units sold.
Gross Profit
Total gross profit in the U.K. during the Current Quarter, increased $37.8 million, or 57.3%, as compared to the Prior Year Quarter. Total same store gross profit in the U.K. during the Current Quarter, increased $28.2 million, or 43.6%, as compared to the Prior Year Quarter. On a constant currency basis, total same store gross profit increased 48.4%, driven by improvements in new and used retail sales, parts and service sales and F&I, net.
New vehicle retail same store gross profit, on a constant currency basis, outperformed the Prior Year Quarter due to an increase in new vehicle retail same store average gross profit per unit, resulting from increased prices as discussed above.
Used vehicle retail same store gross profit, on a constant currency basis, outperformed the Prior Year Quarter due to an increase in used vehicle retail same store average gross profit per unit sold, coupled with an increase in used vehicle retail same store unit sales. The increase in used vehicle retail same store average gross profit per unit sold resulted from increased prices as discussed above.
Parts and service same store gross profit, on a constant currency basis, outperformed the Prior Year Quarter, driven by the increases in our businesses discussed above.
F&I, net same store gross profit, on a constant currency basis, outperformed the Prior Year Quarter as discussed above.
Total same store gross margin in the U.K. increased 186 basis points, driven by improvements in new vehicle retail sales, used vehicle retail sales and parts and service sales margins due to increased customer demand and vehicle supply constraints.
SG&A Expenses
SG&A as a percentage of gross profit declined 1,271 and 885 basis points, on an as reported and same store basis, respectively, compared to the Prior Year Quarter.
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Total SG&A expenses in the U.K. during the Current Quarter, increased $15.2 million, or 30.7%, as compared to the Prior Year Quarter. Total same store SG&A expenses in the U.K. during the Current Quarter, increased $12.7 million, or 26.4%, as compared to the Prior Year Quarter. On a constant currency basis, total same store SG&A expenses increased 30.1%. These increases were primarily driven by higher business activity due to fewer COVID-19 restrictions compared to the Prior Year Quarter.
Consolidated Selected Comparisons — Three Months Ended March 31, 2022 Compared to 2021
The following table (in millions) and discussion of our results of operations are on a consolidated basis, unless otherwise noted.
Three Months Ended March 31,
2022 2021 Increase/ (Decrease) % Change
Depreciation and amortization expense $ 21.2 $ 19.2 $ 2.0 10.3 %
Floorplan interest expense $ 5.3 $ 7.5 $ (2.2) (29.9) %
Other interest expense, net $ 17.4 $ 13.2 $ 4.3 32.5 %
Provision for income taxes $ 61.2 $ 29.1 $ 32.1 110.4 %
Depreciation and Amortization Expense
Total depreciation and amortization expense for the Current Quarter, was higher compared to the Prior Year Quarter, primarily attributable to acquired property and equipment in our U.S. region, as we continue to strategically add dealership related real estate to our investment portfolio and make improvements to our existing facilities intended to enhance the profitability of our dealerships and the overall customer experience.
Floorplan Interest Expense
Total floorplan interest expense during the Current Quarter, decreased $2.2 million, or 29.9%, as compared to the Prior Year Quarter. Our floorplan interest expense fluctuates with changes in our outstanding borrowings and associated interest rates, which are based on LIBOR, SOFR, U.S. Prime rate or a benchmark rate. To mitigate the impact of interest rate fluctuations, we employ an interest rate hedging strategy, whereby we swap variable interest rate exposure on a portion of our borrowings for a fixed interest rate. The decrease in floorplan interest expense during the Current Quarter, is primarily due to lower floorplan interest expense on new vehicles due to a decrease in new vehicle inventories between periods, as well as lower realized losses on our interest rate swap portfolio due to increases in corresponding interest rates. These decreases were partially offset by an increase in floorplan interest expense on used vehicles due to an increase in used vehicle inventories between periods. Refer to Note 7. Financial Instruments and Fair Value Measurements within our Notes to Condensed Consolidated Financial Statements for additional discussion of interest rate swaps.
Other Interest Expense, Net
Total other interest expense, net during the Current Quarter, increased $4.3 million, or 32.5%, as compared to the Prior Year Quarter. Other interest expense, net consists of interest charges primarily on our 4.00% Senior Notes, real estate related debt and other debt, partially offset by interest income. The increase was primarily attributable to the additional 4.00% Senior Notes issued in October 2021 and the Bridge Facility established in conjunction with the Prime Acquisition in November 2021. Refer to Note 9. Debt within our Notes to Condensed Consolidated Financial Statements for additional discussion of our Debt.
Provision for Income Taxes
Provision for income taxes of $61.2 million during the Current Quarter, increased by $32.1 million, or 110.4%, as compared to the Prior Year Quarter. The tax expense increase was primarily due to higher pre-tax book income in the Current Quarter. Our Current Quarter effective tax rate increased to 23.3% from 22.4% in the Prior Year Quarter, primarily due to lower excess tax deductions for stock based compensation in the Current Quarter.
We expect our effective tax rate for the remainder of 2022 will be between 23.5 % and 24.0%. We believe that it is more-likely-than-not that our deferred tax assets, net of valuation allowances provided, will be realized, based primarily on assumptions of our future taxable income, considering future reversals of existing taxable temporary differences.
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Liquidity and Capital Resources
Our liquidity and capital resources are primarily derived from cash on hand, cash temporarily invested as a pay down of our U.S. Floorplan Line and FMCC Facility levels (refer to Note 10. Floorplan Notes Payable in our Notes to Condensed Consolidated Financial Statements for additional information), cash from operations, borrowings under our credit facilities, working capital, dealership and real estate acquisition financing and proceeds from debt and equity offerings. We anticipate we will generate sufficient cash flows from operations, coupled with cash on hand and available borrowing capacity under our credit facilities, to fund our working capital requirements, service our debt and meet any other recurring operating expenditures.
Available Liquidity Resources
We had the following sources of liquidity available (in millions):
March 31, 2022
Cash and cash equivalents $ 16.6
Floorplan offset accounts 199.6
Available capacity under Acquisition Line 185.1
Total liquidity $ 401.3
Cash Flows
We arrange our new and used vehicle inventory floorplan financing through lenders affiliated with our vehicle manufacturers and our Revolving Credit Facility (as defined in Note 10. Floorplan Notes Payable in the Notes to Condensed Consolidated Financial Statements). In accordance with U.S. GAAP, we report floorplan financed with lenders affiliated with our vehicle manufacturers (excluding the cash flows from or to manufacturer-affiliated lenders participating in our syndicated lending group) within Cash Flows from Operating Activities in the Condensed Consolidated Statements of Cash Flows. We report floorplan financed with the Revolving Credit Facility (including the cash flows from or to manufacturer-affiliated lenders participating in the facility) and other credit facilities in the U.K. unaffiliated with our manufacturer partners, within Cash Flows from Financing Activities in the Condensed Consolidated Statements of Cash Flows. Refer to Note 10. Floorplan Notes Payable within our Notes to Condensed Consolidated Financial Statements for additional discussion of our Revolving Credit Facility.
However, we believe that all floorplan financing of inventory purchases in the normal course of business should correspond with the related inventory activity and be classified as an operating activity. As a result, we use the non-GAAP measure “Adjusted net cash provided by/used in operating activities” and “Adjusted net cash provided by/used in financing activities” to further evaluate our cash flows. We believe that this classification eliminates excess volatility in our operating cash flows prepared in accordance with U.S. GAAP. In addition, floorplan financing associated with dealership acquisitions and dispositions are classified as investing activities on an adjusted basis to eliminate excess volatility in our operating cash flows prepared in accordance with U.S. GAAP.
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The following table reconciles cash flows on a U.S. GAAP basis to the corresponding adjusted amounts (in millions):
Three Months Ended March 31,
2022 2021 % Change
CASH FLOWS FROM OPERATING ACTIVITIES:
Net cash provided by operating activities: $ 226.8 $ 239.3 (5.2) %
Change in Floorplan notes payable — credit facilities and other, excluding floorplan offset and net acquisitions and dispositions 92.6 (79.6)
Change in Floorplan notes payable — manufacturer affiliates associated with net acquisitions and dispositions and floorplan offset activity (0.9) (3.1)
Adjusted net cash provided by operating activities $ 318.6 $ 156.6 103.4 %
CASH FLOWS FROM INVESTING ACTIVITIES:
Net cash used in investing activities: $ (204.5) $ (76.7) (166.6) %
Change in cash paid for acquisitions, associated with Floorplan notes payable 1.9 5.3
Change in proceeds from disposition of franchises, property and equipment, associated with Floorplan notes payable (0.9) (5.4)
Adjusted net cash used in investing activities $ (203.6) $ (76.8) (164.9) %
CASH FLOWS FROM FINANCING ACTIVITIES:
Net cash used in financing activities: $ (9.7) $ (165.6) 94.2 %
Change in Floorplan notes payable, excluding floorplan offset (92.7) 82.9
Adjusted net cash used in financing activities $ (102.3) $ (82.8) (23.6) %
Sources and Uses of Liquidity from Operating Activities — Three Months Ended March 31, 2022 Compared to 2021
For the Current Quarter, net cash provided by operating activities decreased by $12.5 million, as compared to the Prior Year Quarter. On an adjusted basis for the same period, adjusted net cash provided by operating activities increased by $162.0 million. The increase on an adjusted basis was primarily driven by an increase from changes in floorplan notes payable.
Sources and Uses of Liquidity from Investing Activities — Three Months Ended March 31, 2022 Compared to 2021
For the Current Quarter, net cash used in investing activities increased by $127.8 million, as compared to the Prior Year Quarter. On an adjusted basis for the same period, adjusted net cash used in investing activities increased by $126.7 million, primarily driven by a $201.2 million increase in acquisition activity, partially offset by a $73.6 million increase in proceeds from disposition of franchises and property and equipment.
Capital Expenditures
Our capital expenditures include costs to extend the useful lives of current dealership facilities, as well as to start or expand operations. In general, expenditures relating to the construction or expansion of dealership facilities are driven by dealership acquisition activity, new franchises being granted to us by a manufacturer, significant growth in sales at an existing facility, relocation opportunities or manufacturer imaging programs. We critically evaluate all planned future capital spending, working closely with our manufacturer partners to maximize the return on our investments. We forecast our capital expenditures for the full year of 2022 will be approximately $130.0 million, excluding expenditures related to real estate purchases and future acquisitions, which could generally be funded from excess cash.
For the Current Quarter, $33.9 million was used to purchase property and equipment, consisting of $25.5 million in capital expenditures and $8.0 million in purchases of real estate associated with existing dealership operations.
Sources and Uses of Liquidity from Financing Activities — Three Months Ended March 31, 2022 Compared to 2021
For the Current Quarter, net cash used in financing activities decreased by $156.0 million, as compared to the Prior Year Quarter. On an adjusted basis for the same period, adjusted net cash used in financing activities increased by $19.5 million. The increase on an adjusted basis was primarily driven by Current Quarter increases in share repurchases of $115.2 million and net repayments of debt of $43.1 million, partially offset by increased net borrowings on our Floorplan lines of $140.7 million (representing the net cash activity in our floorplan offset account).
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Credit Facilities, Debt Instruments and Other Financing Arrangements
Our various credit facilities, debt instruments and other financing arrangements are used to finance the purchase of inventory and real estate, provide acquisition funding and provide working capital for general corporate purposes.
The following table summarizes the commitment of our credit facilities as of March 31, 2022 (in millions):
Total
Commitment Outstanding Available
U.S. Floorplan Line (1)
$ 1,500.0 $ 402.0 $ 1,098.0
Acquisition Line (2)
497.4 312.3 185.1
Total revolving credit facility 1,997.4 714.3 1,283.1
FMCC Facility (3)
300.0 16.9 283.1
Total U.S. credit facilities (4)
$ 2,297.4 $ 731.1 $ 1,566.3
(1) The available balance at March 31, 2022, includes $197.2 million of immediately available funds. The remaining available balance can be used for vehicle inventory financing.
(2) The outstanding balance of $312.3 million is related to outstanding letters of credit of $12.6 million and $ 299.7 million in borrowings. The borrowings outstanding under the Acquisition Line included $280.0 million USD borrowings and £15.0 million of GBP borrowings translated at the spot rate on the day borrowed, solely for the purpose of calculating the outstanding and available borrowings under the Acquisition Line in accordance with the credit facility agreement. The available borrowings may be limited from time to time, based on certain debt covenants.
(3) The available balance at March 31, 2022, includes $2.4 million of immediately available funds. The remaining available balance can be used for Ford new vehicle inventory financing.
(4) The outstanding balance excludes $285.8 million of borrowings with manufacturer-affiliates and third-party financial institutions for foreign and rental vehicle financing not associated with any of our U.S. credit facilities.
We have other credit facilities in the U.S. and the U.K. with third-party financial institutions, most of which are affiliated with the automobile manufacturers that provide financing for portions of our new, used and rental vehicle inventories. In addition, we have outstanding debt instruments, including our 4.00% Senior Notes, as well as real estate related and other debt instruments. Refer to Note 9. Debt in our Notes to Condensed Consolidated Financial Statements for further information.
Covenants
Our Revolving Credit Facility, indentures governing our senior notes and certain mortgage term loans contain customary financial and operating covenants that place restrictions on us, including our ability to incur additional indebtedness, create liens or to sell or otherwise dispose of assets and to merge or consolidate with other entities. Certain of our mortgage agreements contain cross-default provisions that, in the event of a default of certain mortgage agreements and of our Revolving Credit Facility, could trigger an uncured default.
As of March 31, 2022, we were in compliance with the requirements of the financial covenants under our debt agreements. We are required to maintain the ratios detailed in the following table:
As of March 31, 2022
Required Actual
Total adjusted leverage ratio < 5.75 1.81
Fixed charge coverage ratio > 1.20 6.51
Based on our position as of March 31, 2022, and our outlook as discussed within Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations, we believe we have sufficient liquidity and do not anticipate any material liquidity constraints or issues with our ability to remain in compliance with our debt covenants.
Refer to Note 9. Debt and Note 10. Floorplan Notes Payable in our Notes to Condensed Consolidated Financial Statements for further discussion of our debt instruments, credit facilities and other financing arrangements existing as of March 31, 2022.
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Share Repurchases and Dividends
From time to time, our Board of Directors authorizes the repurchase of shares of our common stock up to a certain monetary limit. As of January 1, 2022, we had $74.3 million available share repurchase program. From January 1, 2022 to February 16, 2022, we utilized $18.5 million of the then-available authorized share repurchase program. On February 16, 2022, the Board of Directors increased the authorization to repurchase shares of our common stock by $144.2 million to $200.0 million. During the period February 17, 2022 to March 31, 2022, we utilized $96.7 million of the available share repurchase program, leaving $103.3 million available under our current authorization to repurchase our common stock. During the three months ended March 31, 2022, 638,696 shares were repurchased at an average price of $180.30 per share, for a total of $115.2 million.
During the Current Quarter, our Board of Directors approved a quarterly cash dividend of $0.36 per share on all shares of our common stock, which resulted in $5.9 million paid to common shareholders and $0.2 million to unvested RSA holders.
Future share repurchases and the payment of any future dividends are subject to the business judgment of our Board of Directors, taking into consideration our historical and projected results of operations, financial condition, cash flows, capital requirements, covenant compliance, current economic environment and other factors considered relevant.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
For quantitative and qualitative disclosures about market risk affecting us, refer to Item 7A. Quantitative and Qualitative Disclosures About Market Risk of our 2021 Form 10-K. Our exposure to market risk has not changed materially since December 31, 2021.
Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.