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, should be read in conjunction with the accompanying unaudited Condensed Consolidated Financial Statements and the notes thereto, as well as our 2023 Form 10-K.
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 34 towns and cities in the U.K. As of March 31, 2024 , our retail network consisted of 147 dealerships in the U.S. and 55 dealerships in the U.K.
Recent Events
On March 20, 2024, the Environmental Protection Agency (“EPA”) finalized new emissions standards for light and medium-duty vehicles, including passenger cars, vans, pickups, sedans and sport utility vehicles for model years 2027 through 2032 and beyond. The final rule sets new strict standards intended to reduce air pollutant emissions, including greenhouse gas emissions. The EPA projects the final rule will accelerate the transition to, and availability of, clean vehicle technologies, including hybrid electric vehicles and plug-in hybrid electric vehicles. Although the future impact of these regulations on our operations cannot be predicted with certainty, the regulations may have a significant impact on the future mix and demand for vehicles provided by our manufacturers. We will continue to monitor the impact of the final regulations on our manufacturers and dealership operations.
Our manufacturers’ production volume improved during the quarter ended March 31, 2024 (“Current Quarter”), although inventories have not yet normalized across all brands to pre-COVID-19 pandemic levels. Production and related inventory constraints were primarily a result of OEMs maintaining lower than pre-COVID-19 pandemic inventory, sustained global semiconductor and other parts shortages, as well as armed conflicts impacting the global supply chain, including the ongoing conflicts in Ukraine and Israel. Increased deliveries from all manufacturers in the Current Quarter drove a higher volume of new units sold and lack of new vehicle availability in prior quarters also helped maintain elevated new vehicle retail sales prices and margins relative to pre-COVID-19 pandemic levels. The higher inventory levels resulting from improved production during the Current Quarter also generated increased floorplan interest expense. Our new vehicle days’ supply of inventory was approximately 37 day s as of the Current Quarter, as compared to 25 days as of the quarter ended March 31, 2023 (“Prior Year Quarter”).
Additionally, on March 26, 2024, the Francis Scott Key Bridge in Baltimore, Maryland, collapsed after being struck by a container ship, closing indefinitely the Port of Baltimore, the largest port in the U.S. for shipments of automobiles. The closure of the port could cause shipping delays for some of our manufacturers. The impact of the closure of the port on our vehicle inventory and operations cannot be predicted with certainty.
The global economy continues to experience inflation. In response to higher than historical average inflationary pressures and challenging macroeconomic conditions, the U.S. Federal Reserve, along with other central banks, including in the U.K., maintained interest rates at elevated levels throughout 2023 and during the Current Quarter. Continued inflation reducing the disposable income of our customers, volatility in new vehicle availability and higher interest rates increasing the monthly cost of financing vehicles, contributed to used vehicle prices continuing to decline during the Current Quarter. During the Current Quarter, the Federal Reserve signaled that possible cuts to interest rates in 2024 may be at risk due to continued elevated inflation levels, further contributing to economic uncertainty.
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 2023 Form 10-K. There have been no material changes to our critical accounting policies or accounting estimates since December 31, 2023.
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Results of Operations
The “same store” amounts presented below include the results of dealerships and corporate headquarters for the identical months in each comparative period, commencing with the first full month in which we owned the dealership. Amounts related to divestitures are excluded from each comparative period, ending with the last full month in which we owned the dealership. 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.
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.
Retail new vehicle units sold include new vehicle agency units sold under agency arrangements with certain manufacturers in the U.K. The agency units and related revenues are excluded from the calculation of the average sales price per unit sold for new vehicles due to their net presentation within revenues as only the sales commission is reported in revenues for dealerships operating under an agency arrangement. The agency units and related net revenues are included in the calculation of gross profit per unit sold.
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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,
2024 2023 Increase/ (Decrease) % Change Currency Impact on Current Period Results Constant Currency % Change
Revenues:
New vehicle retail sales $ 2,182.6 $ 1,955.7 $ 226.9 11.6 % $ 16.2 10.8 %
Used vehicle retail sales 1,416.8 1,348.9 67.9 5.0 % 13.4 4.0 %
Used vehicle wholesale sales 106.0 112.0 (5.9) (5.3) % 1.1 (6.3) %
Total used 1,522.8 1,460.9 61.9 4.2 % 14.5 3.2 %
Parts and service sales 576.2 548.3 27.9 5.1 % 3.4 4.5 %
F&I, net 188.9 165.1 23.8 14.4 % 0.7 13.9 %
Total revenues $ 4,470.5 $ 4,130.0 $ 340.5 8.2 % $ 34.9 7.4 %
Gross profit:
New vehicle retail sales $ 159.5 $ 186.7 $ (27.2) (14.6) % $ 1.2 (15.2) %
Used vehicle retail sales 82.1 76.7 5.3 6.9 % 0.6 6.1 %
Used vehicle wholesale sales (0.9) 2.0 (2.9) (144.6) % (0.1) (141.0) %
Total used 81.2 78.8 2.4 3.1 % 0.6 2.3 %
Parts and service sales 313.0 297.3 15.7 5.3 % 1.9 4.6 %
F&I, net 188.9 165.1 23.8 14.4 % 0.7 13.9 %
Total gross profit $ 742.6 $ 727.9 $ 14.7 2.0 % $ 4.4 1.4 %
Gross margin:
New vehicle retail sales 7.3 % 9.5 % (2.2) %
Used vehicle retail sales 5.8 % 5.7 % 0.1 %
Used vehicle wholesale sales (0.8) % 1.8 % (2.6) %
Total used 5.3 % 5.4 % (0.1) %
Parts and service sales 54.3 % 54.2 % 0.1 %
Total gross margin 16.6 % 17.6 % (1.0) %
Units sold:
Retail new vehicles sold 44,302 39,649 4,653 11.7 %
Retail used vehicles sold 49,183 45,437 3,746 8.2 %
Wholesale used vehicles sold 11,828 10,374 1,454 14.0 %
Total used 61,011 55,811 5,200 9.3 %
Average sales price per unit sold:
New vehicle retail $ 49,709 $ 49,651 $ 58 0.1 % $ 369 (0.6) %
Used vehicle retail $ 28,806 $ 29,687 $ (881) (3.0) % $ 272 (3.9) %
Gross profit per unit sold:
New vehicle retail sales $ 3,601 $ 4,710 $ (1,109) (23.5) % $ 27 (24.1) %
Used vehicle retail sales $ 1,669 $ 1,689 $ (20) (1.2) % $ 13 (2.0) %
Used vehicle wholesale sales $ (76) $ 194 $ (270) (139.2) % $ (6) (135.9) %
Total used $ 1,331 $ 1,411 $ (81) (5.7) % $ 9 (6.4) %
F&I PRU $ 2,020 $ 1,940 $ 80 4.1 % $ 8 3.7 %
Other:
SG&A expenses $ 476.1 $ 462.8 $ 13.3 2.9 % $ 3.4 2.1 %
SG&A as % gross profit 64.1 % 63.6 % 0.5 %
Floorplan expense:
Floorplan interest expense $ 20.5 $ 12.6 $ 7.9 62.6 % $ 0.1 61.6 %
Less: floorplan assistance (1)
18.4 14.6 3.8 26.1 % — 26.1 %
Net floorplan expense $ 2.2 $ (1.9) $ 4.1 $ 0.1
(1) Floorplan assistance is included within Gross profit — New vehicle retail sales above and Cost of sales — New vehicle retail 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,
2024 2023 Increase/ (Decrease) % Change Currency Impact on Current Period Results Constant Currency % Change
Revenues:
New vehicle retail sales $ 2,008.8 $ 1,896.6 $ 112.2 5.9 % $ 16.2 5.1 %
Used vehicle retail sales 1,340.6 1,303.6 37.1 2.8 % 13.4 1.8 %
Used vehicle wholesale sales 99.9 106.1 (6.2) (5.8) % 1.1 (6.9) %
Total used 1,440.5 1,409.6 30.9 2.2 % 14.5 1.2 %
Parts and service sales 549.4 526.2 23.2 4.4 % 3.3 3.8 %
F&I, net 175.2 159.4 15.9 10.0 % 0.7 9.5 %
Total revenues $ 4,174.0 $ 3,991.8 $ 182.2 4.6 % $ 34.7 3.7 %
Gross profit:
New vehicle retail sales $ 146.6 $ 181.7 $ (35.1) (19.3) % $ 1.2 (20.0) %
Used vehicle retail sales 77.5 74.6 2.9 3.9 % 0.6 3.0 %
Used vehicle wholesale sales (1.1) 2.0 (3.1) NM (0.1) NM
Total used 76.4 76.6 (0.2) (0.3) % 0.6 (1.1) %
Parts and service sales 297.4 285.3 12.1 4.2 % 1.8 3.6 %
F&I, net 175.2 159.4 15.9 10.0 % 0.7 9.5 %
Total gross profit $ 695.6 $ 703.0 $ (7.4) (1.1) % $ 4.3 (1.7) %
Gross margin:
New vehicle retail sales 7.3 % 9.6 % (2.3) %
Used vehicle retail sales 5.8 % 5.7 % 0.1 %
Used vehicle wholesale sales (1.1) % 1.9 % (3.0) %
Total used 5.3 % 5.4 % (0.1) %
Parts and service sales 54.1 % 54.2 % (0.1) %
Total gross margin 16.7 % 17.6 % (0.9) %
Units sold:
Retail new vehicles sold 40,898 38,426 2,472 6.4 %
Retail used vehicles sold 46,763 43,725 3,038 6.9 %
Wholesale used vehicles sold 11,123 9,939 1,184 11.9 %
Total used 57,886 53,664 4,222 7.9 %
Average sales price per unit sold:
New vehicle retail $ 49,595 $ 49,692 $ (97) (0.2) % $ 400 (1.0) %
Used vehicle retail $ 28,669 $ 29,813 $ (1,144) (3.8) % $ 286 (4.8) %
Gross profit per unit sold:
New vehicle retail sales $ 3,584 $ 4,730 $ (1,145) (24.2) % $ 29 (24.8) %
Used vehicle retail sales $ 1,657 $ 1,706 $ (49) (2.9) % $ 14 (3.7) %
Used vehicle wholesale sales $ (100) $ 201 $ (301) (149.7) % $ (7) (146.4) %
Total used $ 1,319 $ 1,427 $ (108) (7.6) % $ 10 (8.3) %
F&I PRU $ 1,999 $ 1,940 $ 59 3.1 % $ 8 2.6 %
Other:
SG&A expenses $ 477.4 $ 446.4 $ 31.0 6.9 % $ 3.4 6.2 %
SG&A as % gross profit 68.6 % 63.5 % 5.1 %
NM — Not Meaningful
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Reported Operating Data — U.S.
(In millions, except unit data)
Three Months Ended March 31,
2024 2023 Increase/(Decrease) % Change
Revenues:
New vehicle retail sales $ 1,799.8 $ 1,608.6 $ 191.3 11.9 %
Used vehicle retail sales 1,099.5 1,030.1 69.4 6.7 %
Used vehicle wholesale sales 79.9 82.4 (2.5) (3.0) %
Total used 1,179.3 1,112.4 66.9 6.0 %
Parts and service sales 495.1 473.8 21.4 4.5 %
F&I, net 171.4 147.6 23.8 16.1 %
Total revenues $ 3,645.7 $ 3,342.4 $ 303.3 9.1 %
Gross profit:
New vehicle retail sales $ 131.9 $ 154.1 $ (22.3) (14.4) %
Used vehicle retail sales 66.6 59.8 6.8 11.4 %
Used vehicle wholesale sales 1.4 2.2 (0.8) (36.9) %
Total used 68.0 62.0 6.0 9.7 %
Parts and service sales 267.8 253.8 14.0 5.5 %
F&I, net 171.4 147.6 23.8 16.1 %
Total gross profit $ 639.1 $ 617.6 $ 21.5 3.5 %
Gross margin:
New vehicle retail sales 7.3 % 9.6 % (2.3) %
Used vehicle retail sales 6.1 % 5.8 % 0.3 %
Used vehicle wholesale sales 1.8 % 2.7 % (0.9) %
Total used 5.8 % 5.6 % 0.2 %
Parts and service sales 54.1 % 53.6 % 0.5 %
Total gross margin 17.5 % 18.5 % (0.9) %
Units sold:
Retail new vehicles sold 35,341 30,883 4,458 14.4 %
Retail used vehicles sold 37,885 34,440 3,445 10.0 %
Wholesale used vehicles sold 9,088 7,480 1,608 21.5 %
Total used 46,973 41,920 5,053 12.1 %
Average sales price per unit sold:
New vehicle retail $ 50,928 $ 52,086 $ (1,158) (2.2) %
Used vehicle retail $ 29,021 $ 29,909 $ (888) (3.0) %
Gross profit per unit sold:
New vehicle retail sales $ 3,731 $ 4,991 $ (1,260) (25.2) %
Used vehicle retail sales $ 1,758 $ 1,736 $ 22 1.3 %
Used vehicle wholesale sales $ 155 $ 299 $ (143) (48.0) %
Total used $ 1,448 $ 1,480 $ (32) (2.1) %
F&I PRU $ 2,340 $ 2,260 $ 81 3.6 %
Other:
SG&A expenses $ 394.9 $ 388.7 $ 6.2 1.6 %
SG&A as % gross profit 61.8 % 62.9 % (1.1) %
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Same Store Operating Data — U.S.
(In millions, except unit data)
Three Months Ended March 31,
2024 2023 Increase/(Decrease) % Change
Revenues:
New vehicle retail sales $ 1,626.0 $ 1,549.4 $ 76.6 4.9 %
Used vehicle retail sales 1,023.3 984.8 38.6 3.9 %
Used vehicle wholesale sales 73.7 76.4 (2.7) (3.6) %
Total used 1,097.0 1,061.2 35.9 3.4 %
Parts and service sales 471.3 454.6 16.7 3.7 %
F&I, net 157.7 141.9 15.9 11.2 %
Total revenues $ 3,352.1 $ 3,207.1 $ 145.1 4.5 %
Gross profit:
New vehicle retail sales $ 118.9 $ 149.1 $ (30.2) (20.2) %
Used vehicle retail sales 62.0 57.6 4.3 7.5 %
Used vehicle wholesale sales 1.2 2.2 (1.0) (46.1) %
Total used 63.2 59.9 3.3 5.6 %
Parts and service sales 253.6 243.1 10.5 4.3 %
F&I, net 157.7 141.9 15.9 11.2 %
Total gross profit $ 593.4 $ 593.9 $ (0.5) (0.1) %
Gross margin:
New vehicle retail sales 7.3 % 9.6 % (2.3) %
Used vehicle retail sales 6.1 % 5.9 % 0.2 %
Used vehicle wholesale sales 1.6 % 2.9 % (1.3) %
Total used 5.8 % 5.6 % 0.1 %
Parts and service sales 53.8 % 53.5 % 0.3 %
Total gross margin 17.7 % 18.5 % (0.8) %
Units sold:
Retail new vehicles sold 31,937 29,660 2,277 7.7 %
Retail used vehicles sold 35,465 32,728 2,737 8.4 %
Wholesale used vehicles sold 8,383 7,045 1,338 19.0 %
Total used 43,848 39,773 4,075 10.2 %
Average sales price per unit sold:
New vehicle retail $ 50,913 $ 52,240 $ (1,326) (2.5) %
Used vehicle retail $ 28,855 $ 30,089 $ (1,234) (4.1) %
Gross profit per unit sold:
New vehicle retail sales $ 3,724 $ 5,028 $ (1,304) (25.9) %
Used vehicle retail sales $ 1,748 $ 1,761 $ (13) (0.8) %
Used vehicle wholesale sales $ 143 $ 315 $ (172) (54.7) %
Total used $ 1,441 $ 1,505 $ (64) (4.3) %
F&I PRU $ 2,340 $ 2,274 $ 67 2.9 %
Other:
SG&A expenses $ 397.6 $ 373.5 $ 24.1 6.5 %
SG&A as % gross profit 67.0 % 62.9 % 4.1 %
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U.S. Region — Three Months Ended March 31, 2024 Compared to 2023
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, if any.
Revenues
Total revenues in the U.S. during the Current Quarter increased $303.3 million, or 9.1%, as compared to the Prior Year Quarter, driven by the acquisition of stores and higher same store revenues.
Total same store revenues in the U.S. during the Current Quarter increased $145.1 million, or 4.5%, as compared to the Prior Year Quarter. This increase was driven by higher revenues from new vehicle retail, used vehicle retail, parts and service and F&I.
New vehicle retail same store revenues outperformed the Prior Year Quarter, driven by more units sold, partially offset by lower new vehicle retail pricing. Manufacturer vehicle deliveries were higher in the Current Quarter and as a result, our inventory levels were higher than the Prior Year Quarter, providing for the increase in units sold. Higher new vehicle supply compared to the Prior Year Quarter created downward pressure on new vehicle retail pricing and margins. We ended the Current Quarter with a U.S. new vehicle inventory supply of 43 days, 16 days higher than the Prior Year Quarter, but below pre-COVID-19 pandemic levels.
Used vehicle retail same store revenues outperformed the Prior Year Quarter, driven by more units sold, partially offset by lower pricing. Improved new vehicle supply, impacts from inflation reducing the disposable income of our customers and higher interest rates increasing the monthly cost of financing vehicles continued to create downward pricing pressure.
Parts and service same store revenues outperformed the Prior Year Quarter, driven by increases in warranty and customer pay revenues, reflecting increased business activity and increased same store technician headcount through our technician recruiting and retention efforts, providing greater capacity to meet increased demand.
F&I same store revenues outperformed the Prior Year Quarter, primarily driven by higher same store new and used vehicle units sold, coupled with higher same store F&I gross profit per unit sold. Vehicle service contract penetration and new vehicle finance penetration improved, contributing to the higher same store F&I gross profit per unit sold. OEM incentives have increased in the Current Quarter, leading to the improved new vehicle F&I penetration.
Gross Profit
Total gross profit in the U.S. during the Current Quarter increased $21.5 million, or 3.5%, as compared to the Prior Year Quarter, driven by the acquisition of stores.
Total same store gross profit in the U.S. during the Current Quarter decreased $0.5 million, or 0.1%, as compared to the Prior Year Quarter, primarily driven by downward pressures on new vehicle margins.
New vehicle retail same store gross profit underperformed the Prior Year Quarter, driven by a decrease in new vehicle retail same store gross profit per unit sold, partially offset by an increase in same store new vehicle retail units sold. The decrease in new vehicle retail same store gross profit per unit is due to higher deliveries and increasing inventory levels of new vehicles as described above.
Used vehicle retail same store gross profit outperformed the Prior Year Quarter, primarily driven by higher same store used vehicle retail units sold. Our used vehicle wholesale same store gross profit underperformed the Prior Year Quarter, driven by a decrease in used vehicle wholesale same store gross profit per unit sold, partially offset by an increase in same store wholesale used vehicle units sold.
Parts and service same store gross profit outperformed the Prior Year Quarter, as described above for same store revenues.
F&I same store gross profit, outperformed the Prior Year, as described above for F&I same store revenues.
Total same store gross margin in the U.S. decreased 82 basis points, primarily driven by underperformance in new vehicle retail and used vehicle wholesale margins, for the reasons described above for same store gross profit per unit sold for new vehicle retail and used vehicle wholesale. This underperformance was partially offset by a slight improvement in parts and service margins for the reasons described above, used vehicle retail margins, largely due to lower used vehicle acquisition costs, and improved F&I performance.
SG&A Expenses
SG&A as a percentage of gross profit decreased 115 basis points and increased 412 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.S. during the Current Quarter increased $6.2 million, or 1.6%, as compared to the Prior Year Quarter, primarily driven by higher same store SG&A expenses, partially offset by lower SG&A expenses from store dispositions. Total same store SG&A expenses in the U.S. during the Current Quarter, increased $24.1 million, or 6.5%, as compared to the Prior Year Quarter, primarily driven by increased activity related to employee-related costs, outside services and professional fees, loaner car and related expenses and advertising expenses.
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Reported Operating Data — U.K.
(In millions, except unit data)
Three Months Ended March 31,
2024 2023 Increase/ (Decrease) % Change Currency Impact on Current Period Results Constant Currency % Change
Revenues:
New vehicle retail sales $ 382.8 $ 347.1 $ 35.6 10.3 % $ 16.2 5.6 %
Used vehicle retail sales 317.3 318.8 (1.5) (0.5) % 13.4 (4.7) %
Used vehicle wholesale sales 26.2 29.6 (3.5) (11.7) % 1.1 (15.5) %
Total used 343.5 348.4 (5.0) (1.4) % 14.5 (5.6) %
Parts and service sales 81.1 74.6 6.5 8.8 % 3.4 4.2 %
F&I, net 17.5 17.5 — (0.1) % 0.7 (4.3) %
Total revenues $ 824.8 $ 787.7 $ 37.1 4.7 % $ 34.9 0.3 %
Gross profit:
New vehicle retail sales $ 27.6 $ 32.6 $ (5.0) (15.2) % $ 1.2 (18.8) %
Used vehicle retail sales 15.5 17.0 (1.5) (8.8) % 0.6 (12.6) %
Used vehicle wholesale sales (2.3) (0.2) (2.1) NM (0.1) NM
Total used 13.2 16.7 (3.6) (21.3) % 0.6 (24.8) %
Parts and service sales 45.2 43.5 1.7 3.9 % 1.9 (0.5) %
F&I, net 17.5 17.5 — (0.1) % 0.7 (4.3) %
Total gross profit $ 103.5 $ 110.4 $ (6.9) (6.2) % $ 4.4 (10.2) %
Gross margin:
New vehicle retail sales 7.2 % 9.4 % (2.2) %
Used vehicle retail sales 4.9 % 5.3 % (0.4) %
Used vehicle wholesale sales (8.8) % (0.8) % (8.1) %
Total used 3.8 % 4.8 % (1.0) %
Parts and service sales 55.7 % 58.4 % (2.6) %
Total gross margin 12.5 % 14.0 % (1.5) %
Units sold:
Retail new vehicles sold 8,961 8,766 195 2.2 %
Retail used vehicles sold 11,298 10,997 301 2.7 %
Wholesale used vehicles sold 2,740 2,894 (154) (5.3) %
Total used 14,038 13,891 147 1.1 %
Average sales price per unit sold:
New vehicle retail $ 44,669 $ 40,795 $ 3,874 9.5 % $ 1,894 4.9 %
Used vehicle retail $ 28,084 $ 28,991 $ (907) (3.1) % $ 1,183 (7.2) %
Gross profit per unit sold:
New vehicle retail sales $ 3,085 $ 3,719 $ (634) (17.0) % $ 132 (20.6) %
Used vehicle retail sales $ 1,370 $ 1,542 $ (173) (11.2) % $ 57 (14.9) %
Used vehicle wholesale sales $ (842) $ (77) $ (765) NM $ (27) NM
Total used $ 938 $ 1,205 $ (267) (22.2) % $ 41 (25.5) %
F&I PRU $ 863 $ 886 $ (23) (2.6) % $ 36 (6.7) %
Other:
SG&A expenses $ 81.3 $ 74.2 $ 7.1 9.6 % $ 3.4 4.9 %
SG&A as % gross profit 78.5 % 67.2 % 11.3 %
NM — Not Meaningful
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Same Store Operating Data — U.K.
(In millions, except unit data)
Three Months Ended March 31,
2024 2023 Increase/ (Decrease) % Change Currency Impact on Current Period Results Constant Currency % Change
Revenues:
New vehicle retail sales $ 382.8 $ 347.1 $ 35.6 10.3 % $ 16.2 5.6 %
Used vehicle retail sales 317.3 318.8 (1.5) (0.5) % 13.4 (4.7) %
Used vehicle wholesale sales 26.2 29.6 (3.5) (11.7) % 1.1 (15.5) %
Total used 343.5 348.4 (5.0) (1.4) % 14.5 (5.6) %
Parts and service sales 78.1 71.6 6.5 9.1 % 3.3 4.5 %
F&I, net 17.5 17.5 — (0.1) % 0.7 (4.3) %
Total revenues $ 821.8 $ 784.7 $ 37.1 4.7 % $ 34.7 0.3 %
Gross profit:
New vehicle retail sales $ 27.6 $ 32.6 $ (5.0) (15.2) % $ 1.2 (18.8) %
Used vehicle retail sales 15.5 17.0 (1.5) (8.7) % 0.6 (12.5) %
Used vehicle wholesale sales (2.3) (0.2) (2.1) NM (0.1) NM
Total used 13.2 16.7 (3.6) (21.3) % 0.6 (24.7) %
Parts and service sales 43.8 42.2 1.6 3.8 % 1.8 (0.6) %
F&I, net 17.5 17.5 — (0.1) % 0.7 (4.3) %
Total gross profit $ 102.1 $ 109.1 $ (6.9) (6.3) % $ 4.3 (10.3) %
Gross margin:
New vehicle retail sales 7.2 % 9.4 % (2.2) %
Used vehicle retail sales 4.9 % 5.3 % (0.4) %
Used vehicle wholesale sales (8.8) % (0.8) % (8.1) %
Total used 3.8 % 4.8 % (1.0) %
Parts and service sales 56.1 % 58.9 % (2.9) %
Total gross margin 12.4 % 13.9 % (1.5) %
Units sold:
Retail new vehicles sold 8,961 8,766 195 2.2 %
Retail used vehicles sold 11,298 10,997 301 2.7 %
Wholesale used vehicles sold 2,740 2,894 (154) (5.3) %
Total used 14,038 13,891 147 1.1 %
Average sales price per unit sold:
New vehicle retail $ 44,669 $ 40,795 $ 3,874 9.5 % $ 1,894 4.9 %
Used vehicle retail $ 28,084 $ 28,991 $ (907) (3.1) % $ 1,183 (7.2) %
Gross profit per unit sold:
New vehicle retail sales $ 3,085 $ 3,719 $ (634) (17.0) % $ 132 (20.6) %
Used vehicle retail sales $ 1,371 $ 1,542 $ (172) (11.1) % $ 57 (14.8) %
Used vehicle wholesale sales $ (842) $ (77) $ (765) NM $ (27) NM
Total used $ 939 $ 1,205 $ (266) (22.1) % $ 41 (25.5) %
F&I PRU $ 863 $ 886 $ (23) (2.5) % $ 36 (6.6) %
Other:
SG&A expenses $ 79.8 $ 73.0 $ 6.9 9.4 % $ 3.4 4.8 %
SG&A as % gross profit 78.2 % 66.9 % 11.3 %
NM — Not Meaningful
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U.K. Region — Three Months Ended March 31, 2024 Compared to 2023
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, if any. Retail new vehicle units sold include new vehicle agency units. The agency units and related revenues are excluded from the calculation of the average sales price per unit sold for new vehicles as only the sales commission is reported within revenues. The agency units and related net revenues are included in the calculation of gross profit per unit sold. The GBP to USD foreign currency exchange rate has fluctuated from £1 to $1.24 at March 31, 2023, to £1 to $1.26 at March 31, 2024, or an increase in the value of the GBP of 2.1 %.
Revenues
Total revenues in the U.K. during the Current Quarter increased $37.1 million, or 4.7%, as compared to the Prior Year Quarter, primarily driven by foreign currency exchange rates and outperformances in new vehicle retail sales and parts and service, partially offset by lower used vehicle sales. On a constant currency basis, revenues increased 0.3%, primarily driven by an outperformance in new vehicle retail sales.
New vehicle retail same store revenues, on a constant currency basis, outperformed the Prior Year Quarter, driven by more units sold, coupled with higher new vehicle retail pricing. The shortage of new vehicle inventory, compared to pre-COVID-19 pandemic levels, despite recent manufacturers’ production improvements, drove strong pricing. Vehicle demand was and continues to be pent-up from the COVID-19 pandemic. We ended the Current Quarter with a U.K. new vehicle inventory supply of 20 days, one day higher than the Prior Year Quarter , but below pre-COVID-19 pandemic levels .
Used vehicle retail same store revenues, on a constant currency basis, underperformed the Prior Year Quarter, primarily driven by lower used vehicle retail pricing on a constant currency basis, partially offset by more units sold.
Parts and service same store revenues, on a constant currency basis, outperformed the Prior Year Quarter, driven by i ncreases in customer pay, warranty and wholesale revenues reflecting increased business activity. W e have invested in improvements to our U.K. customer contact center, streamlining operations to make scheduling appointments easier for customers, resulting in an increase in parts and service activity driving an increase in revenues as compared to the Prior Year Quarter.
F&I same store revenues, on a constant currency basis, modestly underperformed the Prior Year Quarter, primarily driven by decreases in income per contract for retail finance fees and service contracts, partially offset by an increase in retail units sold.
Gross Profit
Total gross profit in the U.K. during the Current Quarter decreased $6.9 million, or 6.2%, as compared to the Prior Year Quarter.
Total same store gross profit in the U.K. during the Current Quarter decreased $6.9 million, or 6.3%, as compared to the Prior Year Quarter. On a constant currency basis, total same store gross profit decreased 10.3%, driven by downward pressures on margins for all lines of business.
New vehicle retail same store gross profit, on a constant currency basis, underperformed the Prior Year, primarily due to decrease in new vehicle retail gross profit per unit sold, partially offset by an increase in new vehicle retail units sold, as a result of the increase in vehicle inventory production as described above generating downward pressure on new vehicle margins.
Used vehicle retail same store gross profit, on a constant currency basis, underperformed the Prior Year Quarter, driven by a decrease in used vehicle retail same store gross profit per unit sold, partially offset by a slight increase in used vehicle retail units sold.
Parts and service same store gross profit, on a constant currency basis, slightly underperformed compared to the Prior Year Quarter.
F&I same store gross profit, on a constant currency basis, modestly underperformed the Prior Year Quarter, as described above in F&I same store revenues.
Total same store gross margin in the U.K. decreased 147 basis points, driven by margin declines for all lines of business caused by inflationary impacts.
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SG&A Expenses
SG&A as a percentage of gross profit increased by 1,130 and 1,127 basis points on an as reported and same store basis, respectively, compared to the Prior Year.
Total SG&A expenses in the U.K. during the Current Quarter increased $7.1 million, or 9.6%, as compared to the Prior Year Quarter. Total same store SG&A expenses in the U.K. during the Current Quarter increased $6.9 million, or 9.4%, as compared to the Prior Year Quarter. On a constant currency basis, total same store SG&A expenses increased 4.8%. These increases were primarily driven by increased employee-related expenses as a result of higher activity and legal fees associated with the pending acquisition of Inchcape plc, coupled with increased demonstration and loaner car expenses compared to the Prior Year Quarter.
Consolidated Selected Comparisons — Three Months Ended March 31, 2024 Compared to 2023
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,
2024 2023 Increase/ (Decrease) % Change
Depreciation and amortization expense $ 23.8 $ 22.4 $ 1.4 6.2 %
Floorplan interest expense $ 20.5 $ 12.6 $ 7.9 62.6 %
Other interest expense, net $ 29.3 $ 19.7 $ 9.6 48.9 %
Provision for income taxes $ 45.8 $ 47.6 $ (1.7) (3.7) %
Depreciation and Amortization Expense
Depreciation and amortization expense for the Current Quarter increased compared to the Prior Year Quarter, primarily driven by acquired property and equipment in our U.S. region, as we continue to strategically add dealership related real estate and facilities to our investment portfolio and make improvements to our existing facilities intended to enhance the profitability of our dealerships and improve the overall customer experience.
Floorplan Interest Expense
Our floorplan interest expense fluctuates with changes in our outstanding borrowings and associated interest rates, which are based on SOFR, the U.S. prime rate or other benchmark rates. Outstanding borrowings largely fluctuate based on our levels of new and used vehicle inventory. 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.
Total floorplan interest expense during the Current Quarter, increased $7.9 million, or 62.6%, as compared to the Prior Year Qua rter, driven primarily by an increase in inventories added to our floorplan due to improvements in manufacturer production as well as acquisitions, partially offset by realized gains on our interest rate swap portfolio due to increases in corresponding interest rates.
Refer to Note 6. 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
Other interest expense, net consists of interest charges primarily on our $750.0 million 4.00% Senior Notes due August 2028 (“4.00% Senior Notes”), real estate related debt and other debt, partially offset by interest income.
Other interest expense, net during the Current Quarter, increased $9.6 million, or 48.9%, as compared to the Prior Year Quarter. The increase in other interest expense, net during the Current Quarter was primarily attributable to increased borrowings on the Acquisition Line, additional real estate related debt in our U.S. region, a decrease in the gain recognized on the de-designation of mortgage interest rate swaps of approximately $3.8 million, and higher interest on existing borrowings. Refer to Note 8. Debt within our Notes to Condensed Consolidated Financial Statements for additional discussion of our debt. Refer to Note 6. Financial Instruments and Fair Value Measurements within our Notes to Condensed Consolidated Financial Statements for additional discussion of the de-designation of the mortgage interest rate swap.
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Provision for Income Taxes
Provision for income taxes of $45.8 million during the Current Quarter decreased by $1.7 million, or 3.7%, as compared to the Prior Year Quarter. The tax expense decrease in the Current Quarter, as compared to the Prior Year Quarter, was primarily due to lower pre-tax book income. Our Current Quarter effective tax rate of 23.7% was higher than the Prior Year Quarter’s effective tax rate of 23.1%. The tax rate increase was primarily due to taxable gains from asset dispositions in the Current Quarter compared to the Prior Year Quarter.
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.
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 9. 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, 2024
Cash and cash equivalents $ 41.9
Floorplan offset accounts 180.4
Available capacity under Acquisition Line 240.8
Total liquidity $ 463.2
Cash Flows
We arrange our new and used vehicle inventory floorplan financing through lenders affiliated with our vehicle manufacturers and our Revolving Credit Facility. 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 9. 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,
2024 2023 % Change
CASH FLOWS FROM OPERATING ACTIVITIES:
Net cash provided by operating activities: $ 253.9 $ 143.4 77.0 %
Change in Floorplan notes payable — credit facilities and other, excluding floorplan offset and net acquisitions and dispositions (44.5) 44.6
Change in Floorplan notes payable — manufacturer affiliates associated with net acquisitions and dispositions and floorplan offset activity (38.5) 2.7
Adjusted net cash provided by operating activities $ 170.9 $ 190.8 (10.4) %
CASH FLOWS FROM INVESTING ACTIVITIES:
Net cash used in investing activities: $ (618.2) $ (104.6) (491.2) %
Change in cash paid for acquisitions, associated with Floorplan notes payable 50.3 9.3
Change in proceeds from disposition of franchises, property and equipment, associated with Floorplan notes payable (22.6) (2.4)
Adjusted net cash used in investing activities $ (590.6) $ (97.7) (504.5) %
CASH FLOWS FROM FINANCING ACTIVITIES:
Net cash provided by (used in) financing activities: $ 349.4 $ (67.0) 621.3 %
Change in Floorplan notes payable, excluding floorplan offset 55.3 (54.2)
Adjusted net cash provided by (used in) financing activities $ 404.7 $ (121.2) 433.8 %
Sources and Uses of Liquidity from Operating Activities — Three Months Ended March 31, 2024 Compared to 2023
For the Current Quarter, net cash provided by operating activities increased by $110.5 million, as compared to the Prior Year Quarter. On an adjusted basis for the same period, adjusted net cash provided by operating activities decreased by $19.9 million. The decrease on an adjusted basis was primarily driven by a $126.8 million decrease in floorplan notes payable — manufacturer affiliates, partially offset by a $97.8 million decrease in inventory levels.
Sources and Uses of Liquidity from Investing Activities — Three Months Ended March 31, 2024 Compared to 2023
For the Current Quarter, net cash used in investing activities increased by $513.7 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 $492.9 million, primarily due to a $571.9 million increase in acquisition activity and a $27.4 million increase in purchases of property and equipment, including real estate, partially offset by a $95.8 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.
For the Current Quarter , $63.2 million was used to purchase property and equipment.
Sources and Uses of Liquidity from Financing Activities — Three Months Ended March 31, 2024 Compared to 2023
For the Current Quarter, net cash provided by financing activities increased by $416.4 million, as compared to the Prior Year Quarter. On an adjusted basis for the same period, adjusted net cash provided by financing activities increased by $525.9 million. The increase in net cash provided by financing activities on an adjusted basis was primarily driven by a $275.2 million increase in net borrowings on the Acquisition Line, a $234.1 million increase in net borrowings of other debt, including real estate-related debt and increases in net borrowings on our U.S. Floorplan line of $34.1 million (representing the net cash activity in our floorplan offset account). These increases were partially offset by a $19.0 million increase in cash paid for share repurchases.
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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, 2024 (in millions):
Total
Commitment Outstanding Available
U.S. Floorplan Line (1)
$ 1,200.0 $ 1,019.6 $ 180.4
Acquisition Line (2)
800.0 559.2 240.8
Total revolving credit facility 2,000.0 1,578.8 421.2
FMCC Facility (3)
300.0 106.8 193.2
GM Financial Facility (4)
348.1 168.4 179.7
Total U.S. credit facilities (5)
$ 2,648.1 $ 1,854.0 $ 794.1
(1) The available balance at March 31, 2024, includ es $180.4 million of immediately available funds. The remaining available balance can be used for vehicle inventory financing.
(2) The outstanding balance of $559.2 million is related to outstanding letters of credit of $12.2 million and $547.0 million in USD borrowings. The available borrowings may be limited from time to time, based on certain debt covenants.
(3) The available balance at March 31, 2024, includes no immediately available funds. The remaining available balance can be used for Ford new vehicle inventory financing.
(4) The remaining available balance as of March 31, 2024, can be used for General Motors new and rental vehicle inventory financing.
(5) The outstanding balance excludes $334.8 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 8. Debt in our Notes to Condensed Consolidated Financial Statements for further information.
Covenants
Our Revolving Credit Facility, indentures governing our 4.00% 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, 2024, 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, 2024
Required Actual
Total adjusted leverage ratio < 5.75 2.45
Fixed charge coverage ratio > 1.20 4.32
Based on our position as of March 31, 2024, 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 8. Debt and Note 9. 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, 2024.
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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. On August 2, 2023, our Board of Directors increased the share repurchase authorization to $250.0 million. For the Current Quarter, 203,350 s hares were repurchased at an average price o f $264.41 per share, for a total of $53.8 million, excluding excise taxes o f $0.4 million . As of March 31, 2024, we had $89.6 million available under our current stock repurchase authorization.
During the Current Quarter, our Board of Directors approved a quarterly cash dividend of $0.47 per share on all shares of our common stock, which resulted in $6.2 million paid to common shareholders and $0.1 million to unvested restricted stock award 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, changes in laws and regulations, 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 in our 2023 Form 10-K. Our exposure to market risk has not changed materially since December 31, 2023.