Asbury Automotive Group Inc (ABG) 2012 Q1 法說會逐字稿

Good day and welcome to Asbury's first quarter 2012 earnings call. Today's conference is being recorded. At this time, I would like to turn the conference over to the Treasurer, Mr. Ryan Marsh. Please go ahead, sir.

Thank you, Sara, and good morning to everybody. Welcome to Asbury Automotive Group's first quarter 2012 earnings call. Today's call is being recorded and will be available for replay later today. The press release detailing Asbury's first quarter results was issued earlier this morning and is posted at our website, www.asburyauto.com.

Participating with us today are Craig Monaghan, our President and CEO; Michael Kearney, our Executive Vice President and COO; and Scott Krenz, our Senior Vice President and CFO. At the conclusion of our remarks, we will open up the call for questions, and I will be available later for any -- all of the questions you might have.

Before we begin, I must remind you that the discussions during the call today are likely to contain forward-looking statements. Forward-looking statements are statements other than those which are historical in nature. All forward-looking statements are subject to significant uncertainties, and actual results may differ materially from those suggested by the statements.

For information regarding certain of the risks that may cause actual results to differ, please see our filings with the SEC from time to time, including our Form 10-K for the year ended December 2011, any subsequently filed quarterly reports on Form 10-Q, and our earnings release that we issued earlier today. We expressly disclaim any responsibility to update forward-looking statements.

It is now my pleasure to hand the call over to Craig Monaghan, our CEO.

Good morning, everyone, and thank you for joining us. We are pleased to report the strongest first quarter in the Company's history. Our EPS from continuing operations increased 68% for the quarter, to $0.57 per share. We achieved these results through strong gross profit growth in all lines of our business, combined with continued progress in SG&A expense control. Scott will provide more detail on our financials, and Mike will provide an overview of our operating results. But I would like to provide a couple of highlights from the quarter.

Revenues and gross profit improved 6% and 11%. We've continued to improve our cost structure, reducing SG&A as a percent of gross profit by 320 basis points. And our operating leverage resulted in a flow-through of 54% of our incremental gross profit.

Scott will now provide more detail.

Thank you, Craig. It was nice to have a quiet quarter from an accounting standpoint. Our first quarter results of $0.57 include no adjustments for non-core items. We continue to focus on our cost structure through a number of cost and productivity initiatives. SG&A to gross profit was 74.6% for the quarter, a 320-basis-point improvement compared to the prior year first quarter. The majority of the improvement came through better leveraging of our personnel costs, although we also benefited from lower rent burden and reduced utility costs.

You probably recall that on our year-end call, we committed to removing costs and increasing productivity over a two-year period. We said that would produce a 200-basis-point reduction in SG&A as a percent of gross profit. We believe we are on track in achieving that result.

SG&A as a percent of gross is obviously helped when gross profit increases in an improving SAR environment. So to be clear, we are focused on decreasing costs and improving productivity. Our goal is calculated using 2011 as a baseline and assuming a flat SAR environment.

During the first quarter, we spent approximately $25 million prepaying mortgages that mature in 2013. As a result of further debt reductions and growing EBITDA, we ended the quarter with a total debt-to-adjusted-EBITDA ratio of 2.5 times. We are comfortable with our leverage in this range. We are pleased that others have noticed our progress in strengthening our balance sheet. S&P recently upgraded Asbury one notch to BB-.

With respect to capital expenditures, in the first quarter we spent $8 million of the $50 million we budgeted for 2012. We are increasing our 2012 capital expenditure budget by approximately $10 million, to $60 million, in order to accelerate several projects we believe will significantly benefit our business. As an example of what we are talking about, we are building a new showroom and an expanded service area for our rapidly growing Hyundai store in the Tampa area.

We are also working with several of our manufacturing partners regarding potential add points. Depending on the success of these discussions, our 2012 CapEx could increase further to accommodate the construction required to support new franchises. As we always remind you, our CapEx numbers exclude lease buyouts and real estate investments.

Finally, to support the relocation of one of our franchises, we purchased $6 million of real estate during the quarter. In addition, we continue to target opportunities to purchase properties we are currently leasing. We expect to close on several of these transactions in the next two to three months.

We ended the quarter with total liquidity of $243 million. This includes $224 million available under our undrawn committed revolving credit lines, $4 million in cash, and $16 million available in floor plan offset accounts.

We continue to allocate capital in a balanced and disciplined manner, investing in our existing operations, seeking growth opportunities for the Company, and supporting a program of share repurchases.

I will now hand the call over to Michael to discuss our operational highlights.

Thanks, Scott. I would like to remind you that everything I will be covering with respect to operational highlights will pertain to same-store retail performance.

New vehicle gross profit increased 16% compared to the same period in the prior year. Our new vehicle margins for this quarter were 6.7%, up 70 basis points compared to the same period in the prior year. We ended the quarter with a 60-day supply on a trailing 30-day basis. With respect to our inventories, we believe our stores have the necessary supply on the ground and in the pipeline to meet the majority of consumer demand.

Used vehicle sales continue to be a strength for us, as our stores broke all-time first quarter Company records for used retail revenues and unit sales. We increased used unit sales 14% over the first quarter of last year. The used retail niche that we started in 2010 continues to grow and sustain this growth. Although margins slipped 70 basis points to 9.9%, the increased volume more than offset that effect.

Our used-to-new unit sales ratio was 82% for the first quarter, and we ended the quarter with approximately $100 million of used vehicle inventory, or a 32-day supply on a trailing 30-day basis.

Our F&I business continues to remain strong for us, as our stores once again broke all-time Company records for both F&I revenues and a per-vehicle retail. First quarter F&I revenues grew 21% compared to the same period in the prior year. F&I per vehicle retail for the quarter was $1,157, up 14% year over year.

In addition to excellent F&I, process execution, and our continuous improvement training program, we are the beneficiaries of the much-improved banking environment, higher advance rates, consistent application of lender requirements, and the return of much more favorable lease terms.

Our parts and service operations also produced all-time first quarter records for the Company in both revenues and gross profit. Revenues increased 2%, and gross profit grew 7% compared to the first quarter of 2011. Parts and service gross margin for the quarter was 57%, up 230 basis points compared to the same period in the prior year. The year-over-year gross profit improvement was driven primarily by the 20% increase in reconditioning work, as well as an 8% increase in customer pay.

Offsetting some of these increases, our gross profit from warranty work was down 18% over the prior period. This is due to a reduction in the higher recall volumes we saw this time last year, as well as lower units in operation resulting from the drop in new vehicle sales over the last three years.

Our National Tire initiative has been implemented in all of our markets. The program is off to a great start as we experienced record tire sales in the month of March, with those sales up approximately 75% over March of 2011.

We are encouraged by the strength of vehicle sales so far this year. Please keep in mind the impact of fleet sales on the overall SAR. Fleet represented over 19% of SAR in the first quarter versus 18% in the first quarter of last year. We continue to plan our business around a $14 million SAR; however, we see no reason the current pace of car sales is not sustainable, considering the increasing number of consumers looking for more fuel-efficient vehicles, the continued improvement in availability of consumer credit, and the cadence of new products coming from all of our manufacturing partners.

Finally, I want to extend my appreciation and thanks to all of our associates in the field. Your collective efforts are reflected in these results.

With that, I'll hand the call back to Craig to conclude our prepared remarks. Craig?

Thanks, Michael. The first quarter was exciting for Asbury. We are seeing the benefits of all of our hard work pay off as car sales recover. Over the last few years, we have reduced our leverage to a level with which we are comfortable while building out our technology infrastructure. We are now well positioned to grow shareholder value by investing in our business, pursuing acquisitions, and returning capital to our shareholders through share repurchases.

These strong results could not have been achieved without the hard work, dedication, and commitment to innovation of the entire Asbury team. I'd now like to turn the call back to Sara, and we'd be happy to take your questions. Sara?

Thank you. (Operator Instructions.) John Murphy, Bank of America.

First, on the SG&A, because that was really the big upside to price in the quarter, at least relative to our expectations, the 325 basis points that you kind of beat by, or had this reduction of -- I think it was 320 basis points, to be exact -- year over year was ahead of the 200 basis points you're targeting, and sales were up about 10%. So if you were to think about the remaining three quarters of this year, and think about your 200-basis-point target, if sales were up 10%, new vehicle sales continued to be up 10%, do you think you'd still be able to get this 300 basis points, or maybe slightly more, out of the SG&A for the remaining three quarters?

This is Scott, by the way. It's one of the reasons I said we really are focusing on a cost number. We're not focusing on the percent, because the year will play out as the year plays out. We don't present guidance on that, on what we think the year is going to be, and that's going to drive that percentage. So I guess what I would say is that we are very much focused on becoming more productive as a Company, having a more leverageable personnel structure within the Company, and taking out actual hard costs.

At year end, we talked about that, and we said we were targeting roughly $10 million to come out of this year. And that's about half of what the total we were trying to bring out, and we're on track. And you can plug that into your model as to what you think gross profit will be as we go through the year, and the percentage will come out. But we are definitely focused on not the percentage, but a hard number of costs we're trying to bring out of the system.

Great. That's very helpful. Then a second question on inventory. You alluded to the fact that your inventory at this point is in fairly good shape. I'm just curious as we look back at the first quarter, where you really -- the shortages were. I'm assuming it would be mostly Honda where you were short of inventory, and Toyota to a lesser extent. And how much of an impact do you think that had on your new vehicle revenue in the first quarter?

John, this is Michael. When we were on the call for the fourth quarter, we talked about what a great December we had, and we had an outstanding December, along with the rest of the industry. We started January with a number of our stores having single-digit day supply of new vehicle inventory as well as some low teens. And we really did start a little bit behind the curve for the month of January and actually into February. So I think we were inventory-constrained in a number of our brands. I will tell you that the inventories have recovered.

And in the month of March, we had seven of our brands exceed the national sales growth rate. So we were a little inventory-constrained going into the quarter, but I think our inventories are at the point in time now where we're not restricted by either the number or the availability of product.

Great. And then just lastly, you alluded in your CapEx comments to potential upside in the CapEx based on some new add points that you're discussing with the automakers. I'm just curious. It's a new phenomenon that we are hearing about a lot of add points coming on from automakers to existing dealers.

Is there an attitude change or a change in the relationship that you have with the automakers, where they're coming around to the idea that they really need these well capitalized, large dealerships to be partners for distribution, and you're just seeing a lot more opportunities on these add points than you would have previously?

John, I think that's a very fair statement. It's Craig. I think the relationships are good. I think Asbury, as well as many of our other public peers, have demonstrated the benefits of the consolidation model, both in a downturn and an upside economy. We've clearly got the financial wherewithal to weather a storm.

And then when you add to that the fact that we're doing a good job on CSI, we're doing a good job on sales effectiveness, and we work hard to have good relationships with our manufacturing partners. And I think one of the rewards that we see are these offers for add points. We've got a number of them in the mill. I hope before we go a whole lot farther, you'll see some of those come to life.

And Craig, would you comment on -- is that the Japanese automakers or the Detroit three or the Germans or maybe even the Italians, as we look at those add points? Is there any specific concentration or automaker that's a little bit more accommodative on these add points?

I would say it's broadly across the board. Everybody's different, but you're not seeing it concentrated with one brand or another.

Okay, great. Thank you very much.

Rick Nelson, Stephens Inc.

To follow up on the SG&A, how much of the improvement that we saw year over year was due to the DMS expenses that went away? And of the $10 million you're talking about in hard dollars coming out, how much of that is related to the DMS?

There was certainly some benefit of the DMS in the first quarter. But the majority of that's going to roll out a little later here in the year. We still, if you'll recall, again, from our year-end call, we were still putting in the last few installations, implementations, still in the first quarter. So most of that is going to come out later in the year.

The majority of the costs were, as I said, work we had done and worked very hard on around our rent structure. Utilities, we've done a lot of work with telcom and moving that into an IP environment, an Internet environment. Those costs are down substantially, as well as we've spent a lot of time making sure that we were market competitive in terms of all of our pay plans, but that they were aligned with our goals and objectives for the Company and gave us an ability to leverage that as the SAR improved. And that's where the bulk of it is coming.

We're still working on, and I think it is a longer-term benefit, and as I said, we said upfront that this was a two-year approach to this, because a lot of the benefits, the hard costs which will come out associated with the DMS now and the things we're building on top of that, will happen. They're all underway; we're working very hard on it. But they'll happen later in the year and in next year as we bring those to fruition.

And it's not going to be a straight line improvement. There's going to be some investments along the way, but we are committed, as we said, with 2011 being our benchmark, and bringing that 2011 full-year SG&A to gross profit down 200 basis points by the time we get to the end of the two-year period, and running from there on that basis.

So we're on track. It's a lot of little things, and I'm going to tell you that, as a Company, it's not one big thing, that this Company -- and I give full marks to Michael and his people and the people in the field -- to really focusing on costs at the store level, at the corporate level, and across the Company. And you're seeing the result of that.

Scott, do you see that as more back-end loaded, X-ing out the DMS issue which you discussed?

Yes. I mean, those costs related to systems probably will be things we see later in this year and on into next year. And that's just because of the work that needs to be done, underpinning them and making sure everything works together here.

And I didn't mention it before, but when we set the goal, we also -- you know, we set the goal clearly at year end. And again, as I said in the prepared remarks, that was predicated on a flat SAR environment. We're seeing a little benefit here in the fact that we're continuing to take hard costs out, but the SAR has been improving a bit, and that drives that percentage down again. And that's one of the reasons we're not chasing the percentage as much as we're chasing the commitment we made to hard costs, $20 million of hard costs out. And then if, as we mentioned, we're planning around a $14 million SAR, and that's where our planning purposes is.

If we see some of the momentum continue here in a year, and who knows what will happen? We try and be very disciplined in this Company and not predict SAR. There's so many variables to that. But if that were to happen, that could in fact be a 50 percentage of SG&A to gross profit as we go through the year.

Got you. And then, Michael or Craig, the unit growth in new cars seemed to lag the industry. Was that purely inventory constraints? And if you could talk about the market share, your key brands, what's happening there.

Yes, Rick, this is Michael. I think I mentioned with John, our caller. But we had a tremendous December. And we went into January with a number of our stores very inventory-constrained. I've got a very large volume Honda store that went into January with a nine-day supply of product. So we did outnumber those. It took us, really, the month of January and part of February to get not only the number of units, but the mix, the model mix to where we felt comfortable again.

I think we got there with March. If I look at what we did in the month of March, seven of our largest brands outpaced the national number in sales growth for the month of March. So I'm comfortable that it was inventory-constrained and that our inventories are really kind of where we want them all to be.

There's always going to be a shortage of something. I'd like to have a few more BMW 3's. We'd like to have a few more Mercedes of this or a Honda this, but we're never going to get a perfect world, but I think as an overall situation, our inventories are -- I'm quite comfortable with them and I feel they're well placed right now.

Any commentary on April new and used sales? That would be helpful, too.

Again, this is Michael, Rick. You know, April is seasonally less than March, always. April's traffic is good. Attitudes are very good. Consumers' attitude is very good in addition to the employees' attitude. There's, as you know, a substantial amount of product that's on its way on the new side.

With our initiative that we put into place about two years ago, we continue to harvest a much larger percentage of our used car inventory from our trade-ins. So as the new car sales go, we will take more trades, and I think our teams have gotten much better at holding onto more of them. So I think it's a good time to be in the retail automotive sector, and looking forward to the rest of this year.

Great. Thanks a lot and good luck.

Scott Stember, Sidoti.

Could you guys maybe talk about maybe how you were constrained on some other brands outside of, say, Honda and Toyota, on some of the premier brands like BMW and Audi?

Scott, this is Michael. You know, we only have the two Audi stores, and we were a little bit constrained, not too much there. We have a number of BMW stores. As the model year, the Series 30 series, as it switched over, I think the entire BMW world in the United States saw a shortage of availability. And then, as you see any new product come into the marketplace, it takes a while to build up.

As you know, BMW brings in different variants at different times. So we'll see, not only the fact that we just had the new 3 introduced very recently, we'll see different variants of that throughout the remaining quarters of this year. So we were a little constrained on the BMW side, a new product introduction, and I think we're through that, and I don't believe that's going to be a constraining issue for the balance of the year.

So the demand was there; you just didn't have the product to sell?

Yes.

Okay. And could you talk about, on the new side, the gross profit being up as much as it was? Is that because of the fact that you were able to charge a higher price, given the supply and demand?

Scott, I think last year, as we went through the results of the tragedy in Japan, there was a little bit of learning for the whole industry about how to price and value cars as well as how to turn the inventory in a tighter inventory environment. So I think, as an industry, we've all learned how to maintain a little more margin on that.

It is, however, in the macro side, really a function of inventory and incentives, to a large extent. We are in a relatively flat incentive environment, with still relatively normalized inventory. So I think that the margins, that is reflected in the margin. I think lending had a little bit of an impact on margin, got a little bit better advance rates. When you put all those together, I think we were lapping some pretty low margins this time last year.

So I think those all together is what brought about the increase in the margin on the new car side.

Okay, and last question. What is the percentage of real estate that you own currently?

It's roughly 60%.

Okay. That's all I have for now. Thank you.

Steve Dyer, Craig-Hallum.

Same-store sales growth -- did I miss that for new and used?

Same-store units were up 1.3%, and used units were up 14.3%.

Thank you. What are you seeing on the acquisition front out there? How are you thinking about that as the balance sheet gets in better position? Just any color there would be helpful.

Sure, Steve, this is Craig. And I think you hit the nail on the head. For us, capital allocation really is first a function of getting the balance sheet in order. So you've seen much of the capital that we've been allocating over the last two years has been focused on strengthening the balance sheet. And last quarter, we spent about $25 million paying down debt.

But when you combine the debt paydown efforts that we've been undertaking with the incremental EBITDA that we've been able to generate, our leverage is now down to about 2.5 times. And we think that positions us very well to start looking at other alternatives. And we are looking at acquisitions. We're looking at add-ons, like we mentioned earlier. Share repurchase is also something that we always keep in mind.

And specifically on the acquisition front, we don't see a lot of activity in the market, but there are some potential transactions that we're finding interesting. I don't think it would be unreasonable for you to expect that you might see a tuck-on type acquisition here at Asbury before we get to the end of the year.

Okay, great. And then one housekeeping item. What was the stock comp number in the quarter?

Maybe one of the guys might have to get back to you.

We'll get back to you on that.

Okay, that sounds good.

We're ruffling papers madly here trying to find it.

All right, thank you.

Rod Lache, Deutsche Bank.

It's Dan in for Rod today. I thought it was a really good quarter. Congratulations on that. Just wanted to ask a couple of questions on used and parts and service. Used growth was really good, particularly in the context of a lower pool of younger used vehicles. Can you talk about maybe what the used-to-new ratio was a year ago and how much the initiatives you've put in place over the last couple of years are contributing to the growth? Has the age of the vehicle that you're selling changed at all? Any color on that would be great.

Yes, so Dan, it's Michael. So it was in the mid-70s, I think, the first quarter last year.

76, in fact.

76? And I think the initiative that we put in place roughly two years ago, what it did is it broadens the price band of car that you're willing to stock and sell. So in that, you would obviously expect some older cars. You'll also expect some not-as-old cars, but with higher mileage. So it's really a price band that you look at.

So when you expand the price band that you traditionally didn't want to keep, you'll take more of your trades in, you'll recondition them, put more money into reconditioning. But it gives you an opportunity to reach so many more buyers than you would have had on that.

So I think that that initiative in itself allows you to have more potential sales with less purchased inventory, and you don't have to spend as much time or sit in the auction lanes being the last one to raise your hand. So I think that part of the initiative has had a lot to do with our ability to sell more used cars.

And I'm sorry -- I missed the second part of that one.

I think that that gets to it. Just to follow up on that, why do you think dealers, new car dealers, didn't do this in past, or are there any downsides that you see potentially in perception? You know, having older cars on the lot, a perception that your dealership -- I guess it seems like it's been successful for a lot of dealers over the last couple of years. Why wasn't it done in the past?

So, Dan, this is Michael again. Just quite frankly, it's a lot of work. It was always easier just to take a trade that's real clean, take it to the auction and make your money. You could also take that same trade to the auction and cover up some of your mistakes that you made on some other cars. So fundamentally, it's more work, and it brightens the spotlight on it. So I think that's why it wasn't done in the past.

But to your point about the perception, we either certify it through the manufacturers or certify it through Asbury, all of our used cars that we sell. So these vehicles are well inspected, 121-point inspection, they're reconditioned extremely well, we put new tires on a large portion of those vehicles. So I don't think there's any perception. The consumer comes in and has, essentially, a bigger variety of a car to see. So it's been received very well in the marketplace. I don't think there's any issue with perception of price or value from our consumers.

That's great to hear. Just on the margins, used margins have been moving around a lot. It got down below 9%, and now it's back up to close to 10%. What are the key drivers, going forward? How should we be forecasting used gross margin over the next few quarters, do you think?

Dan, this is Michael again. I think I'll answer the question kind of in reverse, and then you'll have to apply it as you see fit. Our margins stayed right around that 10% mark for a long time. Towards the end of last year, we saw a little margin deterioration as a direct result of carrying more inventory on the used car side in a number of our stores because we didn't have any new product to sell. As new products started to become available, we had to shift a little bit. And when that happens, we would prefer to retail the older pieces than take them to the auction and take a potential wholesale loss on them.

So what we would see is a little bit more discounting at the end of the third quarter and throughout the fourth quarter of last year on our used cars. We are not in that position today. We have a 30- to 31-day supply of used cars. We have ample new car inventory. Inventory is turning very quickly. And because of that, our margins have begun to increase a little bit from there.

Okay, sounds good. And then on the parts and service -- 57% -- that's the highest we've seen. Is there anything that was particular in the mix of the business this quarter that was driving that higher?

Dan, no. It's just as we continue to grow our internal work and reconditioning work, it's a high-margin part of the business, and we continue, again, as part of our used car initiative, that's one of the very positive offshoots of that initiative, is that we do a lot of reconditioning work, and we benefit from that.

Okay, got it.

Warranty work continues to decline quarter over quarter. I mean, quarter over quarter, warranty work was down almost 18%. So all that's in the mix. Just quickly, I was able to -- without causing too much of a kafuffle here so everybody has the benefit of this -- but stock comp in the quarter was $2.4 million compared to $2.6 million prior year first quarter.

Thanks. And just one last one on the mix of car versus truck. Did you guys see much impact from fuel prices in the quarter, and has there been any change in customer perception since fuel prices started to moderate a few weeks ago?

Dan, this is Michael. We did not see a significant switch from that. I think it's been running about what it has run. At least in the brands that have the trucks, it's been running about the same percentage.

I will tell you that, just as an off point to that, there are so many more variants of automobiles and trucks today that get in excess of 28 to 30 miles per gallon than there has been in the history of the industry, so there's a lot more choice for the consumer. So I think the fluctuations in gas prices are not as dramatic -- do not have as dramatic effect on the consumer as they did two or three years ago.

Okay, thanks a lot for your time.

James Albertine, Stifel Nicolaus.

So I just wanted to -- a lot of great color, by the way, in the prepared remarks and throughout the Q&A here. But I wanted to put first quarter '12 results back to something you said earlier this year, at the beginning of this year, namely, that you've transitioned from a company on the defensive to a company going back on the offensive. And I wanted to understand, in a little bit more, maybe, granularity, where being offensive in the first quarter helped you relative to maybe your direct competition in the market on the new, used, or parts and service side, or helped you produce results that were above and beyond what the industry would have projected.

James, this is Craig. I think we're working through a continuum, and I would argue that there is a transition from defense to offense, and I wouldn't say that the first quarter was really evidence of that. I think it's still to come. But if you think about it, in the first quarter we finished our DMS conversion. So it's finally behind us. We're not getting on a call and being the only public consolidators that's still talking about getting everybody on a common system. So that's done.

In the first quarter, we got our leverage down to 2.5 times. I'd argue our balance sheet is in great shape. We've got everybody on a common CRM, and we're really, I think, for the first time, beginning to learn how to really use these tools.

And I think, as we said earlier, it's positioning us very well. It feels good to get here, get on this call with you and talk about the fact that we are looking at a tuck-in acquisition. We're looking at add points. And we know we've got the ability to go out and buy back stock.

I consider those things offensive moves, as to trying to fix things like we've been doing for the last two years or so.

Understood, and that's very helpful. And I guess there's one quick follow-up to that. Is there anything that you've found -- and I've likened it in the past to sort of a home renovation. You think there's going to be a certain cost, you tear down a wall, and you find out there's seven other things that you need to fix that you didn't count on as part of the budget.

And I guess my question is, now that you've gone through these processes, now that you have your personnel training on these systems and learning how to better optimize these systems in a real-time fashion, is there anything that gives you pause about your ability to produce consistency quarter to quarter in terms of the result that you have now -- which, really, frankly, were great results in the first quarter of this year.

No, I look at it the other way around, and I lead this. Michael and Scott, jump in as well. I am very proud of what our people in the field have been able to produce. I think the results in the quarter, despite -- you know, we still had some challenges, as Michael pointed out. We had some serious inventory constraints, and despite those constraints, I think the teams just did a phenomenal job.

But all that said, we've made a lot of investments in technologies and tools, and we are still not all power users. We've got some power users out there, but nowhere near as many as we'd like to have. And I think we look at this as, just give us some more time, like Scott said. The projects that we're working on, these are not quarter-to-quarter projects, but projects that are going to take a year or two. I think there's still a lot more good things to come.

I'd just add that we put in a lot of the foundational stuff here. I mean, as Craig says, we're still learning, but we're using it to a large extent. Many of the things that we are now able to access and look at because of the common DMS are being used. We put in operational structures, management structures, for review of performance, all of which are designed to drive continued, solid, sustainable operational performance within the Company.

And that's been a big part of what I think is going on the offensive. It was not fixing -- constantly being distracted in using your man-time to fix problems, but to look at programs, like the tire program. You know, what can we do in the service drive? All of these are -- they're not terribly sexy. They're not as sexy as a big acquisition. But I'll tell you, they, for a relatively low risk and solid return on your investment, they drive performance. And I think that's what you see more than anything else in this quarter.

Thank you very much for that comment. And it's all the more impressive, considering how quickly this has happened. So congratulations again on a great quarter, and look forward to talking to you soon.

Brett Hoselton, KeyBanc.

A couple of thoughts here. First of all, on the new vehicle side, gross profit per unit, with the build in inventory through the first quarter and into the next couple of quarters, do you think you're going to be able to maintain your gross profit per unit on the new vehicle side, or do you think you might see some incremental pressure as inventories fill?

Brett, this is Michael. As I mentioned earlier, it is many pieces to that equation. But some of it is, in fact, inventory and incentives. We are in a relatively flat incentive environment, and that could change, depending on production and availability of production. So we believe we can hold to those margins, but the caveat to that is really inventory and the level of incentive that sits in the marketplace.

All right. And then switching over to used vehicles, obviously, you had a nice bump up into used as a percentage of new. You're up into the low 80% range. As your new vehicle supply recovers, or has recovered, and you should get some better sales on the new vehicle side, do you think that you'll be able to maintain that 0.82 used as a percentage of new, given some of your initiatives on the used vehicle side, or do you think that's likely to just drift down a little bit?

Well, I don't plan on letting it drift down much. We started the initiative a number of years ago, and I preach this to all of our people in the field. They've heard it so much that they can recite it backwards to me.

In this country, we sell almost three times as many used cars as we do new cars in any given year. And of that, the franchise dealers get approximately one-third of that volume. All that I want to do is maintain a growth into the other two-thirds. So I don't view it as competition at the store level for the consumer, a new versus a used, one caveat being, again, level of incentives.

But I think we can continue to grow the used car business. We have some internal stated goals. I think there's enough of a consumer base out there. And as long as we grow our new car business, continue our Asbury initiative, we will have a farm to put the used cars in via our trade-ins.

Very good. Thank you very much, gentlemen.

Efraim Levy, S&P Capital IQ.

That leaves me with only one question after all the other good answers, and that's even going back to the acquisition topic. In terms of the brand preferences, do you have certain brand preferences that you're looking at? What about the Korean and VW? What's your thoughts on more acquisitions there?

We are wide open to a relatively broad range of brands. I don't think there are that many brands that we would exclude. I think maybe what I'd start with is by saying that we are quite happy with our portfolio of brands. We're very happy with our geographies. The ideal acquisitions would be ones that would allow us to continue to maintain a diversified brand portfolio. We like the markets that we play in today. We would be willing to move out onto the periphery of some of those markets. But we think sticking close to our knitting and close to home is good business.

Okay, thank you very much.

And it does appear that we have no further questions in the queue at this time.

Right. Well, thank you, everyone, for joining us today, and we look forward to speaking with you again next quarter.

This does conclude today's teleconference. Thank you for your participation. You may disconnect at this time, and have a wonderful day.