Group 1 Automotive Inc (GPI) 2004 Q1 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Group 1 Automotive first-quarter conference call. At this time all participants are in a listen-only mode. Following today's presentation instructions will be given for the question-and-answer session. (Operator Instructions). As a reminder, this conference is being recorded on Thursday, April 29, 2004. I would now like to turn the conference over to Mr. Russell Johnson, of Fleischman Hillard. Please go ahead, sir.

Thank you, Kristin. Good morning, everyone, and welcome to the Group 1 Automotive first-quarter conference call. Before we begin I would like to make a brief remark about forward-looking statements. Except for historical information mentioned during the conference call statements made by management of Group 1 Automotive are forward-looking statements that are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve known and unknown risks and uncertainties which may cause the Company's actual results in future periods to differ materially from forecasted results. Those risks include, but are not limited to, the risks associated with pricing, volume and the conditions of market. Those and other risks are described in the Company's filings with the SEC over the last 12 months. Copies of these filings are available from both the SEC and the Company.

I'll now turn the call over to Mr. B. B. Hollingsworth Jr., Chairman, President and Chief Executive Officer of Group 1 Automotive. Mr. Hollingsworth, Please go ahead.

Thank you, Russell, and good morning, ladies and gentlemen -- welcome to our conference call.

This morning we will discuss auditing results for the first quarter of 2004. But first, let me refer you to our press release yesterday afternoon, announcing two new executive appointments. Robert T. Ray will become Senior Vice President, Chief Financial Officer and Treasurer; and Joseph C. Herman will become Senior Vice President of Operations. I look forward to working with Robert and Joe, and I'm confident that they will complement and enhance our existing management team. Their experience in operations, consolidation and finance will be instrumental in helping Group 1 achieve our goals. Now, for the first quarter highlights.

Net income was $2.5 (ph) million or 45 cents per diluted share, including an after-tax charge of $4 million or 17 cents per diluted share from our March bond redemption.

Revenues grew 11.4 percent to $1.1 billion. New vehicle revenues increased 13.8 percent. Parts and service revenues grew 11.6 percent. Same-store revenues increased 5.7 percent and gross profit increased to $183.4 million from (technical difficulty).

We have acquired one new franchise this quarter and we're reaffirming our 2004 guidance.

We delivered a second consecutive quarter of same-store growth, reflecting our continued focus on improving operations and the benefits of an improving used vehicle market.

New vehicle revenue grew 13.8 percent on a unit sales increase of 10.2 percent. Used vehicle retail revenues increased 2.4 percent on unit sales there were 0.8 percent lower. Parts and service and financing insurance revenues grew 11.6 percent and 3.8 percent, respectively.

Gross margin for the quarter was 16 percent compared with 16.5 percent during the year ago period.

Income from operations (technical difficulty) $32.7 million versus $31.4 million, a 4.2 percent increase, and operating margin was 2.8 percent compared with 3 percent during the year ago period.

I'll now go over the details of our brand and geographic mix, as well as our financial results.

From a brand standpoint we experienced very strong performances in our Highline franchises -- Acura, Lexus, and Infiniti, as well as strong performances from our (technical difficulty) franchises quarter. From a geographic standpoint, we had outstanding performances in New Mexico, and Central Texas, consisting of our Austin and newly acquired San Antonio operations, offset by continued weak performance by our (technical difficulty) operations.

The Company's revenues totaled $1.1 billion for the quarter -- in addition to over 40,500 new and use vehicles sold, we serviced over 318,000 vehicles. That amounts to about 4,100 vehicles per day serviced. The positive impact of our investments and acquisitions combined with a (technical difficulty) consecutive quarter of same-store revenue growth drove this quarter (technical difficulty) 11.4 (ph) percent total revenue growth.

Parts and service, same-store revenues were up (technical difficulty) 6.9 (ph) percent, as we had growth in customer pay and warranty sales and wholesale parts sell.

Additionally, domestic warranty work is down 4.2 percent, while (technical difficulty) warranty work is up 23.5 percent -- resulting in warranty work in total being up 8.7 percent.

Our finance and insurance revenues for retail units sold were $989 this quarter, down from $1,006 during the same period last year. This slight decrease resulted primarily from lower per unit revenue at one of our newly acquired locations.

Our Oklahoma, Houston, New England and California platforms continued to contribute the highest volumes of new vehicle sold. While Toyota (technical difficulty) Lexus and Ford continue to be our highest volume brands. You can refer to the last page of the press release for more detail regarding our new vehicle sales, gross margin and same-store results.

Luxury brands represented approximately 12.1 percent of our new car (technical difficulty) business, up from 11.2 percent in the same period last year. This increase was driven by organic growth in (technical difficulty) Lexus (ph) and Acura and the addition of three Lincoln franchises and one (technical difficulty) Mercedes-Benz franchise.

The truck market continues to be very healthy. Trucks and crossover vehicles represent 58 percent of our new unit sales, and cars were (technical difficulty) 42 (ph) percent. We realized same-store unit growth of 7.9 percent in new trucks, and essentially flat sales in same-store cars.

Import domestic mix for the quarter was 55.4 percent import and 44.6 percent domestic, versus last year's ratio of 53.8 percent import and 46.2 percent domestic.

Gross margin, as I mentioned for the quarter, decreased 50 basis points to 16 percent when compared to the same period last year. This decrease was primarily the result of lower margin and new vehicle revenues increasing as a percentage of total revenues.

Income from operations for the quarter totaled $32.7 million, or 2.8 (ph) percent of revenues -- up slightly from the $31.4 (ph) million realized during the same period last year.

Our underperforming platform in Atlanta is still negatively impacting our SG&A to gross profit ratio, which was 80 percent for the quarter. Excluding Atlanta, that ratio would be much closer to our historical performance, of about 78.6 percent.

A slight decline in floor plan interest expense is primarily attributable to our vehicle inventory being under leveraged during the quarter, due to excess working capital from our August 2003 offering of eight and one quarter percent notes.

Other interest expense increased $2.5 million, due to the eight and a quarter percent notes -- partially offset by reduced interest expense from our ten and seven eighths percent notes that were redeemed March 1, 2004.

New vehicle inventory is 76 days at the end of the quarter, which is over our target, and primarily a result of our current Ford, Dodge and Chevrolet inventory levels. This is compared to 82 day supply at the end of first quarter of 2003. I'm comfortable with this inventory level as we're heading into the higher volume summer months.

Our used vehicle inventory at quarter end is in very good shape (technical difficulty) at a 26 day supply -- below our target of 30 (ph) days. For the trailing 12 months, return on average equity was 14.4 percent. Excluding the loss of the debt redemption our return was 15.2 percent. We continue our focus on return on invested capital. Our trailing 12 months return on invested capital was 11.5 percent, below the 13 percent we have run in the past couple of years. But still I expect leading the sector and certainly above our cost of capital.

Turning now to liquidity, on March 1, 2004, we used $79.5 million of working capital to fund the early redemption of our ten and seven eighths (technical difficulty) percent senior subordinated notes. The Company incurred a pretax expense of $6.4 million, which is the combination of a $2.3 million non-cash expense to write off unamortized debt expense and discount, and a $4.1 (ph) million cash expense to pay the call premium.

This resulted in an after-tax expense of approximately $4 million or 17 cents a share during the quarter.

At quarter-end, the Company had over $155 million in (technical difficulty) working capital. This is about $30 million more than we need to run the business. We expect these funds will be deployed in acquisition.

The Company's long-term debt to debt to capitalization is 23 percent at the end of the quarter. Our acquisition working capital line of credit is undrawn as of quarter-end and as of today. We estimate that, depending on the cash stock mix and purchase price, we have the financial resources to acquire 1.5 to $2 billion (ph) in revenues. It is clear that we're positioned for significant growth.

Total capital expenditures for the quarter were $15 million of which approximately $11.7 million (ph) was for new or expanded operations.

We completed the acquisition of a new Toyota franchise in Boston. This franchise became the third Toyota dealership for the Ira Motor Group, and is expected to generate annual revenues of $55 million. The dealership will sell Scion vehicles in addition to Toyota.

We anticipate growth in the new vehicle market, used vehicles and parts and servicing markets during the second quarter. Yet, there appear to be signs of a recovery in (technical difficulty) vehicle market, as well as an increase in manufacturers’ incentives driving new vehicle sales.

And we are reaffirming our 2004 earnings guidance of $3.20 to $3.40 per diluted share, excluding future acquisitions, and the 17 cents per diluted share impact of the March 2004 notes redemption. This equates to (technical difficulty) $3.03 to $3.23 per diluted share, excluding future acquisitions and including the redemption impact.

We continue to seek strategic (technical difficulty) and acquisitions to augment our current markets, as well as platform acquisitions in our new markets. Including the $315 (ph) million revenues acquired during the first quarter, the Company is targeting to add dealerships with aggregate annual revenues of approximately $1 billion in 2004.

Our acquisition pipeline continues to contain attractive, qualified candidates that fit our stringent criteria.

Now, turning to the top sellers for group one in the first quarter, the top five models for group one -- number one, again, the Ford F-series pickup. Number two, the Toyota Camry. Close behind, number three, the Dodge Ram pickup. Four, the Toyota Corolla. And number five, Honda Accord.

As I mentioned, our truck-car mix for the quarter was 58.3 percent trucks and 41.7 percent for cars.

Group 1 Automotive currently owns 83 automotive dealerships, comprised 123 franchises, 30 different brands and 30 collision service centers located in 10 states, and we now have 14 platforms.

I would now be happy to entertain your questions. The floor's open.

(Operator Instructions). Rick Nelson, Stephens, Inc.

Kind of curious why you didn't prerelease -- your numbers came in below the first call consensus. I realize you didn't have quarterly guidance out there yourself --?

Well, part of that you just answered. We don't have quarterly guidance. Our numbers came in close to the first call consensus. When you adjust for the bond redemption -- 17 cents. And because we don't do quarterly. We didn't prerelease.

How about Atlanta, that has been a drag a while. I'm wondering what the strategy (technical difficulty) about what's happening there --?

Yeah. Atlanta has been. We've talked about Atlanta for some time now. We did talk about it two months ago on our last conference call. I do feel Atlanta continues to underperform. We're behind our schedule on fixing that (technical difficulty) platform. We have a, as I mentioned on our last call, a new platform President in place in Atlanta, moved there at the first of the year. I have every confidence in our management group that is in place in Atlanta now. I believe they are the people to turn this platform around.

I think as usual, when you get into it, when you have a platform that is underperforming the way Atlanta has, your problems tend to be deeper and broader than you might first think. I think our platform President in there will be the first to say he is behind on the schedule that he set for recovery. But I am still confident that we have the right people in place.

Part of Atlanta is market specific. Part of it is brand specific -- we (technical difficulty) relaunched Ford in the Atlanta market. And some of it's certainly been self-inflicted. But I do think we have management -- general management (technical difficulty) platform President and a management (technical difficulty) there in place now. Hopefully we can quit talking about Atlanta on future conference calls.

Lastly, we have seen a number of management changes there at corporate. I'm wondering at the platform level if you anticipate any changes over the next twelve months?

With a Company our size, you anticipate change, certainly, all the time. We have 14 platforms today. Those platforms have to perform. We do make changes in the platforms from time to time. Our Company is now seven years old. A part of kind of the lifecycle of corporations -- you have people come and go. Many of the founders of this Company have now retired.

We have had -- probably for the first time -- certainly some turnover here at corporate. We have replaced all those positions. We announced that yesterday afternoon, as I referred at the lead-in of the conference call.

So, part of that just life in a big corporation. We have general manager changeovers from time to time for various reasons. And I feel confident we will continue to have some change in platforms, although very little turnover at the platform level unless we initiate that change.

Thank you.

Jeff Black, Lehman Brothers.

We just heard Auto Nation talk about getting more aggressive to gain market share. And we see your gross margins clearly dropped at pretty good run last year, where you held the line on that I guess (indiscernible) some on the same-store sales line. But, do you think we're in this mode of trading sales for margin? And if so, how long -- given inventories which on your end look pretty good? Are we going to see another couple of quarters of margin declines -- or just a projection here?

I think that, first of all margin issue, we had a slight margin change (technical difficulty) mix. Anytime you have your lower margin new vehicle sales increase more rapidly than other areas, as you know, it's going to impact your margin.

I think that all of us -- Auto Nation is (indiscernible) mode than we are. We still intend to grow through acquisitions, and (technical difficulty) definitely impact our performance through acquisitions and we still continue to see very attractive opportunities that fit our strategy, as I mentioned, targeting $1 billion this year. We are about one-third of the way there already.

We're always looking to improve on operations. We're bringing in, really, for the first time, a Senior VP that is going to be totally dedicated to operations -- Joe Herman. The previous position that we had with that title really split duties between operations and manufacture relations. We're separating those functions. So Joe joins us actually on Monday.

And the platform Presidents will report directly to him. And I think you'll see a greater effort on our part to enhance the best practices out of our (indiscernible) doors and facilitate working with the platform Presidents on strategic objectives to grow operating margin, special projects, F&I area, used cars etc.

So, I think as the public automotive retail model evolves, you'll see all of us -- we all take a different approach to it, I will be quick to add. But all of us are looking to improve our operating model.

Just a follow-up. I'm just going to assume we will see some more gross margin pressure for the near-term.

But, what gives us confidence, what gives you confidence, and this is all related to what you just said -- (indiscernible) planned improvements that SG&A can improve to offset any gross margin weakness?

Well, I would say on the SG&A, we are really pretty close. We're not far off where we need to be.

My confidence in Atlanta improving is basically centered around the people that are there. As you know, this is very people-intensive business. We have been through -- this is our third platform president in Atlanta. We now feel like we have the -- one of our superstars over there. And I have great confidence in his ability to be able to turn that platform around.

So, that is mainly a people issue. That is why I feel that way about it. It is an issue we have been very open to talk about -- it's a big enough issue that it really impacts our overall numbers. And while you cannot take it out of the numbers, we clearly see as getting that fixed is very high priority. And it's not an issue of us having higher policy than some other platforms, or higher overheads somewhere that we should be cutting out. It's just that we have got an underperformance that skews those numbers.

Great. Thank you very much.

Scott Stember, Sidoti & Company & Co.

Can you maybe touch on the parts and service gross margins standing on their own? You still had some pretty decent comps of 6.9 percent in the quarter. Yet, the gross margins just for that segment alone was down about 90 basis points. Is there anything going on there?

Some of that is growth in wholesale parts. We have initiated in a couple of markets some pretty large wholesale parts operations where we had multiple brands, with delivery systems -- I would probably call it -- it's not new to the industry. Probably the scale that we're doing it is new. But we have a large parts delivery center in Oklahoma, where we have multiple brands that we represent in that market. So, those wholesale parts sales have a lower margin. So that skews that just a little bit. So that's part of what you're seeing there.

So, going forward, you basically gave the blessing I guess what you're seeing now for your previous guidance. Where do you see parts and service gross margins moving? And if you expect them to be soft, would that still be because of your growth in the wholesale business?

I wouldn't characterize them as soft.

Not soft, but down.

Yes, and you just have -- it's a little different mix between retail, wholesale. I would say if we continue to be successful in wholesale parts area and grow that, then that will be kind of more the norm of where the margin will end up. If we didn't do that, and we didn't expand that business or we exited that business for whatever reason, then you would see that margin pick (ph) (technical difficulty) a bit -- that's purely a retail margin.

Let me just add, it's a really very interesting opportunity -- when you have multiple franchises as we do in some markets, to be able to have a central parts delivery center that services, not only our dealerships, but is large enough to service some very almost a real-time basis, other stores in the surrounding geographic area that are not a part of Group 1. It's an interesting growth opportunity for us. And I would consider it, still, at this stage, still very much in the testing stage.

Okay. And as far as on the used side of the business. The wholesale segment posted some very strong comps. Can you talk about (indiscernible) things you're doing there which is giving you some success?

You're talking about the increase in wholesale sales? That's just driving us trying to control that day's inventory and keep those turns high on the retail side.

We had -- I will say, probably some of the lowest wholesale losses we had in my recent memory. Reflecting a strengthening, we believe, in the overall wholesale market -- most of the measurements you look at tend to indicate that, that would be the greatest thing that probably could happen to our Company, our sector, to see a stabilization -- I will call -- of the used vehicle markets in 2004.

That has been a very difficult market, as you have heard us talk about, really, since 2001. With the very aggressive incentives causing fluctuations in values of used cars, especially late model used cars. Forcing us to keep a very lean inventory to control those losses in the wholesale area.

So, that increase in that area in wholesale is just us resigning to keeping those days low. And to minimizing our losses on those wholesale units.

Okay. And a final question -- could you just talk about how April shaped up -- or is shaping up at this point, just in general sales terms?

You know, it's mixed. But in general I would say we had -- let me go back, I would kind of describe the development of the year, maybe it's easier to do it that way.

January and February started off very slow, both for us and I think the industry. Those were really poor months. December was very good. We probably robbed some sales from January (technical difficulty) February.

March for us came in very strong. We had a very good month in March -- another reason, answering to Rick's question, when you have that type of performance, you don't preannounce. You end up having a very strong March -- even coming off with two weak months -- January and February.

I see some momentum from March carrying over into April. The manufacturers, as you probably are aware, are getting more -- a bit more (technical difficulty) incentives. Especially the domestics -- they are trying to hold market share. We see the used car market beginning to stabilize, somewhat.

So, I -- it's one of the reasons we're keep (indiscernible) our guidance. And we feel really good about the rest of the year going forward.

That's all I have. Thank you.

Matthew Fassler, Goldman Sachs.

Deron Kennedy (ph) on Matt's behalf. Going to Atlanta again -- I know you have changed some of people there. Could you discuss any of the specific actions being taken? And when you think that there would be stabilization (multiple speakers) this action plan. I know you said you're behind schedule. What are some of the tasks that seem to be dragging out?

Some of the tasks -- the main task is getting the right people in place. It starts with the platform President. And our platform management group. And then it ends with the general manager in the stores. And then it trickles on down to the rest of the organization, including the sales organization.

As I mentioned, Atlanta is not only -- it's not just self-inflicted. We're very large Ford over there. Ford has been weak throughout the country. Ford is weak in Atlanta -- not just as Group 1. So we have some brand-specific issues, and then some market issues. Atlanta, overall, according to our reports of other brands in that market, has been pretty weak.

Nonetheless, we can only control what we can control. And so, our actions are probably more people-specific, process-specific, the plans to increase our sales penetration in specific stores to enhance our new car and truck share in specific stores. Those sort of action plans for each of the stores in that market.

And, by the way, it's not just one market. Those are North Atlanta's multiple markets, and Ted Well (ph) Ford up north (technical difficulty) in a very different market than World Ford at Stone Mountain. So all of those have different approaches. And I think a little bit different action plan for each one.

Bottom-line being all to try to get that platform back, really, where we have all agreed it (technical difficulty) needs to be. And it's a large market. Atlanta -- Houston has been down as a market also, by the way. These markets don't always just go (ph) straight up. But there are still great markets that we want to be involved in.

And I think, probably, I could -- just to sum that up in Atlanta -- and I have given you kind of a pretty broad answer -- but our industry, and you'll always find this -- where you have problem in the stores it's usually a people-problem. If you got a great general manager in a dealership, you don't have any problems.

So, our main challenge is get the best -- to identify, track and retain; motivate, compensate the right people in those stores. And as I said, we have the right person over there now to direct that and do that. And I have every confidence that he is going to be able to bring that back where it needs to be.

Okay, great, thanks. And next question is about acquisitions. How did those acquisitions you closed over the past year have been performing?

Very well. We have gone -- we've done 315 million in estimated annualized revenues here so far this year. Actually, that it is a great question. Thank you for asking that, I meant to mention this.

We did acquire new platform in New Jersey. It has it contributed maybe 1.5 months to this quarter. Certainly was not on line for the first quarter. But, the day that (indiscernible) group had really a great start. It's the way we like to see new acquisitions -- especially new platform -- start off with Group 1. They were well over budget. That's our New Jersey platform with Mercedes-Benz, Honda and Volkswagen. So, they really had a terrific start but we're only in for roughly half the quarter.

Our new Chevrolet store in San Antonio -- I mentioned that one of the top of forming platforms in the quarter for Group 1 was our central Texas platform, which includes Freedom Chevrolet in San Antonio. So a great start for those guys. So, we feel good about the way things have started out with acquisitions.

So, as far as -- does that (indiscernible) include other dealerships from '03 that are in your (indiscernible)?

We had a fairly small -- I think we have done more acquisitions so far this year. And all last year -- so those were all tuck-ins -- those tuck-ins are performing well. I mentioned that the growth in Highline (ph), some of that was the Lincoln stores -- the new Lincoln stores we added last year in Oklahoma and New Orleans.

So, those tuck-ins -- the tuck-ins are always -- we get a better return on those types transactions, and they're kind of the lower risk to integrate them. Because you have management in place. You don't have the same integration risk.

So, I would say just in general, all those acquisitions are performing very well for us.

And my last question -- first, two new vehicle margins again. Aside from current pressure, or -- as I look at the margins since 1999, they seemed to have peaked (indiscernible). (indiscernible) seem to be in steady (ph) decline since then. If you could just describe what you think is happening with new vehicle gross margins in general? And when and where you expect them to stabilize?

What has really happened in new vehicle margins -- we have talked about this on (technical difficulty) other calls. What you do have -- the prices of cars go up a little bit because, basically, in our dealership, we sell off growth (ph). Probably if you ask a private dealer what his revenues were, he wouldn't know. He would know what his gross was. If you look, what happens -- that margin may (technical difficulty) a bit. The absolute gross profit per vehicle has stayed pretty much constant. Same on new and used. Because that's really -- in the sales process, they are really selling off gross.

So, in general, that's probably something you wouldn't expect to change -- prices tick up -- although the dollar gross per vehicle is generally going to stay.

Yeah. Really, I actually would not expect that to change.

Thanks so much.

Matt Nemer, Thomas Weisel Partners.

A couple of quick ones here -- I don't know if you gave this out, but can you give me the same store unit growth?

We did not give that out, and I do not have that.

Okay. On the wholesale parts business that you were talking about -- who would you be taking share from -- is that -- are dealers, other than yourself, outside dealers -- where would they buy from prior to buying from you? Where are you (technical difficulty) share I guess in that market?

What it allows, it allows for, let's say, a private single point dealer -- it allows them not to carry and have invested as much in (inaudible).

Are you selling to nonfranchised dealers as well?

Yes.

Okay.

We sell to collision service centers for example, which would be nonfranchised.

Any idea what the split is between GPI (ph) and outsiders, I guess?

I do not -- I can probably get that for you. Again, that's a pretty small part of our business.

Okay. And then my last question is on the new vehicle gross margins. Some dealers have been talking about Toyota car gross per vehicle being very low and getting lower. I'm just wondering, kind of, what you're seeing on your Toyota margins for the cars?

Let me tell you just in general, without looking at a number -- cars in general are getting lower. So, that's an easy thing to say. It's certainly true with Toyota, as it is with most of the other car brands -- except for the Highline. I will exclude the Highline.

But, again, that is probably more market specific as far as particular brand. (technical difficulty)

Okay and last one (multiple speakers)

I'm just taking a quick look at ours, just to be specific to your question -- (indiscernible) car and truck. Toyota, in total -- not broken out between car and truck -- and new car margins -- the new vehicle margins is 5.9 percent. So it is a little lower.

Part of that is driven by the Houston market. We're going to have very large Toyota presence. And as I mentioned, that Houston market has been soft for a couple of years, and it's a very competitive -- very competitive -- Toyota market.

(technical difficulty) just has to be little more so. It always exerts pressure on your new margins, but especially your new car margins. As opposed to your more limited availability models, like the Tundra truck.

And then just last one. On the EPS versus consensus, do you think that the, despite -- as far as I can tell, this is the first quarter that you have ever come in below the street consensus. I'm just wondering if changeover at the executive level may have contributed to that?

I can say no to that.

Okay. Thanks very much.

Jerry Marks, Raymond James.

SG&A as a percentage of growth has declined year-over-year slightly. (inaudible) in the industry are showing declines. Do you think not having Mr. Bishop to oversee some of the operations impacted your oversight abilities on your district?

You know, probably not. John's role in that would not (technical difficulty) expense control, as much as the facilitator -- as much as (indiscernible) is involved.

I think it is more impacted by Atlanta. To be honest. Anytime you have a large underperformer, it really skews all those nice little statistics that you all guys like to measure us on.

So, the answer to that is -- no. The platform is really responsible for that. They have budgets that we monitor very closely. That is really how we maintain from the expense control, the SG&A control side. (indiscernible) just monitor and make sure that the variable cost is really variable.

But, I think it's more a function of Atlanta than it would be of anything else.

Atlanta has been the turnaround for several years -- several different management teams. What would cause you to just step back and say -- okay, maybe we don't want to be in this market anymore?

I think if you had -- probably you might -- to consider that type of solution, if you had weak brands, you had sub-par facilities and you were in the wrong part of Atlanta. We don't have any of that.

While Ford is soft today and has been, Ford is still major brand and a brand that is very important to us, and a brand we want to be involved with. And certainly, trucks are great sellers in Atlanta.

So, we have, in Atlanta, really great stores that are very well-positioned, good locations, good submarkets, great facilities -- and so, our charge is to get the right people in there to make those work. It's what we do.

So, I say that that -- because of that our Avenue is to get the right people in there, which I believe we have. We have been candid about our struggles over there. Which we always are. We want to continue to do that. But again, this is very people-intensive, our third platform President just moved in there. These things don't turn over night. So, we have had some stops and starts from the people-side, certainly. But, I like my chances. With one of our superstar platform Presidents in there turning that market for us as opposed to giving (inaudible).

And I'm sorry, two last questions. The EPS -- you (inaudible) back to 17 cent decline year-over-year. And you don't give quarterly guidance -- but your annual (ph) guidance suggests roughly 10 percent growth. A lot of people said that we see now a couple of years in a row, (technical difficulty) fourth quarter (technical difficulty) in the industry. Just awaiting this, would you suggest more that in order to get up to that 10 percent annual growth that would come more back end of the year? Or just more towards the second and third quarters?

Well, I think -- part of it from my standpoint is having two very weak months in January and February. I'm looking forward to not having those again.

So, that would be a big part of the consideration in my sticking with our guidance where it is.

Okay. And I'm sorry, last question is that -- you only acquired about 50 million in revenues (technical difficulty) keeps you below pace for the 1 billion. With lots of changes happening in the Group 1 family, how focused are you in hitting that 1 (technical difficulty) billion (ph) mark? Or have you thought, you know, it's not our guidance -- maybe that's not the most important. The most important aspect is to make sure we go through this rebuilding process (multiple speakers)

That is a great question, Jerry. First of all, I think I probably -- I may have misled that a bit. (technical difficulty) I announced $55 million in new Toyota franchise we acquired in Boston. What that brings (technical difficulty) brings the total for the quarter to 315 million acquired so far this year. So we're at 31 percent of our goal already.

I mentioned our pipeline looks very attractive at this point. We're seeing some very good opportunities. You are seeing us move a little more into the Highline area. I think you'll continue to see that from us. A lot of buyers (ph) -- these deals don't happen in a month or weeks or anything like that. So, some of these transactions that we still have pending that are in the pipeline were transactions we were working on last year. Just carried over.

It's not like -- I think the billion -- it is not in our guidance. You're absolutely right, it's not in our earnings guidance. It's just to give your guys an idea of our capacities and our appetites -- if it turns out we don't see the right opportunities, or we get a better return just, for example, on buying our stock, we will do that. You have seen us do that historically.

So, I think the answer is -- and now we have got the new folks on board. Which makes us feel really good about where we stand management-wise. Also, it makes me feel really good about the only platform we have acquired this year, clocking in (ph) (indiscernible) really a great beginning up there in New Jersey.

So, part of our strategy of courses to acquire great management when we do these platforms. That is exactly what we intend to continue doing. They become our partners and stay with us. So, it makes our acquisition strategy a bit different than some of the other public Companies. Because part of what we are acquiring is not only great franchises and great markets, but great management that stays with us.

Okay thanks, Ben.

Jonathan Steinmetz, Morgan Stanley.

A couple of questions. The first on Atlanta. I think you mention that the SG&A to gross was hit by about 140 basis points on Atlanta. And if I do the math, that works out to around $2.5 million in costs. So I'm just wondering what was sort of comprising that 2.5 million, try to get an idea of what might be recurring or not recurring?

Okay -- I think the big impact on that is just the operating results out of Atlanta. We lost money in the first quarter in Atlanta. That is the driver.

So, is it weaker topline? Or is there like severance or any other types of expenses in SG&A that sort of would have inflated the SG&A?

No. It's just topline.

And the second is -- a couple times in the call you referenced sort of soft forward results. I'm just wondering if you could talk a little bit, on a geographic basis or on a product basis, as to where Ford may be soft? And maybe talk a little bit about what you're seeing with the new F 150?

As you probably know, Ford is certainly one of our largest brands. The F 150 in my view has done very well. They have had really a good launch. They are still ramping that up, and ramping up production on that vehicle. (indiscernible) -- it's our number one selling vehicle. And it continues to be our number one selling vehicle for Group 1.

Some of the issues -- it's not just (technical difficulty) it's domestics in general. They are -- there are issues with cars. There are certainly issues their (indiscernible) finance arms and financing -- how aggressive they are with their financing.

I think that -- how they put on their incentives when they put them on, how graded they are. All of that is not just Ford, but domestics in general. I think that what they are all looking for -- and we will see how this plays out -- that's why we want to be brand diverse.

I think you'll see -- if the economy continues to improve, what they hope is that they can kind of (technical difficulty) off the incentives. And maybe, just (technical difficulty), I would call it stabilize the incentives. And let the economy drive that as kind of the supply and demand comes a little bit more in line. We will see -- they have not been able to do that. It's interesting to watch.

Really, part of January, February's weakness -- because the incentives were softer. The consumer's gotten better educated on incentives. They're looking for the best deal. Whether or not we and OEMs can wean them off of that I think remains to be seen. From our standpoint, the aggressive incentives. The biggest impact to us, as I mentioned, is used cars. It's good for new car. And it drives new car sales gross. But it is impactful on the used car and it tends to make prices in that area fairly volatile.

But, I feel -- I still -- I feel good about Ford. We're in truck country with Ford, where we have Ford brands. Some of our Ford stores actually have done very well. Others have not done so well. Some of that is market specific. We do not have Ford in Houston, but that has been soft -- as I mentioned, the whole Houston market has been soft, but Ford in particular has been soft here. We've been strong in Florida with Ford. But our West Texas Ford has been certainly weaker.

Okay. Thank you very much.

Mr. Hollingsworth, at this time there are no further questions. Please continue with any further remarks you would like to make.

Okay, good. Thank all of you for your time this morning. And your patience -- as I (technical difficulty) CFO had also.

In closing, to accomplish our vision, we need to continue (technical difficulty) commitment of our dedicated 7,700 co-workers, and to the (indiscernible) of our 30 manufacturer partners. We thank them for their contribution and look forward to the successes their efforts will continue to produce this year and in the future. We are indeed creating the future of automotive retail. Thank you, and good day.

Ladies and gentleman, this concludes the Group 1 Automotive first-quarter conference call. I would like to thank you for your participation and using (technical difficulty) like to listen to a replay of today's conference, please dial into 1-800-405-2236 (technical difficulty) 303-590-3000 and using the access code of 575442. Again (Operator Instructions). Again, thank you for your participation, you may now disconnect. And thank you for using AT&T teleconferencing.