Group 1 Automotive Inc (GPI) 2006 Q4 法說會逐字稿

Welcome to the Group 1 Automotive fourth quarter and year-end earnings conference call. [OPERATOR INSTRUCTIONS] I would now like to turn the call over to Mr. Pete DeLongchamps, Vice President, Manufacturer Relations and Public Affairs. Please go ahead, sir. Please go ahead, sir.

Thank you, Eric and good morning everyone, and welcome to Group 1 Automotive's 2006 fourth quarter conference call. Before we begin, I'd like to make some brief remarks about forward-looking statements and the use of non-GAAP financial measures. Except for historical information mentioned during the conference call, statements made by Management of Group 1 Automotive are forward-looking statements, but are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve both known and unknown risks and uncertainties which may cause the company's actual results in future periods to differ materially from forecasted results. Those risks include but are not limited to risks associated with pricing, volume and conditions of market. Those and other risks are described in the company's filings with the Securities and Exchange Commission over the past 12 months. Copies of these filings are available from both the SEC and the Company. In addition, certain non-GAAP financial measures as defined under SEC rules may be discussed on this call. As required by applicable SEC rules, the company provides reconciliations of any such non-GAAP financial measures to the most directly comparable GAAP measures on its website. I'll now turn the call over to Earl Hesterberg, President and CEO of Group 1.

Thanks, Pete. Good morning, everyone and welcome to the Group 1 Automotive 2006 fourth quarter conference call. In a minute I'll turn the call over to John Rickel to present our financial results. After John is finished I'll review our full year earnings guidance and then open up the call for questions.

As we indicated when we announced our second quarter earnings on August 1, the new vehicle sales environment appeared to us to be slowing. And we reduced our 2006 industry projection at that time to 16.5 million. As the year continued to progress, this forecast proved to be accurate as we saw sales soften and the trend accelerate in the fourth quarter, especially in the full sized truck segment. In particular, similar to several of our competitors, we saw weakness in our California stores as well as our domestic franchises overall, with particular weakness in Ford. California economy has suffered due to the impact of rising interest rates on the housing market. It became an issue for some auto retailers in the third quarter of 2006. But it didn't have a significant impact on us until the fourth quarter. In addition to the economic situation resulting in lower new vehicle sales in all off our California stores, the need to continue turning key import brand new vehicle inventory to maximize future vehicle allocations and minimize flooring costs impacted margins in our stores in that state. In addition to this regional weakness overall, several of the domestic brands continued to weaken in the fourth quarter. Of particular note in the fourth quarter, our Ford sales declined significantly, particularly in December, when we realized a 33% decrease in new vehicle sales. Our high margin F-Series sales declined proportionately, which also impacted our overall gross margin in the quarter. We continue to take steps to reduce our domestic brand mix and to increase our exposure to markets less dominated by the full sized truck segment.

With that as a context, let me now cover our fourth quarter results. Net income decreased to $14.8 million, an 8.5% decline from fourth quarter of 2005. On an EPS basis, we reported a 7.6% decrease to $0.61 per diluted share. We recorded impairment charges resulting from the sales of one of our Atlanta Ford stores and intangible asset impairments for two our of domestic franchises located elsewhere in the U.S.. John will go over the specifics in his section. But excluding these charges diluted EPS will be $0.67 for the fourth quarter, up 1.5% from the same period a year ago, and $3.68 for the full year which is in line with the guidance range we gave of $3.65 to $3.75 for 2006. Revenues were up in all four business segments, reaching a total of 5.7%.

Our used vehicle business did see slight increases in gross profit for retail unit and as a whole. Total used vehicle gross margins held steady at 9.1% from the fourth quarter of 2005. Due to the market and brand issues, our same store revenues were down 3.1%, with slight increases in our parts and service and finance and insurance businesses. Our overall same store gross margin remained flat at 15.7%. New vehicle gross margin declined 40 basis points to 6.9%, on 2.9% lower revenues. Parts and service margin declined 60 basis points to 53.8% on slightly higher revenues, and total used vehicle gross margin held steady at 9.1% on 5.9% lower revenues. We saw some year-over-year improvement on our consolidated SG&A expense ratios during the fourth quarter, although they were up from the third quarter results. SG&A as a percentage of gross profit decreased 10 basis points from the same period a year ago to 80.3% Overall our SG&A performance in the fourth quarter was disappointing due to unexpectedly poor gross profit generation.

John will give you a complete overview on the full year results, but I want to make a quick comment on them. In looking at the full year results, you can see that the strategic initiatives that our operations team began implementing in 2006 delivered the results we anticipated. We're happy with the results we've seen and are working to further improve our operating efficiencies for continued success. Relative to brand mix, during the fourth quarter, Toyota, Scion on and Lexus brands continued to be our top sellers, accounting for nearly 37% of our total new vehicle unit sales. Although our total Ford brands dropped to fourth place from their traditional second place with 12.2% of unit sales, behind Nissan and Infiniti with 12.7% and Daimler Chrysler with 12.5% of unit sales. Import and luxury brands increased to nearly 74% of our mix during the fourth quarter with domestics declining to 26%. This is a significant shift from the fourth quarter of 2005, when import and luxury brands accounted for 66% and domestics 34% of unit sales. We believe that our import and luxury brands will account for at least 75% of our new unit vehicle sales by the end of 2007.

On the acquisition front we acquired 14 import franchises and one domestic franchise, part of a consolidation strategy, approximately $732 million in annual revenues in 2006. And in January 2007, we announced that we purchased BMW, Mini and BW franchises in Kansas City, Kansas, which we estimate will generate $123.1 million in annual revenues towards our 2007 acquisition target of $600 million. We will continue to be focused on acquiring import and luxury franchises outside of Texas and Oklahoma. In 2006 we disposed of 13 franchises with $197.8 million in trailing 12 month revenues. And, as we previously announced, we have already disposed of three franchises so far in 2007, including the official closure of one of our New Orleans stores that did not reopen after Hurricane Katrina's impact. We will continue to evaluate our dealership portfolio and dispose of underperforming stores, for which we anticipate incurring $5 to $10 million in associated disposition charges.

Now a quick word about inventories. Our total new vehicle inventory at December 31 increased eight days from the end of last quarter and seven days from last year to 63 days supply. We saw a slight decline in our luxury and domestic inventory days supply, although our import inventory grew to 57 days supply from 38 days in the third quarter and 44 days in last year's fourth quarter. Although our DCX inventory decreased from 101 days in the third quarter to 68 days, and our GM inventory fell five days to 97 days, our Ford inventory increased significantly. We continue to be displeased with our domestic inventory and are taking steps to bring it in line with our 75 day target. Our supply of used vehicles at quarter end increased two days to 31 days from the third quarter and increased three days compared to December 31, 2005. I will now ask John to go over our financial results in more detail. John?

Thank you, Earl. Good morning, everyone. Let me first review our fourth quarter 2006 results. In the fourth quarter of 2006, our consolidated net income declined from the same period a year ago to $14.8 million, or $0.61 per diluted share on revenues of $1.5 billion. Our net income was negatively impacted by $2.2 million of asset impairments in the fourth quarter, consisting of $1.4 million of intangible franchise right impairments in two of our domestic stores, identified in conjunction with our annual store by store assessment, and $800,000 of fixed asset impairments identified in conjunction with our agreement to dispose of one of our Ford stores, which was subsequently sold in February 2007. Excluding the $0.06 per diluted share impact, after taxes, of these impairments, our net income for the fourth quarter would have been $0.67 per diluted share. This brings our full year results to $3.68 which is within the earnings estimate of $3.65 to $3.75 that we communicated in October.

Compared with fourth quarter of 2005, our total revenue increased $81.7 million or 5.7% an our total gross profit improved $9.8 million or 4.3% to $234.5 million. Increase in both revenue and gross profit reflects improvement in all of our retail operations, but principally our parts and service and finance and insurance businesses. Our SG&A expenses as a percentage of gross profits improved 10 basis points in the quarter to 80.3%. Our operating margin remained flat at 2.6% while our pretax margin dipped 10 basis points to 1.5%. On a same store basis our revenues for the fourth quarter of 2006 declined $42.8 million or 3.1% to $1.35 billion, from $1.39 billion in the fouth quarter a year ago, as our new and used vehicle businesses weakened. New and used vehicle retail sales dropped 2.9% and 4.1% respectively, while used wholesale sales fell off 9.2% or 11.5%.

Our fourth quarter 2006 same store gross profit decreased 2.9% to $212.1 million from $218.5 million in 2005, principally on the decline in our new and used vehicle business. Further, our fourth quarter same store parts and service revenue and finance and insurance revenues were relatively flat from 2005 to 2006 as was gross profit for each. The comparative same store results for 2006 and 2005 include the effects of our four New Orleans dealerships that we continued to operate post Hurricane Katrina. Our fourth quarter 2005 results were enhanced by Hurricane Katrina recovery activities. We experienced a $5 million decline in our pretax income in the fourth quarter of 2006, as compared to 2005, relative to our New Orleans operations. In addition, in our consolidated results, we recognized approximately $1.8 million more of Hurricane Katrina related insurance proceeds in the fourth quarter 2005, relative fourth quarter 2006. As Earl mentioned, our fourth quarter 2006 results were also negatively impacted by the general performance of our domestic name plates, especially our Ford brand stores, which were down 26.9% on a unit comparison between quarters, with a weakness accelerating in the December. Particularly our December 2006 volume from our Ford F-Series models declined 36% from a year ago.

Further contributing to the fourth quarter 2006 weakness was a softening California market. Weak housing and construction markets in this region result in difficult operating conditions and a slowing across all brands. On a same store basis, our SG&A expense for the fourth quarter declined by 2.2% to $171.2 million. However, SG&A as a percent of gross profits for the fourth quarter of 2006 deteriorated 60 basis points from 80.1% in 2005 to 80.7% in 2006, [sic - see press release] as the declining gross profit was disproportionate to the decline in SG&A. Our 2006 comparative results were negatively impacted by the $1.3 million pretax effect of our dealer management system, or DMS, lease termination costs that we reported in the fourth quarter of 2006, as we converted the stores to ADP and $700,000 charged in the fourth quarter of 2006 related to the implementation of SFAS 123. Beyond these charges, our advertising expense increased this quarter over prior year by $1.9 million or 13.5%, primarily due to increase in marketing efforts in 2006 in select markets including New Orleans, where essentially all advertising was suspended during the fourth quarter of 2005.

As we discussed last quarter, we are progressing on our conversion to a sole source provider for our DMS software. As of December 31, 2006 we had approximately 87% of our stores on ADP. We recognize the related exit costs when we cease using the existing software. We entered into a lease termination settlement agreement with one of our DMS providers in late December of 2006 for all dealerships converted to ADP at that time. Additional charges expected to range from $1.5 to $2 million will be incurred in the first half 2007 as we complete the conversion of the remainder of our stores. These charges are included in our 2007 guidance. Our same store floorplan interest expense for the fourth quarter 2006 increased $900,000 or 9.6% to $10.5 million. For the fourth quarter of 2006, manufacturer floorplan assistance was $8.6 million or 82.3% of floor plan interest.

Now turning to our full year 2006 results. Our full year 2006 consolidated results reflect significant improvement over 2005. For the year-ended December 31, 2006, our net income improved 25.8% or $18.1 million, excluding last year's keynote effective accounting change, $88.4 million or $3.62 per diluted share. These results were achieved on $6.1 billion of revenue an increase of 1.9% from 2005. For the full year, our consolidated gross profit improved 3.5% from prior year to $964.8 million, reflecting improvements from all of our operations. Our SG&A expenses as a percentage of gross profit improved 280 basis points to 76.7%, in combination with the improvements in gross profit resulted in a 60 basis point increase in our operating margin to 3.4%. Further, our pretax margin improved 50 basis points to 2.3%.

On a same store basis, 2006 total revenue declined $60 million or about 1% to $5.73 billion from $5.79 billion in 2005. Primarily explained by a $57.9 million or 15.8% decline in used vehicle wholesale sales and a $35.9 million or 1% decline in new vehicle retail sales. Offset by improvements in our used retail, parts and service and finance and insurance lines of business. Our 2006 same store gross profit improved 1.3% to $915.5 million in 2006, from $904.1 million in 2005 and our 2006 same store gross margin improved 40 basis points to 16%.

The strategic focus that we have placed on the used vehicle aspect of our business including the implementation of the American auto exchange's used vehicle management software in all of our dealerships, and acquiring, managing and retaining inventory of high quality in demand vehicles, has contributed to a noteworthy shift in our used vehicle business from wholesale to retail, and has improved our overall used vehicle results. In 2006 our same store used vehicle gross profit improved 4.4%, a gross profit for units sold increased 10.6% to $1,246 per unit, and our gross margin improved 70 basis points from 2005 to 9.8%. Relative to our same store new vehicle retail sales, domestic name plates declined 13.8%, reflecting a 14.6% decline in truck sales and a 9.7% decline in car sales. This decrease in sales volume was substantially offset by a 5.9% increase in same store import, and a 1.6% increase in same store luxury name plates. Decline in sales was largely offset by 1.8% improvement in our new vehicle gross profit per retail unit, resulting in about flat new vehicle retail gross profit. Our same store's parts and service revenues remain relatively flat from 2005 to 2006. As several manufacture quality issues resolved in late 2005, we experienced a 5% decline in our warranty parts and service business. We were able to offset the impact of this decline, however, with improvements in our non warranty business or customer pay business of 4%. Our same store finance and insurance business remained relatively flat from 2005 to 2006 as well.

On a same store basis, SG&A as a percent of gross profit improved from 78.4% in 2005 to 77.3% in 2006. Primarily driving this improvement was a 3.8% reduction in same store personnel costs, associated with a streamlined management structure. Same store floorplan interest expense increased by $7.9 million or 21.9% for 2006 as a result of a 195 basis point increase in weighted average interest rates. Partially offset by $78 million decrease in weighted average borrowings outstanding. Manufacturer floorplan assistance, which we report as a reduction to new vehicle cost of sales at time of sale, totaled $36 million for 2006 providing 81.9% coverage of our total floorplan interest expense for the year.

With respect to our long-term borrowings, total net other interest expense, which consists of interest charges on our long-term debt and our acquisition line, partially offset by interest income increased $700,000 or 3.5% to $18.8 million for the year-ended. This increase was due to an approximately $79.5 million increase in weighted average borrowings outstanding between the periods. Primarily resulting from the issuance of our 2.25 notes in June 2006, partially offset by a 188 basis point decrease in weighted average interest rates. The company's effective tax rate for 2006 was 36.6%, as compared to 35.2% for 2005. This increase is primarily due to the impact of adopting SFAS 123, and change in mix in our taxable state jurisdictions. Our estimated 2007 full year effective tax rate is 38%.

Now, turning to liquidity and capital structure. As of December 31, 2006, we had paid $114.5 million down on our floorplan lines of credit and had $181.9 million of availability on our acquisition line of credit. For a total of $296.4 million of funds immediately available for corporate needs including acquisitions. Our total long-term debt to capitalization ratio was 38%, down from 39% at September 30. Our various credit facilities are used to finance purchase of inventory, provide acquisition funding and provide working capital for general corporate purposes. As of December 31, 2006, our three facilities were our overall revolving credit facility, which provides a total of $950 million of financing, that consists of $750 million of the tranche for floorplan financing, a $200 tranche for acquisitions, capital expenditures, and general corporate purposes. This facility presently matures in December 2010. We also had a separate silo with Ford Motor Credit that provides $300 million for the financing of Ford, Mercury, and Lincoln new vehicle inventory. This facility matures in December 2007. And a separate facility with Daimler Chrysler Financial that provides $300 million for financing our Chrysler, Jeep and Mercedes Benz new vehicle inventory. This facility matures on February 28, 2007. We do not plan to renew this facility and intend to utilize borrowings under our revolving credit facilities to pay off the balance at maturity. As a reminder, during 2006 we changed our presentation of cash flows to include floorplan borrowings and repayments under the Ford and Chrysler facilities as operating activities, and floorplan borrowings and repayments under the credit facility as financing activities. As such, when we pay off the Chrysler facility with funds from the credit facility, our first quarter 2007 operating cash flows will be reduced by such amount and our financing cash flows will reflect a corresponding increase. Our borrowings at present under this facility range from $120 to $140 million.

We expect our full year 2007 capital expenditures excluding dealership acquisitions to be about $80 million on a gross basis. However, as we previously discussed, we have begun to shift our strategy on real estate to include owning more of our land and facilities. Under this approach we acquired approximately $89.5 million of real estate, land and buildings in conjunction with our dealership acquisitions, existing facility improvement and expansion activities in 2006, as well as through the selective exercise of lease buyout options. In total, we presently hold approximately $117.4 million of land and buildings on the balance sheet. Anticipate having our mortgage facility in place to provide ongoing financing for these assets by the end of March 2007. For additional detail regarding our financial condition, please refer to the schedules of additional information attached to the news release as well as the investor presentation posted on our website. With that, I will now turn back over to Earl.

Thanks, John. As I mentioned earlier, our full year results show that we have made real progress, primarily due to the strategic initiatives we began implementing at the beginning of 2006. Looking at 2007 we are reaffirming our full year earnings guidance of $4 to $4.25 per diluted share. With respect to the assumptions underlying our guidance, we anticipate industry sales of 16.3 million units, flat interest rates throughout the year, a tax rate of 38%, we are forecasting approximately 24.5 million diluted shares outstanding. Guidance excludes any future acquisitions as well as any dispositions, including potential one time exit charges estimated $5 to $10 million. In addition, we also laid off a few targets for 2007. These targets include same store total revenue growth of 1% to 2% with flat new vehicle sales, increased focus on our parts and service business and an additional 100 basis point improvement in SG&A as a percent of gross profit. We believe that our continued focus on leveraging our economies of scale include the completion of converting our stores to a single DMS provider, and our new purchasing consolidation efforts will drive further cost savings. That concludes our prepared remarks. In a moment we'll open the call for Q&A. Joining me on the call today are John Rickel, our Senior Vice President and Chief Financial Officer, Randy Callison, our Senior Vice President of Operations and Corporate Development, Pete Delongchamps, our Vice President overseeing Manufacturer Public Relations, and Lance Parker, our Vice President and Corporate Controller. I will now turn the call over to the operator to begin the question and answer session.

Thank you, sir. We will now begin the question and answer session [OPERATOR INSTRUCTIONS]. Our first question is from Rick Nelson with Stephens. Please go ahead.

Thank you and good morning, guys.

Good morning, Rick.

Good morning.

Can you comment on what you're seeing to date in the first quarter, we hear January was pretty challenging for the industry.

I don't know where we get into forward-looking statements but I think just commenting on the sales data that's public knowledge to everyone, I think January at best was also a mediocre sales month. I think the domestics still in particular, I think GM and Ford were not -- you know, didn't show any real signs of life but I think we've seen that GM may be reacting and they have some promotions that seem to be planned. Get the present statement. They always do a March madness. Chrysler seems to have some new product spark where maybe they'll get to be, get off to a little better start this year than they did last year. And it seems pretty well steady as she goes on the imports but I don't react too much to January or even February. I think late February in the northeast you begin to see activity with President's Day sales which have historically generated a lot of volume in the northeast U.S. And then March begins the spring selling season. So clearly the fourth quarter wasn't that good. And I don't think there was any data in January that made anybody think the overall U.S. auto market was on fire. But I don't think anyone should knee jerk or overreact until we get into the spring market and see what happens. There's still a lot of good economic news out there. I know a lot of people like to focus on housing and what secondary finance repossessions and weak credit performance. But there's still an awful lot of employment, an awful lot of consumer spending so I think we're going to just continue to run our business and when we get into the spring we'll know more how the full year is going to turn out.

Notice that import inventories were up a bit. I'm wondering how you feel about those levels and if you can comment on margins too in the import stores that would be helpful.

Yes, I think we've all been spoiled by the import inventory levels, which is typically one of the import -- leading import executives made a joke because he was getting flack from his management and dealers about all of a sudden had a 35 day supply of inventory on a particular and they asked him what he was going to do and he come from a domestic manufacturer. He said well, at my old job we would build an extra factory when we got a 35 day supply.

So they're higher. It's quite possible they will be higher as we go through the year. Certainly in certain pockets. And to us, that just tells us that we really have to be more vigilant on the domestic brand inventory, and getting them down to, you know. We can no longer afford to continue to carry these 90-plus day supplies on one or more of the domestic brands. So I think we are going to see on average higher import day supply this year. But I think on an absolute basis it's going to be hard to complain about that. I don't think thee is going to be a lot of turn downs in the Toyota and Honda world. I just think maybe we'll have 10 day more supply of vehicles or something like that and I think that's manageable and we're just going to not be spoiled anymore.

Margins, you know, margins are tricky with some of the -- what do you call them? Midline Japanese imports. Because several of them run on a turn and earn system. And we're all about growth. I think even more at a public company, you know, we're about growth. And so we know that we want to continue to maximize our future allocations and our people are trained and have been trained for years to turn cars to earn cars. When I say cars, I mean vehicles. And so that can tend to put some pressures on margins and we saw some of that in the fourth quarter. But I also have some faith in these manufacturers of these brands, because they also know that their success over the years to a large degree has been balancing supply and demand and I've already seen some evidence of some of these import brand manufacturers who got a little bit heavy in inventory in California, you can see them already starting to move some of that production, future production out of California into other areas. And so I think this will work out, you know, takes I would guess, 60, 90, 120 days for some of these manufacturers to react. But again, I think they know how to manage their business and we have to do a better job managing ours on the inventory front.

Final question on the tough hurricane compares you faced this quarter, how long does that tough comparison continue?

I'll let John try that one.

Yes. Rick, this is John Rickel. We basically obviously saw very, very robust results right after Hurricane Katrina in the fourth quarter but I think we continued to benefit really through the first nine months of 2006 with pretty strong demand. That's been kind of the typical pattern that's been kind of a year post hurricanes in other parts of the country.

And positive earnings comparisons, would you expect others in the early going?

I didn't quite follow that one, Rick.

On a year-over-year earnings comparisons would that be a challenge in the early going?

Well, specific to the New Orleans piece, it will clearly be a headwind. We got a benefit from that area and as that starts to return to more normal levels, that's certainly a headwind that we'll be facing.

Okay. Thank you.

Our next question comes from Edward Yruma with JPMorgan. Please go ahead.

Hi. Thanks very much for taking my questions. You guys have had a couple quarters of nice customer pay growth and I think on the last call Randy Callison highlighted some initiatives that you've got under way. Does that -- Did the current results incorporate those initiatives to drive that customer pay business, or do you see a continuing opportunity in '07.

Hi, Edward, this is Randy Callison. We have seen some impact but we have a lot of opportunity in front of us. We just at the start of this year, we established a regional position, Fixed Ops Director position which we're very excited about. There's five people, four in the central region because of its size and one in the other regions who head up our initiatives of growth in service parts and body shop. We're very excited about that. And we continue to push on a number of initiatives, both in the growth side and in the cost side.

Got you. And in terms of some of the other initiatives you've got under way, I know that you've been trying to increase adoption of Auto Exchange or at least try to improve on some of the periphery. I mean, have you made some progress on that?

This is Earl. We've made a lot of progress but I have to tell you, this is a cultural issue. We may have half of our people that live and die with the system now and we have to continue to get it ingrained in our way of thinking and operating and that takes time and it's human beings we're dealing with, and we made good progress and I think that is some part of the good used car performance that we had throughout last year. But I won't tell you that we are where we want to be and it is the way we're going to do business and over time, you know, everyone will be on-board. But we're still working that through our 105 dealerships.

Got you. I guess my final question regards to your tax rate, I think you've got it for 38% for '07 which is a bit higher than what you had for the preceding years. Are there things that I should be think about that play into that and is there any seasonality to that? Thank you.

Yes, Ed. This is John Rickel. Not sure that there's a lot of seasonality. I mean, one of the things that is impacting '07 is we obviously have a number of operations in the state of Texas which is in the process of kind of revamping their state taxation system which we think that's going to add probably about a percentage point to the tax rate by the time we're done with their new taxation scheme. The rest of it is just basically kind of the mix among the states, the acquisitions that we've had have tended in the last 12 months to be in some of the higher tax jurisdiction states so it's primarily around the state tax mix issue.

So with that tax reform, is that a back rated tax rate then or are you going to get your blended 38% for the year?

Yeah, basically the Texas change comes in -- do you know the specific date? Comes in during the -- during '07. I don't have the specific date. I should have it in front of me, but I don't. So that will certainly be a piece of it. But it's primarily the overall mix of the state tax jurisdictions that we've got, which is going to be kind of throughout the year.

Okay. Got you. Thank you very much.

Our next question comes from Scott Stember with Sidoti and Company. Please go ahead.

Good morning.

Good morning.

Can you maybe talk about Ford sales particularly the F-Series. What percentage of your new car sales would you say are the F-Series and what do you see Ford doing to counter act some of their declining market share on this product?

This is Earl. I refuse to answer that. I'm going to make Pete answer that. Because every time I say something about Ford I make somebody mad.

Hi. Scott, it's Pete Delongchamps. 47% of our our Ford business is represented by F-Series, which is I quite a bit higher than the normal rate that you see out in the marketplace. And we're still bullish on the Ford business. We've got some great Ford stores. And we think that with this year's emphasis on Tundra, F-Series defending their position, new Silverado, that we're bullish on the truck and SUV markets.

Have you seen anything or heard anything that would indicate that we'll see something soon on that front with them defending their share?

I think you've got -- we've seen an awful lot of General Motors advertising, Tundra launch I think is going extremely well. We're starting to get cars in stock. And we haven't seen anything specific from Ford but they -- I think that they will continue to lead that segment this year.

And on the used side of the business, could you speak maybe to a little bit of the retail weakness?

This is Earl. I think we see that we see the used vehicle weakness in the same markets where we've had the new vehicle problems which would tend to be California. And also, when you get into the -- into dealerships that have weak full sized truck sales, used vehicle business tends to come down also. There's two issues with that. One is they tend to shy away from trades, or they get burned by offering too much for trade-ins to do truck deals. So I think our used vehicle weakness tends to mirror our new vehicle weakness, and in terms of regionally, that was California and also parts of the southeast in the fourth quarter. Our Houston market and northeast markets there were still pretty strong. And I guess I should also add, obviously New Orleans, on a year-over-year basis. I don't want to talk too much about New Orleans. We didn't complain when we got all that benefit a year ago so we shouldn't complain when it goes back the other way.

And Scott, don't forget, even though our volume was down, our gross profit per unit is up which is very encouraging.

Okay. And as far as certified pre- owned, can you talk about percentage of your used business now versus a year ago, and and some strides that you're making to improve in that segment.

Yeah, this is Earl. We only saw it bump up from a little under 15% to a little over 16% year-over-year but we really started to push it later in the year. In particular, in our Toyota stores and Honda stores. And we've actually put a person in charge of used vehicles in our central region, which is over 40% of our business, and that was the person that was leading one of our big Toyota used vehicle departments and he was always number one or number two in Toyota certified used vehicle sales in Gulf States Toyota. So we're really going to try to get that up to the 20% level in the year ahead.

That's all I have. Thank you.

I have just one more comment on that. We should see just some natural improvement in certified used vehicles if we get more luxury mix. The luxury brands tend to have better certified preowned programs than some of the volume brands do. Toyota and Honda being an exception. They have good programs. But if you look at our comparison numbers with maybe against some of our competitors who have better luxury mixes, there's a natural ability to sell more certified preowneds in BMW, Lexus and so forth.

Thank you.

Our next question comes with John Murphy with Merrill Lynch. Please go ahead.

Good morning, guys.

Good morning, John.

Just a question on your Ford exposure here. I mean, given where they are in their product cycle right now, I mean, time's are going to be tough with this F-Series, clearly it's not a great time to be selling a large pickup in the U.S. market. But I mean, as we look at sort of mid next year when the F-Series is relaunching, might some of these problems that we're seeing here in the short term reverse for you?

John, this is Earl. Ford at the moment is launching a new Superduty F-Series or certainly coming up shortly. And the F-Series is the heart of their company. I think there was just a question about what evidence we've seen recently that they're really fighting hard. But they're going to fight. They're going to fight. That's the core of their company. And they've got new management. A lot of these stores we have are in truck markets and there's always going to be truck markets. Lubbock, Texas, Amarillo, Texas, Austin, Texas. It will be back. Now, I can't tell you if it's going to be back next month but these are going to be solid businesses. And Ford will -- until as recently as the year before last, they were selling 900,000 of those F-Series and that's an awful big number when you compare it with even what Toyota is expecting. So I think it's quite possible that that business will come back around. The timing is the question that is just speculation on our part.

And when we look at the medium and Superdutys versus the F150, I mean, is that about a third? I mean, that's the traditional mix there, so about a third of F-Series are being replaced now. About the other two thirds will be replaced next year. Does that mimic your mix?

Yes, John, this is John Rickel. Those numbers are directionally right.

Okay and then just on your guidance, if we look at the $4 to $4.25 and add in sort of the I incremental acquisitions the $4.77 that's left over, what you haven't done year-to-date, I mean, to me, on a run rate basis, that looks like that would add roughly $0.20 in EPS but considering to be sure that it will be spread through the course of the year, it will probably be about $0.10. So if we adjust for your acquisitions it looks like the guidance range is more like $4.10 to $4.35. Is that sort of a fair assessment if those acquisitions actually get done?

Randy, you want to --

Yes, it's Randy Callison. Obviously depends on when we make those acquisitions. We made one this year, which you've seen. The others, we don't -- we can't tell you when our next acquisition will be. But we get acquisitions in early in the year, then we get a better run on current year profits, if it's later in the year we don't get as long a run.

But the $123 million that you've already done is included in the current guidance; correct?

That is correct.

So the additional $4.77 we can layer on however we see fit, depending on timing. And then on your conversion into ADP, it looks like the cost it was $1.3 million in the fourth quarter, going to be a $1.5 million to $2 million in the first half of the year, so looks about $2.8 to $3.3 million in cost for that conversion to ADP. Is that correct, what do you think the pay back on that investment might be?

John, this is John Rickel. No, the $1.3 was the fourth quarter charge. In total, we had about $4.5 million in total in 2006. Then the additional kind of$1.5 million to $2 million that we've included in the guidance for 2007. When we made the announcement that we were going to ADP as the sole provider, we indicated at that time when we got fully converted that we expected annual direct savings just from the cost of lower software of at least $3 million annually. We also view this as one of the key enablers to standardized processes and drive some of the best practice sharing and consolidation activities that we're working on. So there's other benefits beyond that. But just on a pure software savings, which is very hard, very measurable, you know, you're looking at kind of a two year pay back just on that basis alone.

Okay. And then if we look at the credit facilities at Chrysler and Ford, sounds like the Chrysler one you're going to let expire. I guess Ford might be somewhat of a question mark. What are the rates on the Chrysler facility and the Ford facility versus your other $950 million?

Yeah, the Ford facility we did renew through the end of 2007. And you're correct, the Chrysler facility we won't renew at the end of this month. It's a little difficult to say because there are some incentives that they provide against the headline rates. But we do expect to see a rate reduction when we transfer the business from the Chrysler facility to the syndicated facility.

Okay. And how much is drawn on that Chrysler facility right now?

Ranges right now between $120 and $140 million.

Okay. Great. And then Earl, maybe just sort of a bigger picture question, because you've been looking at the industry for a while and maybe putting on your Ford hat a little bit here. I mean, it sounds like the weakness that we saw the beginning of the year in January is a little bit contrary to some of the pick-up we saw sort of towards the end of last year. As we progress through the year, I mean, do you think we should -- or really through February and early in the year, do you think we should be reading a lot into these January sales or is it -- January is typically a small part of the year. I mean, do you think we can get a good footing from what we saw in January or, you know, it still remains to be seen here?

I think that's a great question because the answer is no. No, I don't think we can tell enough about the full year from January. Or even February, at least through these first three weeks or two and-a-half weeks. You get into weather, did we have weather at the same time last year we had weather this year and ice storms and snow and President's Day and I don't think you can tell much until you get into the spring market. And I think that's true every year.

And the wild card is tough for everyone to predict is the onslaught of new product today. We just haven't had that experience before. And virtually every brand has it. And some hit and some don't. And I've actually learned that I can't predict that very well. And so some of that just plays out, you know in the marketplace and there's just an awful lot of new product. Nissan, for example, we haven't seen the Ultima really hit stride yet. It was launched awful late in the year, and they've launched a couple other cars. And you know that's a third of Nissan's sales normally, and I just have this feeling that it's kind of like Ford with the F-Series, that's where their brand is. They'll -- you know, I don't know that we've seen that emerge yet. So there's an awful lot of things that will play out as we get into the spring, and we'll just have to try to be on top of it.

Our problem is real simple in the fourth quarter. We didn't sell enough. We didn't sell enough. Wherever it was, we kind of told you where it was and it's fairly obvious where it was. We need to sell more. And the fourth quarter is an unusual quarter in that October is usually a good month but it's the last good seasonal month of the year. And then you have a seven-week desert where everybody sits and waits for that last week of December and sure hope it's going to be good. And what happened in the last week of December this year, at least for us, is maybe it was good but in previous years it's been great or spectacular. So we ended up with too much advertising and too much inventory for the level of sales we had. And shame on us. But that's -- we have to get our advertising and inventories aligned and we have to sell more.

Thanks a lot, guys.

Our next question comes from Jonathan Steinmetz with Morgan Stanley. Please go ahead.

Thanks, good morning everyone.

Morning, Jonathan.

[inaudible] here. On the new side, the per vehicle retail grosses look like they're about $2073 versus $2190 the prior year, which is an admittedly tough comparison. But can you talk about a few of the drivers here. How much of this was sort of tough New Orleans, how much of this was trying to blow out inventory. And do you have any data of what this looked like on a domestic basis versus an import luxury basis.

This is Earl. Yes, yes, we do. And it's an exactly those places where we didn't sell well. It was California or where we had pressure to -- as I mentioned earlier, to keep moving the units on a turn and earn basis. But it was the California market, so it was in Japanese brands in particular and in our full sized trucks, particularly Ford and yes, the New Orleans market. So again, the gross issues followed the sales pressure.

Okay is it fair to say the biggest delta versus what you'd seen in the past would have been the California and the Japanese brands on the turn and earn? Because the others seem like they've been issues for a while.

That's correct.

Okay. On the parts and service, did you give a number for year-over-year warranty in the quarter? I may have missed that.

I don't know if we did. But we're scrambling to see if we have one.

On a same store basis, warranty revenue was down 7.9%. Customer pay revenue was up 0.9%. And wholesale revenue was up 9.1%.

Okay. And on the -- since you sound uh sound like you have a lot of granularity there. On the warranty, was that split relatively closely between domestic and import or was there a big divergence?

There's actually a big divergence on the warranty decrease. The domestic is -- really isn't a huge decline, 0.76%. Import is the largest decline of the three categories. Imports declined 20.9%, primarily in Toyota where we don't have the service campaigns we had last year, and also to a lesser degree in Nissan. And luxury we had a 3.57% decrease and that's primarily in Mercedes-Benz where we don't have the free maintenance program any longer.

Okay. Interesting. John, on the CapEx you had said $80 million gross; is that correct?

That's correct.

Can you guys talk a little bit, I mean, your D&A run rate is around $20 million or so. This level of sort of 4X, how much of this is going to image programs and how long do you think we stay at this level? Is there some ability after a couple year hump to actually start bringing this down and what do you think you could bring it to if that's the case?

Yeah, let me try to answer your second question first. To some degree, I think the level, the run rate is going to be determined by how we continue with acquisitions. Oftentimes what triggers the ability for us to acquire a store is when the private cap guy gets faced with his next reinvestment decision. That's why we oftentimes don't like to talk about multiples. Because if there's a reinvestment decision if there it can really kind of pollute that whole discussion. So if we continue to acquire stores that are at the phase where you're going to have to do another image or you have to add service capacity expansion, it will potentially keep the level up at that $80 million run rate. As for the split, just kind of directional because we're still pulling numbers together for this year's plans, but probably half to a third is image.

Okay. So I guess maybe another way of asking it, if hypothetically you were to stop acquisitions, not that you're going to, is this a number you think you could trend towards a $40 million kind of a level?

Yeah, I think that directionally that's probably not a bad estimate.

Okay. And last question for you guys. On the SG&A to gross, the 100 basis points, it seems like perhaps the gross came in weaker than you would have thought a few months ago. Is there anything when you think about what you can do on the SG&A level over the next nine to 12 months here, that you can accelerate versus where you would have been to compensate perhaps for this gross coming in weaker potentially?

This is Earl. No, I think we have identified all the areas that we think have opportunity for the company. But any time you have a quarter like this, I would say it probably pumps you up a little bit to go a little harder. We're just human. As soon as you see an 80 on that SG&A number it catches your attention. I have to tell you I then looked at the same store personnel expense year-over-year, we got $9 million out of personnel expense in the fourth quarter. That's what I expected to see. But unfortunately our gross was down over $6 million, which by the way was how much our gross was down in New Orleans. But again, that's our company, that's what we have to deal with. So I think we're on the track. We know how to cut costs and we're going to continue those efforts full speed ahead. The bigger issue for us to get the -- maximize our gross profit.

Okay. Thank you very much.

Our next question comes from Rich Kwas with Wachovia Securities. Please go ahead.

Hi. Good morning, guys.

Good morning, Rich.

Earl, can you talk about inventory? You did give some day supply out there but sounds like Ford is definitely the highest among the Detroit manufacturers and GM seems a little high. Are you doing anything to centralize the inventory management?

Not yet but the thoughts' been crossing my mind a lot more after, you know, quarters like this. We worked real hard to get the Chrysler inventory to a reasonable level and that was our focus and everybody's covered that subject to the Nth agree. We did that. But while we did that, the Ford sales, particularly truck sales, fell off far more than we expected. So it's -- you know, we're at 113 day supply on Ford. And you know, you get one fixed and the other one gets out of hand. So we're -- we've got our general managers on it. Our GM supply is also is in the 90-some day range. So we're going to continue a little bit longer to see if the general managers can handle it out in the field because we want to leave as much responsibility as we can out in the field. But we are going to get it fixed one way or another.

Okay.

And if Randy wants to order the vehicles, then Randy's going to have to order the vehicles.

And then on the luxury side in California, was there any trend there with Lexus, you know, you talked about the main line imports. Were there any margin issues with the luxury brands there?

There was some pressure in the Mercedes business and they're about to come out with a new C class or redesigned C class, but we don't have Lexus in California, and where we do have Lexus, I don' t know that that business could be a lot better. So I think there may be some pressure in California on luxury business, but we don't have that many luxury stores out there where we would be a good judge of that.

And then as a reallocate the vehicles to other parts of the country, are you worried about maybe the same type of issue cropping up later this year in another region as it did this quarter with the, with Honda and Toyota in California?

Rich, I think the issue there is what I mentioned on one of the earlier questions. I think we're going to have five or ten days more inventory on some of these midline Japanese brands throughout this year. But, you know, if that means we used to run 25 or 28 days and now we run 35 or 38 days, I think that's quite possibly going to happen. But also, you have to understand that for example Toyota is expanding their product line and when you start to sell full sized trucks like they're going to sell full sized trucks, you get a lot more models or entities, you know, with crew cabs, king cabs, extra cabs, whatever they call them, long wheel base and so the Toyota model line, for example, is going to continue to expand and so that tends to creep your day supply up a few days to just cover the water front. So I think we'll see that. But I think it's all kind of the same dynamic and that is there may be some higher day supply across the country on the import brands.

Okay. And then just finally, I know we've kind of hit on Ford here but what really would you like to see from them in terms of assistance?

Well, I don't want to get specific on that, I'll just get me in -- I just want to see them fight, that's all.

Okay.

That's all we -- that's all you expect out of your people or your suppliers and that's what they expect out of us, you know, just scrap a little bit.

Okay. Alrighty. Thanks.

Our next question comes from Matt Nemer with Thomas Weisel Partners. Please go ahead.

Hi, this is actually [Kate Nussel] for Matt Nemer. First question is actually on F&I you had a pretty nice uptick in F&I gross profit per vehicle in the quarter despite negative comps in new and used vehicles. I was just wondering if you could provide some details there. Were there any retroactive payments or any charge backs in that number?

Absolutely. This is Randy again. We did have a very good F&I quarter and year. Our penetration rates remained the same. Upticked a little bit. That's on finance, obviously. Our finance income per contract stayed about the same. We did have a little bit of improvement in finance charge-backs --

Okay.

On our vehicle service side. Service contract side, our penetrations remained very strong. And about what they were same quarter last year. Our income per contract ticked up a little bit, $124 a contract. And we had a slight improvement in our charge-back situation.

Okay. Great. Thanks. And then second question, I guess just coming back to inventory, you know, I guess I'm just wondering if we're getting into a situation here, is it just because of the slower sales that inventory is kind of creeping up on the import brands or are we getting back to sort of a DCX situation where they're trying to push more inventory on the dealers?

This is Earl. I haven't seen any one, any of these brands really trying to push inventory on the dealers. I just think it's market dynamics.

Okay.

Which is basically a little bit softer sales in certain place.

Got you. And then third I, I was was just wondering if you guys repurchased any shares during the quarter?

This is John. No, we did not.

Okay. Great. Thanks.

Our next question comes from Matthew Fassler with Goldman Sachs. Please go ahead.

Thanks a lot and good morning. Most of my questions have been answered but let me try a couple. You spoke about taking down inventory just to ensure your allocations for '07. You know, this might be sort of a radical idea, you know, given where the sector is. But we've seen a couple of retailers, this hasn't happened to you yet, end up long and end up taking the margin hit to move the metal. So in your view, is there a way around a sort of playing ball with OEMs in that regard?

I don't know exactly what you mean by linking those two. But it is true, if you carry high inventory, you will eventually cut your margins to move some of that out. So eventually you're running 95, 100-some days of inventory with anybody, your grosses aren't going to be what they would be if you had 50 or 60 days. So it is a threat to gross profit. In terms of playing ball with manufacturers, my only comment there is we try to do that to the degree possible. But you can see we've reached the point with some of these inventory levels that our first obligation is to our shareholders, and we've got to run a better business than that. So we try to help our manufacturers when we can. That's a limited time duration, ability to do that.

And do you feel like you sort of got -- it sounds like you feel like you got to the edge of that here at the end of the fourth quarter.

Quite frankly, it was even earlier than that. You know we had that issue mid year and Chrysler was the big issue and we were focused heavily on that. And while we did that, we ended up with issues in Ford and GM. And in particular, with Ford, it was just that we didn't predict our retail sales levels accurately. They fell off more quickly, particularly in F series, than we had predicted.

Got you. Second question. This is sort of a small item. But I know that your wholesale losses per vehicle wholesale widened out just a little bit. I'm curious if there's anything in particular driving that or whether it related at all to some of the end market issues that you discussed?

Yes, this is Randy Callison. Our wholesale losses did pick up a bit. About $51 a unit on a same store basis. That was actually, actually in two regions. Our southeast region, which is heavy Ford, heavy domestic, and our central region. Within the central region, primarily in West Texas, which again is primarily domestic. So it very much was tied to pushing to sell new cars and probably stretching a little too much on the trade.

And again, that relates to full size trucks. When you're reaching for a trade-in to try to move a full size truck, if you put too much in the trade-in, get yourself in trouble.

Got you. And then just one final question. You know, I think you initially offered '07 guidance on January 8. So you now have sort of six more weeks under your belt. It sounds like the business has been on the choppy side. Has -- Would you characterize that initial guidance as conservative and consequently be able to absorb a tough start or are there other offsets that are giving you the confidence to stick with that number there.

I have heard the comments when we issued the guidance that some people thought it was conservative, as they thought last year's guidance was conservative, as they thought our industry projection in the middle of the year of 16.5 million was conservative, but the fact is we had a lot of data on the fourth quarter actual market when we made that guidance in early January for this year. So I think the point is, we have some of this information, maybe before you do, and we actually ended up, although I wouldn't -- nobody was happy with our fourth quarter, we were pretty close to the middle of our guidance and we haven't seen maybe as many surprises as some other people have. I would rather be at the top end of our guidance, I can assure you it was a bit worse than we thought, but this is what we -- this is what we really see based on all the data we have right now. We'll keep -- you know, every time we have another month of data, we revisit our guidance and we're not trying to be conservative. We're trying to be realistic with the data we have. And we're continuing to do the same things today that we did yesterday. You know, the strategy we've mapped out, still applies just as much after a quarter like this as it does after a great quarter. And we're still trying to become a more efficient retailer and grow this company.

Understood. Thank you very much.

Our next question comes from Jerry Marks with Auto Retail Stocks. Please go ahead.

Good morning.

Good morning.

Just three questions, real quick. Last year you guys had kind of a 40% year-over-year increase in the fourth quarter 2005. In the first quarter, 2006, you had a 50% year-over-year increase in EPS, it is fair to say that your toughest comparison then is going to be in terms of running comparisons, the first quarter this year, so if we're modeling we want to be kind of flat, slightly down? Kind of asking Rick's question again.

Well, I guess to come back around on that, Jerry, this is John Rickel. Clearly, we had the benefit of fourth quarter '05 from the Katrina activities, New Orleans, and clearly some of that performance continued into first quarter, so yeah, I would say that first quarter probably was the one that had the most within as you're looking at your modeling.

Okay. That's all. I just wanted to make sure in terms of as I'm spreading it, that's probably going to be the most difficult quarter; is that correct?

I would think that's probably a reasonable assumption.

Okay. And then you guys slides that you released today, you showed the 73% fixed absorption rate in 2006, you got competitors like Auto Nation in the 90% range, what do you think is the difference? Is it kind of brand issue? Is it a cost structure issue? Lack of focus? What's causing that difference?

This is Randy Callison. We don't think it's brand or the stores. We think it's a different method of calculation. Our method is a traditional industry method where we take the coverage of total fixed gross profit as compared to direct selling expenses for the fixed departments, and total G&A expense for the store including rent and equipment. Our fixed absorption has increased year-over-year for the past three years, at least. It's the highest it's ever been, actually, at 72.6%. But we don't know how our competitors compute their fixed absorption.

So maybe they're excluding some things in the SG&A like you suggested or in their fixed expense?

That's my assumption. But I just don't know.

Okay. Last question, probably for Earl, what's your biggest priority for this year?

I think it's to continue to grow the top line and make sure that we're bringing more gross in. And yes, there's certain brands, new car brands that are more challenging than others, new vehicle brands, but we bring revenue in a lot of ways. And that's why we put the emphasis last year on used vehicles and now we're going to start to get more focused on parts and service. To me, it's much easier for us to cut costs than it is to continue to grow the top line and that's, you know, our acquisitions, our dispositions, our used vehicle effort, our parts and service effort, that's all designed to get some top line growth. That's what we need to, that's what we really need to take the company forward another level.

Grow the top line.

Yes.

Okay. That's all I had. Thanks.

Our next question comes from Bernard Simon with Financial Times. Please go ahead.

Hi. I'm wondering if you could give us your perspective from the dealer's part of view of the prospect of a new owner for Chrysler?

I saw something on Bloomberg last night where Roger Penske did this video clip on that subject but I couldn't get the sound to work on my computer and I couldn't read his lips. Otherwise, I would probably be able to give you probably something really intelligent. [ LAUGHTER ] I'm probably not a very good source for that. I think from the dealer's viewpoint, a change in control, you know, you have to assume that is the new owner is going to have some better ability to provide fresh product and thinks they can take the business forward. You know, it's not like a bankruptcy where the manufacturer has a right to terminate sales and service agreements. So for dealers, I don't think that's a big event. I think they would always be optimistic that the new entity would come out a stronger company, which would be good for dealers.

Great. Thank you.

Our next question comes from John Stoll with Dow Jones. Please go ahead.

Hi, Earl. A question for you related to inventory. Do you feel like you can begin to make significant progress in bringing the domestic inventory down in the first quarter? You said were you going to take a bit of a hit on gross margin when you begin to stuff like that. So will this move impact first quarter earnings, and when will the biggest impact of this be?

Well, I don't want to project that we're going to take a gross margin hit because of this inventory. The point I was making earlier is those things do tend to correlate. The longer you hold too much inventory, eventually you do something to move it, and that's generally a margin cut. But that's certainly not our strategy. But yes, we've got a lot of attention on that and it becomes a little challenging for our people or any automotive people to handle this because as you know, the seasonality of the total industry volume really ramps up quickly in March, April and May. So, you know, if you're trying to react to sales volumes from February, January and so forth, it is a fairly challenging task to get that right as the market ramps up. But we need to get in particular that General Motors and Ford inventory down toward the 75 day level and that's a priority within our company right now.

That would be a major cut in what you have from Ford right now if I'm not mistaken. You have, what, 113 days?

It would be a major cut when you look at day supply. But when you look at actual sales volumes required to, say, sell your way out of that, as you start to ramp into March, it's not quite as daunting when you look at it that way.

So this wouldn't be in terms of absolute. We're not looking at absolute inventory, the numbers that you're carrying as much as the day supplies, trying to ramp up.

That's correct. This is John Rickel. It's a function of the math. It's both the absolute level of inventory and the selling rate, and we obviously want to bring down the absolute inventory level but it's also a function of you're selling more on a daily basis, your daily selling rate or your day supply improves through that process as well. So we think it's a combination of both we'll get basically better selling rates as we get into more of the meat of the season, as well as bringing down the absolute levels of the inventory.

But, so would you focus more on selling more or on dialing back what you're taking from the manufacturer?

I think this time of year we need to focus on selling more.

Okay. Appreciate it. Thanks.

Next question comes from Poornima Gupta with Reuters. Please go ahead.

Hi, there. [inaudible] I know you've answered this question, but I just wanted to clarify, would you be scaling back orders and if so, by how much from the domestic suppliers?

Yes, this is Randy Callison. I don't know if scaling back from our current level would be an appropriate comment to make. We've been very conservative with our ordering in the last couple of months. And actually a little bit more. So I think we're in a pretty good position on the ordering side. We just need sales to stick up -- pick up as they normally do in the spring.

And so would you be offering any incentives on your own? How do you suppose sales would pick up?

That actually relates back to the point we made previously, you know, as a retailer it's not incentives you offer, generally you take less profit on a sale. And that's a concern we would all have about reducing gross margins and so that's why we need to pick up our sales level and get our inventory levels down so we don't have to do too much of that practice.

And also I was wondering if you could provide any color on February sales so far?

No, actually I can't. And -- we don't have anything meaningful and that starts to be a little bit forward-looking and we read the J.D. Powers and some of the stock analysts weekly updates just like most of you do. So I wouldn't want to add anything to that.

But could you just say if it looks better than January at this point or --

No, at this point we really can't.

All right. Thank you.

I'm showing no additional questions in the queue. Mr. Hesterberg, please continue with your presentation.

Okay. Thanks to all of you for joining us today. We'll look forward to updating you on our continued progress on our first quarter earnings call scheduled for April 26. Thanks.

Ladies and gentlemen, this does conclude the Group 1 Automotive fourth quarter and year-end earnings conference call. You may now disconnect and thank you for using AT&T teleconferencing.