Sonic Automotive Inc (SAH) 2012 Q1 法說會逐字稿

Good morning. And welcome to the Sonic Automotive first-quarter earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer period. (Operator Instructions).

As a reminder, ladies and gentlemen, this call is being recorded today, Monday, April 23, 2012. Presentation materials which management will be reviewing on the conference call can be accessed on the Company's website at www.SonicAutomotive.com by clicking on the Investor Relations tab under Our Company and choosing webcasts and presentations on the left side of the monitor.

At this time I would like to refer to the Safe Harbor statement under the Private Securities Litigation Reform Act of 1995. During this conference call, management may discuss financial projections, information or expectations about the Company's products or markets or otherwise make statements about the future. Such statements are forward-looking and subject to a number of risks and uncertainties that could cause actual results to differ materially from the statements made. These risks and uncertainties are detailed in the Company's filings with the Securities and Exchange Commission.

Thank you. I would now like to introduce Mr. Scott Smith, Co-founder and President of Sonic Automotive. Mr. Smith, you may now begin your conference.

Thank you, Jodi. Good morning and welcome, ladies and gentlemen, to Sonic Automotive's first-quarter 2012 earnings call. I am Scott Smith, the Company's President and Co-founder. Joining me on the call today are Dave Cosper, our CFO, and Jeff Dyke, our Executive Vice President of Operations.

I will start the call today with an overview of the quarter and then I will turn the call over to Dave for his review of our financial results, followed by Jeff with an outlook at our operating results. We will then have closing comments and open the call for your questions.

If you'll please turn to the first slide, overall results. We have been on a path for several years at Sonic Automotive that I believe will ultimately differentiate us greatly from the peer group. At its core, our strategy is built on our people and our culture. Relative to our priorities, we continue to focus on investing in our base business, acquiring our real estate and opportunistically reducing our debt.

Our commitment to being predictable, repeatable and sustainable through the execution of our playbooks and the development and deployment of our proprietary technologies to support our processes will yield higher returns than acquisitions at this time. The overall results for the first quarter met our expectations and has us on track for the high end of our annual guidance for the year.

Allow me to repeat, our overall results for the first quarter met our expectations and has us on track for the high end of our annual guidance for the year. We posted record revenues with sales of almost $2 billion and our income from continuing operations rose just over 24% to $19.5 million.

Growth was experienced in all revenue categories. This translated into diluted EPS from continuing operations of $0.33 a share, or a 22% improvement over the prior-year period. I will now turn the call over to Dave to review our financial results. Dave?

Thanks, Scott and good morning, everyone. As Scott mentioned, revenue for the quarter was $2 billion, up 9% from a year ago. Operating profit was up 10% and net income at $19 million was up 24%. I am very pleased with the profit growth we are achieving through improved operations at our existing stores without acquisitions. It shows me what this business can do when you get the people and processes right and take care of the customer. Continuing ops EPS was $0.33 for the quarter, up 22% from last year. Next slide please.

SG&A as a percent of gross improved 30 basis points to 79.4%. As I mentioned on our last call, this year and into next is a fairly heavy investment period for us. We are investing in technology and training for our people to improve even further our sales efficiency and effectiveness and our ability to take care of our customers.

Obviously, our investment spending puts pressure on cost, but our success in selling is driving higher gross profit and frankly, we are just getting started. We expect SG&A as a percent of gross to be below 78% for the year. Next slide please.

Our gross capital spending for the first quarter was $12 million, which is fairly light given the outlook for the year. We have several projects we are getting underway presently, so spending is going to ramp up for the balance of the year. We closed on two mortgages in the quarter providing funding of almost $11 million, so net cash used for CapEx was $1 million for the quarter. Next slide please.

This slide shows the covenants for our syndicated credit facility and as you can see, we are comfortably compliant with all our covenants and expect to be compliant going forward. In terms of the capital allocation, as Scott mentioned, we remain focused on investing in our base business, owning our properties and reducing our debt. With that, I will turn the call over to Jeff Dyke. Jeff?

Thanks, Dave and good morning, everyone. I appreciate the opportunity to share the Sonic Automotive 2012 first-quarter operating results. As you can see from this slide, new retail revenue was up 12.1% and our retail volume was up 11.2% while gross was up nearly 10%. We continue to see strong new car volume and marketshare growth across all regions. From a brand perspective, all brands saw growth with the exception of Acura, Infiniti and Nissan. Some of the big volume increases came from Volkswagen, Audi, GM, Honda, Toyota, Mercedes-Benz, BMW, Ford and Cadillac. We continue to take significant marketshare with these brands in the markets that we operate. New vehicle days supply was 49, up from 37.5 ending December. That breaks down with domestic at 62 days, import at 39.5 days and luxury at 51 days. Next slide please.

Our pre-owned business continues to improve as we execute our playbook strategy and install our Sonic inventory management system across all of our dealers. About 30% of our dealers are complete as of this date. Pre-owned revenue was up 9% and gross was up nearly 8% and as you can see on the chart, retail volume was up 6.6%.

We accomplished a couple of milestones in Q1 that are of importance in our pre-owned strategy. First, as I stated earlier, we began the rollout of our proprietary SIMS inventory pricing and management tool. This tool has been under development for several years and is now ready for deployment and will provide sonic with a competitive advantage in inventory and pricing management.

Second, I am proud to announce we sold over 90 pre-owned units per store in March as we continue our charge towards 100 units per store average. Third, March was the largest pre-owned volume month in Company history and finally, the first quarter was the largest pre-owned gross quarter in Company history. Our results for the quarter continue to show the power of playbook execution in our inventory management capabilities. Our days supply was 31 days; certified pre-owned was 26% of our total pre-owned sales. Next slide please.

As you can see from this slide, fixed operations revenue was up 5.1% and gross was up 3.9% for the quarter. We are very excited about our fixed operations gross as the first quarter was the all-time largest fixed gross quarter in Company history. Customer pay revenue was up nearly 9% and customer pay gross was up 8.1%, driven by our playbook execution and the initial service line process and iPad rollout that is underway, which will be complete by the end of this year. Warranty revenue was down 12.5% and warranty gross was down 14.2% as warranty as a percent of revenues continues to shrink. It was at 14.8% for the quarter and that was down from 17.8% last year. Next slide please.

In summary, the first quarter was an all-time record gross quarter for Sonic Automotive. We continue to take new car share at record pre-owned volume and gross, along with record fixed operations gross. We continue to show that our strategy of investing in our associates, reducing turnover, playbook execution and increasing our spend in technology and training is clearly beginning to pay off. We expect the recovery to continue steadily in 2012 and are well-positioned to take full advantage of the improving environment.

I would like to take this opportunity to thank our team for their hard work and dedication to our strategy. And now I will turn the call back over to our leader, Mr. Scott Smith.

Thank you, JD. Thank you, everyone. We appreciate the time that you have given us today to review the quarter. We maintain our continuing operations diluted EPS guidance of $1.55 to $1.65 for the full year. As I mentioned earlier in the call, our first-quarter results were in line with our expectations and we are on track with the higher end of our guidance.

As I discussed at the beginning of the call, we continue executing our strategy of strengthening and growing our base business that began several years ago. We plan on doing so through the proven processes that are predictable, repeatable and sustainable. We are making significant investments in technology and training that will continue to be reflected in our SG&A through the year. These investments are paying off already and there is much more to come.

Before we take questions, I want to take a minute to thank all of our associates and vendor partners that join together every day to help us build one of America's greatest companies to work and shop. Thank you, everyone. It is an honor and a privilege to lead this great company. With that said, we will now open the call for your questions.

(Operator Instructions). John Murphy, Bank of America-Merrill Lynch.

Good morning, guys. First question is you guys have been talking about your guidance based on a 13.5 million unit SAAR in the US and I am just curious if that still stands or if maybe that number has crept up given what we saw in the first quarter. And if it hasn't, what gives you sort of that pause for caution to keep that number that low?

Well, John, it's Jeff Dyke. Obviously, fleet played a big role in that number in January and February pushing the SAAR number up. I need another couple of months before I would tell you that we're going to push too far north. Our guidance right now is somewhere between 13.5 million and 14 million. If it pops up above that, that is fantastic. Our numbers will get better.

And as Scott told you, we are now sort of indicating the upper end of our guidance that we gave at the beginning of the year and that is reflective in the better business environment that we are seeing. We are not just seeing it in new. We are seeing it in pre-owned. Our fixed operations customer pay business up 9% was fantastic, so we are seeing it across the board. So the opportunity is there for it to grow. We expect things to get stronger as we move forward.

And if we were to think of each of those three categories that you just mentioned on new vehicles, I was just curious what you are seeing in showroom traffic and interest levels through the quarter and maybe into April and the same thing on the used vehicle side because useds sound like they are running very strong for you as well. I am just curious on those two, just as far as the cadence through the quarter and maybe what you are seeing maybe a little bit more recently in April.

Yes, I mean the quarter built. It got stronger every month and April is strong too. I mean there is no question that showroom traffic is great and it is not just one or two brands that is driving it; it's across the board. And so it has been fantastic and our pre-owned business just continues to grow. We have been projecting that we are going to get to this 100 car per store average. It is coming. We were very excited. It was our biggest quarter yet and in March, we did over 90 cars per store, which is just great. We are going to get -- hopefully get that 100 number this year and we are having a great April with pre-owned. So it feels good.

And then if we just think about the part and service business also, I mean what was the cadence there? Are you seeing more brake jobs, more transmission jobs? Are you still seeing a lot of maintenance work? I'm just curious what kind of tickets and what kind of cadence you are seeing in parts and service. Just trying to understand the mix of business through the quarter once again in April and if there is anything there in that parts and service -- on those parts and service lanes that lead you to believe that people might stop fixing their cars and actually just buy a new used car or a new new car. I'm just trying to understand what is going on in the parts and service tickets.

No, our parts and service business just continues to get better and better and those numbers are great. I mean an increase of 9% is just a fantastic number. That is our best yet and we had our biggest quarter yet. And the cadence got better as the quarter went along and it is good again in April and so the business is good.

The more new cars you sell, the more pre-owned cars we are selling, internal grosses are up in fixed operations. Customers are coming back through the service drive and I mean it is coming across all brands. There is nobody who is lagging behind. Other than warranty, but we are getting used to that. Warranty is dropping off and it is a much smaller percentage of our mix. We don't rely on it as much anymore. We have been able to change the game and execute better on our service (technical difficulty). Our playbook is really kicking in. Our iPads that we will have installed between now and the end of the year on the service drive are really helping the process. It sort of forces our service writer to execute 100% of our game plan 100% of the time. The customers seem to like it. So we are very excited. It is arguably one of our best performing areas in the Company.

But that 9% increase, was that because of a greater number of customers or larger tickets or a combination thereof?

It is a combination thereof and the higher effective labor rate as well. So we are doing a better job with the mix of business that we have. We are doing a better job attracting customers into the service drive and we are doing a better job selling pre-owned, which is driving higher internal grosses. So it is across the board.

Great, thank you very much.

John, it is right on our budget. We projected that we would be up at that level. So it is not a surprise; it is exactly where we projected we would be.

And we are seeing the closing ratios on our supplemental repair requests going up as well.

Yes, we are.

On the [ASRs].

Okay, great. Thank you very much.

Rick Nelson, Stephens.

Thank you, good morning. I'd like to ask you about the SG&A as a percent of gross. It looked like it narrowed year-over-year, but ticked up a bit from the fourth quarter to the first quarter. What was the driver of that? Is that the technology and (technical difficulty) investments that you talked about? Where do you see (multiple speakers) ratios?

You're right, Rick. We did see some improvement year-to-year. We are expecting more improvement or a better rate of improvement as we progress through the year on a year-to-year context. Versus fourth quarter is a tough one because Q4 is so big for us. I mean it is a gross issue as much as anything else and then there are some unique costs that hit you like payroll taxes and things like that in January and February that you don't have in December. So I don't think it is so much of an incremental spend issue as it is just the seasonality of our business and some unique things that hit our costs in Q1.

Those ratios should come down in Q2 and Q3 because of --.

I would expect that they would, yes.

Yes.

Yes, because we are projecting (multiple speakers) 78.

(multiple speakers) issue that we are reading more about. What are you hearing from the OEMs on the supply front?

Yes, most of the things we have seen are saying no issue, that it is very short-lived, that there is other bits of supply. And nobody is really -- we haven't heard of any manufacturer cutting back on production, but it always makes you a little nervous, right, until all the facts are in. So we're in sort of wait-and-see mode on that.

And Rick, this is Jeff. Our days supply is growing from Q4; you can see that. And our manufacture partners are getting us inventory. There is one brand that is out there; it is a little short in inventory. It is Lexus. We can always use some of the hot moving items from all the brands, but we are steadily getting better. Honda is starting to put inventory on the ground, so it should really help and make for a great summer.

(technical difficulty). I also wanted to ask about the debt outstanding at the end of the quarter. And did you make any progress taking up the converts and what --?

Yes, we took out $17 million of the convert last year. We didn't take out anything in the first quarter. We were working with our banks to -- our liquidity ratio was scheduled to have a step-up on March 31, so we were holding back on that. It was going from 1.05 to 1.1. Together with our banks, we have made an adjustment, so we are holding at 1.05. That frees up some liquidity for us to be more active in reducing our debt. And we have actually so far this quarter picked up $4 million or $5 million further reduction of our debt. So we are going to be back opportunistically picking that off.

It looks like wholesale losses are going away -- you are doing a much better job on the wholesale front the last couple of quarters. What is driving that do you think?

The prices continue to get better. Inventory is of short supply. We are being more aggressive on the retail front than probably we have ever been. We're selling more wholesale as a percentage of our total, of our number is shrinking and we just continue to do a better job in pre-owned. So actually we have had wholesale profits here as of late, which, to be honest with you, I really don't like. I like to have a little bit of loss. That means we are being as aggressive as we can be. But overall, I feel real good about the job that the team has done in managing our wholesale inventory and they are doing a great job.

Thanks a lot and good luck.

Patrick Archambault, Goldman Sachs.

Hi, good morning. I wanted to just ask about new sales to start. You were up 9%. I'm sure that was revenue. You were up 12% -- excuse me -- which -- and volume up 11%, which is kind of in line with the industry. Until recently, you had been kind of outperforming the industry pretty consistently over the last several quarters. Now you are kind of more in line. Is there -- is that kind of going back to maybe some of the fleet commentary that you said at the beginning or is there maybe a brand or kind of regional thing going on that is kind of making you more in line with the industry on the new side?

Let me start on that. The best data we have got on the industry growth in the first quarter was that retail was up about 10.4% and fleet was up about 23%. So we are looking at our 11.2% increase versus retail up 10.4% and we are better than in line. We are a little bit better. Not as much as we were last year, but it is difficult to continue to take share. And the way we are viewing it is we took a lot of share last year. We are maintaining that and in fact growing it a little bit more. Jeff, you got any other --?

Yes, I mean we did grow share in the first quarter. It was a very light winter in the Northeast and so you see a lot of volume pickup in some of those market areas, which maybe drove the SAAR up a little bit over some unusual versus what we had last year, a big winter, so which we all experienced. And then fleet and so let's let everybody get reported and we will see kind of how we stack up, but I feel very good about our new car growth and where we are.

In particular, I feel good about the marketshare that we continue to take in our big brands across the markets that we do business in. We had a very, very good marketshare quarter and virtually took share in all of our brands across all of our markets. So I feel real comfortable. We are sort of the first to report, so let's kind of see where everybody stacks up once that is all said and done with.

Right, okay, and that is helpful. I mean on that note, how would you gauge the level of competition in terms of the new side? It does look like the sort of gross profit margins have kind of stabilized somewhat here on the new for you guys. Is that kind of an indication that, in this higher SAAR environment, people are less desperate for share and the pricing has eased off a bit or how would you kind of characterize that?

I don't know about that. We are still staying very competitive. I mean we are a very aggressive retailer from a pricing perspective in terms of understanding what is going on in the marketplace. Our technologies allow us to do that and do it quickly. So we are moving prices on a weekly basis in all of our stores from a new car perspective and so it is competitive out there. There is no question about that, but our margins are stable. They have been here for the last few quarters on new and I don't see any reason why they would drop in terms of PUR. We range all the way somewhere between $2100 and $2300 a car and then obviously mix of selling price drives your percentage up and down. But I feel very comfortable with where we are and I think it is going to be a hot competitive summer and we look forward to it.

Got you. Okay. And then one last one just on (technical difficulty) color, if I may. Just you kind of hinted that traffic was pretty good. JD Power was out with I think a high 13s estimate for April, which is obviously a pretty big sequential drop from weather and I guess Japan pre-buying (technical difficulty) going away I suppose. That sounds kind of inconsistent then with what you guys are seeing on the showroom floor. It sounds like things have held up nicely.

Well, I think they have. But, look, don't get fooled by the SAAR in January and February and all the fleet business. We need to pay attention to what -- most of the retailers are out there projecting somewhere between 13.5 and 14, maybe upwards of 14.2. It is where it is going to fall. It is going to come back in line and heck, if we end up at 13.7 or 13.8 or 13.9 or even 14, that is a blessing. I mean it is a continuing improving steady environment. That is what we want and as long as it just keeps trudging along and doing that, we are well-positioned to take advantage of the marketplace. You have really got to understand the difference between what fleet is driving and what retail is driving and it has been very consistent and it is consistent in April. Business is good.

Okay, great. Thanks for all the color.

Scott Stember, Sidoti & Co.

Good morning. Can you maybe just talk about the heightened expenditures that we are going to see related to the iPads and employee training and so forth? And you are talking about seeing some benefit I guess as the year progresses. What are some areas that we can look at to gauge that progress as the year progresses? Is it basically sales, gross profit or both?

I will start. This is Jeff Dyke. First of all, what you're really going to see is the increase in fixed operations and you're beginning to see a little bit of it in the first quarter. I am interested to see how everybody else does, but 9% revenue growth is very nice and we have got iPads rolled out in our service drives now in maybe 40% of the Company. So we will hit the balance for the rest of the year.

SIMS is a huge investment for us and we have got that rolled out now to a third of the Company and what we are beginning to see there is our trade ratios are increasing, which is what we want. We trade for about 0.48 cars -- out of 4.8 cars out of 10, which is actually high in the industry. We are going to trade for about seven, eight, nine cars out of 10 and our stores that are on SIMS are actually beginning to see that number tick up. And when you trade for a car, obviously we are retailing everything we get, so you sell a car, plus your trade, you have got two cars that you are selling. So we're going to have more volume increases with SIMS going out both on the new car side and the pre-owned side.

So it is going to affect all the areas. It will affect F&I and it just takes a little while to roll out. We don't do anything fast. We just try to do it right and it is going to take all our power to get everything rolled out in SIMS this year and the same thing for the iPad process. Of course, you've got your investment upfront, so we are eating some of those costs right now. But in the stores that we have got it rolled out in, the numbers are significantly different and it's just how quick can we get it rolled out and get it in place so we can begin reaping those benefits across all of our locations.

So just to break out what the investments are again, we are talking iPads, right, we are talking increased training.

You have got the technology piece, the Sonic inventory management system, you have iPads, you have huge training investment to go along with that.

The incremental spend is $25 million for this year in iPads. If you think about it, Apple called Sonic out in their quarterly earnings report in their -- I think it was October of last year after Steve Jobs passed away. They called Sonic out as one of their leading innovators and we have been on a path with Apple for over three years in using their technology to interface with our customer and support our processes. So a lot of the cost has already been incurred and we are in the process now of rolling these out to our customers through the customer experience.

We really stepped up our training investment and it is significant. If you are going to have the technology, you're going to have all the processes and have it, you better have the training to go along with it and we are bearing some of those costs upfront. That is okay; we will eat those up real quick. We are very pleased with the quarter and where we ended up and we have just got nothing but upside ahead of us.

Okay. And just looking at your comments about G&A as a percentage of gross profit being below 78%, one could deduce that there would be upside to the high end of your range. Is there anything out there that is maybe keeping you guys or making you nervous about raising guidance or it's just more of a conservative nature and just wanted to see how the year plays out?

I think it is more of a conservative nature. I mean we have already handled the midpoint higher in our guidance. Scott did that. I think the quarter came in strong relative to our expectations and would put us on track at the high end of the guidance.

It's just April yet.

Yes, and I am a good conservative Ford background guy. It is just good business. And you never know. I mean this resin thing is a risk; it came out of nowhere. And then all of a sudden, gee, is there a risk, is there not a risk and there is always something going on. So we're in April and we will see how it plays out.

Okay. And just lastly, were there any one-time items embedded in the G&A number or was everything pretty much just smooth?

We had a hailstorm that was probably worth $0.5 million that we didn't call out, hadn't planned on it and there was probably another $800,000 of something else in there. And for perspective on the costs we are talking, there is a good $2 million, $3 million of incremental costs on training and IT that are in there that is an investment with brackets around it and the good stuff comes later.

The thing I like about it is that spend is in there and we still reduced SG&A as a percent of gross. So when some of the cost starts to taper off and gross doesn't and we get better run rates added, we are at 30% and 40% of our stores, then it is really going to make a difference. That is how I think about it. You are covering it up with good performance today and there is a lot more good performance to come.

Got you. That is all I have. Thank you.

(Operator Instructions). Brett Hoselton, KeyBanc.

Good morning, Scott. Good morning, Dave. Good morning, Jeff. I was hoping to talk to you -- just continue on the SG&A leverage. I calculated just on a year-over-year basis in the quarter it was around 72%. And it sounds like you got some additional spend here this year. I guess I have got two questions. Really as we go forward, at what point in time do you think that additional spend starts to come down? And then secondly, as you think about the impact on your SG&A leverage going forward, kind of the SG&A spend for each incremental dollar of gross profit, do you see that 70% start to come down maybe closer to 60% or 50% or do you think that 70% is kind of a realistic number going forward for the next year or two years?

Well, on the last question, I just mentioned there was $2 million to $3 million of incremental cost in Q1 versus Q1 a year ago. And I see that spend level at that level for the balance of the year and probably into the first part of next year. So I don't think there is going to be -- we are always looking for opportunities in other areas, but we are not going to back off what we view as the right thing for the business in terms of investment in this area. So a lot of the good news that we are projecting is going to come from gross, which we are seeing and it's pretty much as I described on the other question.

This is Jeff Dyke. I mean we don't see our SG&A as a percent of gross dropping into the 50%s. There is nobody in the industry that is at that level.

On an incremental basis, that is.

Yes, I was talking on an incremental basis, Jeff. I apologize.

Oh yes, okay.

There is a good report that was put out by one of the analysts here recently. And when I looked at it for 2011, and it really just took SG&A and excluded rent and then laid out everybody in the peer group, and we were top quartile, top third in terms of our competitiveness on cost. We look really good and we are increasing from that level, but we are expecting a return from that investment.

If you just think about it, our first quarter was the highest gross quarter that we have ever had and it is because of the investments that we are making that we are starting to get that and we are just beginning. I mean we are just scraping the tip of the iceberg here, so there is a lot more to come.

And then switching gears, thinking about gross profit per unit on the new vehicle side, so on a year-over-year basis, you are up slightly. Sequentially from the fourth quarter, you have come down quite significantly. My question is going forward as you move into the second, third and fourth quarter, you have said that you'd kind of like to stay within that $2100 to $2300 range. Do you anticipate that you are going to be able to push your way back up into that range again? Do you think you might be towards the higher end of that range, lower end of that range? Do you have any sense?

Well, there is a cadence to new car gross as you move throughout the year. In our fourth quarter typically, you have got a lot of manufacturer incentive monies that you are picking up in the quarter, in particular in December and it pushes our PUR up. But, yes, I mean I don't really see, foresee any change in our PUR on a continuing basis versus prior year. I mean it is going to be in or around the ballpark that we have been in here for the last year and a half or so.

I guess what I am wondering is, as your Honda inventory rebuilds and you possibly see some more competition there or something along those lines, that might be a bit of a headwind, but it sounds like your thought is that overall you think you're going to continue to see your normal seasonal pattern of some improvements throughout the remainder of the year.

Oh, yes. We are very aggressive in our pricing as it is. I don't see that getting any more aggressive and Honda is a large part of our business. We way outperformed the brand and most of our competition in that particular brand and so there won't be any change. The only thing you will see is just more volume, more throughput to more gross.

And then switching over to the service and parts margins, warranty obviously has been trending down for quite some time here. Do you have any sense as to when you think you might see some sort of a bottoming out there, maybe an inflection point?

And I guess specifically as you think about your service and parts margins, what I am kind of driving at is do you have any sense as to when you think you might see your service and parts margins actually start to maybe bottom out here? Is this something that might take place later on in 2012 or do you think it is going to take another year or two before you start to see those service and parts margins?

No, margin percentages, we are about where -- we're about where we are going to be. I don't see it dipping too much further from where we are, but it is just not something -- we pay attention to the elasticity in that margin percentage that drives the most gross for us. So we have moved that number around and obviously we have come down on the margin percentage and look how much more gross we are getting and how much more money we are making. We just had our record gross quarter for fixed operations.

So we sort of like where we are and as long as it brings more dollars to the bottom line and more value for our shareholders, we are going to keep -- we're going to keep driving it and bringing more customers in. We are battling against not just our own competitive set, but the mom-and-pop dealers that are out there, the Jiffy Lubes and all that and we are taking those customers and bringing them into our shops.

And that, to face those customers or that competition, you have got to be aggressive in your pricing, but there has got to be a return for it and right now, from a gross perspective, we are seeing that return. We are very pleased with our performance in fixed operations over the last few years and in particular our first quarter of 2012. And that is going to continue right on through the remainder of this year.

It is just going to get better as we continue to roll out our iPads.

There is just nothing but upside.

Thank you very much, gentlemen.

Clint Fendley, Davenport.

Thank you. Good morning, gentlemen. Most of my questions have been answered here, but I wondered on the pre-owned side, obviously, the pre-owned to new ratio was down a bit year-over-year, but we have had a really nice improvement on the related gross. And I just wondered is this the early benefits already of the SIMS or maybe just some color on what is happening there?

The benefit for us is having more new new car volume throughput and us getting used to having that new car volume throughput and trading for more cars, which will allow us to sell more. I still think we will lead the competitive set in terms of used to new ratio or be right there at the top. And as that SAAR moves up real quick, it is hard to keep pace because I have got to recon and bring more inventory in, but we are doing a good job. Our pre-owned team is doing a really, really good job and it just takes a little getting used to, but I expect us to be in the 0.9 to 1 to 1 ratio between now and when the year ends and that is kind of where we have been all along.

It may fluctuate up and down a little bit just depending on the specials that come out and the things that the new car manufacturers do, but I feel real good about where we are with pre-owned. We are getting a good balance of gross along with volume increase. We are trading for more cars. Our wholesale is down and we are still continuing to really grow and we pushed past that 90 mark on a per store basis, which was a big feat for us. And now we have got 100 units per store in our sights and then we will move on up from there.

And that is really the metric we measure is how many per store per month and then the used/new is kind of a fallout.

Yes. Go ahead.

Do you guys see any opportunities for efficiency improvements on the reconditioning work that you are doing?

I mean I think we are pretty effective where we are. One of the things that we are very proud of is that when that vehicle hits the front line, it really stands tall. We really recon our vehicles and do a great job of that and are there some efficiencies? Certainly. Can you get better? I will be honest with you. It is a focus point for us, but our major focus point in fixed is our service drive, taking care of our customers and getting them in and out as effectively and efficiently as we can. We do a really good job of reconditioning our cars and our customers are telling us that because they keep coming back and buy more and more and more.

And then the last question here, you guys alluded to it earlier, but just what is your latest thoughts maybe on the resin issue here?

We haven't heard anything other than -- we have not had a supply issue yet. There is all kinds of stories going back and forth. There's industries outside of our industry that are selling resin into our industry and no one has thrown up a red flag saying, hey, you're going to have inventory issues as of this point.

Got it. Thank you, guys.

Thank you. I would now like to turn the conference back over to management for closing remarks.

Great. Well, thank you, Jodi. Ladies and gentlemen, thank you very much for listening to our call this afternoon. We look forward to speaking with you on our next call. Take care.

Thank you. That does conclude today's conference call. You may now disconnect.