Group 1 Automotive, Inc. Stock

Good morning, ladies and gentlemen. Welcome to Group 1 Automotive's Second Quarter 2026 Financial Results Conference Call. Please be advised that this call is being recorded.

At this time, I'd like to turn the floor over to Mr. Pete DeLongchamps, Group 1's Senior Vice President, Manufacturer Relations, Financial Services and Corporate Development. Please go ahead, Mr. DeLongchamps.

Thank you, Jamie, and good morning, everyone, and welcome to today's call. The earnings release we issued this morning and a related slide presentation that includes reconciliations related to the adjusted results we will refer to on this call for comparison purposes have been posted to Group 1's website.

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 are forward-looking statements that are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve 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, inventory supply, conditions of markets, successful integration of acquisitions and adverse developments in the global economy and resulting impacts on demand for new and used vehicles and related services. Those and other risks are described in the company's filings with the Securities and Exchange Commission. 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.

Participating with me on today's call, Daryl Kenningham, our President and Chief Executive Officer; and Daniel McHenry, CEO of the U.K. operations and Chief Financial Officer.

I'd now like to hand the call over to Daryl.

Thank you, Pete. Good morning. At Group 1, we try to focus on controlling what we can control. In today's environment, the Group 1 business model built around our proven cluster strategy, leading aftersales operations and disciplined capital allocation remains strong, and we continue to believe that this model will deliver long term.

Today, I'm going to focus my remarks on near-term actions we've taken to build on our strong foundation and unlock value for our shareholders, including the exciting Hennessy Automobile transaction we announced earlier today.

Our second quarter results were impacted by a variety of factors: persistent affordability challenges for the automotive consumer, challenges sourcing used vehicles, and short-term disruption from our largely completed corporate rebranding efforts combined to lower our new and used vehicle volumes. While this drop in volumes was disappointing, we're encouraged by steady GPU performance in both new and used vehicles.

Starting with used vehicles. We began the quarter with 26 days supply, and in some markets, we never really recovered from that low day supply. An easy solution would have been to restock by purchasing auction units. However, in our minds, that's not a great outcome given the potential gross profit impact that can have. We prioritized PRU, and we're able to hold margins year-over-year even though average transaction prices were up $1,400 on average. And in 3-year-old cars, one of our largest volume segments, ATPs were up much more than that.

To improve our execution, we're making concentrated efforts to improve our sourcing of less expensive vehicles, being more aggressive with bids, improving our appraisal practices and putting more emphasis on trade closing rates. Our focus remains on organic sourcing. Although it's more difficult these days due to higher negative equity levels, we feel that we have opportunity to improve.

Turning to aftersales. The U.S. aftersales business, which remains central to our long-term strategy, is undergoing a transitory shift. Consumers who brought vehicles during the low industry volume period of 2020 to 2022, are now coming in for service today -- at a time when many have reached the end of their factory warranties, which is generally a high defection point. Because of those lower SAAR volumes in those years, there are fewer of those high-value, high RO value customers in the market. They have more provider options, and they have more increased affordability pressures.

To ensure we maintain our aftersales momentum in this changing market, we're adjusting our approach. We've done a great job at Group 1 adding technicians over the years, including in the second quarter. Now we are going to put additional focus on upgrading our service adviser skills. We need to ensure our advisers are equipped to drive sales of the services our technicians perform, getting more out of this additional technician capacity that we've developed.

To capture those 4- to 7-year customers, we will also put more affordability messaging into our service marketing. As an example, in June, we launched a $17.76 oil change, which drove our best traffic of the quarter with strong conversion and good margins. We also have data that confirms we recaptured some at-risk customers that were going to the aftermarket. We were able to execute this successful promotion because of our investments in our proprietary customer data platform, which allowed us to understand what offering would resonate with our customers and who we should target.

To put more focus on retention in a high defection environment, we are rolling out OneCare, our discounted maintenance plan to all Group 1 U.S. stores. This will keep our best customers coming back to us for their factory recommended maintenance. Additionally, we're also targeting used car customers whose service retention is typically lower than that of new car customers. We feel these steps will allow us to maximize our customer pay business in what is certainly a changing market.

A final note on aftersales. We were pleased with our 4% same-store sales customer pay growth, which lapped a 14% growth quarter last year, and it was 10% before the CDK impact. Over half of our CP growth this quarter was attributable to increased customer count. Also in the second quarter of 2025, same-store U.S. warranty revenue grew approximately 32%, driven by Tundra and GM engine recalls. And this elevated warranty traffic also generated a surge of non-warranty repair and replacement work through our service lanes. Setting aside last year's onetime recall benefit, the underlying performance of the aftersales business remains resilient and reinforces our confidence in the trajectory from here.

Now turning to F&I. Two years ago, we introduced virtual F&I in our U.S. stores, giving customers the opportunity to complete their transactions virtually with a remote F&I manager. This innovation is now installed in 66 stores across the U.S. And in those stores, 20% of our F&I volume is virtual. We're seeing strong PRU performance, significantly improved transaction times and lower compensation costs compared to in-store transactions. Customer feedback has been extremely positive, and we expect to continue our rollout through the rest of the year.

Virtual F&I is only one part of our broader technology effort. As outlined last quarter, we are currently leveraging artificial intelligence to support customer acquisition and retention, improve our inventory sourcing and digital processes to reduce G&A expenses. We continue to drive these efforts, which remain a key strategic focus for Group 1, and we look forward to sharing more details in the coming quarters.

Turning to our Group 1 U.S. store rebranding initiative, another key investment in our future. At Group 1, we believe our business is local. Our business model works when we sell and service customers locally. Prior to this rebranding initiative, we had over 40 different brand names on our stores with multiple brand names even within the same market.

We decided to rebrand to get more leverage locally on our marketing spend and our philanthropy efforts. We've now rebranded over 60 stores, including almost all of our Texas and Maryland stores. This is more than half of our eligible U.S. footprint, and we will continue rebranding our efforts through the rest of the year.

Rebranding is the right thing to do long term, but it does have its short-term challenges. But we believe they are transitory. As an example, given the time it takes organic search to index website changes, some customers have had difficulty finding our new store names, and that has impacted traffic and unit volumes. We are adjusting as we go and supplementing organic search with targeted paid search efforts.

We're also addressing the shift towards large language model-driven results and anticipate being well positioned here going forward. In the long term, we believe going to market with a single strong unified brand will improve the effectiveness of our marketing investments and drive greater customer retention, particularly as we focus on owning a greater share of garage in our cluster markets. For example, if a family owns a new Ford F-150, a Toyota Camry and a pre-owned BMW, we want to own all of the sales and service transactions associated with that household. So far, in households with multiple vehicles, we are encouraged by the progress we are seeing in driving a greater share of garage.

Turning to costs. In an uncertain environment, it's critical that we control costs. As we discussed last quarter, we took decisive action in early April with the goal of reducing our headcount by 700 and eliminating $50 million in expense from our U.S. store base. We were able to accomplish this in the second quarter, exceeding our targets in headcount and dollars.

Despite lower gross profit in the quarter, our tightly managed personnel costs improved compensation expense as a percentage of gross profit. This quick execution is what drove our U.S. non-GAAP SG&A leverage of 66.4%, a level we were pleased with. We will continue to size our cost structure appropriately for the operating environment in both the U.S. and the U.K. while investing in the areas that we believe will create the most value over time.

And lastly, we remain committed to disciplined capital allocation. During the quarter, we acquired 4 U.S. dealerships, retaining 2 of them, Stone Mountain Honda and Stone Mountain Toyota, which we expect to generate approximately $205 million in annual revenue. Year-to-date, we have acquired and integrated dealership operations, representing approximately $340 million in expected annual revenues. We also divested 4 Jaguar Land Rover dealerships in the U.K. during the quarter.

And of course, earlier this morning, we announced the acquisition of Hennessy Automobile Companies, which along with Stone Mountain Honda and Stone Mountain Toyota, will boost our presence in the Atlanta market from 3 to 15 dealerships, making Group 1 a dominant force in an outstanding growth market. Atlanta will become our second largest market in revenue and our ninth cluster market in the U.S.

We plan to execute the same proven playbook in Atlanta as we have in other cluster markets such as Oklahoma and Boston -- such as Houston and Boston, to offer customers great convenience and choice while driving operating efficiency and attractive long-term returns for our shareholders.

Atlanta is a robust automotive market with strong fundamentals. The city is the fastest-growing metropolitan statistical area outside of Texas and the largest luxury vehicle market in the Southeast. The Hennessy transaction includes 10 dealerships with a fabulous brand portfolio, including 2 Lexus stores, 3 Land Rover stores, 2 large Porsche stores, Honda, Ford, and Cadillac. The facilities contain 500 service bays staffed with 280 technicians.

The Hennessy store's average revenue is $170 million, significantly larger than an average Group 1 store and more than double the national average. Additionally, fixed operations gross margins are above the national average and EBITDA margins are above 7%. We expect the Hennessy dealerships to generate approximately $1.7 billion in annualized revenue and pending normal closing conditions be immediately accretive to our earnings later this year.

The acquisition is about much more than just acquiring an outstanding group of great stores. It is also about Group 1 repositioning our portfolio around stores that fit our desired success profile, premium brands, high-revenue rooftops, growing markets and clusters. At the same time, we are moving away from stores and markets that do not fit that profile. We will have more announcements on some of those planned actions as we execute them in the months ahead.

We remain committed to disciplined capital allocation. Last year was the largest stock repurchase year in our history, $550 million in buybacks. This year, we've disposed of stores generating $900 million in revenue that did not fit our success profile. In addition, we're executing on some outstanding acquisitions that will help drive growth well into the future.

To close, we're managing the Group 1 business for the long-term durable value creation and making capital investment decisions that will have positive impact for years into the future. We're executing our cluster strategy and leveraging our customer data better than ever. And I'm confident that our modifications to aftersales will bear fruit for a long time into the future. I'm excited about the changes we've made and look forward to our team's continued hard work.

I will now turn it over to Daniel McHenry to talk about the financial details of the Hennessy transaction and our significant progress in the U.K. under his leadership as CEO, and our second quarter financial results. Daniel?

Thank you, Daryl, and good morning, everyone. As you heard from Daryl, Hennessy is a unique opportunity with a clear strategic fit and one that we expect to be immediately accretive to EPS. Given that, we are comfortable temporarily operating above our target rent-adjusted leverage ratio. At closing, we expect our rent-adjusted leverage ratio to be under 4x, still significantly below our credit facility covenants. With strong cash generation of our business and continued portfolio optimization to dispose of underperforming and lower volume stores, we plan to return to our target leverage by mid- to late 2027.

In the second quarter of 2026, Group 1 Automotive reported revenues of $5.4 billion, gross profit of $861 million, adjusted net income of $115 million and adjusted diluted EPS of $9.61 from continuing operations. Starting with our U.S. operations. Our second quarter results reflected continued affordability pressures and a more normalized margin environment compared to the exceptionally strong prior year period.

Throughout the quarter, we remain focused on areas within our control, improving execution, reducing costs and preserving profitability. New vehicle unit sales declined on both a reported and same-store basis, reflecting ongoing affordability concerns, inventory pressure on certain brands and a difficult year-over-year comparison. New vehicle GPUs decreased sequentially from $3,313 to $3,260 but remain consistent with quarter 4 2025 level.

In used vehicles, lower retail volumes were partially offset by higher average selling prices. Gross profit per unit remained under pressure as acquisition costs and sourcing competition persisted. We continue to leverage our scale, data analytics and disciplined inventory management to improve sourcing and position the business for stronger performance.

F&I profitability remained resilient with gross profit per unit essentially flat compared to the strong prior year quarter, demonstrating continued consistency in our sales process. Aftersales continued to provide stability to our earnings.

As Daryl discussed, we continue to optimize our collision footprint by reallocating capacity towards traditional service work where we see stronger long-term results while also closing collision centers that did not meet our return thresholds. This resulted in a 15% decline in same-store collision revenues.

Additionally, aftersales gross profit was negatively impacted by the lower internal reconditioning associated with the declines in used units. However, same-store customer pay and warranty revenues increased approximately 4% and 1%, respectively, with corresponding gross profit improvement of approximately 3% and 4%. This revenue growth is strong against tough warranty comps that were up 32% from the previous comparable period, which included Tundra and GM engine recalls.

In addition, our technician recruiting and retention initiatives continue to generate results with same-store technician headcount increasing 2% year-over-year. While our U.S. results were below our expectations, the operational and cost actions implemented earlier this year are beginning to improve efficiency, and we remain focused on strengthening the operating performance in the quarters ahead.

Turning to the U.K. I'm proud to be leading our U.K. operations and encouraged by initial early progress. Our U.K. business continued to demonstrate resilience despite a competitive operating environment. New vehicle performance remained solid, supported by higher same-store volumes, which was up nearly 4% with a stable gross profit per unit. Used volumes remained under pressure. While same-store revenues declined modestly, we remain focused on balancing volume and profitability as market conditions evolve.

Aftersales and F&I continued to build momentum, delivering year-over-year growth in both revenues and gross profit on a same-store basis. These businesses remain central to our strategy of improving earnings quality in the U.K. as we continue to leverage proven operating practices from our U.S. operations to improve the long-term performance. Same-store technician headcount increased 2%, adding value capacity to support future growth. On expenses, same-store SG&A as a percent of gross profit on a year-to-date basis was in line with our target at 80%.

We have also started relationships with Chinese automakers and opened our first Geely franchise in June, with additional locations expected later in the year. We acted to sell 4 of our underperforming JLR stores as we previously committed to do so, which generated approximately GBP 50 million. Across both markets, we continue to focus on improving execution, reducing costs and increasing operational efficiency while positioning the business to deliver stronger returns over time.

Turning to our balance sheet and liquidity. Our balance sheet remains strong, providing financial flexibility to continue executing on our disciplined capital allocation strategy. As of June 30, our liquidity of $684 million was comprised of accessible cash of $322 million and $362 million available to borrow on our acquisition line.

Our rent-adjusted leverage ratio as defined by our U.S. syndicated credit facility was 3.3x at the end of June. On a pro forma basis, reflecting the 2 dispositions completed in July, it would have been 3.2x. Cash flow generation year-to-date 2026 yielded $211 million of adjusted operating cash flow and $118 million of free cash flow after backing out $93 million of CapEx. This capital was deployed in the same period through a combination of acquisitions, share repurchases and dividends, including the acquisition of $340 million in revenues through June 30, $72 million repurchasing 205,190 shares at the average price of $353.08 and $13 million in dividends to our shareholders.

During the second quarter 2026, we elected to hold cash ahead of the Hennessy acquisition while also preserving flexibility to optimize leverage. We currently have $306.3 million remaining on our Board-authorized common share repurchase program. For additional detail regarding our financial condition, please refer to the schedules of additional information attached to the news release as well as our investor presentation posted to our website.

I will now turn the call over to the operator to begin the question-and-answer session. Operator?

[Operator Instructions] Our first question today comes from Mike Ward from Citigroup.

Whenever you talked Hennessy, it sounds like that's a premium acquisition. So I assume it's got a premium price. Can you talk a little bit about financing it? And it sounds like if these brands aren't meeting those -- or the stores aren't meeting the profile, you're going to be selling some. Can you quantify any of that? And is that some of the way you're going to be paying for Hennessy? Is that what you're looking at?

Mike, this is Daryl. I'm going to answer part of your question, and then Daniel will take the rest of it. We are going to -- as you've seen over the last year or 2, we're working towards having more cluster markets, high revenue, premium brands, and that's what we're moving towards. And we've executed against that over the last 2 or 3 years on the buy side and the sell side. And we're going to continue to do that. We have identified some dispositions that we're working on, and we'll have more to talk about on that in future months.

These are premium brands. They are premium stores. EBITDA margins are excellent. But we are really happy with what we paid for these stores, especially compared to what we have seen in other transactions that we've either been bidding in or have learned about. And so we're really pleased with the valuation and what we paid. And then Daniel will speak to the other questions you have, Mike.

Mike, it's Daniel. Regarding the purchase price for the Hennessy acquisition, it was approximately $1.3 billion made up of $1 billion in goodwill, just over $200 million in freehold property or purchased assets and $100 million in other assets. That's going to be funded by long-term debt. The plan is to go to the bond market in quarter 3 to purchase that, while in the meantime, there's a 364-day bridge loan in place to purchase the asset.

You are correct in what you say around the dispositions. Plan is that there will be some dispositions quarter 3, quarter 4, and that will go towards paying down some of that debt.

Okay. And should we think about half and half dispositions and debt funding?

I think that's a fair estimate.

Okay. On the $50 million cost savings that you identified that you completed, is that all in the U.K.? And when will we see the full benefit of that?

U.S., it's in the U.S. Yes. Let me give you an example of that. We took out -- we wanted -- we targeted 700 people. We got north of that, and we targeted $50 million. Just let me give you an example that I think quantifies it really, really well.

Personnel costs, gross margin between Q1 and Q2 on a same-store we were up $4 million, but personnel cost was down $17 million. So we generated more gross on $17 million less in personnel costs. So multiply that out over 4 years and you get north of $50 million easy. And that's just the people cost. We took a look at some other parts of our business, too, Mike. So we were pleased with the execution on that.

Mike, it's Daniel. Just to put it in perspective, if the SG&A in the U.S. has remained at the same level as it was in quarter 1 as a percent of growth, we would have an extra $19 million of cost in our business.

And does this cluster strategy help on the cost front as well?

It helps. Yes, we see better SG&A leverage in our larger -- the larger the cluster market, the better SG&A leverage we get. And it's due to a variety of things, but yes.

Our next question comes from Jeff Lick from Stephens Inc.

Daryl and Daniel and whoever else, I guess we could just drill down on -- you highlighted a couple of different items in the U.S. that might be driving short-term sales pressure, talked about the branding dynamics. I'm just curious if you maybe force rank if you start with same-store new down 5%, the market was kind of flat. What attribution would you give to the branding and the traffic, short-term traffic issues versus other factors? And then we've always tried to use the new same-store sales as a proxy for what used should be because of the trade-in factor. Obviously, that was quite a bit below. Maybe you can just put a little more meat on to that bone as to what kind of drove the variance between the used and the new.

Sure, Jeff -- Daryl. I would say maybe 2/3 of the 5% is due to the bumps, the transitional issues around rebranding and organic search associated with that, et cetera. I do think -- we get questions on Texas quite a bit. And I do believe gas prices is changing the mix of what's being sold today. You can see it in full-size truck mix and full-size SUV mix. And when you look at our mix, 80% of our Ford and GM business is in Texas. And so I think that affected it to some degree.

And then, yes, we didn't get as many trades because the new car volume was down. But we also need to do a better job on appraisals and capturing those trades. We saw that ratio drop a little bit in the quarter more than we would like to see it. It's getting harder to source vehicles organically just because there's more negative equity out there. But we feel like we can up our game on the sourcing, and it's really around our appraisal practices. And we try to really keep our stores from going heavy on auction cars, especially this time of year because the values drop in about 60 days from now -- 30 days from now. So those are the things that we really need to do a better job of. And we're making some progress already on that. But that's -- those are things that we really need to.

I guess on the new car and the used car side, if you think about Group 1 and our history, we've always driven new and used car volumes really well. There was a time not too long ago when our used to new ratio was 0.7:1, and we got it up to 1:1 end of last year and then our sales efficiency of our stores, which is an OEM metric on market share. It used to be -- about 5 years ago, our stores were -- average Group 1 store was 94% sales efficient, which is 6% below average. And today, our average store in the U.S. is 109% sales efficient. So there's -- that's the incrementality. That's measured against other dealers in the same brand. So we've had success driving sales volumes in new and used, and I feel like that's a core competency at Group 1. And we certainly struggled with it in Q2, though.

And then just a follow-up on the rebranding and the consistent branding or the consolidated branding. As you think about the Boston market because I think you're looking at that in the fall, you've got some pretty well-established brands in Prime and IRA. Has this -- has the Texas experience made you rethink this? And would you do the same like Hennessy is a pretty well-known brand in Atlanta, would you change that as well? I mean, what are your thoughts there in terms of -- have you thought about maybe just taking a pause on this and how Texas works out?

Well, we're -- we want to do it well instead of fast. I will tell you that. That's important. And we are learning from every market we've rolled out. And we look at some markets that like El Paso and Lubbock, which are fabulous markets for us, and they've gone great. They tend to be more single point markets, but they've gone really, really well. And then other markets that are a little more competitive, we have to lean in more on paid search and other supplemental advertising through the transition period. And so -- and we'll do that in the other markets.

We are committed to rebranding all the stores in the U.S. And we just feel like we can get a much better, more efficient use of our ad spend, marketing spend, reach more customers that way by having all the stores the same name. And most customers buy from the store closest to them and service at the store closest to them. And the most important name on the store is the OEM brand and the location. So yes, we're still committed to it. Absolutely.

We feel like these issues that we're seeing are transitory. And we feel like we are learning from it, and we are going to continue to adjust as we go. And there's no -- absolutely no consideration to not continue.

Our next question comes from Alex Perry from Bank of America.

Actually just wanted to start there and dig a little bit more on some of the rebranding. I guess maybe any metrics you could share on the sort of rebranded stores versus non sort of how you expect or how have comps trended after the transition period? And then maybe talk through sort of any savings or efficiency impact that you sort of expect from the better marketing leverage?

Well, let me give you an example in Houston. We had -- I think we had 5 different brand names on stores in Houston. We had Sterling McCall. We had Advantage. We had Beck & Masten. We had others. We spend $1 million a month in marketing in Houston. And we can use that $1 million on 1 brand name or on 5. And we can certainly get better leverage out of that $1 million on 1 brand than 5. And so that's certainly how we expect to get the leverage on it.

And when we look at what we ran into, like, again, in Houston is we own the Ford store and the Toyota store and the BMW store all within 3 or 4 miles of each other, and customers didn't know the same company owned all of them. And then how do you market to that customer about their Ford F-150 and their BMW, they own both of them.

And so the share of garage and as we get further into it, we will share more of that data. We are already seeing evidence that we are capturing a larger share of the garage. It's too early for us to talk about that, but we are really, really pleased with the early results of that metric, which is one of the key ones that we have in our cluster markets.

That's really helpful. And then I guess my second question, I wanted to shift and talk through the parts and service business. I guess how should we be thinking about parts and service from here? Do you think we return to that mid-single-digit percent sort of run rate in the back half? Or is that going to be more difficult with some of the dynamics you mentioned in the prepared remarks around depressed SAAR and some of the impact of those higher RO orders? Maybe just talk through how you're thinking about parts and service.

Well, we think parts and service is still a great business. It still is -- there is an unlimited amount of parts and service business in our mind. It is more competitive today because of those issues I brought up in my prepared comments. That just means we have to adjust and be more competitive. As franchise dealers were not always known as the most affordable choice, and that's really, really important to customers right now. So especially those ones that are coming out of warranty high defection points. So we've got to adjust our approach there.

And so even with these changes in the market, it's important that we understand that so we can adjust our approach. But when you think about even just the decline work coming through our dealerships, it's in the millions and millions and millions and millions, many tens of millions of dollars per month that customers decline after their vehicle is inspected. And so there's a lot of work that's still out there to capture. We just have to be smart about getting it.

And warranty attachment, I touched on that a little bit. As the warranty business goes, our experience when we were seeing heavy warranty comps a year or so ago was there's -- on every 3 warranty ROs, there's CP line. So you get some -- we feel like we get some incremental CP business when there's a lot of warranty. So it will fluctuate to some degree based on that. But I don't know that we'd be able to say we'll be back to high single digits. I feel good about our 4% CP growth in the quarter and feel like we still have room to run there. And we still believe that aftersales is just a great opportunity in our business.

Our next question comes from John Babcock from Barclays.

I guess just quickly following up on that on the parts and service side of things. I mean, earnings were down a little bit from last quarter, and I know you talked about competition. Is there anything more you can provide in terms of what drove that? Because it seemed like the gross margin was generally fine. So I'm just wondering if there were any cost factors or anything of the like that maybe we should be taking note of here.

Are you talking about parts and service?

Yes, parts and service. Sorry, I don't know if I clearly didn't specify that, yes.

That's okay. That's okay. I don't -- I mean, there's a little mix shift going on with warranty and CP and collision and wholesale parts right now. We were -- we ran some promotional stuff in the quarter, which you're going to see a little different margin in warranty and CP because CP, you tend to discount some. In warranty, it's full labor rate with the OEMs. So as that shifts and we see a little bit of that right now, you will see the total margin percentage change through each quarter. And I think we saw some of that. And the collision business for us is down. And so that also affects our total margin.

Daniel may have something to add.

I have nothing to add.

Okay. And then in terms of Texas, how are the volume -- how was the volume performance there in the quarter?

It was down for us. Daniel?

John, it was down in terms of new and used. As Daryl said earlier in the call, I think if you look at the market as a whole, the truck market was down virtually across every line for both GM and Ford. And I don't think that there was anything different about Group 1 in terms of the percentages down for the Texas market versus the market as a whole.

John, just to give you an example, our Texas business down 6% new. El Paso was up 6%. And then our -- the rest of our markets were down 3% to 8-ish kind of thing. And we have -- most of our domestic business that Group 1 owns in the U.S. is in Texas.

Okay. And then last question before I turn it over. On to the U.K. what's next in terms of what you would want to accomplish there over the balance of this year, whether it's more on the SG&A front, whether it's getting more of the Jaguar Land Rover stores off your books. If you could just talk about kind of the next actions from here, that would be helpful.

Sure. Let's talk about the Jaguar Land Rover first. The Jaguar Land Rover that we have disposed of so far this year, that were really the drag on earnings. And the portfolio that we're left with is the better half of the portfolio. So we'll continue to evaluate that as time goes on.

Regarding key priorities, clearly, aftersales remains a key priority for us in the U.K. We've seen some good growth, I would say there over the last 12 months, still remains a priority. Our weak point still seems to be used cars. Some of that's just around the market there with EVs returning to the market after their first ownership cycle. We are really focused on our days supply there to try and keep the days supply at a minimum in terms of used vehicle because the market continues to evolve around used vehicle sales.

Regarding portfolio optimization, I still think there's some work to do on our portfolio there, disposing of a couple of our remaining underperforming stores, and that will be done in the next couple of months.

I would add one thing to that, that we were really pleased with the new car same-store growth in the U.K. We're up 3.9% in the quarter, which was higher than the general market. And we don't have Chinese brands in that number to any great degree at all. So it was on our legacy brands that, that sales increase happened. Really pleased with that on good margin.

Our next question comes from Rajat Gupta from JPMorgan.

I just wanted to follow-up and clarify on a couple of things mentioned before. Just on the last one on dispositions. I was surprised to hear that half of the acquisition funding will come from just the disposition proceeds. I mean, it seems like a pretty big number. Any way you can size what kind of EBITDA or revenue impact we should see from those underperforming stores that you plan to dispose? That would be one. And I have a couple of follow-ups.

Rajat, it's Daniel. The EBITDA that we would expect to see from those underperforming stores would be less than half of the EBITDA that we would expect to be generated by the new stores. A number of the stores that we have in the disposition list are at APA stage or LOI stage. EBITDA from those stores is fairly low, I would say, because they do tend to be the smaller stores. Regarding the exact amounts, we're not in a position to give that at this moment in time.

Understood. That's helpful. And then just a follow-up on the parts and services comments with the car park turning over from the low SAAR period. I mean, I think the way you described it, I mean, should we anticipate maybe the gross profit trajectory or the margin trajectory maybe taking a step back over the next few quarters before it starts to grow again as you adjust? I'm just curious how we should read those comments in terms of like just near-term performance.

What we find is if we are able to capture customers generally through a maintenance offering, our average dollars per RO give us good gross margin retention and good dollars per repair order. And we saw that with our $17.76 promotion in June, and we have seen that historically, when we have run things like our Saturday service events, we see the exact same pattern.

And so we find when we focus on capturing those customers through maintenance offerings, the average mileage of a customer coming -- of a car coming through Group 1 store is 68,000 miles. And it's a year older than it was a year ago, which there's a lot of work to sell on those kinds of vehicles, that age. And that's also one of the reasons we're trying to put more emphasis and focus on service advisor skills, is to do a good -- a better job or a good job trying to capture that work.

Rajat, just to put it into perspective -- it's Daniel. 55.2% customer pay margin in quarter 2 2025, 54.8% in 2026. So really tiny reduction in U.S. margin year-on-year.

Got it. And as you're working through the rebranding, the rebranding exercise, any data points you can give us on July? How was July for the company, new used P&S? Any update there so we can get comfort that we're cycling past some of those onetime issues?

Well, we can talk to you about July in October, but we can tell you towards the end of June, we were pleased with the levers we are pulling to address the sales volumes. That obviously didn't help the quarter much, but we were pleased with the results of that.

Our next question comes from Rob Saltzman from UBS.

Just a quick one here on my end. So given the large luxury exposure on the acquisition, should we expect that to be a tailwind to U.S. new GPU in the back half into 2027? The brand portfolio there is highly levered to the luxury side. And if so, if this should be a structural benefit to the new GPU side of the business, how much of a benefit can we expect the acquisition to provide once you're done disposing of the underperforming stores and layering in what you've announced here today?

I think based on our modeling that we've done, we will see margin improvement by owning the Hennessy stores. We'll also see margin improvement by disposing of some of the stores that we've identified. We can't be specific on that at this point, one, because the closing is still several months away. Once we close, though, we can talk more specifically about that. But that was one of the strategic values of this acquisition, combined with the dispositions we were doing.

Rob, one thing I'll add that's also helpful for the Hennessy acquisition and the dispositions. Larger stores, SG&A leverage is much, much better as a company than smaller stores. We see that time and time again. So I think in terms of EPS accretion, disposing of the smaller stores and having stores like Hennessy, as you'll have seen in our investor deck with a 7% plus margin profile, really helpful to Group 1 as a whole.

Got it. Makes sense. That higher gross profit and lower SG&A helps that accretion math that you guys run. Makes sense. And then just one last one on my end, just on the $50 million cost reduction. Like how should we think about that kind of in the back half of this year into 2027? It's just tough to kind of take that $50 million and run rate it on an annualized quarterly type basis and flow through because there's a variable component to SG&A. So how should we think about SG&A to gross in the back half into the first half of '27, now that you've completed the $50 million of cost reductions there?

It's Daniel here again. The way that I would look at it and the way that we characterized it last quarter was take the assumption that we'll save $12.5 million a quarter for the remaining 2 quarters of the year and then let that flow into 2027.

Our next question comes from Bret Jordan from Jefferies.

On the Hennessy 7% EBITDA, is there sort of assumed pro forma benefit to that as well as you integrate it and take out some of the duplicate overhead? And do you need to divest 2 Lexus stores now that you're gaining in this transaction?

I'll take the first part, and Daryl will take the second part. Regarding the 7% EBITDA, that does not assume any synergies. So any synergies that we get are over and above that 7%.

We haven't had a discussion yet with Lexus, given that we just announced this morning. But you're allowed 6 Lexus stores. And if all of your Lexus stores perform above an average Lexus dealership, you're allowed 8 Lexus dealerships. Group 1 has 8 Lexus dealerships. And so we're going to start some discussions with Toyota Motor North America about what that looks like for Group 1. Pete, any color to add to that?

No, I have -- very well said, Daryl. I have nothing else to add.

Okay. And then a follow-up on the Geely store that you started in June, could you sort of talk about sort of broad Chinese dealership economics in the U.K.? Obviously, not a lot of used or service in that mix, but are they cheap enough to get into? Or is the new unit growth sort of good enough to justify the investment or maybe compare the return on invested capital to your legacy business versus Chinese?

Okay. Let's talk about the one store that we have opened. That one store that we've opened, we put into a stand-alone used car operation that we have that's adjacent to one of our franchise operations. Cost of entry for the franchise is fairly low in terms of CapEx that's required for the store. As it's an operation that we already are paying rent and costs for, it tends to be accretive fairly quickly. So that's where it stands today.

Okay. What does the GPU look like on a Geely versus maybe a comparable Volkswagen product or...

In terms of percentage basis, it's the same. The actual cost of the vehicle is probably 1/3 cheaper. It really depends on what model you're at. But in terms of the percentage of profitability, it's the same.

Our next question comes from Glenn Chin from Seaport Research Advisors.

Can you just elaborate a little bit on the consumer affordability issue that you cited? I'm just wondering if you felt like it impacted any one of the segments more than the other new versus used versus parts and services, especially in light of the fact that F&I seem to hold up pretty well, and that's often sometimes the area where it's thought that consumers are first to pull back if there is an affordability issue.

Glenn, one thing that's happened, terms have stretched out in F&I. Over the last 12 months, you've seen it's up, I think, 3 months in the industry. And the percentage of longer-term loans is higher than it's been ever. So consumers are -- our PRUs look good, but that's probably hurting the retention side, so.

But on the affordability issues, the thing that I think probably hurt us was our ATPs and used went up $1,400. And while we were -- we had trouble sourcing cars during the quarter, the mix didn't help us. And in 3-year-old cars, the ATPs went up a lot more than $1,400. So I do think that's an affordability issue, and we've got to do a better job sourcing cheaper used cars, and that starts with the appraisal and using the technology we already have in place to be able to do that.

So I do think there's affordability concerns out there, and I think you see it in other sectors of the economy. And I think we see it in our business, and that's why we're leaning into more affordability messaging and aftersales as well.

Okay. And what about in service and parts? There's been chatter for a while about consumers potentially deferring service. Are you guys seeing any signs of that?

I can't point to anything that says they're deferring service. I've seen some industry data that suggests that they are tapping the aftermarket more frequently. And I think it makes sense given the 2020 to 2022 SAAR customers, which those SAARs were $13 million, $14 million, $15 million, much lower SARs, and they're now coming out of warranty, and that's usually a high defection point. And I have seen some industry data that suggests those customers are testing the aftermarket service business. So that's why we want to adjust at Group 1.

Okay. And then just going back to the rebranding efforts. I think it's not a surprise that you might encounter some early headwinds from rebranding and renaming. But any early benefits you can cite? Or is it too early? I think I recall you guys talking about just making uniform some operations amongst certain of the stores. Any benefit from that?

Yes, we're seeing some benefit in the way we're managing the LLM searches that are going on out there. Those don't hit websites anymore. So you're trying to counter website traffic and your customer traffic is harder than ever because when people use Claude or ChatGPT to go find a deal on a Camry, it doesn't show up like it used to. And so we are changing our approach there. And I think that helps us across a broader footprint of stores because reputation management is a big driver in those LLM searches. And if our reputation is good at one store, that helps us in all of our stores that are named the same thing.

So in Houston, we had 5 different store names. If we had a great reputation in one store, that didn't necessarily help us at the others, and it does now. So we do believe that will help us, Glenn, as today's customer is searching in a completely different way, and I expect that to do nothing but grow.

And just specifically around the rebranding. I know you had some very well-known legacy brands like Sterling McCall. So is Sterling McCall the name gone now? Or is it like Sterling McCall by Group 1? Or is it Sterling McCall a Group 1's company?

Sterling McCall brand has gone. And we made that decision because we -- about a year before we made the rebranding decision, we went and surveyed our customers, thousands and thousands and thousands of customer surveys we did. Ask them what the importance of different things about their purchase decision, service decision was. The name of the store, the individual name of the store was very, very low on their consideration.

So the OEM was really important. The 3 most important things was the OEM, the location of the store and reputation of the store, trust. And so those were much more important than the name Sterling McCall or Advantage or Beck & Masten or Ira, much, much, much, much more important. And so that's why we made that decision. And yes, those brands are being retired.

Our next question comes from John Saager from Evercore ISI.

I was just wondering on Hennessy. I think even if we were to give you credit for some fairly significant synergies, it still feels like an expensive deal relative to just buying back your stock. And so I'm wondering if you could just discuss that trade-off and the impact that this will have on buybacks going forward and just your general net debt ratios.

Sure. It's Daniel here. This platform, I think, is a unique opportunity for us. Deals like this don't come around every day, year. So for us, when we took a look at this deal, we regarded this as a generational asset for us to acquire, helps build out our cluster strategy in Atlanta, as we talked about earlier, one of the fastest-growing markets in the U.S.

If you look back over the last 5 years from 2021, look at the amount of stock that we bought back, 38% of the company, that's been a significant investment in returning capital to our shareholders. Today, we thought that the best use of our capital was to continue to grow our company for the long term. We will continue to evaluate buybacks based on where our stock is trading. It's unlikely that we'll be buying any stock back until the Hennessy deal closes. After closing, we will continue to evaluate our buybacks.

And then just how do you expect this to impact like your net debt?

So in terms of leverage, we would expect our leverage ratio to go to close to 4x as we close the deal. After the deal closes, we'll work to bring our leverage ratio back down again to closer to the 3x that we like to operate at.

Okay. And then on the volume side of the business, obviously, we've talked a lot today about the rebranding and the impact that's had. At what point do you expect these initiatives to start to really take hold and actually claw back some increases in market share? Like how should we think about the timing of that?

Well, if we go back and we look at our same-store sales growth, it's been really good over the years. So it's only recent that we've had this issue. And I would expect we'll return to that sometime later this year, really do. The rebranding, yes, that's what I expect.

Our next question comes from David Whiston from Morningstar.

With the Geely partnership starting in the U.K., I'm just curious on any future partnerships with the Chinese now. There's a trade-off here where you need to be -- do you want to be aggressive adding more now getting in on the ground floor, so to speak, when these firms are entering foreign markets for them? Or other than exceptions for brands like Geely, do you want to wait for them to have more of a higher UIO base?

I think there's definitely a trade-off there. I do think that I can foresee in the near future that we will probably add 1 or 2 additional Chinese OEMs to our portfolio in the U.K., particularly some of the legacy brands change the sizes, et cetera, of the showrooms that they expect. So I do see some growth there, but growth where we don't have to add any or much incremental cost.

And on the $17.76 promotion for oil change, is that profitable? And who actually gets that price?

We market it and customers comment on it and customers ask for it. They appeal in the stores, too. And then we don't -- we've never -- nobody has ever made money on oil changes, on any oil changes. And it's -- we offer oil changes and tire rotations and sell tires and things like that because it keeps us competitive with the aftermarket, which is our real competition as franchise dealers. So when customers come in and the average mileage on a car in a Group 1 service drive is almost 68,000 miles, there's a lot of work to sell on a 68,000-mile car. And the dollars per hour on those cars are typically very good.

With that, ladies and gentlemen, we'll be concluding today's question-and-answer session. I'd like to turn the floor back over to Daryl Kenningham at Group 1, for closing remarks.

Thank you. In summary, we remain committed to our strategic initiatives, local focus, operational excellence, differentiated aftersales and disciplined capital management. Despite a challenging quarter, we took decisive action on the things within our control, and we're building momentum in the U.S. As we head into the second half, we have opportunities in used car sourcing and new car volume.

We're encouraged that the U.K. is improving, as Daniel outlined, with our restructuring initiatives and greater operating discipline beginning to take hold in the second quarter. We're extremely excited about the Hennessy acquisition and the value that it will bring to Group 1 as we continue to grow in Atlanta and execute our cluster strategy. We believe consistent execution against these priorities positions Group 1 to navigate the near-term challenges while continuing to build long term value for our shareholders.

Thank you for your time today. We look forward to discussing third quarter results in October.

Ladies and gentlemen, with that, we'll conclude today's conference call and presentation. We thank you for joining. You may now disconnect your lines.

Good morning, ladies and gentlemen. Welcome to Group 1 Automotive's First Quarter 2026 Financial Results Conference Call. Please be advised that this call is being recorded. I would now like to turn the floor over to Mr. Peter DeLongchamps, Group 1's Senior Vice President, Manufacturer Relations and Financial Services. Please go ahead, Mr. DeLongchamps.

Thank you, Jamie, and good morning, everyone, and welcome to today's call. The earnings release we issued this morning and a related slide presentation that includes reconciliations related to the adjusted results that we will refer to on this call for comparison purposes have been posted to Group 1's website. 

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 that 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, inventory supply, conditions of the market, successful integration of acquisitions, and adverse developments in the global economy and resulting impacts on demand for new and used vehicles and related services. 

Those and other risks are described in the company's filings with the Securities and Exchange Commission. 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. 

Participating with me on today's call are Daryl Kenningham, our President and Chief Executive Officer, and Daniel McHenry, Senior Vice President and Chief Financial Officer. I'd now like to hand the call over to Daryl.

Thank you, Peter. At Group 1, we pride ourselves on performing effectively in challenging times. We successfully navigated economic recessions, the COVID pandemic, and the CDK outage in 2024. We focus on what we can control, and by remaining a pure-play retailer, we minimize distractions and remain focused on what we feel are our core competencies. 

We estimate that Q1 2026 weather impacted our results by about $7 million in gross profit, driven largely by our after-sales business. Important to note is that Group 1 typically pays our employees during weather closures. And in some markets, our stores were closed for as long as a week this year. 

In the first quarter of 2026, we continue to focus on our strengths, where our performance did not meet our expectations. We acted promptly to address those issues, and I will provide further details on those areas later in my remarks. 

In the U.S., our new vehicle margins remained robust at over $3,300 per car, exceeding $3,250 for the third consecutive quarter. We saw sequential improvement in used vehicle PRUs and a $95 same-store year-over-year increase in adjusted F&I PRU. Two years ago, we introduced a virtual F&I process in our U.S. stores, giving customers the opportunity to conduct their transactions with a virtual agent. This innovation is now installed in 1/3 of our U.S. stores, doing 20% of our deals in those stores. 

We're very pleased with the results of virtual F&I. Our PRU results are strong. Transaction times have improved, improving customer convenience and the overall experience. Thus far, customer feedback is very positive. In addition, compensation costs are lower than compared to our in-store transactions. We anticipate continued growth in virtual F&I through the remainder of this year and into 2027. 

In after-sales, we're committed to setting ourselves apart. This quarter, we increased same-store customer pay gross profits by nearly 6% -- and we're pleased that in our U.S. business, our customer pay repair order count rose by 2.5%. Our growth in after-sales is driven by marketing initiatives utilizing artificial intelligence, vertically integrated customer data management, decreased technician turnover, completion of our workshop air conditioning project, and the addition of 130 new technicians on a same-store basis. 

Turning to a progress update on our Group 1 U.S. store rebranding initiative. We successfully completed the rebranding of half of our U.S. stores and anticipate being complete by the end of the year. Our team is actively gathering insights from each converted market, allowing us to refine our approach and apply our learning as we go. In the long term, we believe rebranding will improve the effectiveness of our marketing investments and drive greater customer retention, particularly as we focus on engaging households under the Group 1 brand, especially in cluster markets. 

Our U.K. operation is demonstrating notable progress across key segments. New vehicle margins remained steady year-over-year, while same-store volumes increased 2%. Same-store used volumes rose nearly 5%, accompanied by sequential PRU improvements. F&I continued its positive trajectory, up year-over-year and sequentially on a same-store constant currency basis. 

Our U.K. parts and service business continues to accelerate, increasing 20% year-over-year in same-store gross profit, and customer pay increased 18%. We're applying many of the same principles we use in our U.S. business, opening our workshop schedules, expanding our hours, pricing our maintenance offerings on the aftermarket competition, eliminating diagnosis fees, and increasing capacity by hiring technicians. 

Turning to our U.K. SG&A performance. We incurred $3 million in incremental costs due to government-mandated national insurance and minimum wage increases. Without this headwind, we improved our leverage, but we continue to focus on further efficiency there. In the U.S., SG&A performance did not meet our expectations. 

Currently, consequently, in early April, we implemented cost reduction measures in our U.S. business, cutting our headcount by nearly 700 full-time employees and reducing SG&A costs by approximately $14 million through contract and vendor elimination. We expect that these efforts will remove $50 million of annual costs from our U.S. operations, which will return our SG&A leverage to a more acceptable level. 

In both markets across all areas of our business, we continue to look for ways to leverage technology, including artificial intelligence, to improve our returns. Many of these investments are still in the early stages, but they are beginning to demonstrate real benefits. AI can support customer acquisition and retention, enhance inventory optimization through more informed sourcing decisions, drive efficiencies by digitizing processes to reduce SG&A and put more consistency and performance across all of our rooftops, a key strategic focus for Group 1. We will continue to drive these efforts and look forward to sharing more details in the future.

In the first quarter, we also continued our commitment to disciplined capital allocation, particularly in M&A and share buybacks. We divested 2 Mercedes-Benz dealerships in California. These stores were high-cost operations with significant real estate and operating constraints. In the U.K., aligned with the Volkswagen Group's ideal network plan, we acquired one Skoda and 2 Volkswagen dealerships while also disposing of one underperforming Volkswagen and one underperforming Skoda dealership. And in the U.K., we finalized a framework agreement with Chinese OEM Geely, and we will open 3 Geely dealerships in Q2 in facilities that we already own. We are in additional discussions with Geely and other Chinese OEMs about further representation.

Our primary intention is to develop direct understanding of the retail model of Chinese brands. We also believe there is significant profit and sales opportunity with these brands and leveraging our large corporate fleet business in the U.K. During the quarter, we repurchased 205,190 shares or approximately 1.7% of our outstanding shares. We are managing the business with discipline and purpose, ensuring we deliver strong, resilient performance that our shareholders expect even in today's dynamic environment.

I'll now turn the call over to our CFO, Daniel McHenry.

Thank you, Daryl, and good morning, everyone. In the first quarter of 2026, Group 1 Automotive reported revenues of $5.4 billion, gross profit of $878 million, adjusted net income of $104 million and adjusted diluted EPS of $8.66 from continuing operations.

Starting with our U.S. operation. First quarter performance remained solid across most business despite continued pressure on volumes and margins. New vehicle unit sales declined both on a reported and same-store basis, reflecting not only ongoing affordability concerns, but a tough comparative period, which saw elevated new vehicle sales ahead of tariffs. However, new vehicle GPUs increased sequentially from $3,260 to $3,313. We continue to maintain strong operational discipline through effective cost management and process consistency.

Our used vehicle operations performed in line with the broader market environment. Used vehicle retail units declined both on a reported and same-store basis, which were partially offset by higher selling prices. GPUs declined approximately 3% on a same-store and as reported basis, reflecting continued pressure on vehicle acquisition costs in a more competitive sourcing environment. We continue to leverage our scale and operational flexibility to strengthen used vehicle acquisition while executing disciplined sourcing and pricing dynamic used vehicle market.

Our first quarter adjusted F&I GPUs were up nearly 4% on an as-reported and same-store basis versus prior year comparable period. Aftersales stood out as a key bright spot with both parts and service gross margin reaching a new quarterly high. Gross profit continues to benefit from our efforts to optimize our collision footprint, shifting collision space opportunistically to additional traditional service capacity and closing collision centers where returns do not meet our requirements. Same-store customer pay and warranty revenues increased approximately 3% and 5%, respectively, with corresponding gross profit growth of approximately 6% and 9%. Our technician recruiting and retention efforts continue to pay off with same-store technicians up 3% year-over-year. Overall, our U.S. business continues to demonstrate resilience with strong aftersales performance and disciplined execution helping offset ongoing normalization in vehicle margins.

Turning to the U.K. While the U.K. remains a challenging operating environment, performance improved across several key areas. New vehicles performed in line with expectations. Used vehicle same-store revenues were up over 6% on a local currency basis with volumes up nearly 5%. Same-store GPUs declined 2% on a local currency basis, leading to an increase in same-store used vehicle gross profit.

Performance reflects improved demand and throughput despite continued margin pressure in a competitive used vehicle market. After-sales delivered year-over-year growth in both revenue and gross profit on an as-reported and same-store basis, but F&I delivered year-over-year growth in revenue and gross profit on a same-store basis. The after-sales business remains an important stabilizer within the U.K. operations. And along with F&I is a key area of focus as we work to enhance profitability by bringing best practices from the U.S.

Same-store technicians are up 3%, adding significant capacity to our shops. Same-store customer pay and warranty revenues were up over 6% and 12% year-over-year on a local currency basis. Same-store F&I PRU reached 1,128 with an as reported and same-store PRU both increasing over 8% year-over-year. We are continuously taking decisive actions in both the U.S. and U.K. to control costs, strengthen operational efficiency and position the business for improved returns as market conditions stabilize.

Turning to our balance sheet and liquidity. Our strong balance sheet, cash flow generation and leverage position will continue to support flexible capital allocation approach. As of March 31st, our liquidity of $714.3 million was comprised of accessible cash of $191 million and $523 million available to borrow on our acquisition line. Our rent-adjusted leverage ratio as defined by our U.S. syndicated credit facility was 3.09x at the end of March. Cash flow generation year-to-date yielded $147 million of adjusted operating cash flow and $95 million of free cash flow after backing out $53 million of CapEx. This capital was deployed in the same period through a combination of acquisitions, share repurchases and dividends, including the acquisition of $135 million of revenues through March 31, $72 million spent repurchasing 205,000 shares at an average price of $353.08 and $7 million in dividends to our shareholders. 

We currently have $306.3 million remaining on our Board authorized common share repurchase program. 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.

I will now turn the call over to the operator to begin the question-and-answer session. Operator?

[Operator Instructions] Our first question today comes from Alex Perry from Bank of America.

I guess just first, I was wondering if you can walk us through the cost savings plan in more detail. It looks like $50 million in annualized savings with benefits beginning in the second quarter. Maybe if you could help us parse out sort of what the expected second quarter benefit is and what we should expect in the back half as well as well as just provide a bit more color on the overall plan.

Alex, it's Daniel here. I would say coming out of January and February, we could see some weakness in the market and our SG&A leverage at that point was much lower than we would have expected. Going into March, we went about developing a cost-cutting program. 700 heads to come out of the business. They have all been completed by the end of April. Total cost effective of that headcount reduction is approximately $35 million. In addition to that, we've taken cost cutting exercises around contracts, as Daryl talked about earlier, and that's close to $15 million in terms of cost. So, on an annualized basis or a quarterly basis, we would expect that to be about $12.5 million a quarter. 

Now what would that have done for us in terms of quarter 1, if we have taken that cost it on the 1st of January quarter 1, U.S. SG&A that was circa 70.5%. We would have expected that to have been about 68.5%. So, it's about 200 basis points out of cost in terms of the U.S. Additionally, we continue to take cost out in the U.K., but we do have that additional national insurance in quarter 1 that we didn't have last year.

Really helpful. And then my second question is I just wanted to ask about the used business. And what is the path in sort of getting the used profitability back up to historical levels? I know you mentioned some of the sourcing costs on the used side, but maybe just talk through the path there and if we should expect any sort of near-term improvements on the used GPUs.

Well, this is Daryl. We saw some nice sequential improvement in used PRU. Sourcing is a big challenge right now, one, because the SAAR was depressed in the first quarter. So there were fewer trades. We ended the quarter with 26 days. We don't rely very heavily on auctions. 11% of our sourcing comes from auctions. So we really work hard on the organic sourcing. The problem there is it's heavily late model vehicles. Our mix of cheaper, higher-margin used cars in our inventory is very light compared to what it's been historically. And everybody is scrambling for those. Everybody really wants those because, obviously, one of the reasons people buy used cars is because they're more affordable. 

So, as we get better at that, I expect we'll see margin improvement. I think we're better and more disciplined in our inventory acquisition. We're much better in more disciplined in both the U.S. and the U.K. on aging management, pricing decisions to market, trying to use more technology in both markets. So while I don't think you'll see leaps and bounds of improvement, I do think this additional discipline and the lack of supply provides a floor on used cars.

Our next question comes from Bret Jordan from Jefferies.

This is Patrick Buckley on for Bret. There have been some recent headlines around rising negative equity values. Have you seen similar trends with your customers? And has there been any impact on converting a potential customer to buy on the sales floor when they realize they've got to write a check to make the transaction happen?

There's a lot of -- the short answer is yes. I think it's a fact negative equity is at a high and can be a headwind. We try to watch affordability measures quite a bit. And the average car payment is high, insurance rates are high, negative equity is high. But also, there's evidence that affordability is actually a little better now than it has been in some time when you look at car payments as a percentage of people's salary and people's pay. It actually takes fewer weeks. on the measure that a lot of people watch. It's better in 2026 than it has been. So, I think there's a lot of things going on with affordability right now. Negative equity is one piece of that puzzle. Things like tax rebate checks are another piece of that puzzle. 

And so I think there's puts and takes on both of that. But to answer your specific question on negative equity, I think that's yes, we see that, but we also see that I don't think it's a huge limiter. It's just another piece of the affordability puzzle right now.

Great. That's helpful. And then focusing on the U.K., there's been a bit more of a prominent impact from recent energy spikes there. How has the consumer held up into Q2? It sounded like Q1 was a pretty healthy quarter from a demand side. But has there been any signs of a pullback more recently?

One of the things that we were really pleased with in the U.K. in the first quarter was our order take rate going into the plate change month in March was very high, higher than we've seen in honestly, several years. And so when you go into a plate change month, you really know how it's going to come out by about the middle of February, you know what the end of March is going to look like because the order bank is dictates what kind of volume you're going to do. you really know how it's going to come out by about the middle of February, you know what the end of March is going to look like because the order bank is dictates what kind of volume you're going to do. And we were really pleased all through January and February with our March order take. And I don't see that, that has -- on a relative basis, April is not a plate change month, so don't get me wrong. But on a relative basis, I don't see that, that has changed materially.

One thing we're really pleased about going into the second quarter in the U.K. is the health of our used car inventory is significantly better than it was a year ago. One of the challenges in the U.K. market is when you have two months, March and September, which drives so much of your new car volume, it creates these huge used car inventories in April and October. And if you don't have a lot of discipline in the way you manage your used car inventories, you can get caught. And candidly, in the past, we've been caught. And I'm really pleased with our aging. I'm really pleased with our inventory levels and our discipline this year in the U.K. on our used car inventories, and we hope that, that means better things for us in used cars this year there.

Our next question comes from John Babcock from Barclays.

The first one, just on your plan to exit the JLR brand, where does that stand? And also, did that impact your U.K. operations? Or is that now considered part of discontinued ops?

It's not discontinued ops because materially, it's not -- it's a very small part of our business. We're in active negotiations on a number of them, both with the OEM and with potential buyers. We've closed one of the nine. We're in active discussions on several more and very close to contract finalization. So once we get those finalized, we'll be able to announce those. But we're pleased with where we are on that.

And then just back to the cost actions. With the 700 people that you, I guess, caught from the workforce, where were those where those -- I'm sure they're probably spread across different teams, but were those more weighted to the sales side? Were those more in the back office? I don't know if you could provide any more color on that, that would be useful.

It was across the board. And what we did was we took SG&A as a percentage of gross targets by -- literally by store and market and business unit and assigned headcount targets based on that. And so, it came from across the enterprise, in the stores, in the corporate level. And fortunately, in some of our corporate activities, we've been able to implement some technology, which helps us keep our productivity up, and so we didn't need some of that headcount. But it was across the board, and that's done. I mean that's not what we're going to do. We have already done that and executed that on the headcount side.

Yes. Understood. Are you able to provide any split between U.S. and U.K.?

That's all U.S. It's Daniel here, sorry. The all $50 million, it was all U.S. headcount reduction.

And our next question comes from Rajat Gupta from JPMorgan.

I had a follow-up on the disposal question. The California stores that you divested, can you give us a sense of proceeds and any EBITDA earnings impact we should dial in from that? And I have a couple of quick follow-ups.

Rajat, we don't typically declare what the proceeds were. But I think it's fair to say the multiple that we got from those stores was much higher than the multiple that the company trades at. Both the stores needed CapEx and significant CapEx. They had a fairly expensive real estate attached to those stores. And I would say, for us as a company, we were pleased with the outcome for selling those stores.

And then on parts and service, thanks for calling out the weather impact. If I adjust for that, the U.S. business would have grown roughly 4% versus the 2% that you reported. I'm curious like how we should think about that in context of just the general outlook you've given in the past around mid-single-digit type rate. Maybe there's some warranty headwind. I just curious how we should think about that going forward?

Part of -- there's a little warranty headwind. I mean, on a year-over-year basis, warranty was only up 4% for us. The mid-single digits is still safe to model, Rajat. Two things to keep in mind with us. We've converted some of our collision center into shop space. And you can't necessarily just turn that off one day as a collision center and turn it on the next day as a service workshop because you have to put all new equipment in there and you have to restaff it. So, there's some transition time between when it stops being a collision center when it starts being a productive workshop. So, you see a big negative on our collision pumps because of some of those collision centers that we've closed.

And there's -- at least what we're seeing and what we see in the sector is there's a decline in the collision business in general, which exacerbates that, but you see that in our wholesale parts numbers that we were only up 2.8%, not very much lower margin part of our business, which you take the collision decline, which is a lower margin part, you take the slower growth in wholesale parts and you mix that into CP and warranty and you see a slower number on after sales growth. So, we had almost 6%, I think, gross profit growth in the same-store gross profit growth on customer pay in the U.S. Pleased with that. I always want it to be more. But when we try to pull all of our after-sales levers, that's generally directed at customer pay. I hope that helps.

That's helpful. Just one clarification. The F&I adjustment, the $6.8 million, what was that tied to?

So Rajat, that was effectively an adjustment. It represented a onetime nonrecurring adjustment to our revenue calculations for retrospective rebates effectively.

Our next question comes from Jeff Lick from Stephens.

Daryl, I was just wondering, as you look at this -- the first 4 months of this year has been pretty noisy. I was curious if you could just kind of parse out where you think the consumer is and maybe bifurcate the typical mass affluent luxury consumer versus maybe the volume consumer as we get through it. We've heard from some of your peers that April has been okay, but maybe it feels a little weak like people are being cautious because of the war. Just kind of curious your thoughts on where things are at.

I wouldn't disagree with what I've heard so far from our peers or some of the industry experts on the consumer. There's no shortage of distractions for consumers these days, which, as you know, in our industry, consumer confidence and the SAAR run right together. And so, as consumers lack confidence, I think it is a headwind to us. I do think there's evidence that consumers are still spending. We've seen it in ex-weather, we've still seen some decent performance. But there's no shortage of distractions for consumers right now. That's for sure. And that's one of the reasons we took the cost actions we did, Jeff, because we want to make sure that we're lean enough. If the SAAR does stay in this range, mid-50s, 56, 57, something like that, that we're able to compete there and there effectively.

And then just a follow-up for whoever wants to take this. On the 700 headcount, as you guys look at that, obviously, in the back of your mind, you're always thinking, well, gee, if we do this, it's conceivable it could come back to haunt us in terms of operational ability either on the cost side or on the gross margin side. What are some of the areas where you might be worried about? And then maybe you could talk about just as you think about the dealership of the future, because obviously, I think some of that's in this as well. You're not just looking at getting rid of people as a knee-jerk reaction to cut costs. The dealerships are evolving in terms of functions that can be performed by software and whatnot. But I'm just curious, where are you worried that if you cut to the muscle, it might show up negatively?

Well, I don't think we cut muscle on this one. We tried to be very logical about it, where we did touch on what I'll call productive, which is not a perfect descriptor, but people who sell and service vehicles. Where we did touch that, we focused on very low productivity areas of our business. And are there places where we're using technology, which we're using a lot, especially our sales department, to manage customers, and inbounds and leads and sales and conversions. And so, we feel like we have enough technology overlay that's going to compensate for those lower productivity salespeople that we might have separated with. 

And then on a technician basis, we touched very few technicians. And if we did, it was really around some who were very low productivity. But we've actually leaned into more technician investment during this period. There are some things we didn't touch. We didn't touch any of our people development initiatives, any of our training initiatives, any of our people retention initiatives. 

We're continuing to finish out our air conditioning project across our dealerships. We continue our technician mentoring program. 3/4 of our techs are part of a mentoring program now, our hourly techs, which we feel is vital to retention and growth. So, we didn't touch anything that touched what we consider longer-term growth opportunities, especially in aftersales.

Jeff, it's Daniel here. I can give you one really typical example where we cut costs. This quarter, quarter 1, we rolled out the digital deal jacket across 100% of our dealerships. Effectively, all of the deals are either signed online or held online. Traditionally, we would have had a scanner and a dealership scan in 100-ish pieces of paper that would have formed the deal jacket. Clearly, going to 100% digital meant that the scanner was no longer required.

Scanner being a person?

Being a person, correct.

Our next question comes from David Whiston from Morningstar.

The upcoming Geely U.K. locations, are they going to be stand-alone or in the existing Group 1 footprint somewhere?

In buildings we already own, that's usually part of either a franchise that we have or in a cluster of dealerships that we have, where we might have -- as an example, north of London, we have a site near Watford, BMW store, where we had a MINI stand-alone store and a BMW stand-alone store. MINI is now part of the BMW operation, left us an empty showroom and service facility on the same campus, and we were able to put Geely in there. So, we don't have to go sell Geelys and BMWs in the same showroom, and it gives us a separate facility, but it's one we already own. There's no incremental cost to do that except for some minor imaging investment.

And then on the virtual F&I, I mean, just trying to balance it's great for perhaps efficiency and speed for the customer, but are F&I managers losing some opportunities here financially?

No, they are not. And this is Peter DeLongchamps. And actually, they're gaining opportunities because they become much more efficient. They're actually doing more deals at the store level. But the key to this is that customer convenience was the driving factor. And as we perfected this, what's happened is we've lowered turnover, we've lowered comp, we've actually increased the PRU on what I'd say the bottom performers. So, this has really been a terrific initiative that has paid off in 4 different ways.

One way to look at it is on the productivity of the F&I producers. And many of the folks who are virtual F&I managers for us used to work in our stores. They are now virtual F&I managers doing deals all over the country. But in an average day, an F&I manager might do 3 deals. As a virtual agent, they can do 7, 8, 9, 10, and that's kind of the numbers we see. 

And so, we're really pleased with that. And we think we're able to attract a different type of employee because now we can offer things like part-time work, and they can work from home, and it's taken us 2 years to get here. I don't want to make it sound like it was simple. The team has worked really hard through our learning process on this. It was a long ramp-up, and that's one of the reasons we haven't talked about it until now. But we feel like there's certainly some productivity gains as well as quality of life for our team.

Our next question comes from John Saager from Evercore.

I wanted to just dig into a little bit of the divergence between the U.K. and the U.S., and where you think you might have more impact on the SG&A cost savings over time?

In either market or in one specific area?

Yes. Is there, like, basically more low-hanging fruit in one region or the other?

I don't think there's low-hanging fruit in any region, honestly. I feel like since COVID, we've been pretty disciplined with our SG&A. And I think we've demonstrated that. Our headcount is still lower than it was pre-COVID. And I think in the U.K., there's still opportunity. There's still things for us to do as we've -- one of the things we're really pleased with in the first quarter was our growth in our lines of business. We saw F&I grow aftersales grow quite a bit. We had nice same-store sales growth in new cars and preowned. And so, we got to just make sure we contain the cost there as we grow.

And that's a real focus for us and whether it's marketing costs or people costs and transaction costs, we don't have as much automation in our U.K. business as we have in our U.S. business. That's a focal area for us. And so, I think there's opportunity there. In the U.S., it's about people productivity. It really is whether it's a technician or a salesperson, and that's where most of our headcount is in our stores and how do we put them in a position to be as productive as possible. And so those are areas that we're really focused on in both markets.

John, it's Daniel here. One thing that I would note would be in the U.S. specific, January and February SG&A as a percent of gross was outsized and some of that was around the weather that we had in the U.S. March SG&A as a percent of gross was a lot more healthy. And clearly, with some of the actions that we have taken, hopefully, that will continue into quarter two and three.

That makes sense. Yes. And then relative to the 84% in the U.K. for the full year '25, you guys did have some, obviously, improvement in Q1. I would expect that to come back again in Q3. Do you think that we could end the year materially lower than that 84%? Or is the 80% still a bridge too far for this year?

John, it's Daniel again. The aim is to get as close to the 80% stated SG&A as a percent of gross as possible. On the basis of where we were in quarter one, I think that that's possible, but it clearly will require consistent work.

Our next question comes from Mike Ward from Citigroup.

I just want to double check and make sure I'm doing the math right on this. The $7 million impact from weather was all on parts and service in the U.S. Is that correct?

That's correct, Mike. That was our estimate, Mike. It's probably a little conservative. We tried to be conservative with it. But yes, we assume that all the vehicles that we lost were replaced, whether that's true or not, who knows.

Right. But there is parts and service, you don't get back.

We felt like no.

Yes. Okay. And so, if I'm doing the walk right with SG&A, you still paid your people. So that had about an 80-basis point impact inflating the SG&A as a percentage of growth. So that's our start point at 70.5%. Is that right, Daniel? Is that what you're alluding to?

That's correct.

Okay. And so, then you have the cost savings, which knock it down 150 to 200 basis points. And then I'm assuming that with the brand rollout, there are some additional operating costs that are unusual as we go through this year. But if we're at like kind of a status state, we're getting down to somewhere in the mid-60s as a percentage of SG&A as a percentage of growth in the U.S. Is that the right way to think about it?

You know Mike, I think if you think about the walk and let's just reverse the effect of the weather and assume that we had the $12.5 million cost reduction, we're somewhere close to the high 67%. Now that doesn't include any of the rebranding or any of the other stuff that's in there.

Mike, on your question on rebranding, we did have some incremental costs for signage and uniforms and things like that, that we've done in the stores that we've done. One thing I was really pleased to see in March was we had real leverage on our operating advertising spend. We saw some really good leverage on it in March. Now some of that is because it's March, you got more volume to spread it over. But two, what I'm -- I don't want to call it a trend yet because we don't know, but we're doing more with Group 1 advertising than we ever have because we have about 50 stores that are on it. So rather than advertising 50 different brands, we can now advertise and get more leverage on it. So hopefully, we'll see that continue as we go through the year. And we're trying to do more advertising from one voice rather than 148 different store.

Makes sense. Turning to the U.K. a little bit. What is your current position with the China brands? And I saw that you're expanding kind of your relationship with Geely. How many stores do you have? And like what do they represent? And where are we going, do you think?

We have three that we signed agreements with that will become live in Q2. We have a framework agreement with Geely, so we can go beyond three. We have three stores that were -- have dealer -- specific dealer agreements with Geely that will be operational in Q2. And we're talking to Geely about more than three. We're also talking with some other OEM -- Chinese OEMs about representing them. We've taken a little slower pace. We got a little concerned. I mean, their fast growth is great, good for them. That's great. But we're a little concerned they got over-dealered in some brands, which you could -- we could say -- we could have gone and signed some dealer agreements last year and been part of that sales growth, but it might have actually hurt profitability because the UIO is still growing.

Really, they've only done any grill volume for 6, 8 months in the U.S. So, there's not a lot of UIO yet to drive service departments. So, we were taking a little slower approach, but we're in now, and we're excited to learn how the retail model really works for Geely, and we're watching some of the other brands, and we're in really active discussions with some of the other brands. And we think we're going to rely on our formula, Mike. We feel like we're good dealers. We're good representatives of OEMs, and they will want us to do business for them, and they will come to us and try to enable us expanding our footprint with them. And that's a formula that's worked for us in both markets. We feel like it will work well with the Chinese as well.

And with that, everyone, we'll be concluding today's question-and-answer session. I'd like to turn the floor back over to Daryl Kenningham at Group 1 for closing remarks.

Thank you, Jamie. In summary, we remain committed to our strategic initiatives, local focus, operating excellence, differentiated aftersales and disciplined capital management. We'll continue to build on our results from the first quarter. U.K. remains a priority as we build on improving our operating performance, executing on our various initiatives there and shaping the portfolio to drive better returns. We believe consistent execution against these priorities positions us to navigate near-term challenges, but while also building long-term value. Thank you for your time today. We look forward to discussing our second quarter results on our call in July.

And with that, ladies and gentlemen, we'll be concluding today's conference call and presentation. We thank you for joining. You may now disconnect your lines.

Good morning, ladies and gentlemen. Welcome to Group 1 Automotive's Fourth Quarter and Full Year 2025 Financial Results Conference Call. Please be advised that this call is being recorded.

I would now like to turn the call over to Mr. Pete DeLongchamps, Group 1's Senior Vice President, Manufacturer Relations and Financial Services. Please go ahead, Mr. DeLongchamps.

Thank you, Nick, and good morning, everyone, and welcome to today's call. The earnings release we issued this morning and a related slide presentation that include reconciliations related to the adjusted results we will refer to on this call for comparison purposes have been posted to Group 1's website.

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 are forward-looking statements and 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, inventory supply, conditions of markets, successful integration of acquisitions and adverse developments in the global economy and resulting impacts on demand for new and used vehicles and related services.

Those and other risks are described in the company's filings with the Securities and Exchange Commission. 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.

Participating with me on today's call, Daryl Kenningham, our President and Chief Executive Officer; and Daniel McHenry, Senior Vice President and Chief Financial Officer. I'd now like to hand the call over to Daryl.

Thank you, Pete, and good morning, everyone. In 2025, Group 1 achieved record revenues across all major business lines and record gross profits in parts and service and F&I, underscoring the strength and resilience of our diversified business model and our relentless focus on operational excellence.

During the quarter, we delivered impressive parts and service results and strong F&I performance in both the U.S. and the U.K. Parts and service continues to be a differentiator for Group 1, providing both growth and stability while we leverage our scale and execution flexibility to further build out our used vehicle business.

Our F&I teams have done an outstanding job maintaining gross profit discipline while driving higher product penetrations across nearly all categories. For the full year, we generated an all-time high gross profit of more than $3.6 billion, including record parts and service gross profit of nearly $1.6 billion.

We sold 459,000 new and used vehicles in 2025, another record. In the U.S., new vehicle PRUs moderated by just $62 sequentially, reflecting a slower pace of normalization. Throughout the year, we remain focused on deploying capital toward the highest and best use for our shareholders. 2025 was a great example of that strategy.

In the U.S., we acquired outstanding brands in growth markets, Lexus and Acura Fort Myers, Florida; and Mercedes-Benz dealerships in Austin, Texas and Atlanta, Georgia. In the U.K., we acquired 3 Toyota and 1 Lexus dealership. We expect these acquisitions to generate approximately $640 million in annual revenue.

At the same time, we disposed of 13 dealerships comprising 32 franchises, which have generated approximately $775 million in annualized revenue. In addition, we repurchased more than 10% of our outstanding shares in 2025. In the U.K., the macroeconomic environment remains challenging with weak economic growth, persistent inflation, increased competition from new entrants and margin pressure from the BEV mandate.

In response, we reduced headcount by an additional 537 positions in 2025. And during the quarter, we continued to execute on our previously announced restructuring initiatives, including working with a number of interested parties on the exit of the JLR brand. We also completed our U.K. systems integration, which we expect will improve visibility, operational consistency and data-driven decision-making across the business.

In addition, we consolidated 10 customer contact centers into 2 and fully onshored our transactional accounting operations. We continue to focus on opportunities to further shape our U.K. portfolio and improve operations, consistent with the playbook we have successfully executed in the U.S. We are seeing positive impact of our U.S. operating practices in the U.K., particularly in aftersales.

On a same-store basis, we increased our technician headcount by 9.5% in the U.K., reducing customer wait times and driving a nearly 6 percentage point increase in customer pay mix and higher fixed absorption. We've made changes to our service pricing to move more closely to the aftermarket. At the same time, we've eliminated diagnosis fees in many brands.

Daniel McHenry will speak to the positive results that these initiatives are having on our RO counts. In F&I, PRU increased 13% in the U.K. or $123, largely through better adoption of all of our products. Our focus in the U.K. remains on driving this type of operational improvement across the entire business, and we realize there is still more work to do.

In the U.S., the macro environment remains dynamic with volumes and GPUs continuing to normalize from post-pandemic highs, particularly in the luxury segment. While the policy and trade uncertainty we saw last year has largely subsided, we remain vigilant and focused on staying nimble as macroeconomic conditions evolve.

In response, our teams remain disciplined and agile, sharpening execution at the dealership level, managing our costs and prioritizing the areas of the business that generate the most durable returns. We believe this focus on controlling what we can control from inventory and pricing discipline to aftersales performance, capital allocation and costs positions Group 1 to navigate near-term challenges while continuing to build a stronger, more resilient platform for the long term.

I'll now turn the call over to our CFO, Daniel McHenry, for an operating and financial overview.

Thank you, Daryl, and good morning, everyone. In the fourth quarter of 2025, Group 1 Automotive reported revenues of $5.6 billion, gross profit of $874 million, adjusted net income of $105 million and adjusted diluted EPS of $8.49 from continuing operations.

Starting with our U.S. operations. Fourth quarter performance was strong across all lines of business with a slight decline in new vehicle sales. New vehicle unit sales declined both on a reported and same-store basis. Average selling prices continue to increase and consumers are increasingly concerned about affordability. While new vehicle GPUs continue to moderate from the highs of the past few years, we have maintained strong operational discipline through effective cost management and process consistency.

Our used vehicle operations performed well, holding volumes basically flat versus the comparable year quarter while increasing revenues approximately 4% and 1% on an as-reported and same-store basis. GPUs declined approximately 8% on a same-store basis, reflecting higher costs to acquire used inventory. We continue to leverage our scale and operational flexibility to strengthen used vehicle acquisition while executing disciplined sourcing and pricing in an increasingly competitive market.

Our fourth quarter F&I GPUs grew nearly 3% or $67 and $65 on a reported and a same-store basis versus prior year comparable period, respectively. The disciplined performance by our F&I professionals and improvements to our virtual finance operations has helped grow GPUs while driving higher product penetration across nearly all product categories. Aftersales again stood out as a major contributor.

Gross profit continues to benefit from our efforts to optimize our collision footprint, shifting collision space opportunistically to additional traditional service capacity and closing collision centers where the returns do not meet our requirements. Revenues from customer pay and warranty increased approximately 5% and 11%, respectively, and gross profits from customer pay and warranty increased over 8% and 13%, respectively.

Our technician recruiting and retention efforts continue to pay off with same-store technicians up 2.3% year-over-year. Overall, our U.S. business continues to perform exceptionally well, demonstrating both resiliency of customer demand and the effectiveness of our disciplined process-driven operating model.

Wrapping up the U.S., let's shift to SG&A. While U.S. adjusted SG&A as a percent of gross profit increased 200 basis points sequentially to 67.8%. Higher employee expense was the primary driver. We continue to focus heavily on resource management and technology investments to try to maintain SG&A as a percent of gross profit below pre-COVID levels, as vehicle GPUs continue to normalize.

Turning to the U.K. Results reflected the ongoing challenge of the U.K. operating environment. However, same-store revenues grew almost across every business line. New vehicle same-store volumes declined 8.2% and local currency GPUs moderated 3.2% versus the prior year quarter, leading to an 11% decline in local currency same-store new vehicle revenues. Used vehicle same-store revenues were up over 9% on a local currency basis with volumes up nearly 8%.

Same-store GPUs declined almost 19% on a local currency basis, leading to a decline in used vehicle GP, reflecting the ongoing challenging used market in the U.K. Aftersales and F&I delivered year-over-year growth in both revenue and gross profit on an as-reported and same-store basis. The aftersales business remains an important stabilizer within U.K. operations and along with F&I is a key area of focus as we work to enhance profitability.

We saw an outsized uplift in RO count of nearly 36% year-over-year as we bring best practices from the U.S. Same-store technicians are up 9.5%, reflecting significant capacity to our shops. Customer pay revenue was up 9% year-over-year. Same-store F&I PRU reached $1,060 with an as-reported and same-store PRU increasing over 13% year-over-year.

On expenses, SG&A declined from prior year, reflecting cost improvements despite significant headwinds from inflation and cost increases, some of which is government-imposed through payroll tax and related charges. While we've executed targeting restructuring initiatives to improve efficiency and return the business to more sustainable cost levels, the environment remains difficult.

During the quarter, we incurred modest nonrecurring restructuring costs tied to our restructuring efforts. We are executing additional restructuring plans in the future periods as we exit select OEM sites. We are continuously taking decisive actions in the U.K. to control costs, strengthen operational efficiency and position the business for improved returns as market conditions stabilize.

Turning to our balance sheet and liquidity. Our strong balance sheet, cash flow generation and leverage position continue to support flexible capital allocation approach. As of December 31, our liquidity of $883 million was comprised of accessible cash of $537 million and $346 million available to borrow on our acquisition line.

Our rent-adjusted leverage as defined by our U.S. credit facility was 3.1x at the end of December. Cash flow generation year-to-date 2025 yielded $699 million of adjusted operating cash flow and $494 million of free cash flow after backing out $205 million of CapEx. This capital was deployed in the same period through a combination of acquisitions, share repurchases and dividends, including the acquisition of $640 million of revenues through December 31, $555 million repurchasing approximately 1.3 million shares at an average price of $413.05 and $26 million in dividends to our shareholders.

Subsequent to the fourth quarter, we repurchased an additional 71,750 shares under a Rule 10b5-1 trading plan at an average price per common share of $394.20 for a total cost of $28.3 million, resulting in an approximate 0.6% reduction in our share count since January 1.

We currently have $350 million remaining on our Board authorized common share repurchase plan. For additional detail regarding our financial condition, please refer to the schedules of additional information attached to our news release as well as our investor presentation posted on our website.

I will now turn the call over to the operator to begin the question-and-answer session.

[Operator Instructions] And the first question today will come from Rajat Gupta with JPMorgan.

Just one clarification. Could you give us a sense of what the impairments were tied to this quarter? I know we had a large one last quarter. But were there any significant assets or brands that the impairment was tied to this quarter? And I have a follow-up.

Rajat, it's Daniel. We do an annual impairment for all of our assets within quarter 4 on an annual basis. The impairments related virtually totally to the U.S. business as the impairments in quarter 3 were related to the U.K. business.

The principal brand, I guess, that we had impairments within was within the Audi brand. And we've had various discussions on that on previous calls. Other impairments, the Maryland stroke DC market has been a difficult market, I think, for both us and the other consolidators this year, and there was an impairment taken within that market.

Understood. That's very clear. Maybe a bit of a broader question as we go into 2026 around SG&A. I know you've talked about a lot of initiatives in the U.K., just both on the productivity side and some of the cost actions.

But curious, are there any specific productivity type actions that you might be undertaking in the U.S. today that could meaningfully move the needle, especially with more and more AI tools likely to get deployed. I'm curious like where do you see the opportunity? Are you already working on some? And how should we think about the impact to the SG&A to gross?

Rajat, we are using AI in every part of our business, both customer interface as well as in our back office. And we're also deploying productivity tools in a number of areas. Like as an example, when you look at our aftersales growth this quarter, it was 6% up, 5% up on a same-store basis on customer pay and 9% on warranty. We only added 2.5% to our technician base. So our technicians are more productive now.

One of the reasons is because our turnover is down 10 points in our technician population, which we've been working on. We've talked to you about the investments in things like air conditioning and things like that in our shops. And so we're seeing tangible results, which is resulting in less turnover and more productivity and takes some pressure off of all the hiring we do on technicians.

So that's a productivity gain for us. Initiatives like virtual F&I, which we've got in a ton of stores now. We're rolling that out nationwide. We're seeing lower cost per transaction on virtual F&I across our footprint and wide adoption there. And we are using AI in our sales operations with lead management and CRM control. We're using it in parts and service and in marketing and reaching out to customers and using more predictive analytics in that area. And so as we've made investments, especially in marketing, where we're now owning our own data, managing our own customer data, it's going to allow us to be much more efficient with how we reach customers and what our costs are and we hope in a more productive way than in the past.

So short answer is yes, we're using it and we're using it in a number of areas. And offline, I'd be happy to talk to you more specifically about that.

The next question will come from Brett Jordan with Jefferies.

This is Patrick Buckley on for Bret.

As we look at the U.K. restructuring plan, you spoke a bit about recent progress there. Could you talk a bit more about what inning that's in? And how long of a process do you expect that to be? And I guess, is there a lot of front-loaded progress there? Or is there more of a steady schedule work to be done?

There's more work to do. We don't see -- it's a dynamic environment, especially Europe. And so we adjust every quarter with our expectations. And we will get cost to a place where it has to be to make that business at an acceptable profit level for us. So I would say we're in the earlier innings, not the later innings, and Daniel has some thoughts.

Brett, the one thing that I would add was the costs came out in 2024 over the year. It wasn't all really front-loaded into quarter 1, let's say, of 2025. So as we roll into 2026, we should see the benefit of those costs that have been taken out throughout the year fully baked in for the year in 2026.

Got it. That's helpful. And I guess staying on the U.K. here, could you talk a bit more about the dynamics between the broader economy headwinds versus increased penetration from Chinese OEMs? Any way to quantify the headwinds between the two?

Well, the Chinese OEMs are the Q4 share leveled off at around a little under 12%. They had a big spike from Q4 '24 to Q4 '25, it leveled off a bit. They're not slowing down. I don't mean to make that sound that way, but -- and we're not expecting they will. But it appears that it's leveled off.

When we look at the brands we're in, we feel like we're well positioned because we're heavy luxury, which typically the Chinese aren't in at this point. And so it's something we're continuing to watch, and I expect we'll continue to make moves to try to offset their impact.

What that specific impact is, I mean, their market share, I think, speaks the most. And they're using a dealer model, which is, I think, good news for dealers. So as long as there's a viable model there, we're looking at that business.

The next question will come from John Saager with Evercore ISI.

Obviously, a lot of focus on the portfolio management in the U.K. Can you give us a sense of the magnitude of restructuring as you see it today? Or are we talking anywhere near the $28 million that we saw this quarter?

It's Daniel. I don't see it being anything like that this quarter or this year, 2026. We've done significant work. Daryl talked about it in the call earlier today around what we've done around our DMS, what we've done around our property portfolio, the JLR, the decision that we took to dispose of those stores over the next period.

A lot of that heavy lifting and cost has gone effectively in terms of restructuring costs that were taken in 2025.

Okay. Makes sense. And then post restructuring, what's a good trend or range going forward for used GPUs and also SG&A as a percent of GP? Could you give us a sense of a range there and then the timing that it will take to get there?

Is that the U.K. Pacific or U.S?

Both. But I guess, primarily, I was focused on the U.K. here.

Our used GPUs in the U.S. are higher today than they were pre-COVID. They're lower than they were a year ago. We'd like to see some improvement in the U.S. And we definitely know we have some upside in U.K. GPUs in preowned. We're trying to instill a different level of discipline in our pre-owned business in the U.K. and we expect the output of that to be better GPU performance.

On SG&A, what we've talked about historically in the U.K. is 80% on a long-range basis. It will be higher than that in the non-plate change quarters and it will be hopefully a little lower than that in the plate change quarters. So those are kind of round numbers what we've targeted.

In terms of U.S., you would think mid- to high 60% for U.S. on an annualized basis. So somewhere below 70%.

The next question will come from David Whiston with Morningstar.

Just looking at your store disposal activity last year. I mean, by definition, there's always going to be, say, a bottom 10% or bottom quartile. But by divesting these stores, you are raising the low end of the bar, so to speak, higher and higher. So do you see the need to do a lot of divestitures perhaps every year? Or do you think '25 was more of an outlier year?

I think '25 was more of an outlier year, David. much of our disposition work was in the U.K. around underperforming stores, around consolidation efforts in concert with our OEM partners. There will be some more of that in '26. But on a long-term basis, it won't be nearly that active.

In the U.S., we're still -- we still dispose of some stores that are in markets that aren't favorable for us or are underperforming. We had relatively few in 2025 in the U.S.

But we will always want to have that discipline to review our portfolio and stores that don't help us on SG&A leverage or don't help us on EPS contribution are subject to us disposing.

All right. And on capital allocation for this year, any strong preference between acquisitions, buybacks or perhaps reducing leverage below 3?

Let's go from the leverage first. Our preference is to keep our leverage below 3x, and we're going to continue to work to that.

In terms of capital allocation, we really want to grow the company and continue to grow the company through acquisition. We are not going to, however, buy stores that aren't instantly accretive to us as a company in terms of EPS, and we're not going to overpay for acquisitions whenever you look at the valuation of our company in terms of where it's currently sitting.

We were very active in terms of buybacks last year, buying back over 10% of the company. You can see in the first quarter so far, we've bought back 0.6% of the company in circa 20 days, and we will continue to be aggressive in both terms of acquisitions and buybacks as and when the time is right.

The next question will come from Jeff Lick with Stephens Inc.

Daryl and team, I was wondering if you just take 2025 as your baseline year, obviously, there was an awful lot that went on this year with tariffs, the EV tax credit expiration, the U.K. and whether it was the road tax, Chinese OEMs.

If you look at 2025 as your base year and you think about working through 2026, maybe you just talk about how you see the year progressing in terms of GPU lapping the EV tax credit. Where do you see kind of the easier part of the year versus the harder part of the year?

Well, I think on the EV question. Last quarter, our EV mix was 1.3%. That's down a little -- I mean, we were 3-ish percent before that. So for us, the EV impact, just given our footprint in the United States anyway is not that big.

The margins on EVs are not bad now compared to where they were a year ago when they were disaster. So hopefully, that is a tailwind a little bit. It's on a very small part of our volume, though. On the rest of it, yes, plenty of uncertainty out there, obviously. And what we try to focus our teams on is stay focused on what we can control because there's plenty of distractions and plenty of things that can lead you to focus on things outside of what we can affect.

What we're hoping for is to build on 2025 to try to get to your question, Jeff. We want to build on 2025. We want to grow. If that's organically grow, we feel like there's opportunity at Group 1 to organically grow, especially in the U.K. But we still have opportunities in our business in the U.S., too, as well as we perform in aftersales and F&I, there's still opportunities in our used car business.

So we -- and in our cost structure. So we're continuing to feel like there's opportunity in 2026 on those in the U.S.

And then just a quick follow-up. This year, we're going to see a lot of lease returns. Actually, percentages could be pretty big as we get into the back half. I'm curious, Daryl, in your career, if you've seen anything similar to this, I mean, we're going to be talking about lease returns in excess of 30%, 40%.

What that's going to mean for your business, both in terms of ups and also in terms of potential used car supply. How big of a deal do you view this? Am I thinking about it maybe in 2 grandiosa terms? And if any kind of historical context would be very helpful.

Well, I think 2 things will happen this year, which will help the used car business. One is the uptick in lease returns, which a good solid controlled source of premium used cars is really great. If you look at the kind of used cars we sell today compared to what we sold pre-COVID, we're selling a much richer mix of preowned cars.

And the profits are good on those cars. So I hope and expect that, that will help us later in the year. Another thing is there's a lot of discussion around the tax returns and tax refunds in the first and second quarter and what kind of impact will that have on the used car business. And we're hopeful it buoys it. And how much, I don't know, but there's plenty of optimism around that. So we'll see how that affects us. We continue to focus heavily on sourcing, especially organic sourcing out of our service drives and out of our trade processes with appraisals and capture, and we continue to put a ton of focus on that using technology to try to increase that as well.

The next question will come from John Babcock with Barclays.

Just firstly on the used vehicle market in the U.S., at least the indicators that we've seen seem to show that volumes have been pretty good to start the year. But I'm just kind of curious, what are you guys seeing? And what are your expectations for the year? And particularly as we -- as you remember, like last year, there was the tariffs that impacted timing in March and April. And just kind of curious how you're thinking about the cadence of that demand and whether you think it's sustainable from current levels?

Sure. John, this is Pete DeLongchamps. I'll take that question. So we're certainly bullish on the used car opportunity this coming year. And you're correct, January traditionally does start off well because you get the nice trades from November and December that you can work with. And then you're ready for the spring selling season, which kicks off about President's Day through March.

So we think the volumes are sustainable. And I think that what we're really focusing on is disciplined acquisition, whether that's service sales coming out of the plane. We've got to be smarter this year, and we're using AI to know exactly what cars to buy from the auction, not just based on personal preference.

So there's things that we've put in place that we think that will continue to help our used business grow. But all in all, you always have to remember, this is a 38 million to 40 million car market, and we talk about SAAR at 16 million and retail at 13 million for new, but the used car market is continually a great source for our company's revenue and gross profits.

Okay. And then just my last question, just on GPUs. They were down in 4Q. And I think at least most of the people I talked to expected a recovery in the quarter. Obviously, luxury demand was a little bit soft, and I had heard that there was some increased competition, at least among dealers just given the broadly softer volumes. But I'm just kind of curious, were there any other factors that we're missing that maybe we should be paying attention to? And what should we be mindful of in terms of thinking about GPUs in 1Q and '26 more broadly?

Is your question on new car GPUs or used car?

Sorry, new car specifically.

We saw some softening on the luxuries in the fourth quarter, GPUs, and that was affected us more than normal. I would think that we'll see some moderation of that. I don't know that they'll stay where they were. And the Mercedes of the world, their inventory is in much better shape today than it was a year ago, and BMW's inventory is in really good shape with some new products coming out this year.

So I believe that we'll see firming of the -- but the mass market GPUs are holding up pretty well. I mean our big brand is Toyota held up pretty well.

This will conclude our question-and-answer session. I would like to hand the call back over to Mr. Daryl Kenningham for any closing remarks.

Thank you. In summary, we remain committed to our strategic initiatives. We focus on our local customers, operating excellence, differentiated aftersales and disciplined capital management. We'll continue to build on the strong operating results in the U.S. U.K. remains a priority as we execute on restructuring initiatives, improving operating discipline and shaping the portfolio to drive better returns. We believe consistent execution against these priorities positions Group 1 to navigate near-term challenges while continuing to build long-term value for our shareholders. Thank you all for joining the call.

This will conclude our -- pardon me, the conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Good morning, ladies and gentlemen. Welcome to Group 1 Automotive's Third Quarter 2025 Financial Results Conference Call. Please be advised that this call is being recorded. At this time, I'd like to turn the call over to Mr. Pete DeLongchamps, Group 1's Senior Vice President, Manufacturer Relations and Financial Services. Please go ahead, Mr. DeLongchamps.

Thank you, Jamie. Good morning, everyone, and welcome to today's call. The earnings release we issued this morning and a related slide presentation that include reconciliations related to the adjusted results we will refer to on this call for comparison purposes have been posted to Group 1's website. 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 that 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, inventory supply, conditions of market, successful integrations of acquisitions and adverse developments in the global economy and resulting impacts on demand for new and used vehicles and related services.

Those and other risks are described in the company's filings with the Securities and Exchange Commission. 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.

Participating with me on today's call, Daryl Kenningham, our President and Chief Executive Officer; and Daniel McHenry, Senior Vice President and Chief Financial Officer. I'd now like to hand the call over to Daryl.

Good morning, everyone. Let me start with a few highlights from the quarter before discussing our regional performance. Group 1 delivered an all-time record quarterly revenues driven by record results in parts and service and used vehicles, along with another quarter of very strong F&I performance in both the U.S. and the U.K.

New vehicle PRU gross profit performance was solid and customer pay in both markets performed well, supported by healthy repair order growth. We've maintained cost discipline in the U.S. with good SG&A leverage less than 66% on an as-reported and same-store basis.

Now turning to our U.K. operation. The U.K. environment remains challenging with inflation, wage and insurance cost pressures and the BEV mandate, which continues to compress margins. While the broader SAAR improved slightly in the quarter, much of that growth was fleet-driven and retail conditions remain soft. New lower-cost entrants are seeing increasing market share performance with cost-conscious consumers. However, this is not yet a significant factor in our business given our luxury leaning portfolio.

Despite these headwinds, there are some bright spots in our U.K. business. Our aftersales business continues to expand with healthy customer pay operations. We are applying our U.S. aftersales playbook across our U.K. dealerships. For example, in the U.K., our stores now welcome walk-in customers, which we had previously limited. And we have fully reopened shop schedules, cutting appointment wait times from nearly 2 weeks to just a few days.

And we're extremely pleased with the progress we're making in reshaping our U.K. aftersales business. New vehicle margins in the quarter remained steady year-over-year. Our used vehicle volumes in the U.K. were up nearly 4%. Our U.K. used vehicle teams have been successful exercising discipline in our aging and reconditioning process.

F&I also delivered an excellent quarter with same-store PRU up $155 or greater than 16% year-over-year. Our team is focused on improving product penetration, which has resulted in same-store financing penetration increasing by over 4%. We're continuing to strengthen our business with initiatives to offset our cost increases.

Since the acquisition of Inchcape, we've implemented a series of headcount reductions, systems-integration activities and selective franchise closures and divestitures to improve operational efficiency and to better align our cost structure with current market conditions.

Our headcount reductions have included approximately 700 positions across the U.K. and our responsible portfolio management has resulted in the closure of 4 dealerships and the termination of 8 franchises. We're making meaningful progress on systems integration.

Across our U.K. business, we've completed the consolidation of 11 DMS platforms, and we're rolling out a new business intelligence system now. We are also completing the final stages of our U.S., U.K. systems integration review spanning approximately 90 different systems company-wide. These actions are improving visibility, operational consistency and data-led decisions across the organization.

In the third quarter, we formally notified Jaguar Land Rover of our decision to exit this brand in the U.K. within 24 months. We feel our efforts and some of our real estate can be more effectively utilized elsewhere. We are collaborating closely with our OEM partners at JLR to achieve a positive outcome for them and for Group 1 shareholders. It's our intention that this achieves a positive result for all concerned.

Due to this decision, our U.K. portfolio was required to be tested for impairment. As a result, we took a $123.9 million asset impairment in the quarter. Also important to note, this decision was unrelated to the JLR cyberattack, which separately impacted our U.K. profitability by approximately GBP 3 million during the quarter.

Those actions reflect our commitment to optimize our portfolio, control costs and focus our resources on winning through operational excellence. We will continue to refine the U.K. business, managing our headcount, rightsizing our network and prioritizing aftersales and F&I while leaning into our luxury platform and geographic diversity. This will position our U.K. business for long-term success.

Now turning to our U.K. operation. Our U.S. teams continue to execute very well, maintaining operational discipline and customer focus across our dealerships. As a result, the business delivered another solid quarter of growth with healthy performance across all major lines. Demand remained consistent throughout the quarter, supported by balanced inventory levels and steady consumer interest, which we believe to be relatively healthy in the U.S.

Our used vehicle units sold nearly set a record, only 40 units off of our all-time quarterly volume record. Our same-store sales in used vehicle outpaced the industry. F&I was outstanding once again with an all-time quarterly high PRU of nearly $2,500, combined with an impressive 77% new vehicle finance penetration. Aftersales achieved record quarterly revenue and gross profit, underscoring the strength and stability of this high-margin business. Our investment in our aftersales operation continues to capture growth and our initiatives around flexible scheduling, all-day Saturday operations and technician productivity continue to create new capacity and improve retention across our U.S. stores.

Same-store technician headcount increased by over 4% due to our recruitment and retention efforts. On a same-store basis, our customer pay revenue increased nearly 8%. Warranty was up 16% versus a prior year comp that saw 20% growth. We continue to believe in the potential of our aftersales business, and we also believe that capacity and productivity are the keys to success.

The overall U.S. environment remains dynamic with ongoing policy and trade uncertainty. We're maintaining a cautious but confident stance, balancing discipline in spending with targeted investment where we see long-term return. Our operational excellence is a key advantage, giving us the ability to adjust quickly to changing conditions.

Now a word about our capital allocation. In August, we added Mercedes-Benz of Buckhead in Atlanta, Georgia to our portfolio. It's expected to be one of the best-performing stores in the U.S. for Group 1. It's positioned in a growing market and consistent with our cluster strategy and our disciplined focus on pursuing only those opportunities that will create long-term shareholder value.

Just as importantly, we continue to opportunistically buy back shares of our company. Since the beginning of 2022, we've repurchased nearly 1/3 of the company's outstanding common shares. The acquisition landscape has been fairly quiet in recent months, and we continue to engage in researching opportunities in the U.S., but we are holding on further U.K. acquisition investment.

We expect consolidation to continue in the future in both markets, and we believe we're well positioned with our OEM partners to capitalize on those kind of opportunities. Now I will turn the call over to our CFO, Daniel McHenry, for an operating and financial overview.

Thank you, Daryl, and good morning, everyone. In the third quarter of 2025, Group 1 Automotive reported quarterly record revenues of $5.8 billion, gross profit of $920 million, adjusted net income of $135 million and adjusted diluted EPS of $10.45 from continuing operations.

Starting with our U.S. operations. Performance was strong across all business lines, both reported and same-store. Revenue growth was broad-based, led by record quarterly records in used vehicle, parts and service and F&I. New vehicle unit sales rose mid-single digits on both a reported and same-store basis, reflecting healthy demand and steady inventory flow.

While new vehicle GPUs continue to moderate from the highs of the past few years, we have maintained strong operational discipline through effective cost management and process consistency. Expiring tax credits lead to increased BEV deliveries in the quarter at lower GPUs, negatively affecting U.S. new vehicle GPUs by approximately 6%.

Our used vehicle operations performed well with record quarterly revenue and GPUs holding up well with only a slight 3% decline on a same-store and as-reported basis. These results reflect the benefits of our scale and operational flexibility, combined with our team's focus on disciplined sourcing and pricing in a competitive market.

Our third quarter F&I GPUs grew over 5% or $135 and $126 on a reported and same-store basis versus the prior year comparable period, respectively. The performance by our F&I professionals has been outstanding to maintain GPU discipline while driving higher product penetration across nearly all product categories.

Aftersales once again stood out as a major contributor, achieving record quarterly revenue and gross profit. Gross profit continues to benefit from our efforts to optimize our collision footprint, shifting collision space opportunistically to additional traditional service capacity and closing collision centers where returns do not meet our requirements. Aftersales remains one of our strongest engines of growth and stability.

Overall, our U.S. business continues to perform exceptionally well, demonstrating both the strength of the consumer demand and the effectiveness of our disciplined process-driven operating model.

Wrapping up the U.S., let's shift to SG&A. While U.S. adjusted SG&A as a percentage of gross profit increased 160 basis points sequentially to 65.8%, we view this as a good performance. We continue to focus on resource management and technology investments to maintain SG&A as a percent of gross profit below pre-COVID levels as vehicle GPUs further normalized.

Turning to the U.K. Results reflected a challenging operating environment. However, same-store revenues grew across almost every line of business. New vehicle same-store volumes declined 4% and local currency GPUs moderated by 1% versus the prior year quarter, leading to a 6% decline in local currency same-store new vehicle revenues.

Used vehicle same-store revenues were up over 5% on a local currency basis with volumes up 4%. However, same-store GPUs declined by over 24% on a local currency basis, leading to a similar decline in same-store used vehicle GPU, reflecting the challenging used vehicle market in the U.K.

Aftersales and F&I year-over-year growth in both revenue and gross profit. The aftersales business remains an important stabilizer within the U.K. operations, along with F&I is a key area of focus as we work to enhance profitability. Same-store F&I PRU reached $1,106 with as reported and same-store PRU both increasing more than 15% year-over-year.

On expenses, SG&A increased from the prior period, reflecting cost inflation and integration-related impacts as well as a lack of gross profit for the full quarter from our JLR operations due to the cyberattack.

While we have executed target restructuring initiatives to improve efficiency and return the business to more sustainable cost levels, costs continue to increase, some of the government imposed through increased payroll tax-related charges.

During the quarter, we also incurred modest nonrecurring restructuring charges tied to our restructuring efforts. In response to current market conditions, we are taking further actions to reduce our corporate headcount by approximately an additional 10%, and we are taking additional expense actions to save an expected $8 million in our stores. We will benefit from these savings in 2026.

We will also be executing additional restructuring plans in future periods as we exit select OEM sites. In connection to the notification with JLR, we recognized a franchise rights impairment charge of $18.1 million, which is included in the impairment charge that Daryl mentioned earlier.

We are taking decisive actions in the U.K. to control costs, strengthen operational efficiency and position the business for improved returns as market conditions stabilize.

Turning to our balance sheet and liquidity. Our strong balance sheet, cash flow generation and leverage position will continue to support flexible capital allocation approach. As of September 30, our liquidity of $1 billion was composed of accessible cash of $434 million and $555 million available to borrow on our acquisition line.

Our rent-adjusted leverage ratio as defined by our U.S. syndicated credit facility was 2.9x at the end of September. Cash flow generation through the third quarter of 2025 yielded $500 million of adjusted operating cash flow and $352 million of free cash flow after backing out $148 million of CapEx. This capital was deployed in the quarter through a combination of acquisitions, share repurchases and dividends, including the acquisition of $210 million in revenues, $82 million repurchasing approximately 186,000 shares at an average price of $443.81 and $6.4 million in dividends to our shareholders.

Subsequent to the third quarter, we repurchased an additional 140,000 shares under a Rule 10b5-1 trading plan at an average price of $433.48 for a total cost of $60.9 million, resulting in an approximate 5% reduction in share count since January 1. We currently have $165.4 million remaining on our Board-authorized common share repurchase program.

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. I will now turn the call over to the operator to begin the question-and-answer session.

[Operator Instructions] And our first question today comes from Bret Jordan from Jefferies.

Some of your peers have talked about a U.S. luxury trend softening. Could you sort of give us any color on what you're seeing at the consumer, maybe luxury versus import versus domestic demand trends and GPUs?

Bret, I wouldn't say that what we've seen is material enough yet to call it a trend. You've seen a little bit of shift between some of the big bakes. Audi is certainly a challenge. I'm not sure that's consumer related. But we saw a little bit of inventory build in some of the luxury makes in the third quarter. I think the real tell will be fourth quarter, which typically is the largest quarter of the year for the luxury makes and especially the Germans.

And so before I think we would say we see a softening there, I'd want to see how the fourth quarter kind of shakes out and where that heads, to be honest with you. And Peter or Daniel may have another view based on their perspective.

Bret, this is Pete DeLongchamps. I would tell you that our Lexus business remains very, very strong. BMW dealerships did well in the quarter. Like of Daniel's or Daryl's comment on the Audi business is certainly difficult.

Okay. And then a question on the JLR exit, I guess, within 24 months. It sounded as if you might be reallocating some of those properties to other brands? Or is this -- when you think about business?

Yes, we own the vast majority of those -- that real estate. And we've had some reviews of how it might be used in better ways, primarily automotive, other brands potentially. Some of them will stay JLR and transition to another owner. And then others, just through the consolidation work going on in the U.K. with all the OEMs, it might provide an opportunity for us in some of our cluster markets and other brands. Some of that is still undetermined. But that is an outcome that's a possibility. Yes, absolutely, Bret.

Okay. And the housekeeping, I guess, of the $124 million impairment, $18 million of that was JLR...

So it's Daniel here, Bret. It's a combination there. So in terms of our franchise rights, $18 million was JLR. Now what that did was by terminating the JLR franchise, it triggered us to have to look at the U.K. entity as a whole and take a goodwill impairment. Now that goodwill impairment is not just JLR specific, it's the entity as a whole. So some percentage of the circa $100 million remaining will be relating to JLR. So 18-plus some percentage of the total business unit.

Our next question comes from Rajat Gupta from JPMorgan.

Just to follow up on Bret's question on the U.K., just the reallocation-of-capacity question. Would you consider partnering with some of the Chinese brands here? It clearly looks like they're gaining a lot of share, putting some pressure on the legacy brands that you own. Curious if there's any thought process around that of maybe increasing exposure there? And I have a quick follow-up.

Rajat, there, we have met with some of the Chinese OEMs about representing them. And we continue to consider that and review that. And we've also looked at that part of the industry and where we believe it's going in the U.K. We believe for the next several years, it will be primarily mass market focus and not luxury.

At some point, we certainly get the luxury business. Our focus in the U.K. is primarily luxury. But we have looked at it. What we want to make sure that we are comfortable with is that the retail model is a good one for our shareholders. The rooftop throughput at retail for the Chinese brands is still quite low and the economics around these rooftop aren't what our other stores can generate at this point. But we realize, obviously, they're growing. We want to make sure that we're positioned well to take advantage of that if there's an opportunity. We are having some active dialogue.

Got it. Got it. That's helpful. And then just on the used GPUs in the U.S., it seems like it pulled back quite a bit sequentially, also down year-over-year. I'm wondering if you could elaborate a little bit more on that. Was it just some of the tariff tailwinds from the previous quarter going away, maybe some higher priced inventory that came with the quarter? Or is there -- or is it just a sign of just more competitive landscape on the used car side? Any thoughts there would be helpful.

Rajat, it's Pete DeLongchamps. We've certainly seen stabilization through the used car -- in the used car business. But it does remain very competitive in the acquisition landscape of used cars. I think we've done a really good job of maintaining discipline with our auction purchases. The majority of our cars come from trades and customer outside purchases. But it's a business right now that it is dependent on how well you can acquire and how quickly you can turn. I think we maintained a 30 -- 31-day supply again. So we're comfortable with the performance of the used car operation in the current landscape.

Our next question comes from Jeff Lick from Stephens Inc.

I was wondering, Daniel or Daryl, if you wouldn't mind just giving some detail on the parts and service in the U.S. and the dynamics here, customer pay and warranty up 16%. Just as we go forward, is there anything that would skew the gross margin percentage, which obviously flows into gross profit dollars? Just the dynamics and we're lapping some tough compares now. Just any color would be helpful.

Well, the encouraging thing, Jeff, this is Daryl, and I'm sure Daniel has a comment. The encouraging thing is our customer count grew. In the U.K., it grew almost 6% year-over-year. In the U.S., it grew 3%. So we were really pleased that we're adding customers to our shops, not just dollars. And so we feel like our CP business is still healthy, and we still feel like there's a lot of opportunity there. Warranty is really tough to predict sometimes, obviously.

And we don't see any reason for necessarily a mix change. One thing that is happening is the -- I mean, a margin mix change, I should say. As the collision business is -- it's getting weaker and that can affect margin because a lot of the our wholesale parts sales go to the collision industry. And so overall aftersales margin may be helped by that on a percentage basis. So if the wholesale parts continue to climb. So at least the collision sector.

But on CP and on warranty, we haven't seen that. I know there's been some discussion on margin percentages by some in the industry, but we haven't necessarily seen that. We don't necessarily really predict that either. So Daniel, I don't know if you have anything to add.

Jeff, the only thing that I would add around was customer pay, as Daryl said, continues to be strong. U.S. specific, we've grown by about 8% year-on-year. In terms of warranty, we've grown by just over 16% year-on-year. Now as we talked about in the earnings call, collision is down. We closed a number of our smaller collision centers turning those into customer pay work, and it's down about 11% in the quarter. Now the result of that is that our margin mix as a total company is trading upwards and our margin mix has gone up from about 54% to 55.2% in the quarter.

CP margin was up year-over-year for us and so was warranty margin.

Just a quick follow-up. I think maybe this is one for Pete. On your Slide 14, you guys do a good job of always disclosing the retention by model year, which I don't think your peers necessarily disclose that. Could you talk a little bit about -- I believe you guys are well north of what would be typical and just the dynamics there.

This is on parts and service overview, retention?

Yes.

Yes, I think what we're working on, and it starts with the sale. And then if you take a look, Jeff, at our overall consistency with vehicle service contracts, maintenance, we are completely focused on getting our customers back into our shops, and we do that through constant follow-up. We do that by ensuring that pricing is right, making sure that schedules are wide open for appointments. And I think that when you take a look at the trend we've had over the years, and we've done a remarkable job with it, and this is where we've landed at 68-plus percent.

Jeff, one of the things that we focus on, the way we measure retention is 2 visits in a year. Other people measure it differently. OEMs all measure it differently. we wanted a standard number we could use inside Group 1 across all our stores. The key in the future as the average mileage goes up, the age of the cars is still going up. Our average mileage on our service drives is almost 70,000 miles. And really, the key for us to continue to grow customer pay is in reaching those higher mileage, older vehicles.

And one of the keys to doing that is when we vertically integrated our own data management with our customers starting about a year ago so that we now have a much clearer view, much better view of where our customers are going and when they're likely to need service next using propensity modeling and things like that, that help us do that. And so we have to be able to reach deeper into that ownership cycle as time goes, and we're really working hard on that, really working hard.

Well, the results show. Best of luck in the next quarter.

Our next question comes from Daniela Haigian from Morgan Stanley.

So one on forward demand. We've kind of passed through the peak tariff fear from April. We're now seeing OEMs revise up their guidances, clearing the bar on these improved gross tariff impacts. Are you seeing any decontenting or changing in pricing on new model year vehicles in excess of the normal price hikes? And how are you thinking about that going into next year?

We haven't seen anything in excess of normal price hikes, Daniela. We've seen a little recontenting not -- I wouldn't -- I would say it's normal. there hasn't been any broad announcements about major pricing. There's been a couple of specific pricing actions with smaller OEMs.

As we think about it and in more discussions we have with our OEM partners is they are taking a longer view on it, and they're going to try to recover the tariff impacts over a longer period of time and some of that -- and they will absorb most of it in general. And we're seeing very little pricing that can be attributable to tariff increases. And I think that will continue, to be honest with you, unless something radically changes with the tariffs, we think that's probably what will happen. And Pete may have some more.

No, I think, Daryl, you just covered it. The only thing I would add is you take a look at the financial services companies and the strength of the financial services companies can bring down those -- some of those additional costs through leasing subbing rates, which bodes well for those OEMs that have strong financial services companies.

Got it. That's helpful. And then one more, maybe, Pete, for you.

Our captive lenders are really -- a real advantage, we feel like. And we -- they drive loyalty, they drive finance attachment, and that's a real key for Group 1.

Absolutely. Absolutely. And then in that vein on auto credit, obviously, there's a lot of headlines out there. And obviously, Group 1 skew is much higher on the credit quality curve. But just as investors continue to focus on risk to the consumer, have you seen any change in consumer behavior in the last few weeks starting the fourth quarter?

We have not seen a change in consumer behavior. And actually, we're seeing increased penetration rates on new and used. And then most of the headlines are centered around the deep subprime, which we don't play in. So a channel checked the majority of our lenders prior to this call and the business continues to be robust, and there's still a lot of appetite with the lenders to make car loans with us and our customers.

And our next question comes from Glenn Chin from Seaport Research.

I guess just a couple of questions on the U.K. So just broadly on the macro. I mean, this used to be close to 25-million-unit market. Can I just ask where you see it settling out? And what needs to be done to improve it? I mean, is it lower energy costs or government incentives? And does it need to get worse before it gets better?

It doesn't need to get worse before it gets better. What has to happen is the throughput through per rooftop has to grow. The margins were steady year-over-year. The aftersales business is healthy. We've got work to do on costs, as we've mentioned. And the OEMs are all working to try to rationalize their networks to a level that meets today's SAAR of around 2 million rather than the 2.5 million that you referenced, Glenn.

So as we take rooftops out, that should improve the throughput of the remaining networks, and they're all working feverishly on that. Some of them are in our opinion, taking a healthier approach than others. Groups like Volkswagen, groups like Mercedes-Benz, groups like BMW are doing a really great job working with their dealer partners to try to affect that.

And I think their outcomes are going to be really good, really healthy. But that's a real key is to try to get the throughput per rooftop up to a better level. And then while we continue to take costs out, we'll continue to do that and focus on that. Daniel may have something to add.

Glenn, there's a couple of things that I would add. If you look at the forward-looking SAAR curve for the U.K., it's pretty static out over the last -- the next 5 years in terms of approximately 2 million. I think the important thing for us as a company is that the premium sector within that 2 million remains pretty constant with a little uptick over the next 5-year period.

In terms of the U.K. government at this moment in time, they continue to be taxing both the consumer and the business fairly heavily. And I can't really see that changing in the short term. But as Daryl rightly said, there's a lot that we can still do around cost. And equally so, we bought a lot of stores over the last 18 months, and we are working on portfolio rationalization, which I think will make the business a much stronger business coming out of that in 18 months' time.

And can you -- with respect to that rationalization, Daniel, can you give us a feel or some perspective on how much more needs to be done? I mean, you took $124 million in impairment this quarter. How much more needs to go?

In terms of impairment, that's -- we've taken impairment for JLR as a franchise, and we took effectively a goodwill impairment on our whole company. If I look at our forward-looking projections for that, I would say I would be fairly confident, all things being equal, that we have taken the impairment that's required for us to take as a company.

In terms of other things that we would dispose of, typically, they're going to be smaller stores or underperforming stores that have little or no goodwill attributed to those stores, certainly in terms of franchise rights. So I wouldn't expect there to be any additional impairment.

Equally so, we've totally impaired the Jaguar Land Rover franchise, and we will be able to sell those for some element of goodwill or some element of value. So we should see some upside coming out of that.

And Glenn, if you look at how we've managed our portfolio in the U.S. over the last 4 years, we've sold smaller underperforming stores in the U.S. or divested of those or closed some of those. And so it's a similar approach that we're taking in the U.K.

Portfolio rationalization -- we're optimizing, I should say.

Just one last question on JLR. So what is different about the franchise in the U.K. versus in the U.S. or your stores for that matter? Do you have a different view of the JLR franchise in the U.S.

Well, when you look at where some of our U.K. JLR stores are, they're close to London. And London had some of the highest theft issues in the -- which affected insurability on those vehicles. And we saw the order banks dry up very quickly in those brands and then in those ZIP codes right around London. And so that was -- and that didn't recover really, Glenn.

And so when you look at that and when you look at how much those stores are contributing or losing, and what we really firmly believe at Group 1 is we've got to put our focus and attention and efforts in the areas that are going to drive the best shareholder return for our constituencies.

And so when we looked at it and assessed it, and it wasn't an overnight decision, obviously, it was something we've considered for some time. We just felt like our efforts are better with some of our other partners. And we also hope and believe in my conversations with the OEM on this, that they can go get partners that they feel like they can be successful with. But given the real estate that we have with JLR and given the location of those sites and just the outlook in general of it, we felt like our efforts were going to be much better utilized and the return is much better in our other brands.

And ladies and gentlemen, with that, we'll conclude today's question-and-answer session. We do thank you for joining today's presentation. You may now disconnect your lines.