On Thursday, Group 1 Automotive (NYSE:GPI) discussed first-quarter financial results during its earnings call. The full transcript is provided below.
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View the webcast at https://www.group1corp.com/events#future:2026:4
Summary
Group 1 Automotive Inc reported Q1 2026 revenues of $5.4 billion, gross profit of $878 million, and an adjusted net income of $104 million.
The company emphasized strategic cost reductions in the U.S., including cutting 700 full-time positions and saving approximately $50 million annually.
Virtual F&I services expanded to one-third of U.S. stores, enhancing transaction efficiency and customer satisfaction.
Weather conditions negatively impacted U.S. after sales by approximately $7 million in gross profit.
UK operations showed progress with steady new vehicle margins, increased same-store volumes, and a focus on cost control despite increased national insurance costs.
Strategic initiatives included rebranding U.S. stores and expanding partnerships with Chinese OEM Geely in the UK.
Capital allocation focused on acquisitions and share buybacks, with 205,190 shares repurchased in Q1.
Management remains focused on leveraging technology to improve returns and remains optimistic about long-term growth despite current market challenges.
Full Transcript
OPERATOR
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. Pete Delongshaw, Group 1's senior vice president, Manufacturer Relations and Financial Services. Please go ahead, Mr. Delongshaw.
Pete Delongshaw
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 include 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 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 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, Darrell Kenningham, our President and Chief Executive officer and Daniel McHenry, senior vice president, Chief Financial Officer. I'd now like to hand the call over to Darrell.
Darrell Kenningham (President and Chief Executive Officer)
Thank you, Pete. At Group 1, we pride ourselves in performing effectively in challenging times. We've successfully navigated economic recessions, the COVID pandemic and the CDK Global outage. In 2024, we focused 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 the 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 One 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 US 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 US stores, giving customers the opportunity to conduct their transactions with a virtual agent. This innovation is now installed in one third 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 by nearly 6% and we're pleased in our US 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 US 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 focused on engaging households under the Group 1 brand, especially in cluster markets. Our UK operation is demonstrating notable progress across key segments. New vehicle margins remain steady year over year while Same store volumes increased 2%. Same store used volumes rose nearly 5% accompanied by sequential PRU improvements. FI continued its positive trajectory up year over year and sequentially on a same store constant currency basis. Our UK 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 US 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 UK 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 US SG and A performance did not meet our expectations currently. Consequently, in early April we implemented cost reduction measures in our US business, cutting our headcount by nearly 700 full time employees and reducing SG and 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 that 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. artificial intelligence 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 one. 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 two Mercedes Benz dealerships in California. These stores were high cost operations with significant real estate and operating constraints. In the uk, aligned with the Volkswagen Group's Ideal Network plan. We acquired one Skoda and two Volkswagen dealerships while also disposing of one underperforming Volkswagen and one underperforming Skoda dealership. And in the UK we finalized a framework agreement with Chinese OEM Geely and will open three 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 in leveraging our large corporate fleet business in the UK. 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.
Daniel McHenry (Senior Vice President, Chief Financial Officer)
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 US 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 PRUs 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. PRUs declined approximately 3% in the 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 by executing disciplined sourcing and pricing dynamic used vehicle market our first quarter adjusted F&I PRUs were up nearly 4% on an as reported and same store basis versus prior year. Comparable period aftersale 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 US business continues to demonstrate resilience with strong after sales performance and disciplined execution helping offset ongoing normalization in vehicle margins. Turning to the UK While the UK remains a challenging operating environment, performance improved across several key areas. New vehicles performed in line with expectations. Used vehicle seam store revenues were up over 6% on a local currency basis with volumes up nearly 5%. Same store PRUs 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. Aftershields delivered year over year growth in both revenue and gross profit on an as reported and same store basis while 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 UK operations and along with F&I is the key area of focus as we work to enhance profitability by bringing best practices from the US 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 US and UK 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 31, 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 US syndicated credit facility was 3.09 times 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
we will now begin the Question and answer session. To ask a question you may press star and then one on your telephone keypads. If you are using a speakerphone, we do ask that you please pick up your handset before pressing the keys to withdraw your question. You may press star and 2. We do ask that you please limit yourselves to one question and one follow up. this time. We will pause momentarily to assemble our roster. Our first question today comes from Alex Perry from Bank of America. Please go ahead with your question.
Alex Perry (Equity Analyst at Bank of America)
Hi thanks for taking my questions here. 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 just provide a bit more color on the overall plan. Thank you.
Daniel McHenry (Senior Vice President, Chief Financial Officer)
Alex. Hi, it's Daniel here. I would say coming out of January and February, you know, we could see some weakness in the market and in 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 effect of that headcount reduction is approximately 35 million. In addition to that, we've taken 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 and a half million a quarter. Now what would that have done for us in terms of the quarter one? If we had taken that cost out on the 1st of January quarter one US SGA that you know, 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 US you know, additionally we continue to take cost out in the UK but we do to have that additional national insurance in quarter one that we didn't have last year. Really helpful. Thanks for all the color there. 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.
Darrell Kenningham (President and Chief Executive Officer)
Thanks. Well, this is Darrell. We saw some nice sequential improvement in used PRU. Sourcing is the big challenge right now. One, because the SAAR was depressed on 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's 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, you know, I expect we'll see margin improvement. I think we're better and more disciplined in our inventory acquisition. We're much better and more disciplined in both the US and the UK 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 car PRUs. Incredibly helpful. Best of luck going forward. Thank you.
OPERATOR
Our next question comes from Brett Jordan from Jefferies. Please go ahead with your question.
Patrick Buckley
Hey, good morning, guys. This is Patrick Buckley off of Brett. Thanks for taking our questions. 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 a buy on the sales floor when they realize they've got to write a check to make the transaction happen?
Darrell Kenningham (President and Chief Executive Officer)
You know, there's a lot of short answer is yes, I think it's a fact that negative equity is at a high and can be a headwind. We try to watch affordability measures quite a bit and you know, 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. Yeah, 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.
Patrick Buckley
Great, that's helpful. And then focusing on the uk, there's been a bit more of a prominent impact from recent energy spikes there. You know, 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, you know, one of the
Darrell Kenningham (President and Chief Executive Officer)
things that we were really pleased with in the UK in the first quarter was our order take rate. Going into the plate change month in March was very high, higher than we'd seen in honestly several years. And so, you know, 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. And we were really pleased all through January and February with our order, 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, that has changed materially. One thing we're really pleased about going into the second quarter in the UK is the health of our used car inventory is significantly better than it was a year ago. One of the challenges in the UK 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 uk, our used car inventories, and we hope that means better things for us in used cars this year there.
Patrick Buckley
Great, that's all for us. Thanks, guys.
OPERATOR
Our next question comes from John Babcock from Barclays. Please go ahead with your question.
John Babcock (Equity Analyst at Barclays)
Thanks for taking my question. The first one, just on your plan to exit the JLR brand, where does that start stand? And also did that impact your UK operations or is that now considered part of discontinued ops?
Darrell Kenningham (President and Chief Executive Officer)
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.
John Babcock (Equity Analyst at Barclays)
Okay, and then just back to the cost actions with the 700 people that you, I guess, caught from the workforce. Where were those? Were 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, but that would be useful.
Darrell Kenningham (President and Chief Executive Officer)
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 you know, fortunately in some of our corporate activities we've been able to implement some technology which, 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, that is, that's done. I mean that's not what we're going to do. We have already done that and executed that on the, on the headcount side..
John Babcock (Equity Analyst at Barclays)
Yeah, understood. Are you able to provide any split between the US and UK or that's all US.
Daniel McHenry (Senior Vice President, Chief Financial Officer)
It's Daniel here. Sorry. The $50 million was all US headcount reduction..
John Babcock (Equity Analyst at Barclays)
Okay, thank you.
OPERATOR
And our next question comes from Rajak Gupta from JPMorgan. Please go ahead with your question.
Rajat Gupta (Equity Analyst at JPMorgan)
Great, thanks for taking the question. Had a follow up on the disposal question. You know the California stores that you divested, can you give us a sense of proceeds and any EBITDA earnings impact? We should dive in from that and have a couple of quick follow ups.
Darrell Kenningham (President and Chief Executive Officer)
You know 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. You know, both the stores needed Capex and significant Capex. They had 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.
Rajat Gupta (Equity Analyst at JPMorgan)
Got it, got it. Okay, that's helpful. And then on parts and service, you know, thanks for calling out the weather impact. You know, if I adjust for that, you know, the U.S. business would have grown roughly 4% versus the 2% that 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 some warranty headwinds. Just curious how we should think about that going forward.
Darrell Kenningham (President and Chief Executive Officer)
Part of there's a little warranty headwind. I mean on a year over year basis, Warranty was only up 4% for us in the 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 numbers because of some of those collision centers that we've closed. And you know, there's a, at least what we're seeing and what we see in the sector is there's a, there's a decline in the collision business in general which exacerbates that, which you see that in our wholesale parts numbers that we're 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 and you take the slower growth in wholesale parts and you mix that into customer pay and warranty and you see a slower, a slower number on after sales growth. So you know, we had almost 6%, I think, gross profit growth in the same store. Gross profit, Gross on customer pay in the U.S. pleased with that. Always wanted to be more. But you know, when we, when we try to pull all of our after sales levers, that's generally directed at customer pay. Hope that helps.
Rajat Gupta (Equity Analyst at JPMorgan)
That's helpful. Just one clarification. The F and I adjustment, the 6.8 million, what was that? Type 2.
Daniel McHenry (Senior Vice President, Chief Financial Officer)
So Rajat, that was effectively. adjustment. It represented a one time non recurring adjustment to our revenue calculations for retrospective rebates. Effectively
Rajat Gupta (Equity Analyst at JPMorgan)
understood. Okay, thanks for all the color. Good luck.
OPERATOR
Our next question comes from Jeff Lick from Stevens. Please go ahead with your question.
Jeff Lick (Equity Analyst at Stevens)
Good morning. Thanks for taking my questions. Darrell. I was just wondering, as you look at this, the first four months of this year, it's been pretty noisy. I was curious if you 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 April, we've heard from some of your peers that, you know, April's been okay, but maybe feels a little weak, like people are being cautious because of the war. Just kind of curious your thoughts on where things are at.
Darrell Kenningham (President and Chief Executive Officer)
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 or for consumers, these Days, which, you know, as you know, in our industry, consumer confidence in the SAR run right together. And so as consumers lack confidence, I think it is a headwind to us. I do think, you know, there's evidence that consumers are still spending. We've seen it in ex weather. We've seen, you know, still some decent performance. But there's no distract, 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 for if, you know, the star does stay in this range, you know, mid 15s, 15, 6, 7, something like that, that we're able to compete there, there effectively.
Jeff Lick (Equity Analyst at Stevens)
And then just to follow up for whoever wants to take this on, you know, on the 700 head count, you know, 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 abilities, either on the, on the cost side or, you know, or on the gross margin side, what are some of the areas where you might be worried about that maybe you could think, 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. These dealers are, you know, the dealerships are evolving in terms of functions that can be performed by software and whatnot. So just, But I'm just curious, where are you worried that if you cut to the muscle it might show up negatively?
Darrell Kenningham (President and Chief Executive Officer)
Well, I don't think, I don't think we cut muscle on this one. We tried to be very logical about it. Where we did touch what I'll call productive, which is not a perfect descriptor, but people who sell and service vehicles. Where we did touch that, you know, 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 in our, especially our sales department to manage customers and inbounds and leads and sales and conversion. 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, you know, we touch very few technicians and if we did, it was really around some that were very lower productivity. But we've actually leaned into more technician investment during this period, there's 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 in our technician mentoring program. Three quarters of our techs are, are part of a mentoring program now are hourly techs which we feel like is vital to retention and growth. So we didn't touch anything that touched what we consider longer term growth opportunities, especially in after sales.
Daniel McHenry (Senior Vice President, Chief Financial Officer)
Jeff, it's Daniel here. I can give you one really typical example of where we cut costs this quarter. Quarter one, we rolled out digital deal jacket across 100% of our dealerships. Effectively all of the deals are either signed online or are held held online. Traditionally we would have had a scanner being and a dealership scanned in 100 ish pieces of paper that would have formed the deal jacket. Clearly going to 100% digital meant that that scanner being was no longer required. Scanner being a person. Being a person. Correct.
Jeff Lick (Equity Analyst at Stevens)
Correct. Okay, awesome. Well, thanks very much for taking my questions and best of luck in Q2 and the rest of the year.
Darrell Kenningham (President and Chief Executive Officer)
Thank you.
OPERATOR
Our next question comes from David Whiston from Morningstar. Please go ahead with your question.
David Whiston (Equity Analyst at Morningstar)
Good morning. The upcoming Geely UK locations, are they going to be standalone or in the existing Group 1 footprint somewhere?
Darrell Kenningham (President and Chief Executive Officer)
They're 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 we had a Mini standalone store and a BMW standalone store. Mini's 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 it's not we don't have to go sell Geely's 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 that's typically
David Whiston (Equity Analyst at Morningstar)
Thanks. And then on the virtual F and I'm just trying to balance here, it's great for perhaps efficiency and speed for the customer.
Pete Delongshaw
But are F&I managers losing some opportunities here financially? No, they are not. And this is Pete delongshaw 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 customer convenience. Was the driving factor. And as we perfected this, what's happened is we've lowered turnover, we've lowered compensation, we'd actually increase the PRU on what I'd say the bottom performers. So this has really been a terrific initiative that has paid off in four different ways.
Darrell Kenningham (President and Chief Executive Officer)
You know, one way to look at it is on the productivity of the F and I producers. And many of the folks that are virtual F and I managers for us used to work in our stores. They now are virtual F and I managers doing doing deals all over the country. But you know, in an average day an F and I Manager might do three deals. As a virtual agent, they can do 8, 7, 8, 9, 10. And that's 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 two 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.
OPERATOR
Our next question comes from John Sager from Evercore. Please go ahead with your question.
John Sager (Equity Analyst at Evercore)
Hey Darrell. Thanks. I wanted to just dig into a little bit of the divergence between the UK and the US and where you think you might have more impact on the SGA cost savings over time in either market or in one specific area. Yeah. Is there like basically more low hanging fruit in one region or the other?
Darrell Kenningham (President and Chief Executive Officer)
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 SGA and I think we've demonstrated that our headcount is still lower than it was pre Covid. And you know, I think, I think in the UK there's still opportunity, there's still things for us to do as we've. You know, one of the things we were really pleased with in the first quarter was our growth and our lines of business. You know, we saw F and I grow after sales grow quite a bit. We had nice same store sales growth and in new cars and pre owned and so, you know, 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, some transaction costs don't have as much automation in our UK business as we have in our US business. That's a focal area for us. And so, you know, I think there's opportunity there. In the US 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.
Daniel McHenry (Senior Vice President, Chief Financial Officer)
John, it's Daniel here. One thing that I would note would be in the U.S. pacific, 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 US March, SGA as a percent of gross was a lot more healthy. And you know, some of the actions that we have taken, hopefully that will continue into quarter two and three.
John Sager (Equity Analyst at Evercore)
That makes sense. Yeah. Thank you very much. And then, you know, relative to the 84% in the UK 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 80% still a bridge too far for this year?
Daniel McHenry (Senior Vice President, Chief Financial Officer)
John, it's Daniel again. You know, the aim is to get as close to the 80% stated SGA as a percent of gross as 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.
John Sager (Equity Analyst at Evercore)
All right, thank you.
OPERATOR
Our next question comes from Mike Ward from Citigroup. Please go ahead with your question.
Mike Ward (Equity Analyst at Citigroup)
Thanks very much. Good morning, everyone.
Darrell Kenningham (President and Chief Executive Officer)
Good morning, Mike.
Mike Ward (Equity Analyst at Citigroup)
Sorry to keep you waiting. Sorry to keep on. I just want to double check and make sure I'm doing the math right on this. The $7 million impact from was all on parts and service in the U.S. is that correct?
Darrell Kenningham (President and Chief Executive Officer)
That's correct, Mike. That was our estimate, Mike. It's probably a little conservative. We tried to be conservative with it, but yeah, we, we assume that all the vehicles that we lost were replaced. Whether that's true or not, who knows.
Mike Ward (Equity Analyst at Citigroup)
And the parts and service you don't get back.
Darrell Kenningham (President and Chief Executive Officer)
It's just we, we felt like. No. So. And so if I'm doing the walk right with sga, you still paid your people. So that had about an 80 basis point impact inflating the SG and a percentage of growth. So that's our start point at 70 point. 5.
Daniel McHenry (Senior Vice President, Chief Financial Officer)
Is that right, Daniel? Is that what you were alluding to?
Mike Ward (Equity Analyst at Citigroup)
That's correct.
Darrell Kenningham (President and Chief Executive Officer)
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 and as a percentage of GROSS in the US is that the right way to think about it?
Daniel McHenry (Senior Vice President, Chief Financial Officer)
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%.
Darrell Kenningham (President and Chief Executive Officer)
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, 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 one and get more leverage on it. So hopefully we'll see that continue as we go through the year. And, and you know, we're trying to do more, more advertising from a, you know, one voice rather than 148 different store voices.
Mike Ward (Equity Analyst at Citigroup)
Makes sense. Turning to the UK a little bit, what is your current position with the China brands? And I saw that you're expanding kind of your relationship with, with Keely. How many stores do you have and like what do they represent and where, where are we going, do you think?
Darrell Kenningham (President and Chief Executive Officer)
We have three that we've 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 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, their fast growth is great, good for them. That's great. But we're a little concerned they got over dealer than some of some brands which, you know, you could, we could say we're, you know, 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 real volume for six, eight months in the U.S. so there's not a of lot, lot of UIO yet to drive service departments. So we were taking a little slower approach. But we're in now and you know, we're excited to learn this, 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, you know, we're going to rely on our formula. Mike. You know, we feel like we're good dealers, we're good representatives of OEMs and they will want us to do business for them, them and they will come to us and try to enable us, you know, expanding our footprint with them. And that's a formula that's worked for us in both markets. We feel like it'll work well with the Chinese as well.
Mike Ward (Equity Analyst at Citigroup)
Makes sense. Thank you very much everybody. Appreciate it. Thank you, Mike.
OPERATOR
And with that everyone, we'll be concluding today's question and answer session. I'd like to turn the floor back over to Darrell Cunningham at Group 1 for closing remarks.
Darrell Kenningham (President and Chief Executive Officer)
Thank you, Jamie. In summary, we remain committed to our strategic initiatives, local focus, operating excellence, differentiated after sales and disciplined capital management. We'll continue to build on our results from the first quarter. UK 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.
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