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Asbury Automotive Group Inc  (NYSE:ABG)
Q3 2018 Earnings Conference Call
Oct. 23, 2018, 10:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day and welcome to the Asbury Automotive Group Third Quarter earnings call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Matt Pettoni. Sir, please go ahead.

David W. Hult -- President & CEO

Thanks, Matt, and good morning, everyone. Welcome to our third quarter 2018 earnings call. We are pleased with the results for the quarter. Some highlights are as follows. We achieved record adjusted EPS of $2.21, we grew total retail unit sales by more than 10%. We reduced SG&A as a percentage of gross profit by 220 basis points to 67.9% and we increased income from operations by 16%, our plan for the remainder of the year remains unchanged. We will continue to focus on the aspects of the business that we can control, specifically parts and service, used cars, F&I and overall expense management, while continuing to intelligently deploy capital toward the highest risk-adjusted return. Year-to-date, through October 22, we have deployed over $160 million of capital, which includes $91 million on share buybacks and approximately $70 million on acquisitions. The three acquisitions that we completed this year have integrated well into our Asbury operating model, and performance is in line with expectations. Our omni-channel investments are yielding strong results and the benefits can be seen in the record performance that we achieved this quarter. John will provide more details in a few moments. I will now hand the call over to Sean to discuss our financial performance. Sean?

Sean Goodman -- SVP & CFO

Thank you, David, and good morning, everyone. I would like to start with some color on the impact of hurricane Florence on our operations in North Carolina and Virginia. Despite the intensity of Florence, due to our emergency readiness programs and some good fortune, we did not have any notable property damage, while our North Carolina and Virginia stores were adversely impacted, the overall effect on our consolidated results was not significant and we did not expect to see any upside on our Q4 results. As a reminder, Q3 2017 was impacted by hurricane Irma and Harvey. This year, we implemented accounting standard ASC 606 for revenue recognition. The impact in this quarter is not material. So overall, compared to the prior year third quarter, our revenue increased by 10%, gross profit increased by 7%, gross margin of 15.8% was 40 basis points lower than last year. SG&A as a percentage of gross profit improved by 220 basis points to 67.9%. Operating margin of 4.6% was 20 basis points higher than last year.

Adjusted net income increased by 46% to $44.9 million and adjusted earnings per share increased by 49% to a record of $2.21. Net income for the third quarter of 2018 was adjusted for a tax expense of $0.03 per share associated with the IRS' recently issued guidance regarding section 162(m) of the Internal Revenue Code. In Q3 2017, there were no non-core adjustments. Our effective tax rate was 25% for the third quarter of 2018, down from 38.7% in the third quarter of 2017. We continue to expect the full year tax rate to be between 25% and 26%. We successfully managed our SG&A expenses during the quarter to achieve a 220 basis point reduction in SG&A as a percentage of gross profit. This is despite continued omni-channel investments, which are on track to be in excess of $10 million this year.

Note that last year's SG&A included costs associated with CEO transition charges and this year we benefited from relatively favorable experience in certain employee insurance costs when compared to last year. SG&A as a percentage of gross profit for the nine months ending 30th of September was 68.6%, which is 110 basis points better than the prior year. As a result of our success in managing SG&A expenses this year, we now expect SG&A as a percentage of gross profit to be slightly below 69% for the full year. At the end of the quarter, our total leverage ratio stood at 2.7 times and our net leverage ratio at 2.2 times. Thanks to our strong operating results and solid cash flow generation.

While the 2.2 times leverage ratio is below our targeted range of 2.5 times to 3 times, we believe that our leverage at the end of Q3 allows us to capitalize unexpected attractive future capital deployment opportunities while taking into consideration economic cycle. As we think about the economic cycle, it's worth noting that almost 50% of our gross profit is generated by the relatively stable parts and service segment of our business and that our SG&A costs are largely variable. We believe this business structure positions us well to effectively manage our costs and with the economic headwinds. Our investor presentation posted this morning shows some further information as to how we think about leverage. We repurchased $70 million of our own shares in Q3, bringing the total share repurchases for the first nine months of the year to $57 million. Now since the end of the third quarter, we have opportunistically repurchased an additional $34 million of our own shares, bringing our total for this year to $91 million, representing approximately 7% of the outstanding shares at the beginning of this year.

Our remaining share repurchase authorization has been increased to $100 million and we are also proactively looking at attractive acquisition opportunities. Despite the same inventory days as last year, floorplan interest expense increased by $2.6 million over the prior year, driven by increases in the LIBOR rate. A reminder that our floorplan debt has a floating interest rate, while all other debt is fixed rate. From a liquidity perspective, we ended the quarter with $7 million of cash, $43 million available in the floorplan offset account, $107 million available on our used vehicle line, $237 million available on our revolving credit line and we also had an incumbent real estate in excess of $200 million. I would now like to hand the call over to John to walk us through the operating performance in more detail. John?

John Hartman -- SVP, Operations

Thank you, Sean. My remarks will pertain to our same-store performance compared to the third quarter of 2017, looking at new vehicles while SAAR for the quarter was $17 million or 1% below last year. We focus on retail SAAR, which was down 3% for the quarter. In this lower retail SAAR environment, we were able to grow our new unit sales of 6%. Overall, our new car margin was 4.3%, 10 basis points lower than last quarter and 40 basis points lower than last year. This was driven by strong volume growth of imports, which are characterized by relatively lower margins. In addition, margins for imports declined due to aggressive incentive targets. Domestic margins were down, because we underperformed in certain domestic brands, thereby missing some incentive money. Our total new vehicle inventory was $773 million. Our day supply remained flat from prior year quarter at 73 days.

Turning to used vehicles. We are very pleased that we were able to increase our used to new ratio of 130 basis points, resulting in used vehicle unit sales increasing by 8% from the prior year. Our gross profit margin of 7.3% was up 10 basis points from both last quarter and the prior year. The successful deployment of our omni-channel initiatives and used car enterprise software help us drive these results. Our used vehicle inventory of $150 million is a 35-day supply, which is consistent with the prior year. Turning to F&I. Our team continues to deliver strong results. Total F&I gross profit increased by 5% with gross profit per vehicle decreasing slightly to $1,524. Turning to Products and Service. Our products and service revenue increased 2% and gross profit increased 3% despite an 8% decline in warranty compared to the prior-year quarter. This was achieved with a 5% increase in customer pay, the improved used vehicle sales caused our reconditioning work within parts and service to increase by 9%. I would like to take a moment to give you an update on the progress of some of our omni-channel initiatives. Our centralized brand certified digital sales team currently supports 45% of our stores and we are ahead of schedule to onboard the remaining stores within the next 12 months. Stores participating in the program during this quarter increased digital sales by over 20% year-over-year. Our PUSHSTART online sales tool handled over 4,000 vehicle sales in the quarter, which is approximately 9% of our total retail units. We continue to grow the traffic utilizing our digital parts and service scheduling tool and for the quarter online service appointments were up 34% from the prior year to an all-time record of 110,000. We are excited about our omni-channel driven growth and we are pleased that we've been able to invest in building omni-channel capabilities while maintaining our SG&A discipline. In conclusion, we would like to express our appreciation to all our teammates in the field and our support center who continued to produce best-in-class performance. We will now turn the call over to the operator and take your questions. Operator?

Questions and Answers:

Operator

Thank you, sir. (Operator Instructions) Our first question comes from Rick Nelson with Stephens.

Rick Nelson -- Stephens, Inc. -- Analyst

Nice quarter. I'd like to follow up on the same-store sales both new and used cars outpaced the overall market by a pretty significant margin, if you could discuss the drivers there and any regional commentary, regional areas of strength or weakness would be helpful.

John Hartman -- SVP, Operations

Hey, Rick, this is John. Basically, we've had a real good focus on used vehicles this year, and we've really focused on using the software. And I think our teams grabbed it and knows it. So I think that's really helped on the used car. On the new car side, we did have some lift year-over-year from the Florida markets which were down a little bit last year, and how we look at the new vehicle market is we really can't control the SAAR, what we try to focus on is beating the competition locally and just being ahead of the competition locally there.

David W. Hult -- President & CEO

Yes, I would add to that, Rick. The omni-channel piece that we're working on, there's a two connection prong there between our strong teams and the store is connecting with the digital team here and both are really producing well, we're generating more traffic, we are converting at a higher rate and we're finding efficiencies in doing so. And that's only with 45% of the company and so we're excited about the future.

Rick Nelson -- Stephens, Inc. -- Analyst

Just to follow up on omni-channel, sort of -- any sort of timeline when you expect you're going to leverage those investments or in fact are you starting to leverage that investment about $10 million that you spoke of?

Sean Goodman -- SVP & CFO

Yes, we're pretty much mostly expense with that for the year. We're very pleased with the results that we've seen so far. We do believe from a unit perspective and somewhat to an SG&A perspective on our comp, we're seeing the leverage benefits of it with only 45% and we continue to think we will get better.

Rick Nelson -- Stephens, Inc. -- Analyst

And F&I per unit looks like backed up a little bit, if you could speak to that and your expectations as we push forward?

John Hartman -- SVP, Operations

Rick, I think that's -- some of that's to do with the mix we had and increase in our used vehicle retail 130 basis points versus no. So we saw the finance penetrations just dropped slightly and we've had some pretty soft performance in F&I for a while, but I don't -- I see us maintaining that range of F&I.

Rick Nelson -- Stephens, Inc. -- Analyst

And finally, if I could ask about capital allocation and the acquisition environment, and I think this chart in your new power point leverage chart is pretty interesting too, where do you think we are within that band of the normal targeted range with some of those factors that you decide (ph) for influencing the leverage?

Sean Goodman -- SVP & CFO

Hi Rick, it's Sean, good morning. So, our chart shows a equilibrium leverage range of 2.5 times to 3 times. And as I've stated, our leverage at the end of the third quarter was 2.2 times and that reflects very strong results in the quarter. It also reflects the acquisitions -- that we didn't do any acquisitions in the third quarter and we bought back $17 million of shares. It positions us very well for opportunities in the future. And you see that in the share buybacks that we've done at the beginning of the third quarter, average share price during the -- at the beginning of the fourth quarter, average share price during the third quarter was around $72 and our average share price during the first three weeks of the fourth quarter has been around $62. And so in that period, with that lower average share price, we bought back $34 million of shares just in that three-week period of time, and that's just an indication of the flexibility we have given our leverage ratio at the beginning of the quarter and we are also looking at acquisitions that I think are exciting to us, if they provide the right return and there is a slide in our presentation about that as well that we do look at each project stand-alone by itself and the risk and return characteristics, and if the project meets the return characteristics given the risk profile, then we would invest in that project.

Rick Nelson -- Stephens, Inc. -- Analyst

Great, thanks a lot and good luck.

David W. Hult -- President & CEO

Thank you.

Operator

Our next question comes from Bret Jordan with Jefferies.

Bret Jordan -- Jefferies -- Analyst

Hi, good morning, guys. In your prepared remarks, you talked about aggressive incentives on the import side impacting margins, could you talk about the cadence of incentives and whether or not you're seeing that moderating or we're still sort of seeing the volatility that we saw around the second quarter as well?

David W. Hult -- President & CEO

I'll try to answer the best I can, the imports -- midline imports, we've got some manufacturers, they have some pretty aggressive incentives and what happens is you really can't say OK, we're going to (inaudible) the volume and sales margin, because everybody around you is chasing that incentive which drives the margins down. So I don't see a difference in the cadence coming forward.

John Hartman -- SVP, Operations

Yes. I'll also add to that, when you think about our mid-line imports, everything is geographical as far as where you're located with predominant mid-line imports and then we have a lot of high-volume mid-line imports in very metro markets which is very intense and competitive, which further push the margin down compared to an import store that might sit in the Midwest.

Bret Jordan -- Jefferies -- Analyst

And then another sort of cadence question, on 5% growth in customer pay service, could you talk, as far as ramping, are there programs you're running to drive volume, and years ago, you used to run tire discounting, but is there anything that you're doing out of the ordinary or is that just particular strength in customer demands or service, I guess as the quarter progressed, did you just see that changing accelerating or decelerating?

David W. Hult -- President & CEO

Yes, I would say with -- about 2.5 years ago, we implemented some software that was new to our organization that really clearly helped us identify where areas of opportunity was, how the car was moving through the system, because cycle time is such an important factor with the consumer from a point of defection, meaning how quickly can you get them in and out. We're getting very comfortable with that software now and we're starting to see the benefits of it. It's a very competitive space, we focus on brakes, batteries and tires, that has never changed and we're very focused on our customer attention, how we communicate with them. So from a digital perspective through text and via email, more so text now more than anything we're texting NPIs to customers and communicating that way and really focusing on selling the work that's needed and focusing specifically on safety item work. So I think that 5% has been steady, but at times it gets a little frustrating, because we see opportunities to grow certainly even more than that.

Bret Jordan -- Jefferies -- Analyst

And I guess one final question, on a comparable basis, give a feeling I guess year-over-year the hurricane impact, what did it cost you last year that maybe you didn't get those store closure days or anything this year?

David W. Hult -- President & CEO

So last year's hurricanes, hurricane Harvey and Irma, we did announce in last year when we had our earnings call (inaudible) impact of that, I think it was around a thousand caused that we missed out on selling due to those two hurricanes. The hurricane this year while we did have store closures in North Carolina and Virginia, we had about four days of impacted sales in North Carolina and Virginia and maybe about two days in South Carolina. Overall for the quarter, that was not a material impact on the consolidated results.

Operator

Thank you. Our next question comes from James Albertine with Consumer Edge.

James Albertine -- Consumer Edge -- Analyst

Great, thank you for taking the question and good morning and congratulations. Wanted to ask if I could on a regional basis, if you saw and I understand luxury units up, gross profit per unit up, but for imports and domestic, it was the opposite. So for imports and domestic, were there any regions within your portfolio where units were actually higher year-over-year while GPUs worked higher?

David W. Hult -- President & CEO

It was pretty consistent, James, across the board that we were down a little bit in gross and up in units. So regionally we didn't see a big -- no fluctuation (technical difficulty).

James Albertine -- Consumer Edge -- Analyst

Got it. So industrywide nothing specific to any regions or isolate impacts there, great. And then second question I have was on technicians, you've been talking about for several years, I think, now shortage for products and service technicians, where are you seeing the best opportunities in terms of sourcing technicians right now, is it coming from the aftermarket competitors or is it more straight out of sort of trade schools, I think, of that nature?

David W. Hult -- President & CEO

We try to take the technicians out of the trade schools but we'll take them from anywhere, we've got multiple programs going on that try to attract and retain our tech headcount. It's something we look at every week. We've got a lot of upside and fixed and really that's a challenge that keep moving forward that we just need to increase our tech headcount, but it's not going to get any easier.

James Albertine -- Consumer Edge -- Analyst

Would you say that you are sourcing more recently from peers or does it feel like it's been pretty steady over the past few quarters?

David W. Hult -- President & CEO

I think it's been pretty steady.

James Albertine -- Consumer Edge -- Analyst

Okay. And then last question on digital, great slide in here on advertising spend on your third quarter presentation, wanted to understand if you could break out or delineate internal generated leads versus sort of usage of third party? And for the third parties, are there any names you'd be willing to share in terms of where you're favoring right now, whether it's things like cargo routes, or auto trade or so forth if you'd be willing to share that?

David W. Hult -- President & CEO

Yes, I would say our mix hasn't changed. We're very efficient with our ad dollar spend, naturally we would -- we value direct internet (ph) leads over third party, but we have tremendous third-party relationships and it's a tough question to answer, because some of those third parties are stronger in other markets and then weaker in other markets and then others that are weaker or stronger in those markets, but we are selective, we look at it every month, we look at what we're getting for our money and we look at the conversion rate and we're constantly tweaking, making adjustments to it, but our main focus is building our own content and driving our own traffic for the higher conversion.

James Albertine -- Consumer Edge -- Analyst

I guess as a follow-up to that last question, can you give us a breakdown of internal generated leads versus third party and how that's trended over the past quarter or two?

David W. Hult -- President & CEO

Yes, I would -- we've never shared that before and we're really not comfortable doing it now, I would -- this isn't real helpful, but it continues to grow at a steady rate, but we certainly couldn't do without our third party partners.

James Albertine -- Consumer Edge -- Analyst

Understood, thanks again and best of luck.

David W. Hult -- President & CEO

Thank you.

Operator

Our next question comes from John Murphy with Bank of America.

John Murphy -- Bank of America -- Analyst

Good morning, guys. A follow-up on incentives and pricing, I mean it sounds like the industry is getting a little bit more disciplined sort of across the board, but it sounds like that you're -- on the import, in certain markets, you're having a little bit of an issue or they're having a little bit of an issue on pricing incentives, is that because they're offsite on mix and have some of the wrong product for the market, they're just sort of heavier in sedans or is this just a sort of a competitive action that they're taking right now.

David W. Hult -- President & CEO

I mean to me it's a little of both, I think it's a competitive action, where the manufacturer wants to grab share. So they'll put aggressive incentives out and again when you get into these stair step or number-related objectives, it's difficult and I said it couple of minutes ago, you can't decide, I'm not going to chase volume while all the other local competition around you is chasing it, because you windup losing the business. So you kind of have to go on and get into that game from the get-go to get the volume.

Sean Goodman -- SVP & CFO

But you also think about imports in trucks, you know Nissan Rogues, Honda CR-Vs (inaudible) Fords, all the trucks and those are becoming, as you know, high-volume segments with not a lot of margin baked into them in a very competitive space.

John Murphy -- Bank of America -- Analyst

So, you're actually at this point seeing some of the small crossovers and mid-crossovers become essentially like sort of the sedan that you saw, three to five years ago, just as far as the competitive environment and the margins that you're getting on them.

David W. Hult -- President & CEO

Absolutely.

John Murphy -- Bank of America -- Analyst

Then a second question. Sean, you talked about attractive opportunities to deploy capital and it sounded like you're -- there's an expectation that things are going to get more attractive for deploying capital. I'm just curious, is that sort of in the traditional channels of acquisitions, where you see some of the privates getting more realistic around valuations, or is there sort of something outside the normal bounds that we should be thinking about that you might be going after?

David W. Hult -- President & CEO

This is David. I would say in over 30 years, we're doing this in the cyclicality of it, from 2010 to 2017, the valuations were very high and the market was optimistic and the deals were optimistic, expecting to grow their business even more and they almost want to be paid on the multiple that they weren't even attending themselves. The benefit when it gets a little bit bumpy like this and what I've seen over the last three decades whether I've been with the private group or public group, the best people grow in bad times, or tough times. And so we see this is as a great opportunity if the SAAR backs up a little bit or if it gets a little bit choppy to acquire things at realistic rates. We're lucky, our only differentiator as we tell everyone is our people, we have great people and we have a lot of them, so to grow and add at the right value, really becomes accretive for our shareholders and we're excited about that opportunity.

John Murphy -- Bank of America -- Analyst

Sort of contrary to popular wisdom, a bit of a slowdown in new vehicle SAAR actually might be a very attractive opportunity for you guys to grow the business.

David W. Hult -- President & CEO

Great.

John Murphy -- Bank of America -- Analyst

And then just lastly, if you think about the SG&A levels, you're talking about a little bit less than 69% this year. It's fantastic performance just hands down (inaudible) anything else since one of your better years, is there more room on that to take cost out or will that get better over time with leverage or do you think this close to 69% rate is almost as good as you can operate at?

John Hartman -- SVP, Operations

Yes, I'm getting a little over my SKUs (ph), John, so I'll paint a picture that I can't answer today. But with what we have going on with our omni-channel with where we see the business by 2020 to 2025 and what that dealership model is going to look like, we do see opportunities to be more efficient by doing what we do today.

John Murphy -- Bank of America -- Analyst

So we shouldn't think about in the context of sort of the old school confines of high 60s to low 70s, there might be a whole sort of sea change that's going on here over time?

Sean Goodman -- SVP & CFO

Yes, I think it's a couple years out, maybe a few years out, but I definitely think you'll see a lot of industry change with SG&A specifically around compensation.

John Murphy -- Bank of America -- Analyst

Okay, great, very helpful, thank you so much, guys.

David W. Hult -- President & CEO

Thank you.

Operator

Thank you. Our next question comes from Armintas Sinkevicius with Morgan Stanley.

Armintas Sinkevicius -- Morgan Stanley -- Analyst

Good morning. Thank you for taking the question. With regards to new vehicle sales, it seems like there was a lot of, mostly it was market share and coming from the import channel. Just curious if there are any specific manufacturers or just trying to think about drawing lines or conclusions across the industry here?

John Hartman -- SVP, Operations

Well, on the import side, I mean your volume manufacturers are basically Nissan, Honda and Toyota. And if you look at our percent of sales, I mean we're driving 61% of our sales from that segment -- in the import segment.

Armintas Sinkevicius -- Morgan Stanley -- Analyst

But was it you taking share in those segments, as you mentioned, you couldn't dial back on volume. So did you make the push then on volume and find yourself taking share in those vehicles?

John Hartman -- SVP, Operations

We did, and the benefit of volume is one, you get the F&I income on that; two, you get -- you can feed your used car inventory to retail used vehicles. And then as the UIO (ph) grows, obviously you're feeding your service and products business in the future. So it's all benefits when you get share.

Armintas Sinkevicius -- Morgan Stanley -- Analyst

And then with the used car sales running strong as well, what's your view of the used car market this year, do you think we're on record pace for used car industry sales and how has October trended to date?

John Hartman -- SVP, Operations

I mean October is kind of as expected, for October, typically the used car market's to about 2.5 times what the new vehicle SAAR is, I think it's a solid used car market moving forward.

Armintas Sinkevicius -- Morgan Stanley -- Analyst

Okay. And then on the M&A environment, as you talk about potentially attractive acquisition opportunities, is there something you're looking at today or is it something that you're just waiting for and evaluating as they come?

John Hartman -- SVP, Operations

I'll answer as best I can in this way. During the year of 2018, I don't think we've had a week where we haven't been looking at an acquisition. So it's fair to say we're looking at things now, we're excited about some things we're working on and the potential, but like anything else, they are very complex to put together. So we're hopeful.

Armintas Sinkevicius -- Morgan Stanley -- Analyst

Okay. And would you think about tuck-in type acquisitions or something of large-scale?

John Hartman -- SVP, Operations

I think the answer is both. It really depends, when you think about going into a market you haven't been in before other than the revenue you're buying, and to me, more importantly than the revenue that you're buying is you really need to understand how that business operates and how well it will fold into your organization and assimilate to what you have, sometimes buying revenue isn't necessarily a great thing for our company if it doesn't mesh well together. So we're very focused on how they operate. Is it a good fit for us and is it win-win for us in the dealer partner. Tuck-in opportunities, we look at tuck-ins as they come up and certainly want to take advantage of them, but we also think that tuck-ins are good time to look for broken stores, because you tend to have scale in those markets and you can really support them well with your brand name.

Armintas Sinkevicius -- Morgan Stanley -- Analyst

Great, thank you so much.

Operator

Thank you. Our next question comes from Chris Bottiglieri with Wolfe Research.

Chris Bottiglieri -- Wolfe Research -- Analyst

Hi, thanks for taking the questions. Couple follow-ups, I guess my first one on the insurance, could you quantify at all how much of the benefit that was to SG&A, (inaudible) gross per unit, how you want to contextualize that?

Sean Goodman -- SVP & CFO

No, this is Sean, we didn't quantify the impact, but what we are seeing is that some of our insurance claims experience and I'm thinking specifically here about workers' comp and medical benefits, that's been last year and that's certainly helped by SG&A. But we have not quantified that.

Chris Bottiglieri -- Wolfe Research -- Analyst

So that's something you think that would persist, not just like a one-time accrual true-up?

John Hartman -- SVP, Operations

No, I think it's a one-off for this quarter in terms of the variation versus last year, we expect that to be more stable in the fourth quarter relative to last year. So it's a one-off benefit this quarter versus last year, but it should be more stable in the fourth quarter.

Chris Bottiglieri -- Wolfe Research -- Analyst

And then the used system changeover obviously pretty tremendous growth in Q3, very easy compare in Q4, is there a way to contextualize how much of headwind that was last year and maybe just frame for us, would you think the underlying -- your underlying same-store sales unit growth is right now that you can think about projecting outwards depending on the macro environment?

Sean Goodman -- SVP & CFO

I think when you change -- if people are used to using a certain system or software, any time you change it, it's kind of like you're going back to scrap (ph) and starting a new. So I think it took some time for people to get used to it. Not that the underlying business changed, it really doesn't. But the tool that we are using every day to manage that business did. So I think you're seeing some of the traction after three or four quarters of using the software and the employees getting used to it and taking advantage of this where you saw the uptick in sales.

John Hartman -- SVP, Operations

I also add that I think our omni-channel piece really wasn't in full gear last year at this point and we're still probably in the third, fourth inning with it. So as that continues to mature and grow with a combination efficiency of that and our team in the field really getting used to that software is going to garner great results going forward as well.

Chris Bottiglieri -- Wolfe Research -- Analyst

In those markets where you do have the omni-channel, I think it was like 43% or something like that, how are they using the comps compared to the markets where you don't have that in place?

David W. Hult -- President & CEO

So what we are noticing and I'll answer it this way. Much higher conversion rates, I think John mentioned in his script, a 20% increase year-over-year, you can kind of see we've been running as a total company at 10% for the quarter. So we're closing at a higher rate, converting at a higher rate with those 45% of those stores.

Chris Bottiglieri -- Wolfe Research -- Analyst

And then finally, just one last big picture question. The gross profits have been down or seven years running approaching like $59 per unit, is there a way to frame where you think this metric could bottom either incremental SG&A or private deal or profitability or is it just you think you're making so much money in F&I and P&S that really is in the bottleneck, how do we think about kind of the direction of used vehicle gross profits going forward?

Sean Goodman -- SVP & CFO

You know we thought a year ago, they were stabilizing it, it's tough to really answer that. And it really matters geographically where your stores are loaded OK, because some markets are more competitive as others as far as saturation of number of rooftops. The one positive I would say, we have pretty tough new car margins. We are predominantly mid-line import, which is a tough thing right now and we're demonstrating high operating margins in great SG&A. So, to me, the takeaway is regardless of focusing on the negative of the new car margin, just how well this model can be efficient, generate income and control expenses at the same time. So that lends a lot of confidence to us regardless of where it goes, we can control our destiny and our growth.

Operator

Our next question comes from David Whiston with Morningstar.

David Whiston -- Morningstar -- Analyst

Wanted to continue with the incentive discussion, basically, I'm just wondering is there ever a point where and I guess would probably be more applicable to the domestic side given that the smaller part of your business, but is there a point where you would say, we're just not going to play this game anymore next to those franchises or conversely do you ever think about maybe trying to have a more balanced brand portfolio and actually increasing your domestic exposure?

David W. Hult -- President & CEO

I'll answer and John can jump in. Clearly diversifying the portfolio is our main focus, because all brands are cyclical. So you really want to think about where you're positioned in the country and what brands you have. There's no question. We would like to grow our domestic rooftop count, our domestic partners are much appreciated. We think we make good money with our domestic partners, they make quality products. So we would certainly like to grow with our domestics.

John Hartman -- SVP, Operations

I think that it's a competitive business and when the incentive targets are out there, you've got to go grab them. David, there are times that we have gone into the month, because these targets change monthly. We said this doesn't make sense, we're not going to chase it. So we don't.

David Whiston -- Morningstar -- Analyst

Other question is on the rising interest rates and affordability, which is getting some attention on the press now. On average, when I do the math, 100 bps on a new car is generally about $14 a month increase in the monthly payment, but our -- maybe what's going on now, perhaps some customers are getting hit way harder than that if their credit is not very good and it's more like a $5,000 (ph) plus payment and just pushing these people either out of the market completely when they used?

Sean Goodman -- SVP & CFO

We haven't seen the interest rates really affecting the consumer lending, REITs have uptick slightly, but not to the point where it's costing us volume, or shifting customers from new to used. With the interest rates, where we are feeling a little bit of a headwind is really on the inventory side, but we've done a good job managing our day supply as the carrying cost has gone up year-over-year.

David Whiston -- Morningstar -- Analyst

Okay, thanks, guys.

Sean Goodman -- SVP & CFO

Thank you.

Matt Pettoni -- VP of Finance & Treasurer

Thank you very much. This concludes today's discussion. We appreciate your participation on the call today. Have a great day.

Operator

Thank you, ladies and gentlemen, this concludes today's teleconference. You may now disconnect.

Duration: 43 minutes

Call participants:

David W. Hult -- President & CEO

Sean Goodman -- SVP & CFO

John Hartman -- SVP, Operations

Rick Nelson -- Stephens, Inc. -- Analyst

Bret Jordan -- Jefferies -- Analyst

James Albertine -- Consumer Edge -- Analyst

John Murphy -- Bank of America -- Analyst

Armintas Sinkevicius -- Morgan Stanley -- Analyst

Chris Bottiglieri -- Wolfe Research -- Analyst

David Whiston -- Morningstar -- Analyst

Matt Pettoni -- VP of Finance & Treasurer

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