Group 1 Automotive (GPI) Q2 2019 Earnings Call Transcript

GPI earnings call for the period ending June 30, 2019.

Motley Fool Transcribing
Motley Fool Transcribing
Jul 27, 2019 at 6:56AM
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Group 1 Automotive (NYSE:GPI)
Q2 2019 Earnings Call
Jul 25, 2019, 9:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Operator

Good morning, ladies and gentlemen. Welcome to Group 1 Automotive's 2019 second-quarter 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 of manufacturer relations, financial services and public services. Please go ahead, Mr. DeLongchamps.

Pete DeLongchamps -- Senior Vice President of Manufacturer Relations, Financial Services, and Public Services

Thank you, Debbie, 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'll 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 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 and the conditions of markets. Those and other risks are described in the company's filings with the SEC over the last 12 months. Copies of these filings are available on both the Securities and Exchange Commission and the company.

In addition, certain non-GAAP financial measures, as defined under SEC rules, may be discussed on this call. As required by applicable SEC rules, the company provides reconciliations of any such non-GAAP financial measures to the most directly comparable GAAP measures on its website. Participating today, Earl Hesterberg, our president and chief executive officer; John Rickel, our senior vice president and chief financial officer; and Daryl Kenningham, our president of U.S. operations.

Please note that all the comparisons in the prepared remarks are of the same prior period, unless otherwise stated. I'd now like to hand the call over to Earl.

Earl Hesterberg -- President and Chief Executive Officer

Thank you, Pete, and good morning, everyone. I'm pleased to report that Group 1 earned $52.8 million of adjusted net income for the quarter. This equates to all-time record quarterly adjusted earnings per share of $2.83 per diluted share, an increase of 16% over the prior year. This increase was delivered in an environment of slowing new vehicle sales in both our U.S.

market, where industry retail sales declined 2%; and the U.K., where the overall industry was down 5%. This result again demonstrates our ability to grow earnings, even in an environment of declining new vehicle sales in our core markets. Our profit growth is being driven by strong execution in the areas that are within our control: used vehicles and aftersales. The initiatives we have undertaken in these areas continue to drive strong same-store sales growth, independent of the new vehicle sales market conditions.

Our 10% U.S. same-store aftersales revenue growth is an all-time quarterly record, and our 10% U.S. same-store used vehicle gross profit growth continues our strong used vehicle performance. Although it may not sound quite as impressive, our new vehicle sales outperformed the market with same-store volume equal to the second quarter last year.

Given our continued strong F&I performance, maintaining our new vehicle volume is very important. Turning to our business segments. During the quarter, we retailed nearly 42,000 new vehicles. Total consolidated new vehicle revenues increased 2% on a constant-currency basis, driven by increases in U.S.

average selling prices and Brazil unit sales, partially offset by a decline in U.K. unit sales due to weak market conditions that I'll cover further in a moment. Our new unit sales geographic mix was 72%, U.S.; 22%, U.K.; and 6%, Brazil. Our new vehicle brand mix was led by Toyota and Lexus sales, which accounted for 25% of our new units.

Volkswagen/Audi represented 13%, BMW and MINI represented 12% and Ford and Honda/Acura both represented 11% of our new unit sales. During the quarter, we also retailed nearly 40,000 used units, driven by continued strong performance in the U.S. A 7% same-store volume increase while expanding our per-unit retail margins by almost 5% is another impressive performance by our U.S. operating team.

Total consolidated used vehicle revenues grew 4%, and gross profit increased 5% on a constant-currency basis. Total consolidated aftersales revenue increased 7% on a constant-currency basis, driven by increases in customer pay of 10%, warranty of 9% and wholesale parts of 3%. Our U.S. and Brazilian aftersales businesses both increased by over 10% on a same-store local currency basis for the quarter.

Finance and insurance gross profit increased 12% on a consolidated constant-currency basis. This growth was driven by strong increases in U.S. and U.K. profit per retail unit as total retail unit sales were roughly flat from the prior year.

Regarding our geographic segment results, I'd like to turn the call over to Daryl Kenningham, president of U.S. operations, to discuss our U.S. quarterly results before I cover the U.K. and Brazil.

Daryl Kenningham -- President of U.S. Operations

Thank you, Earl. We were very pleased with our performance in the U.S. for the second quarter. Due to strong growth in used vehicles, F&I and aftersales, we were able to generate a 9% increase in total same-store gross profit.

Same-store used retail unit sales grew 7%, and used vehicles once again outsold new vehicles in the quarter. The Val-U-Line retail unit sales grew 19% and represented 11% of our quarterly used unit volume. We also saw an increase in total used gross profit per unit of $63. Our continued focus on pricing, inventory discipline and sourcing have been critical to driving used vehicle gross profit growth, 10% on a same-store basis.

Our quarterly aftersales revenue grew by an all-time record of 10.1% on a same-store basis in the U.S. Customer pay revenues increased 11.9%, warranty increased 14.7%, wholesale parts increased 6.8% and collision increased 4%. Hiring technicians continues to be an industry challenge. And on that front, we're winning.

We've implemented our four-day work week in 65 stores. It is driving better employee retention and has enabled us to increase our same-store headcount by 344 technicians in the last year, a 16% increase. Our advisor headcount is up 13% as well. These capacity improvements led to our double-digit growth in both CP and warranty in the quarter.

We are on track to implement the four-day work week initiative in about 75 stores by the end of the third quarter, which will cover approximately 85% of our parts and service revenues. Looking forward to the rest of the year, we would expect aftersales growth to maintain at least double-digit growth rates -- I'm sorry, expect aftersales growth to maintain at least mid-single-digit growth rates. F&I income per retail unit for the quarter increased $163 to $1,818 per unit, driven by strong product penetration, and income per contract increases. We feel confident we can keep F&I around $1,750 per unit for the full-year 2019.

Turning to our online digital efforts. We feel confident that we are providing a robust omnichannel experience for our customers. Our goal is to do business when and how our customers want to do business with us online or offline. We have launched AcceleRide, our online digital retailing initiative in 98 of our U.S.

dealerships. Our selling rates continued to increase in the quarter. Nearly 1,000 customers who started the AcceleRide process bought a car from one of our dealerships, nearly double the number from the first quarter. We're pleased with the gross profits, and the customer feedback continues to be excellent.

We are on track to install AcceleRide in all of our U.S. stores before the end of Q3. In addition, our omnichannel efforts and aftersales are continuing. Customer scheduling service appointments online grew 22% versus the second quarter of 2018, And now, over 26% of our service appointments are made online.

This complements our best-in-class service development center that handles over 400,000 inbound customer calls during the quarter. In addition, our customers can approve and pay for service work via text or online. Our trends in digital traffic also continued on a positive track. Leads increased 41%, organic traffic increased 29%, and website visits increased 22%.

Lastly, our team was able to leverage SG&A by 40 basis points on a same-store basis from 74% -- 70.4% down to 70%. We anticipate continuing to be able to leverage SG&A as we increase gross profit from our used and aftersales efforts. I'll turn the call back over to Earl.

Earl Hesterberg -- President and Chief Executive Officer

Thanks, Daryl. As mentioned earlier, market conditions in the U.K. remain very challenging, primarily caused by continuing uncertainties surrounding Brexit. The total new vehicle industry was down 5% for the quarter.

The true customer demand is likely down even more than that as some OEMs are aggressively pushing self-registrations to support higher new vehicle sales numbers. The combination of this new vehicle market pressure, plus above-average used vehicle values last year caused by WLTP-related new vehicle shortages, resulted in downward pressure on used vehicle values in the second quarter. New vehicle gross profit declined 30% on a same-store basis as margins were also hit by new vehicle market volume pressure. We elected to forego certain OEM volume bonuses by not self-registering as many new vehicles this quarter.

Although this had a significant short-term negative impact, it is the right business decision and should benefit future profitability. These same market conditions also hit used vehicle margins and caused a 25% same-store decline in total used vehicle gross profit. Our focus for the remainder of the year will be on inventory management, growing our aftersales business and cost control as we weather what we expect to be a temporary slowdown in the auto retail sector. Now turning to Brazil which continues to benefit from the ongoing economic recovery.

Total same-store gross profit increased 11% on a constant-currency basis, driven by a 51% increase in used vehicles, a 14% increase in aftersales and a 5% increase in new vehicles. Costs, however, also accelerated as we have added staff in anticipation of further market recovery. We are reviewing the balance here and would anticipate better leveraging the market growth going forward. I'll now turn the call over to our CFO, John Rickel, to go over some of our second-quarter financial results in more detail.

John?

John Rickel -- Chief Financial Officer

Thank you, Earl, and good morning, everyone. For the second quarter of 2019, our adjusted net income increased $2 million or 3.9% over our comparable 2018 results to $52.8 million. These 2019 adjusted quarterly results exclude $3.5 million of net after-tax charges, explained primarily by $3 million of inventory damage from hailstorms in West Texas. On a fully diluted per-share basis, adjusted earnings increased 15.5% to $2.83, an all-time quarterly record.

For the quarter, we generated $3 billion in total revenues, which was an increase of 3.7% from the prior year on a constant-currency basis. Our gross profit increased 4.8% as gross margin increased 20 basis points to 15.1%. As a percent of gross profit, adjusted SG&A increased 80 basis points to 73.8% as weak U.K. market conditions more than offset U.S.

cost leverage. Floor plan interest expense increased by $1.4 million or 10% from prior year to $15.9 million, explained by higher inventory balances and LIBOR interest rates. Other interest expense decreased by $1.5 million or 8% from the prior year to $18 million, reflecting lower mortgage and working capital loan borrowings. Our consolidated adjusted effective tax rate for the second quarter was 21.5%, bringing our year-to-date rate to 23.3%, which is consistent with our full-year forecast of between 23% and 24%.

Turning to our consolidated liquidity and capital structure. As of June 30, we had $37.7 million of cash on hand and another $69.5 million that was invested in our floor plan offset accounts, bringing immediately available funds to a total of $107.2 million. As previously announced, we amended and extended our $1.8 billion U.S. credit facility at the end of June for another five-year term.

Interest savings as a result of reduced rate spreads will benefit us by approximately $2 million annually. In addition, revised covenant calculations lower our rent-adjusted leverage ratio from 3.7 times to 3.33 times. Also, during the second quarter, we used $4.8 million to pay dividends of $0.26 per share, which is currently an annualized yield of approximately 1.2%. 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 back over to Earl.

Earl Hesterberg -- President and Chief Executive Officer

Thanks, John. Related to our corporate development efforts, as previously announced, we acquired two BMW and two MINI franchises in New Mexico in July that also included our first U.S. BMW motorcycle franchises. These dealerships are expected to generate approximately $100 million in annualized revenues.

We also announced the recent acquisition of four Volkswagen franchises and one Volkswagen commercial vehicle franchise in the U.K. These dealerships are within our existing geographic footprint and increase our Volkswagen franchise count to 10 in the U.K. This acquisition is expected to generate approximately $115 million in annual revenues, bringing total year-to-date acquired revenues to $255 million from 11 franchises. Since our last earnings call, we have also disposed of BMW, MINI and Volkswagen commercial vehicle franchises in the U.K.

and a Mercedes Benz franchise in Brazil. To date, in 2019, we have disposed of 11 franchises that generated $200 million in trailing 12-month revenues. This concludes our prepared remarks. I'll now turn the call over to the operator to begin the question-and-answer session.

Operator?


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Questions & Answers:


Operator

[Operator instructions] The first question comes from John Murphy with Bank of America. Please go ahead.

Yarden Amsalem -- Bank of America Merrill Lynch -- Analyst

Good morning, guys. This is Yarden Amsalem on for John. A first question on the U.K. market.

As it remains relatively weak or at least volatile, in your view, how much of that weakness reflects regulatory dynamics like WLTP and now RDE? And how much of it is driven by more structural economic weakness? And I guess, relatedly, how does that impact your expense and strategy in the region, if at all?

Earl Hesterberg -- President and Chief Executive Officer

So this is Earl. I believe the majority of the weakness is this politically driven consumer confidence issue. WLTP has impacted some brands more than others, Volkswagen Group -- Volkswagen and Audi more so than others, at least in terms of our brand mix, and to a lesser degree, some others. But the underlying problem is this political problem.

And until there's a clear path forward on Brexit, it's probably going to remain a bit choppy.

Yarden Amsalem -- Bank of America Merrill Lynch -- Analyst

And then on WLTP, I know in previous quarters, you've mentioned supply constraints with VW, in particular. Have you seen that easing in any way in 2Q?

Earl Hesterberg -- President and Chief Executive Officer

Well, it had eased in the first half of this year, but we're about to go into another pressure point because there are certain cars that must be registered by September 1 because of a new emissions regime starting then. And so we're already seeing problems being pushed to register certain cars, and we know that there will be some supply issues with the new model vehicles beginning in September. So yes, it's not behind us yet.

Yarden Amsalem -- Bank of America Merrill Lynch -- Analyst

OK. That's helpful. And then lastly, can you maybe talk about how you think about SG&A over the long term? Is a low 70% level an appropriate range to use or is a mid-70% level is more likely, just given industry volumes are slowing? And relatedly, where do you see the greatest opportunity to take out cost? And how can your digital efforts potentially help drive that number down?

Earl Hesterberg -- President and Chief Executive Officer

OK. This is Earl. I'm going to speak to the corporate SG&A metric, and then I'll let Daryl or John comment on the U.S., which drives our numbers primarily. But we have cost issues and opportunity in both the U.K.

and Brazil right now, and we need to do a better job in both markets. Clearly, this weak market condition on new and used vehicles in the U.K. means we have to resize the business much more dramatically than we have. And in Brazil, the market is recovering a bit, but we haven't experienced the kind of cost leverage we can experience.

We may have added a few too many people, expecting the market to recover a little quicker than it has. So on a corporate basis, we have significant cost opportunity in the U.K. and Brazil.

John Rickel -- Chief Financial Officer

Yes. This is John Rickel. Just to kind of add to what Earl was saying, I think on a corporate basis, longer term, we can get into that mid- to lower 70s is the right kind of overall consolidated number. If you look at the individual country pieces, certainly 70% is sustainable.

And if we can continue to grow gross profit in the U.S., we should be able to leverage that. And over time, I think something in the mid- to upper 70s in the U.K. and similar maybe high 70s for Brazil are good, longer-term structural targets to think about.

Daryl Kenningham -- President of U.S. Operations

This is Daryl. The thing I'd add about a U.S.-specific comment is we've made people investments in the U.S. to add to our capacity in aftersales, nearly 500 advisors and technicians. And as we continue to grow aftersales double digits, we'll be able to scale that expense as well.

Yarden Amsalem -- Bank of America Merrill Lynch -- Analyst

Thank you. That's very helpful. That's it for me.

Operator

The next question comes from Michael Ward with Seaport Global. Please go ahead.

Michael Ward -- Seaport Global Securities, LLC -- Analyst

Thanks very much. Good morning, everyone. First off, on the -- your U.K. strategy, where you're selling some stores and then buying some other ones, what is the driver of that strategy? Is it -- you mentioned footprint.

Is --

Earl Hesterberg -- President and Chief Executive Officer

The acquisition, Michael, in the recent quarter was just circumstantial. In fact, we weren't even going to bid on it. We're trying to consolidate in the U.K. until the market improves, and we made some pretty big acquisitions in recent years.

But the OEM very much wanted us to acquire those Volkswagen franchises as they're contiguous to our existing stores. So we did that in concert with the OEM. And the Volkswagen brand has been recovering nicely in the U.K. after the diesel issue of a few years ago.

So we really didn't plan on that. That was circumstantial, but it will work out well for us and the OEM long term. And --

Michael Ward -- Seaport Global Securities, LLC -- Analyst

What about profitability, comparing those versus the ones you disposed?

John Rickel -- Chief Financial Officer

Well the -- this is John. The ones that we disposed, obviously, as we look at the portfolio, had some challenges, I mean, whether it's real estate or fixed cost issues. And certainly, the ones we picked up are more profitable. So I would say it's very fair to assume the ones we divested were underperforming.

And the ones we picked up, we certainly expect to be consistent with the overall portfolio.

Michael Ward -- Seaport Global Securities, LLC -- Analyst

OK. There is a chart on Page 16, and it has new technology business impact on the service business. And I just want to make sure I understand it. So this is -- if you're looking at the retention levels and then the electrified vehicles versus internal combustion engine.

Is that correct? So you're getting --

John Rickel -- Chief Financial Officer

Correct, Michael. This is John Rickel. It's basically trying to say that there's an assumption out there among certain investors that battery electrics, whether they're hybrids or pure battery electrics, have lower service dollars associated. And the data that we have and what we shared with you here doesn't really support that hypothesis.

What we see is that the battery electrics basically have about the same dollars per unit as what a nice engine would have. You maybe have a little less repair, but you have better retention because there's no other place to take those units.

Michael Ward -- Seaport Global Securities, LLC -- Analyst

OK. And so -- and then the retention levels. So if I'm looking at the 2017 data for the U.S. at 69%, so you have like a 79% retention.

Is that what you're talking about with the electrified?

John Rickel -- Chief Financial Officer

Yes, correct, because there's fewer alternatives to take those units to.

Michael Ward -- Seaport Global Securities, LLC -- Analyst

Yes. That's right. And John, just one housekeeping item. On the onetime items, I assume all those hits are in the U.S.

Is all but the asset impairment in SG&A?

John Rickel -- Chief Financial Officer

No. The hail stuff is obviously the U.S. The asset impairment is in Brazil, and it's associated with basically the divestiture of a franchise down there.

Michael Ward -- Seaport Global Securities, LLC -- Analyst

OK. So if we're looking at it from an income statement standpoint, the 3.9 and the other two items in the legal, those would be in -- and on the real estate, are those items included in SG&A in the U.S. operations?

John Rickel -- Chief Financial Officer

The $3 million is. The other items are in SG&A in Brazil.

Michael Ward -- Seaport Global Securities, LLC -- Analyst

Oh all three, the game and the real estate and the other ones. OK.

John Rickel -- Chief Financial Officer

Correct.

Michael Ward -- Seaport Global Securities, LLC -- Analyst

All right. So that's how you get to a lower SG&A as a percentage of growth in the U.S. if you kind of back that out and do it apples to apples?

John Rickel -- Chief Financial Officer

Correct.

Michael Ward -- Seaport Global Securities, LLC -- Analyst

Awesome. Thank you, guys.

John Rickel -- Chief Financial Officer

Yes.

Operator

The next question comes from Rajat Gupta with J.P. Morgan.

Rajat Gupta -- J.P. Morgan -- Analyst

Hey. Thanks for taking my question. I just wanted to follow up on the U.K. cost-saving actions.

Could you just give us a sense of the magnitude and timing of the benefits related to that? And what kind of actions are you taking there? And I have a follow-up.

Earl Hesterberg -- President and Chief Executive Officer

Yes. This is Earl. Simplistically, the major cost items that need to be addressed in the U.K. quickly are personnel related, staffing.

When you're selling less vehicles, you don't need as many people. And a lot of expense comes from used vehicle depreciation on these short-term vehicle sales actions, such as changing demo fleets, employee-leased vehicles and self-registered cars. As the used car values have dropped substantially this year, that depreciation expense has jumped up dramatically. But the way you address that is you have to control your inventories better.

You have to create less of those vehicles, you have to sell those vehicles more quickly and so forth. So we have a staffing and personnel expense-related adjustment to make the size of our business better, and we need to control our inventories better.

Rajat Gupta -- J.P. Morgan -- Analyst

Got it. Is there -- would you be able to quantify that at this stage? Or is it still in the planning process there?

John Rickel -- Chief Financial Officer

Yes. Rajat, this is John Rickel. I don't know that we would want to put a number to it just yet because it's also dependent on the gross profit part of that equation. The one thing that makes the quarter SG&A for the U.K.

look worse is that there was quite a bit of contraction in the gross profit line as well. Some of that is a little bit transitory. It's the used vehicle issue that Earl mentioned. Used vehicle values were really kind of inflated in the first half of the year when some of the acquisitions of the inventory happened because of the WLTP shortages.

That, I think, will pass and allow us to recover the used growth. We also took a decision about passing on a volume bonus from one of our OEM partners that depressed the new vehicle growth, so we have to work both sides of the equation. But suffice it to say, we're looking to bring that SG&A as a percent of growth back into more normalized ranges.

Rajat Gupta -- J.P. Morgan -- Analyst

Got it. That's helpful. And I just wanted to also ask on the new online initiative, the launch. Could you -- is it possible to quantify the impact that you've already started to see on sales and what you would expect in the second half from that launch?

Daryl Kenningham -- President of U.S. Operations

Yes. This is Daryl Kenningham. The impact we've seen is nearly 1,000. We sold 30,000 vehicles in the first -- in the second quarter and 30,000 new.

The impact we've seen is 1,000 customers who started their process online bought a car from us, and that's almost double of what we saw in the first quarter. And we continue to monitor it, but we expect that to grow over time. And we learn something with every one of these transactions as customers do more of their business online, so we expect it to be a bigger piece of this going forward.

Rajat Gupta -- J.P. Morgan -- Analyst

Got it. All right. Thanks. I'll pass on.

Earl Hesterberg -- President and Chief Executive Officer

Thank you.

Operator

The next question comes from David Tamberrino with Goldman Sachs. Please go ahead.

David Tamberrino -- Goldman Sachs -- Analyst

Great. Good morning. I got a question on your parts and service guidance, obviously not the double digits you just talked about. But having said that, the technician growth is great.

I think it's Slide 15 of your deck. You've got easy comps year over year, and you've been growing, I don't know, 7%, 9% for the first two quarters. Just wondering if there's something in the back half you're seeing that's going to drive a little bit of a slowdown in that growth? Or are you just being conservative?

Daryl Kenningham -- President of U.S. Operations

Well -- this is Daryl. One thing that -- we're pleased with our CP growth but what also goes into aftersales obviously is wholesale parts, collision and warranty. We're seeing double-digit warranty growth, which we really haven't seen. We saw declines in warranty last year.

So you never know when that might reverse that. So in total, that's why we're comfortable with the mid-single-digit growth forecast.

David Tamberrino -- Goldman Sachs -- Analyst

Understood. But let me ask this another way, though. The tech service -- excuse me, the U.S. tech headcount growth has been pretty stellar so far since you've gone to your change.

Is that something that you think you can continue through '19 into 2020 and continue to add capacity? I think you said you might be rolling it out to 85% of the stores by year end?

Daryl Kenningham -- President of U.S. Operations

Yes, this is Daryl again. We expect to be in the stores to cover 85% of our aftersales revenue by then. We do expect to add more techs between now and the end of the year. And we're looking at ways for how we can -- we want to leverage the capacity we have as much as possible.

So we expect to continue to do it. I don't know that we'll do it at this rate but we're certainly pleased with where we are.

David Tamberrino -- Goldman Sachs -- Analyst

OK. And then the last one. How much is the favorable used backdrop in the U.S. helping drive the current business, i.e., do you still think that if off-lease wasn't growing or OEM incentives picked up and that kind of pressured residual values, you'd still have a strong used market? Just kind of -- I'm trying to understand how fluid that market is to some potential changes going forward in terms of supply and new vehicle incentives?

Earl Hesterberg -- President and Chief Executive Officer

Yes, this is Earl. Yes, I think there's a fundamental shift toward the used vehicle market in the U.S., and I think it will be difficult to reverse that shift. It began with a lot of additional supply the last few years in off-lease vehicles, but there's a value equation for the consumer that really will be difficult to shift, even with more new vehicle incentives. You've seen the pricing data on new vehicles.

And I think the financial support, there's a lot of money to be lent by retail lenders. So I don't really see a massive shift back toward the new vehicle market at the expense of the used vehicle market.

David Tamberrino -- Goldman Sachs -- Analyst

Got it. Helpful. Thank you very much.

Operator

The next question comes from Armintas Sinkevicius with Morgan Stanley. Please go ahead.

Armintas Sinkevicius -- Morgan Stanley -- Analyst

Good morning. Thank you for taking the question. When I look at the U.K., I just wanted to make sure I heard this right. You were talking about WLTP from last year, RDE from this year.

How do you anticipate RDE to impact the business in the back half of this year, starting September?

Earl Hesterberg -- President and Chief Executive Officer

Well, I think it will continue to be bumpy for some brands. I think we're going to be short on new model, new vehicles in certain brands. Audi is our biggest concern because it's the biggest piece of our business.

Armintas Sinkevicius -- Morgan Stanley -- Analyst

OK. And then with regards to AcceleRide. It looks like you essentially used a software there from a third party and it looks like a pretty nice product. There is some interaction there with the dealer representative on the site.

Just curious, at what point could we see the need to interact with a dealer representative sort of fade and where the entire transaction could actually happen online from start to finish?

Daryl Kenningham -- President of U.S. Operations

This is Daryl. I think that's up to the customers, honestly. The only thing they really need to do is come in and pick up the car if they'd like to or they can choose to have it delivered. And we use a couple of different providers and we learn from each one of them.

And the world is moving to online purchases, and we want to be able to accommodate that if customers want to do it.

Armintas Sinkevicius -- Morgan Stanley -- Analyst

OK. And then last one here. With the U.K. used market, we've seen warnings from some of your competitors on the used side, Pendragon and Lookers, yes, what are you seeing on your end from -- on the used car side?

Daryl Kenningham -- President of U.S. Operations

Well, it's tough. But the tough part of the used car side are these nearly new used cars. That's what is the most difficult to manage, these very low mileage -- and whether they're self-registrations, demo changeouts, those types of vehicles. And when the values drop, those tend to be fairly expensive vehicles and you get hit pretty hard.

Hence, the depreciation expense issue that I mentioned earlier. So the true used car market in the U.K., if you're looking at two- and three- and four-year-old cars, is not nearly as bad as a new vehicle dealer performance numbers would indicate. Most of our problems as franchise new vehicle dealers relate to these very young, low mileage used cars.

Armintas Sinkevicius -- Morgan Stanley -- Analyst

OK. Much appreciated.

Earl Hesterberg -- President and Chief Executive Officer

Thanks.

Operator

The next question comes from Rick Nelson with Stephens.

Rick Nelson -- Stephens Inc. -- Analyst

Thanks. Good morning. I wanted to follow up on the U.S. market.

Same-store sales were flat in the U.S. The industry was down. If you could speak, regionally, what you think the driver was there.

Daryl Kenningham -- President of U.S. Operations

It wasn't any one market, Rick. We were generally across -- well most of -- were mostly in Texas. We were generally flat with Texas and up a little in Oklahoma. And -- but it wasn't any one specific market that seemed to drive that.

Rick Nelson -- Stephens Inc. -- Analyst

OK. Also a question for Pete. Once again, F&I per unit, $1,821 this quarter, even with the shift toward used cars and value cars, which I would think have lower F&I attachment, the drivers there and the outlook.

Pete DeLongchamps -- Senior Vice President of Manufacturer Relations, Financial Services, and Public Services

Well, Daryl said the outlook in his opening at $1,750, so we're comfortable in that $1,700 range. But we've just been focusing on product and product sales. So that's the main driver of F&I performance this quarter, Rick.

Rick Nelson -- Stephens Inc. -- Analyst

And what would drive that number lower?

Pete DeLongchamps -- Senior Vice President of Manufacturer Relations, Financial Services, and Public Services

What would drive the number lower is selling fewer products but we still think the $1,700 range is a good number for us moving forward.

Rick Nelson -- Stephens Inc. -- Analyst

Fair enough. Also, I'd like to ask about the acquisition environment and how you view acquisitions versus buybacks versus debt paydown at this point?

Earl Hesterberg -- President and Chief Executive Officer

Yes. Rick, this is Earl. We've continued to be interested in acquisitions, but our decisions are financially driven on those opportunities because it's very easy to destroy capital when you're in a soft new vehicle market. And sellers expect to be paid on profits generated in past years when the new vehicle market was stronger.

So again, that's very opportunistic and circumstantial in terms of acquisitions. And our board discusses every quarter the relative uses of our cash. We have, until this year, been very aggressive in buybacks, and we'll just continue to revisit that quarter by quarter. It's a very dynamic market and the same relative to debt repayment.

Operator

The next question comes from David Whiston with Morningstar.

David Whiston -- Morningstar -- Analyst

Thanks. Good morning. Going back to the U.K. on the cost cutting and restructuring.

I guess, just a question on how you both reduce and then rehire efficiently because if you caught a bunch of people now, and Brexit, at some point, although who knows when, will not be an issue, how do you balance having to maybe spend too many resources, money and time rehiring people to staff the stores?

Earl Hesterberg -- President and Chief Executive Officer

Yes. That's one of the challenges in our business is how we go about that. In the U.K. market, it's a different dynamic than in the U.S.

It takes longer to reduce your headcount. It takes longer to staff headcount back. That's just the way employment laws work in that country, so we do tend to be a little slow in both directions, a little slow in cutting costs, a little slow in hiring back. And we keep that in mind when we take these actions.

But when you saw the drop in gross profit of 25% or 30% on new and used vehicles, we have to take some actions now, even if it does make it a little slower on it when the uptick comes.

David Whiston -- Morningstar -- Analyst

OK. And going back to the U.S., I guess, a couple of questions there. Are you seeing any weakness even marginally in light trucks, whether it's crossover, SUV or pickup among consumers right now?

Daryl Kenningham -- President of U.S. Operations

This is Daryl. 67% of the market in the second quarter was truck and SUV, which is fairly consistent with where it's been. Not seeing any material change over the first quarter.

David Whiston -- Morningstar -- Analyst

OK. And you guys are in ground zero for pickup trucks there in Texas and Oklahoma. The automakers and Tesla and Rivian are all talking about doing BEV pickups. Do you think your customers want those type of vehicles?

Daryl Kenningham -- President of U.S. Operations

This is Daryl. Our customers love big trucks with gas engines, honestly.

David Whiston -- Morningstar -- Analyst

OK. Thanks.

Earl Hesterberg -- President and Chief Executive Officer

Thank you.

Operator

This concludes our question-and-answer session. I would now like to turn the conference back over to Mr. Earl Hesterberg for any closing remarks.

Earl Hesterberg -- President and Chief Executive Officer

Thanks, everyone, for joining us today. We look forward to updating you on our third-quarter earnings call in October.

Operator

[Operator signoff]

Duration: 43 minutes

Call participants:

Pete DeLongchamps -- Senior Vice President of Manufacturer Relations, Financial Services, and Public Services

Earl Hesterberg -- President and Chief Executive Officer

Daryl Kenningham -- President of U.S. Operations

John Rickel -- Chief Financial Officer

Yarden Amsalem -- Bank of America Merrill Lynch -- Analyst

Michael Ward -- Seaport Global Securities, LLC -- Analyst

Rajat Gupta -- J.P. Morgan -- Analyst

David Tamberrino -- Goldman Sachs -- Analyst

Armintas Sinkevicius -- Morgan Stanley -- Analyst

Rick Nelson -- Stephens Inc. -- Analyst

David Whiston -- Morningstar -- Analyst

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