Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion should be read in conjunction with Part I, including the matters set forth in Item 1A. Risk Factors, and our Consolidated Financial Statements and notes thereto included elsewhere in this Form 10-K. Refer to Item 1. Business — General for an overview of our operations. Additionally, refer to Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations in our 2024 Annual Report on Form 10-K for management’s discussion and analysis of financial condition and results of operations for the fiscal year 2024 compared to fiscal year 2023.
Overview
Our operating results reflect the combined performance of each of our interrelated business activities. Historically, various facets of our business have been directly or indirectly impacted by a variety of supply/demand factors, including vehicle inventories, government trade policies, consumer confidence, consumer transportation preferences, discretionary spending levels, availability and affordability of consumer credit, new vehicle introductions and innovations, manufacturer incentives, weather patterns, fuel prices, inflation and interest rates. For example, during periods of sustained economic downturn or significant supply/demand imbalances, new vehicle sales may be negatively impacted as consumers tend to shift their purchases to used vehicles. Some consumers may delay their purchasing decisions altogether, electing instead to continue to maintain and repair their existing vehicles. In such cases, however, we believe the new vehicle sales impact on our overall business is mitigated by our ability to offer other products and services, such as used vehicles and parts, as well as maintenance, repair and collision services. In addition, our ability to expediently adjust our cost structure in response to changes in new vehicle sales volumes also tempers any negative impact of such sales volume changes.
Recent Events
Changes in trade policy, tariffs and other governmental actions during the Current Year introduced additional uncertainty for the automotive industry. On November 4, 2025, President Donald Trump issued an executive order directing federal agencies to modify the U.S. tariff schedules for designated Chinese-origin goods under an existing bilateral arrangement. While we do not directly import vehicles or parts from China, tariff changes may affect OEM pricing for vehicles, components, and accessories sourced from Chinese suppliers. We are monitoring subsequent agency actions to evaluate any impact on vehicle and parts costs. Effective November 1, 2025, a proclamation under Section 232 imposed 25% tariffs on imported medium- and heavy-duty trucks and parts. It also granted a 3.75% production credit through 2030 for vehicles and engines assembled in the U.S. The measure is expected to affect vehicle costs, sourcing, and production decisions across the automotive industry, particularly for companies involved in the distribution and sale of medium- and heavy-duty vehicles. Separately, effective retroactive to August 7, 2025, an order implementing the U.S.–Japan Agreement generally set a 15% duty on automobiles and auto parts from Japan, adjusted for existing tariff rates, replacing higher additional duties previously applied to these products.
Effective June 23, 2025, the U.S.–U.K. Economic Prosperity Deal established an annual quota allowing 100,000 U.K.-made vehicles to enter the U.S. at a total 10% tariff, with imports above the quota subject to 25%. It also set a 10% total tariff on U.K.-origin parts for use in U.K.-made vehicles imported into the U.S. On March 26, 2025, a separate Section 232 action imposed a 25% tariff on imported automobiles and certain parts. Subsequent U.S. Department of Commerce procedures provided partial relief for United States-Mexico-Canada Agreement-qualifying vehicles and allowed manufacturers with U.S. assembly operations to apply for offsets on parts tariffs. Although a federal appeals court in August 2025 limited certain emergency tariff authorities, the Section 232 automobile tariffs remained in effect. Collectively, the effects of these executive orders, proclamations and related actions on our results of operations cannot be predicted at this time.
On December 10, 2025, the Federal Reserve lowered interest rates by 25 basis points in an effort to stimulate the labor market and economic activity, following earlier reductions in September and October. On December 18, 2025, the Bank of England lowered interest rates by 25 basis points, following earlier reductions in February, May, and August 2025. These interest rate cuts may improve vehicle affordability for consumers, however, the impact on our results of operations cannot be predicted with certainty at this time.
On October 10, 2025 and November 20, 2025, additional fires occurred at a major U.S. aluminum production facility, following an initial fire in September 2025. These incidents caused significant damage to the facility, and as a result, the timing of the plant’s return to full production capacity is uncertain. The facility supplies several OEMs, including Ford, Toyota and Jeep, and the disruption is anticipated to affect the production of certain aluminum-intensive vehicle models. Certain OEMs have indicated they are working with alternative aluminum suppliers to mitigate the impact of the fire. In response to these supply constraints, Ford temporarily suspended production of certain SUV models, and additional impacts to truck production may occur if aluminum shortages persist. While the ultimate impact on our new vehicle supply remains uncertain, these disruptions could result in reduced vehicle availability, which may adversely affect our results of operations.
On September 2, 2025, Jaguar Land Rover (“JLR”) disclosed that it had experienced a significant cybersecurity incident that resulted in the temporary shutdown of certain production facilities and information technology systems. This disruption has led to delays in new vehicle deliveries, reduced availability of certain models and interruptions in certain parts supply. JLR accounted for approximately 3.6% of our total consolidated revenues during the Current Year. We cannot predict with certainty the expected total impact of the incident on our results of operations at this time and will continue to monitor developments closely.
In the U.K., the FCA is reviewing the historic use of discretionary commission arrangements in motor finance. On August 1, 2025, the Supreme Court of the United Kingdom issued its judgment in the Johnson v FirstRand Bank Ltd, Wrench v FirstRand Bank Ltd and Hopcraft v Close Brothers Ltd cases. The Supreme Court of the United Kingdom ruled that dealers do not generally owe fiduciary duties but confirmed that, in some cases, commission arrangements that were not properly disclosed to customers could be treated as creating an unfair relationship under the Consumer Credit Act. On August 3, 2025, the FCA announced it will consult in October 2025 on a possible industry-wide redress scheme for affected consumers. If adopted, the scheme could be finalized such that compensation payments may begin in 2026. The FCA also confirmed that firms will not be required to issue final responses to related customer complaints until after December 4, 2025. The outcomes of the FCA’s review, any redress scheme and related proceedings remain uncertain.
On July 4, 2025, H.R. 1, the OBBBA, was signed into law. For the automotive industry, the bill provides consumers with a tax deduction for the interest on loans for certain U.S.-assembled vehicles. The bill also eliminates federal EV tax credits for vehicles purchased or leased after September 30, 2025. Additionally, the OBBBA reinstates 100% bonus depreciation for qualified property placed in service after January 19, 2025. This provision allows for immediate expensing for income tax purposes of the full cost of eligible tangible assets, including certain machinery, equipment and building improvements. The impact of the OBBBA on our results of operations cannot be predicted with certainty at this time.
The U.K. government has established mandated targets for the sale of new zero emissions vehicles with increasing targets in future years. On April 6, 2025, the U.K. Prime Minister announced planned changes to the EV mandate, which aim to allow carmakers more flexibility in reaching their goal to phase out internal combustion engine vehicles. The plan increases flexibility of the mandate through 2030, allowing more EVs to be sold in later years as demand increases. Further, the plan allows for the continued sale of hybrid vehicles, which can be operated by both internal combustion and batteries, through 2035 to help ease the transition. As of July 16, 2025, U.K. car manufacturers can apply for Electric Car Grants, which will discount eligible new EVs for consumers at the point of sale. Certain manufacturers urged the U.K. government to provide additional flexibility in the mandate, citing consumer demand, infrastructure limitations and the cost of compliance as potential barriers to meet future targets. Further, as of December 2025, U.K. political leaders have issued proposals to rescind the ban on gasoline and diesel-powered vehicles.
Additionally, on June 12, 2025, President Donald Trump signed resolutions revoking California’s authority to enforce certain regulations it previously set forth, including Advanced Clean Cars II, which imposes stricter emissions limits for vehicles than the federal standards and requires nearly all new car sales to be zero-emission by 2035. California and ten other states set to implement Advanced Clean Cars II-like rules sued the EPA and President Donald Trump and are seeking to enjoin the resolutions. The legal challenges remain ongoing. The impact of these changes on our vehicle mix and results of operations cannot be predicted with certainty at this time. Further, on August 1, 2025, the EPA issued a proposed rule to rescind the “Endangerment Finding,” which underpins the majority of the EPA’s GHG regulations, and all GHG emission standards for light-duty, medium-duty, and heavy-duty vehicles and engines. We cannot predict whether such efforts will ultimately be successful.
While the possibility exists for delays, reductions, or exemptions of the automotive and reciprocal tariffs, the potential impacts of the tariffs described above, as well as the reaction of the OEMs to such tariffs, remain uncertain and could significantly increase the price of our products as well as the future mix and demand for vehicles provided by our manufacturers. Additionally, reciprocal tariffs, tariffs on steel, aluminum, copper and other materials, and the elevated tariffs against China and other countries could negatively impact the global economy, demand for our products and our manufacturers’ global supply chains. Our manufacturers’ supply chain dependencies and production facility locations vary by OEM, and as a result, certain manufacturers, vehicle models, vehicle model variations and parts could be affected more significantly by the imposition of tariffs than others. We will continue to monitor the impact of the Trump Administration’s policies and the response of U.S. trading partners on our results of operations in future periods.
Critical Accounting Estimates
The preparation of our financial statements in conformity with U.S. GAAP requires management to make certain estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities, the disclosures of contingent assets and liabilities at the balance sheet date and the amounts of revenues and expenses recognized during the reporting period. Below are the accounting policies and estimates that have been determined to be critical to our business operations and the understanding of our results of operations.
Goodwill and Intangible Franchise Rights
We are organized into two geographic segments, the U.S. segment and the U.K. segment. Each segment represents a reporting unit for the purpose of assessing goodwill for impairment. In addition to goodwill, we have identifiable intangibles in the form of rights under our franchise agreements with manufacturers, which are recorded at an individual dealership level.
We evaluate goodwill and intangible franchise rights for impairment annually as of October 31, or more frequently if events or circumstances indicate possible impairment has occurred. We have the option of performing a qualitative assessment of impairment to determine whether any further quantitative assessment for impairment is necessary. The option of whether or not to perform a qualitative assessment is made annually and may vary by reporting unit. If we elect to bypass the qualitative assessment or if we determine, on the basis of qualitative factors, that the fair value of the reporting unit is more likely than not less than the carrying amount, a quantitative test would be required.
During the Current Year, we recorded a goodwill impairment charge of $93.0 million based on a triggering event during the three months ended September 30, 2025 primarily related to the challenging U.K. economy, impacting our financial performance. For our October 31, 2025 annual goodwill impairment test, we elected to perform a quantitative test on the U.K. reporting unit and a qualitative test on the U.S. reporting unit. Based on the tests performed for the U.S. and U.K. reporting units in the fourth quarter of 2025, no further impairments of goodwill were recorded during the Current Year. No goodwill impairments were recorded on any reporting units during the Prior Year. T he quantitative goodwill impairment test is dependent on management estimates and assumptions used to determine the fair value of our reporting units. Refer to Note 12. Intangible Franchise Rights and Goodwill within our Notes to Consolidated Financial Statements for further discussion of goodwill, including management’s use of estimates and assumptions.
During the Current Year, non-cash impairment charges of $91.1 million were recorded for intangible franchise rights. In the Prior Year, impairment charges of $28.2 million were recorded for intangible franchise rights. As our intangible franchise rights are tested for impairment at the dealership level, any impairments are specific to the performance and outlook of the respective dealership.
We will continue to monitor the challenging macroeconomic and industry conditions in the U.K. Further erosion in the macroeconomic environment, additional margin compression, or increases to our operating costs in the U.K. may require us to re-assess the value of our goodwill and intangible franchise rights associated with our U.K. reporting unit, which could result in additional material impairment charges in future periods.
Refer to Note 12. Intangible Franchise Rights and Goodwill within our Notes to Consolidated Financial Statements for further discussion of our intangibles, including fair value assumptions.
Results of Operations
The “same store” amounts presented below include the results of dealerships and corporate headquarters for the identical months in each comparative period, commencing with the first full month in which we owned the dealership. Amounts related to divestitures are excluded from each comparative period, ending with the last full month in which we owned the dealership. Same store results provide a measurement of our ability to grow revenues and profitability of our existing stores and also provide a metric for peer group comparisons. For these reasons, same store results allow management to accurately manage and monitor the underlying performance of the business and is also useful to investors.
We evaluate our results of operations on both an as reported and a constant currency basis. The constant currency presentation, which is a non-GAAP measure, excludes the impact of fluctuations in foreign currency exchange rates. Our primary foreign currency exposure is to the GBP. We believe providing constant currency information provides valuable supplemental information regarding our underlying business and results of operations, consistent with how we evaluate our performance. We calculate constant currency percentages by converting our current period reported results for entities reporting in currencies other than USD using comparative period exchange rates rather than the actual exchange rates in effect during the respective periods. The constant currency performance measures should not be considered a substitute for, or superior to, the measures of financial performance prepared in accordance with U.S. GAAP. Additionally, we caution investors not to place undue reliance on non-GAAP measures, but also to consider them with the most directly comparable U.S. GAAP measures. Our management also uses constant currency and adjusted cash flows from operating, investing and financing activities in conjunction with U.S. GAAP financial measures to assess our business, including communication with our Board of Directors, investors and industry analysts concerning financial performance. We disclose these non-GAAP measures and the related reconciliations because we believe investors use these metrics in evaluating longer-term period-over-period performance. These metrics also allow investors to understand and evaluate the information used by management to assess operating performance.
Certain amounts in the financial statements may not compute due to rounding. All computations have been calculated using unrounded amounts for all periods presented.
Retail new and used vehicle units sold include new and used vehicle agency units sold under agency arrangements with certain manufacturers in the U.K. The agency units and related revenues are excluded from the calculation of the average sales price per unit sold for new and used vehicles due to their net presentation within revenues as only the sales commission is reported in revenues for dealerships operating under an agency arrangement. The agency units and related net revenues are included in the calculation of gross profit per unit sold.
The following tables summarize our operating results on a reported basis and on a same store basis for the Current Year, as compared to the Prior Year.
Reported Operating Data — Consolidated
(In millions, except unit data)
For the Years Ended December 31,
Increase/ (Decrease)
% Change
Currency Impact on Current Period Results
Constant Currency % Change
Revenues:
New vehicle retail sales
Used vehicle retail sales
Used vehicle wholesale sales
Total used
Parts and service sales
F&I, net
Total revenues
Gross profit:
New vehicle retail sales
Used vehicle retail sales
Used vehicle wholesale sales
Total used
Parts and service sales
F&I, net
Total gross profit
Gross margin:
New vehicle retail sales
Used vehicle retail sales
Used vehicle wholesale sales
Total used
Parts and service sales
Total gross margin
Units sold:
Retail new vehicles sold
Retail used vehicles sold
Wholesale used vehicles sold
Total used
Average sales price per unit sold:
New vehicle retail
Used vehicle retail
Gross profit per unit sold:
New vehicle retail sales
Used vehicle retail sales
Used vehicle wholesale sales
Total used
F&I PRU
Other:
SG&A expenses
SG&A as % gross profit
Floorplan expense:
Floorplan interest expense
Less: floorplan assistance (1)
Net floorplan expense
(1) Floorplan assistance is included within Gross profit — New vehicle retail sales above and Cost of sales — New vehicle retail sales in our Consolidated Statements of Operations.
Same Store Operating Data — Consolidated
(In millions, except unit data)
For the Years Ended December 31,
Increase/ (Decrease)
% Change
Currency Impact on Current Period Results
Constant Currency % Change
Revenues:
New vehicle retail sales
Used vehicle retail sales
Used vehicle wholesale sales
Total used
Parts and service sales
F&I, net
Total revenues
Gross profit:
New vehicle retail sales
Used vehicle retail sales
Used vehicle wholesale sales
Total used
Parts and service sales
F&I, net
Total gross profit
Gross margin:
New vehicle retail sales
Used vehicle retail sales
Used vehicle wholesale sales
Total used
Parts and service sales
Total gross margin
Units sold:
Retail new vehicles sold
Retail used vehicles sold
Wholesale used vehicles sold
Total used
Average sales price per unit sold:
New vehicle retail
Used vehicle retail
Gross profit per unit sold:
New vehicle retail sales
Used vehicle retail sales
Used vehicle wholesale sales
Total used
F&I PRU
Other:
SG&A expenses
SG&A as % gross profit
NM — Not Meaningful
Reported Operating Data — U.S.
(In millions, except unit data)
For the Years Ended December 31,
Increase/(Decrease)
% Change
Revenues:
New vehicle retail sales
Used vehicle retail sales
Used vehicle wholesale sales
Total used
Parts and service sales
F&I, net
Total revenues
Gross profit:
New vehicle retail sales
Used vehicle retail sales
Used vehicle wholesale sales
Total used
Parts and service sales
F&I, net
Total gross profit
Gross margin:
New vehicle retail sales
Used vehicle retail sales
Used vehicle wholesale sales
Total used
Parts and service sales
Total gross margin
Units sold:
Retail new vehicles sold
Retail used vehicles sold
Wholesale used vehicles sold
Total used
Average sales price per unit sold:
New vehicle retail
Used vehicle retail
Gross profit per unit sold:
New vehicle retail sales
Used vehicle retail sales
Used vehicle wholesale sales
Total used
F&I PRU
Other:
SG&A expenses
SG&A as % gross profit
Same Store Operating Data — U.S.
(In millions, except unit data)
For the Years Ended December 31,
Increase/(Decrease)
% Change
Revenues:
New vehicle retail sales
Used vehicle retail sales
Used vehicle wholesale sales
Total used
Parts and service sales
F&I, net
Total revenues
Gross profit:
New vehicle retail sales
Used vehicle retail sales
Used vehicle wholesale sales
Total used
Parts and service sales
F&I, net
Total gross profit
Gross margin:
New vehicle retail sales
Used vehicle retail sales
Used vehicle wholesale sales
Total used
Parts and service sales
Total gross margin
Units sold:
Retail new vehicles sold
Retail used vehicles sold
Wholesale used vehicles sold
Total used
Average sales price per unit sold:
New vehicle retail
Used vehicle retail
Gross profit per unit sold:
New vehicle retail sales
Used vehicle retail sales
Used vehicle wholesale sales
Total used
F&I PRU
Other:
SG&A expenses
SG&A as % gross profit
U.S. Segment — Year Ended December 31, 2025 compared to 2024
Revenues
Total revenues in the U.S. during the Current Year increased $853.9 million, or 5.4%, as compared to the same period in the Prior Year, driven by higher same store revenues and the acquisition of stores.
Total same store revenues in the U.S. during the Current Year increased $714.9 million, or 4.6%, as compared to the Prior Year, driven by higher revenues across all business lines.
New vehicle retail same store revenues outperformed the Prior Year, driven by more units sold, coupled with higher pricing. This outperformance reflects the resiliency of demand. We ended the Current Year with a U.S. new vehicle inventory supply of 44 days, one day higher than the Prior Year.
Used vehicle retail same store revenues outperformed the Prior Year, driven by higher pricing, coupled with more units sold. This outperformance reflects the resiliency of demand and supply dynamics of the used vehicle market caused by Prior Year’s vehicle inventory shortages. We ended the Current Year with a U.S. used vehicle inventory supply of 29 days, consistent with the Prior Year. Used vehicle wholesale same store revenues outperformed the Prior Year, driven by more units sold, coupled with higher pricing.
Parts and service same store revenues outperformed the Prior Year, driven by increases in customer pay, warranty and wholesale revenues, partially offset by a decrease in collision revenues. Customer pay repair order count and dollars per repair order increased compared to the Prior Year. We are strategically reducing our collision footprint and repurposing a portion of that space to traditional service capacity, which we expect to increase returns from the higher margin service business. In addition, we continue to invest in our aftersales capacity by expanding existing dealership facilities or when we undertake new construction of dealerships. Same store technician headcount increased through our continued technician recruiting and retention efforts, providing greater capacity to meet increased demand.
F&I same store revenues outperformed the Prior Year, primarily driven by improved penetration rates across most product offerings, coupled with higher same store new and used vehicle units sold and improved income per contract from financing, vehicle service contracts (“VSC”), hazard and dent product offerings. In addition, we have made investments in virtual finance operations, which are contributing to improved product penetration.
Gross Profit
Total gross profit in the U.S. during the Current Year increased $129.0 million, or 4.8%, as compared to the Prior Year, driven by higher same store gross profit and the acquisition of stores.
Total same store gross profit in the U.S. during the Current Year increased $105.7 million, or 4.0%, as compared to the Prior Year, driven by increases in parts and service, F&I and used vehicle wholesale, partially offset by decreases in new and used vehicle retail gross profit.
New vehicle retail same store gross profit underperformed the Prior Year, driven by a decrease in new vehicle retail same store gross profit per unit sold, partially offset by an increase in units sold. Gross profit per unit sold continues to moderate towards pre-COVID levels, facing pressure from affordability concerns of consumers due to rising costs of vehicles from OEMs and relatively high consumer interest rates.
Used vehicle retail same store gross profit underperformed the Prior Year, primarily driven by lower same store gross profit per unit sold, partially offset by higher same store used vehicle retail units sold. Gross profit per unit sold continues to face pressure from affordability concerns of consumers due to rising vehicle acquisition costs and relatively high consumer interest rates. Used vehicle wholesale same store gross profit outperformed the Prior Year, driven by an increase in same store gross profit per unit sold, coupled with an increase in same store units sold.
Parts and service same store gross profit outperformed the Prior Year, driven by increases in customer pay and warranty gross profit, partially offset by decreases in wholesale and collision gross profit. This reflects both the benefit of the strategic decision regarding our collision footprint as described above, and our focus on shop efficiency.
F&I same store gross profit outperformed the Prior Year, as described above for F&I same store revenues.
Total same store gross margin in the U.S. remained flat for the Current Year as compared to the Prior Year.
SG&A Expenses
SG&A as a percentage of gross profit increased 278 basis points and increased 182 basis points on an as reported and same store basis, respectively, compared to the Prior Year.
Total SG&A expenses in the U.S. during the Current Year increased $160.1 million, or 9.4%, as compared to the Prior Year. Total same store SG&A expenses in the U.S. during the Current Year increased $118.3 million or 6.9% as compared to the Prior Year, primarily driven by increased employee related costs, third-party services, unfavorable legal settlements and higher facility related expenses.
Reported Operating Data — U.K.
(In millions, except unit data)
For the Years Ended December 31,
Increase/ (Decrease)
% Change
Currency Impact on Current Period Results
Constant Currency % Change
Revenues:
New vehicle retail sales
Used vehicle retail sales
Used vehicle wholesale sales
Total used
Parts and service sales
F&I, net
Total revenues
Gross profit:
New vehicle retail sales
Used vehicle retail sales
Used vehicle wholesale sales
Total used
Parts and service sales
F&I, net
Total gross profit
Gross margin:
New vehicle retail sales
Used vehicle retail sales
Used vehicle wholesale sales
Total used
Parts and service sales
Total gross margin
Units sold:
Retail new vehicles sold
Retail used vehicles sold
Wholesale used vehicles sold
Total used
Average sales price per unit sold:
New vehicle retail
Used vehicle retail
Gross profit per unit sold:
New vehicle retail sales
Used vehicle retail sales
Used vehicle wholesale sales
Total used
F&I PRU
Other:
SG&A expenses
SG&A as % gross profit
Same Store Operating Data — U.K.
(In millions, except unit data)
For the Years Ended December 31,
Increase/ (Decrease)
% Change
Currency Impact on Current Period Results
Constant Currency % Change
Revenues:
New vehicle retail sales
Used vehicle retail sales
Used vehicle wholesale sales
Total used
Parts and service sales
F&I, net
Total revenues
Gross profit:
New vehicle retail sales
Used vehicle retail sales
Used vehicle wholesale sales
Total used
Parts and service sales
F&I, net
Total gross profit
Gross margin:
New vehicle retail sales
Used vehicle retail sales
Used vehicle wholesale sales
Total used
Parts and service sales
Total gross margin
Units sold:
Retail new vehicles sold
Retail used vehicles sold
Wholesale used vehicles sold
Total used
Average sales price per unit sold:
New vehicle retail
Used vehicle retail
Gross profit per unit sold:
New vehicle retail sales
Used vehicle retail sales
Used vehicle wholesale sales
Total used
F&I PRU
Other:
SG&A expenses
SG&A as % gross profit
U.K. Segment — Year Ended December 31, 2025 compared to 2024
Retail new and used vehicle units sold include new and used vehicle agency units. The agency units and related revenues are excluded from the calculation of the average sales price per unit sold for new vehicles as only the sales commission is reported within revenues. The agency units and related net revenues are included in the calculation of gross profit per unit sold. The GBP to USD foreign currency exchange rate has fluctuated from £1 to $1.254 at December 31, 2024, to £1 to $1.346 at December 31, 2025, or an increase in the value of the GBP of 7.3%.
Revenues
Total revenues in the U.K. during the Current Year increased $1.8 billion, or 42.8%, as compared to the Prior Year, primarily driven by the acquisition of stores.
Total same store revenues in the U.K. during the Current Year increased $181.0 million, or 4.5%, as compared to the Prior Year, driven by outperformances across all lines of business except new vehicle retail. On a constant currency basis, same store revenues increased 1.3%, driven by outperformances across all lines of business except new vehicle retail.
New vehicle retail same store revenues, on a constant currency basis, underperformed the Prior Year, driven by fewer units sold, partially offset by higher pricing. The underperformance reflects the challenges within the broader U.K. new car market, from EV mandates and new vehicle market entrants. We ended the Current Year with a U.K. new vehicle inventory supply of 52 days, seven days higher than the Prior Year.
Used vehicle retail same store revenues, on a constant currency basis, outperformed the Prior Year, driven by more units sold and higher prices. We ended the Current Year with a U.K. used vehicle inventory supply of 55 days, 12 days lower than the Prior Year. Used vehicle wholesale same store revenues, on a constant currency basis, outperformed the Prior Year, primarily driven by an increase in wholesale used vehicle units sold.
Parts and service same store revenues, on a constant currency basis, outperformed the Prior Year, driven by an increase in customer pay and wholesale revenues, partially offset by a decrease in warranty revenues. We have invested in improvements to our U.K. customer contact center, streamlining operations to make scheduling appointments easier for customers, resulting in an increase in customer pay parts and service activity driving an increase in revenues as compared to the Prior Year.
F&I, net same store revenues, on a constant currency basis, outperformed the Prior Year, driven by higher income per contract from our retail finance fees, improved penetration rates on finance and VSC fees and higher used vehicle retail unit sales.
Gross Profit
Total gross profit in the U.K. during the Current Year increased $251.8 million, or 45.0%, as compared to the Prior Year, primarily driven by the acquisition of stores, changes in foreign currency exchange rates and improved same store performance.
Total same store gross profit in the U.K. during the Current Year increased $25.6 million, or 4.7%, as compared to the Prior Year. On a constant currency basis, total same store gross profit increased 1.6%, driven by increases in parts and service, F&I and used vehicle wholesale, partially offset by downward pressure on new and used vehicle retail margins.
New vehicle retail same store gross profit, on a constant currency basis, underperformed the Prior Year, primarily driven by general economic headwinds within the U.K. market, coupled with short-term supply challenges due to a cyberattack against an OEM partner during the second half of the Current Year.
Used vehicle retail same store gross profit, on a constant currency basis, underperformed the Prior Year, primarily due to macroeconomic factors as the U.K. economy continues to face challenges, including persistent inflation, elevated interest rates, rising energy costs and a slowdown in consumer spending.
Parts and service same store gross profit, on a constant currency basis, outperformed the Prior Year, driven by increases in parts and service same store revenues, as discussed above.
F&I same store gross profit, on a constant currency basis, outperformed the Prior Year, as described above in F&I same store revenues.
Total same store gross margin in the U.K. remained flat for the Current Year as compared to the Prior Year.
SG&A Expenses
SG&A as a percentage of gross pr ofit decreased 92 basis points on an as reported basis and increased 12 basis points on a same store basis, respectively, compared to the Prior Year.
Total SG&A expenses in the U.K. during the Current Year increased $206.2 million, or 43.4%, as c ompared to the Prior Year. Total same store SG&A expenses in the U.K. during the Current Year increased $22.1 million, or 4.9%, as compared to the Prior Year partially due to changes in foreign currency exchange rates. On a constant currency basis, total same store SG&A expenses increased 1.7%. These increases on a total same store basis were primarily driven by higher employee related costs, vehicle delivery and facility costs, offset by lower professional and legal fees, compared to the Prior Year.
Consolidated Selected Comparisons — Year Ended December 31, 2025 compared to 2024
The following table (in millions) and discussion of our results of operations are on a consolidated basis, unless otherwise noted.
For the Years Ended December 31,
Increase/ (Decrease)
% Change
Depreciation and amortization expense
Asset impairments
Restructuring charges
Floorplan interest expense
Other interest expense, net
Provision for income taxes
Depreciation and Amortization Expense
Depreciation and amortization expense for the Current Year was higher compared to the Prior Year, primarily driven by acquired property and equipment in our U.S. and U.K. segments, as we continue to strategically add dealership related real estate and facilities to our investment portfolio and make improvements to our existing facilities intended to enhance the profitability of our dealerships and improve the overall customer experience.
Impairment of Assets
During the Current Year, we recorded goodwill impairments of $93.0 million, compared to none in the Prior Year. During the Current Year, we recorded total impairments of intangible franchise rights of $91.1 million, consisting of $27.8 million in the U.K. segment , excluding impairments associated with restructuring charges, and $63.3 million in the U.S. segment. During the Prior Year, we recorded impairments of intangible franchise rights of $28.2 million, all of which were recorded in the U.S. segment.
We review long-lived assets including property and equipment for impairment at the lowest level of identifiable cash flows whenever triggering events suggest the carrying value of these assets may not be recoverable. During the Current Year, we recorded fixed asset impairments of $3.6 million in the U.S. segment and $7.4 million in the U.K. segment . During the Prior Year, no fixed asset impairments were recorded.
For previously impaired assets held for sale, we recognized a gain of $2.3 million during the Current Year, compared to an additional asset impairment of $4.8 million in the Prior Year.
Refer to Note 12. Intangible Franchise Rights and Goodwill and Note 10. Property and Equipment, Net within our Notes to Consolidated Financial Statements for further discussion of our assessment for impairments.
Restructuring Charges
During the Current Year, we recognized $ 28.4 million of restructuring charges, compared to $ 16.7 million in the Prior Year. Restructuring charges primarily consist of planned workforce realignment, strategic closing of certain facilities and systems integrations, among other efforts to increase operational efficiency and profitability related to the integration of Inchcape Retail with its existing U.K. operations. The Company anticipates implementing further restructuring plans in the U.K. in future periods to further optimize our operations and reduce costs.
Refer to Note 4. Restructuring within our Notes to Consolidated Financial Statements for further discussion of our restructuring plans.
Floorplan Interest Expense
Our floorplan interest expense fluctuates with changes in our outstanding borrowings and associated interest rates, which are based on SOFR, the U.S. prime rate or other benchmark rates. Outstanding borrowings largely fluctuate based on our levels of new and used vehicle inventory. To mitigate the impact of interest rate fluctuations, we employ an interest rate hedging strategy, whereby we swap variable interest rate exposure on a portion of our borrowings for a fixed interest rate.
For the Current Year, floorplan interest expense decreased $7.0 million, or 6.5%, as compared to the Prior Year, driven primarily by decreased floorplan interest rates compared to the Prior Year.
Refer to Note 7 . Financial Instruments and Fair Value Measurements within our Notes to Consolidated Financial Statements for additional discussion of interest rate swaps.
Other Interest Expense, Net
Other interest expense, net consists of interest charges primarily on our 4.00% Senior Notes, 6.375% Senior Notes, real estate related debt and other debt, partially offset by interest income.
For the Current Year, other interest expense, net, increased $41.5 million, or 29.4%, as compared to the Prior Year. The increase in other interest expense, net during the Current Year was primarily attributable to the full year of interest expense on the 6.375% Senior Notes issued in 2024, as w ell as interest expense attributable to the Acquisition Line and other debt. Refer to Note 14. Debt within our Notes to Consolidated Financial Statements for additional discussion of our debt.
Provision for Income Taxes
Provision for income taxes from continuing operations during the Current Year decreased $35.3 million, or 21.9%, as compared to the Prior Year. During the Current Year and Prior Year, we recorded a tax provision from continuing operations of $126.2 million and $161.5 million, respectively. The year-over-year tax expense decrease was primarily due to lower pre-tax book income.
The 2025 effective tax rate o f 28.0% was higher than the 2024 effective tax rate of 24.5%. The tax rate increase was primarily due to the book impairment of goodwill in the U.K. reporting unit that is not deductible for income tax purposes in the Current Year.
We believe that it is more-likely-than-not that our deferred tax assets, net of valuation allowances provided, will be realized, based primarily on assumptions of our future taxable income, considering future reversals of existing taxable temporary differences.
For further discussion, please refer to Note 15. Income Taxes within our Notes to Consolidated Financial Statements.
Liquidity and Capital Resources
Our liquidity and capital resources are primarily derived from cash on hand, cash temporarily invested as a pay down of our U.S. Floorplan Line and FMCC Facility levels (refer to Note 13. Floorplan Notes Payable within our Notes to Consolidated Financial Statements for additional information), cash from operations, borrowings under our credit facilities, working capital, dealership and real estate acquisition financing and proceeds from debt and equity offerings. We anticipate we will generate sufficient cash flows from operations, coupled with cash on hand and available borrowing capacity under our credit facilities, to fund our working capital requirements, service our debt and meet any other recurring operating expenditures.
Available Liquidity Resources
We had the following sources of liquidity available (in millions):
December 31, 2025
Cash and cash equivalents
Floorplan offset accounts
Available capacity under Acquisition Line
Total liquidity
Cash Flows
We arrange our new and used vehicle inventory floorplan financing through lenders affiliated with our vehicle manufacturers and our Revolving Credit Facility. In accordance with U.S. GAAP, we report floorplan financed with lenders affiliated with our vehicle manufacturers (excluding the cash flows from or to manufacturer-affiliated lenders participating in our syndicated lending group) within Cash Flows from Operating Activities in the Consolidated Statements of Cash Flows. We report floorplan financed with the Revolving Credit Facility (including the cash flows from or to manufacturer-affiliated lenders participating in the facility) and other credit facilities in the U.K. unaffiliated with our manufacturer partners, within Cash Flows from Financing Activities in the Consolidated Statements of Cash Flows. Refer to Note 13. Floorplan Notes Payable within our Notes to Consolidated Financial Statements for additional discussion of our Revolving Credit Facility.
However, we believe that all floorplan financing of inventory purchases in the normal course of business should correspond with the related inventory activity and be classified as an operating activity. As a result, we use the non-GAAP measure “Adjusted net cash provided by/used in operating activities” and “Adjusted net cash provided by/used in financing activities” to further evaluate our cash flows. We believe that this classification eliminates excess volatility in our operating cash flows prepared in accordance with U.S. GAAP. In addition, floorplan financing associated with dealership acquisitions and dispositions are classified as investing activities on an adjusted basis to eliminate excess volatility in our operating cash flows prepared in accordance with U.S. GAAP.
The following table reconciles cash flows on a U.S. GAAP basis to the corresponding adjusted amounts (in millions):
Years Ended December 31,
CASH FLOWS FROM OPERATING ACTIVITIES:
Net cash provided by operating activities:
Change in Floorplan notes payable — credit facility and other, excluding floorplan offset and net acquisitions and dispositions
Change in Floorplan notes payable — manufacturer affiliates associated with net acquisitions and dispositions and floorplan offset activity
Adjusted net cash provided by operating activities
CASH FLOWS FROM INVESTING ACTIVITIES:
Net cash used in investing activities:
Change in cash paid for acquisitions, associated with Floorplan notes payable
Change in proceeds from disposition of franchises, property and equipment, associated with Floorplan notes payable
Adjusted net cash used in investing activities
CASH FLOWS FROM FINANCING ACTIVITIES:
Net cash (used in) provided by financing activities:
Change in Floorplan notes payable, excluding floorplan offset
Adjusted net cash (used in) provided by financing activities
Sources and Uses of Liquidity from Operating Activities — Year Ended December 31, 2025 compared to 2024
For the Current Year, net cash provided by operating activities increased by $108.2 million as compared to the Prior Year. On an adjusted basis for the same period, adjusted net cash provided by operating activities increased by $16.2 million. The increase on an adjusted basis was primarily driven by a $206.7 million decrease in inventories and a $164.8 million increase in asset impairment charges, partially offset by a $173.0 million decrease in net income, a $162.0 million decrease in floorplan notes payable – manufacturer affiliates, and a $117.9 million decrease in accounts payable and accrued expenses.
Sources and Uses of Liquidity from Investing Activities — Year Ended December 31, 2025 compared to 2024
For the Current Year, net cash used in investing activities decreased by $611.3 million, as compared to the Prior Year. On an adjusted basis for the same period, adjusted net cash used in investing activities decreased by $616.5 million, primarily due to a $731.0 million decrease in acquisition activity, partially offset by a $79.9 million decrease in proceeds from disposition of franchises and property and equipment and a $24.9 million increase in purchases of property and equipment, including real estate.
Capital Expenditures
Our capital expenditures include costs to extend the useful lives of current dealership facilities, improve the customer experience, as well as to start or expand operations. In general, expenditures relating to the construction or expansion of dealership facilities are driven by dealership acquisition activity, new franchises being granted to us by a manufacturer, significant growth in sales at an existing facility, relocation opportunities or manufacturer imaging programs. We critically evaluate all planned future capital spending, working closely with our manufacturer partners to maximize the return on our investments.
For the Current Year, $270.0 million was used to purchase property and equipment.
Sources and Uses of Liquidity from Financing Activities — Year Ended December 31, 2025 compared to 2024
For the Current Year, net cash used in financing activities increased by $712.2 million, as compared to the Prior Year. On an adjusted basis for the same period, adjusted net cash used in financing activities increased by $625.4 million. The increase in net cash used in financing activities on an adjusted basis was primarily driven by a $654.3 million increase in net repayments of other debt, including real estate-related debt, the issuance of $500 million of 6.375% Senior Notes in the Prior Year, an increase in share repurchases of $393.2 million, and an increase in net repayments on our U.S. Floorplan line of $203.0 million (representing the net cash activity in our floorplan offset account). This was partially offset by a $1.1 billion increase in net borrowings on the Acquisition Line.
Credit Facilities, Debt Instruments and Other Financing Arrangements
Our various credit facilities, debt instruments and other financing arrangements are used to finance the purchase of inventory and real estate, provide acquisition funding and provide working capital for general corporate purposes.
The following table summarizes the commitment of our credit facilities as of December 31, 2025 (in millions):
As of December 31, 2025
Total
Commitment
Outstanding
Available
U.S. Floorplan Line (1)
Acquisition Line (2)
Total Revolving Credit Facility
FMCC facility (3)
GM Financial Facility (4)
Total U.S. credit facilities (5)
(1) The available balance at December 31, 2025, includes $504.2 million of immediately available funds. The remaining available balance can be used for vehicle inventory financing.
(2) The outstanding balance of $975.8 million is related to outstanding letters of credit of $11.8 million and $964.0 million in USD borrowings. The available borrowings may be limited from time to time, based on certain debt covenant calculations, and as a result, the outstanding balance plus available borrowings may not equal the total commitment.
(3) The available balance as of December 31, 2025, includes no immediately available funds. The remaining available balance can be used for Ford new vehicle inventory financing.
(4) The remaining available balance as of December 31, 2025, includes no immediately available funds. The remaining available balance can be used for General Motors new and loaner vehicle inventory financing.
(5) The outstanding balance excludes $641.5 million of borrowings with manufacturer-affiliates and third-party financial institutions for foreign and loaner vehicle financing not associate d with any of our U.S. credit facilities.
We have other credit facilities in the U.S. and the U.K. with third-party financial institutions, most of which are affiliated with the automobile manufacturers that provide financing for portions of our new, used and loaner vehicle inventories. In addition, we have outstanding debt instruments, including our 4.00% and 6.375% Senior Notes, as well as real estate related and other debt instruments. Refer to Note 14. Debt within our Notes to Consolidated Financial Statements for further information.
Covenants
Our Revolving Credit Facility, indentures governing our 4.00% and 6.375% Senior Notes and certain mortgage term loans contain customary financial and operating covenants that place restrictions on us, including our ability to incur additional indebtedness, create liens or to sell or otherwise dispose of assets and merge or consolidate with other entities. Certain of our mortgage agreements contain cross-default provisions that, in the event of a default of certain mortgage agreements and of our Revolving Credit Facility, could trigger an uncured default.
As of December 31, 2025, we were in compliance with the requirements of the financial covenants under our debt agreements. We are required to maintain the ratios detailed in the following table:
As of December 31, 2025
Required
Actual
Total adjusted leverage ratio
Fixed charge coverage ratio
Based on our position as of December 31, 2025, and our outlook as discussed within Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations to this Form 10-K, we believe we have sufficient liquidity and do not anticipate any material liquidity constraints or issues with our ability to remain in compliance with our debt covenants.
Refer to Note 13. Floorplan Notes Payable and Note 14. Debt within our Notes to Consolidated Financial Statements for further discussion of our debt instruments, credit facilities and other financing arrangements existing as of December 31, 2025.
Share Repurchases and Dividends
From time to time, our Board of Directors authorizes the repurchase of shares of our common stock up to a certain monetary limit and at a prescribed cost limit per share. On November 11 , 2025 , our Board of Directors increased the share repurchase authorization to $500.0 million. For the Current Year, 1,343,229 shares were repurchased, at an average price of $413.05 per share, for a total of $554.8 million, excluding excise taxes of $4.9 million. As of December 31, 2025, we had $378.7 million available under our current share repurchase authorization.
During the Current Year, our Board of Directors approved quarterly cash dividends per share on all shares of our common stock totaling $2.00 per share, which resulted in $25.3 million paid to common shareholders and $0.3 million to unvested RSA holders.
Future share repurchases and the payment of any future dividends are subject to the business judgment of our Board of Directors, taking into consideration our historical and projected results of operations, financial condition, cash flows, capital requirements, covenant compliance, changes in laws and regulations, current economic environment and other factors considered relevant.
