AutoCanada Inc
TSX:ACQ
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AutoCanada Inc
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Good day. My name is Jack, and I will be your conference operator today. At this time, I would like to welcome everyone to the AutoCanada Inc. First Quarter Results Conference Call. [Operator Instructions] Thank you.Chris Burrows, Chief Financial Officer, you may begin your conference.
Good morning and thank you for joining us on the call. With me here today is Steven Landry, our President and Chief Executive Officer. And before I turn the call over to him, let me remind everyone that certain statements in this presentation may be forward looking in nature. I would refer you to our more complete related disclosures contained in AutoCanada's most recent annual information form. These include statements involving known and unknown risks, uncertainties and other factors outside of management's control that could cause actual results to differ materially from those expressed in the forward-looking statements.AutoCanada does not assume responsibility for the accuracy and completeness of the forward-looking statements and does not undertake any obligation to publicly revise these forward-looking statements to reflect subsequent events or circumstances.For additional information about possible risks, please see the AIF dated March 15, 2018, which is available on the SEDAR website as well as AutoCanada's website within the Investor Documents & Filings section.With that, let me turn it over to Steven.
Thank you, Chris. Good morning, everyone. Thank you for joining us on the call. This was a significant quarter for AutoCanada. We recently completed the largest acquisition in AutoCanada's corporate history, Grossinger Auto Group in Chicago, adds over $500 million to our annual revenue and is a well-established business with a cluster of dealerships in a major urban market offering a mix of domestic, import and luxury brands. It adds 4 new brands to our portfolio: Lincoln, Toyota, Volvo and Honda. And it also provides us with relationships that are very important in a new market with 11 new OEMs in the U.S. country.Another advantage of this acquisition is that we have further diversified our geographic weighting, reducing our Western Canada weight. The deal has now closed, and we have been working with the teams in Chicago and Bloomington on the integration process, which is going very well. The Grossinger acquisition moves our total store count to 68.Another important milestone in the first quarter is the agreement that we achieved with General Motors of Canada, which allows AutoCanada to own and control GM Canada dealerships.These 2 agreements, the public company master agreement with General Motors and the Grossinger acquisition, really position us well, not only going into the balance of 2018 but for the longer term as well.Key points on our performance in the first quarter includes the fact that we sold 12,667 new and used vehicles in Q1. Our same-store revenue was strong at $562.1 million, up 4.6% over the first quarter of last year, while total revenue decreased 2.9% to $620.5 million. EBITDA attributable to AutoCanada's shareholders was up 11% to $15.7 million versus the same quarter last year. So that's some highlights.And now I'll turn it over to Chris who'll provide you with more detail of the financial results.
Thanks, Steven. Before I get into some of the key metrics, I will remind everyone that our complete first quarter report, including our MD&A, were released yesterday and can be found on AutoCanada's Investor Relations website and under our profile on SEDAR.We had indicated at the time of the PCMA with GM Canada that there would be an impact as a result of our divestiture of our economic interests in the 4 General Motor stores and we saw that this quarter.Gross profit on same stores was $95.5 million, up 1% compared to Q1 of 2017. Total gross profit was $104.3 million, down as a percentage of revenue decreasing to 16.8% from 17.5%.Same-store unit sales on revenue from new vehicle sales were up 3.9% and 4.1%, respectively, year-over-year. The same-store positive performance was driven by increases in both volume and average revenue per vehicle sold.Total new vehicle sales were 8,140 units, down 4.3% from the same period in 2017. Total revenue from the sale of new vehicles was $338 million, down 4.4% from the same period in 2017. The sale of new vehicles accounted for 54.5% of the company's total revenue and 22.5% of gross profit versus 55.3% of revenue and 22.9% of gross profit in the first quarter of 2017.For same stores, unit sales and revenue from used vehicle sales were up 1.9% and 1.1%, respectively, year-over-year. Total used vehicle sales were 4,527 units, largely flat compared with the same quarter last year. Total revenue from the sale of used vehicles was $157.9 million, down 4.5% from the same period last year. The sale of used vehicles accounted for 25.4% of the company's total revenue and 8.2% of gross profit versus 25.9% of revenue and 10.7% of gross profit in the first quarter of 2017.Same store parts, service and collision repair revenues grew by 11.8%. While the number of service and collision repair orders completed in the quarter declined year-over-year, the average price of those orders went up, driving an overall increase in revenue for this segment. Total parts, service and collision repair generated $95.9 million of revenue, up 5.7% from the same period in 2017. This accounted for 15.5% of our total revenue and 43.6% of our gross profit, up from 14.2% of revenue and 42.4% of gross profit in the same period of 2017.On the same-store basis, revenue from finance and insurance grew by 9% and by 6.6% per retail vehicle sold. Total finance and insurance generated $28.7 million of revenue, a decrease of 2.3% from the same period in 2017. This accounted for 4.6% of the company's total revenue and 25.7% of our gross profit, flat from 4.6% of revenue and up from 24% of profit in the first quarter of 2017.Operating expenses were $95.8 million, down 2.4% from the same period last year. Operating expenses as a percentage of gross profit were 91.8%, up from 87.9% over the same period in 2017.We generated net earnings attributable to AutoCanada shareholders of $4.8 million, the same on an adjusted basis. In per share amounts, this was $0.18 per share. These amounts compared to $3.7 million or $4.6 million on an adjusted basis or $0.13 and $0.17 adjusted from the same quarter last year.To sum up, the first quarter of 2018, our top line revenue was down as expected on fewer dealerships, but temporarily. On a same-store basis, our performance was very good with improvements in each part of the business. We are growing the business through acquisitions and continue to improve our operating performance at existing dealerships.With that, I'll turn the call back over to Steven.
Thank you, Chris. As you will have seen in our news release, the board declared a dividend for the quarter of $0.10 per common share on AutoCanada's outstanding Class A common shares. This will be payable on June 15, 2018, to shareholders of record at the close of business on May 31, 2018.A number of factors go into the board's decision on our dividend. We allocate capital in the most efficient way to feed AutoCanada's growth, while also sharing the company's success and profits with our shareholders. We believe we have been doing well on both fronts.From an industry standpoint, for 2018, we see new vehicle sales in Canada tracking slightly ahead of 2017 record-breaking year for the first quarter, although data from March and April standalone have shown a slowing pattern. So we expect 2018 to be strong by historical standards, but likely below the 2 million mark, as a recent analyst said this week, around the 1.98 million mark. So a good industry there for us.Now we continue to see a shift to higher margin light trucks and SUVs with the light trucks accounting for 71% of vehicle sales in Canada so far this year. And this is an important trend for us as these vehicles tend to be higher cost and also generate higher profits for us.While we just completed our largest acquisition in corporate history in Chicago, we continue to review our other acquisition opportunities. The market remains right for further consolidation, and we are well placed to play a role in this activity. We have a new credit facility that is flexible and efficient, and we have enough capacity for operating in capital expenditures as well as acquisitions and remain disciplined in the implementation of our acquisition strategy.So in conclusion, we see a stable economy, continued strong sales and an ongoing trend to higher-priced vehicles. And as we diversify our portfolio by brands and geography, we look forward to the fact that we are now heading into our busy summer season.So with that, we will now open the line to questions.
[Operator Instructions] Your first question comes from the line of Christ Murray with AltaCorp Capital.
Guys, I don't know who wants to take this one, but one of the things I think was a little surprising, the -- we understand the change in revenue numbers, but the gross profit numbers were down a bit and the actual margin on a percentage basis was surprisingly low. Can you kind of walk us through any sort of seasonal impacts or any unusual impacts you may have seen in the quarter, either on, I guess, all 4 segments, if you don't mind?
Sure. Chris, I'll take that. And I'm actually going to start, I guess, from new vehicles and just work down the list. New vehicle margins, obviously, as you've remarked, were softer. New vehicle margins in the quarter, we definitely asked our dealerships to focus on selling through a number of units in support of achieving manufacture incentive targets and goals to achieve sales incentives and stair-step incentives throughout that. The -- obviously, the stair-step incentive payments were not sufficient to cover off the full amount of kind of the historical growth. And we see an opportunity to improve there throughout the rest of the year. Used vehicle margins -- used vehicle gross margins always have more volatility to them. And indeed, we saw some softness and weakness in the quarter with respect to used vehicle margins. We definitely saw, in the fourth quarter of last year, an intentional sell-through of used vehicles. And we saw some of that activity continuing in this year. And in Q1, moving forward, we will reevaluate certain policy decisions that we made around moving through in used inventory based on hard deadlines and hard-term policies. Effectively, we saw more used vehicles going through wholesale as opposed to retail, which carried lower margins. So an opportunity to continue to improve there, Chris. On a parts, service and collision repair scenario, we did see a margin below 50% in this quarter. We -- on a seasonal basis, we typically see a weaker margin in the first quarter, although not typically at this level. Two impacts in our parts and service margins this quarter, we saw, one with a longer extended cold winter period and what that does is that delays a number of service opportunities into the second quarter as consumers delay making those changes, delay making those service appointments until the winter has concluded. So we see a bit of a delayed impact and expect a delayed impact into the second quarter with those service impacts. We also saw a higher proportion of warranty work being completed in the first quarter. The warranty work carrying a lower overall gross margin, which, again, has contributed to a softer gross margin on parts, service, collision results. From a finance, insurance perspective, we did see a strong result there. Some of that is related to pricing and some of that is related to process. There is an effect that we are starting to see now from the integration, reintegration and delivery of menu selling processes in our finance and insurance departments that has resulted in stronger margins in F&I, being up in that 93% level.
Okay. I guess, Q1 is historically weak. How would you suggest that your -- the margins that you're seeing so for in Q2 are progressing? Are we kind of returning more to norms? Are you seeing some of that recovery as you sort of disclosed kind of around winter weather or things like that?
Yes. I think definitely from a parts, service, collision perspective, that is going to cause a latent delayed effect into the second quarter. We would expect that the parts, service margins to recover in the second quarter, moving into the rest of the year. From a used vehicle perspective, as I indicated, we are reviewing and expect to revise some policy decisions that will have us and show us to hold used vehicle gross margin. So those we believe to be temporary effects. So we are focused on gross margin, not only overall, but in each of the 4 distinct areas.
Okay. Just thinking about your operating expenses, variable admin expenses were a little higher than we've seen historically. Anything in there that would be considered kind of onetime or transactional in nature? I know you had a lot of stuff going on in Q1 with acquisitions and some of the transactions with Mr. Priestner.
There would have been some costs related to some of the governance issues that we were cleaning up, as you've alluded to. There also would have been some impacts related to acquisition-style costs. We've never typically broken out acquisition costs previously, as we're always in pursuit of various acquisitions in any given time. But for sure there would have been some costs related to kind of the legacy governance cleanup with respect to variable admin costs as well as other issues related to acquisition.
Okay. Last question for me. Just looking at your floor plan financing, kind of unusual, and I'm trying to maybe understand how this is impacting your inventory or if this is something else going on. Typically, you receive credits that generally offset your cost of floor plan finance. This is the first quarter and several that, that didn't happen. Can you just a little -- maybe talk a little bit about what's going on with your inventory? And how you're approaching it? And why those credits didn't fully offset your cost?
Yes. There's a couple of things that play here. So obviously, on a Q1 versus Q1 '18 versus '17, we've seen 75 basis points increase in floor plan interest rate. That is obviously a material amount to our interest carrying cost. With the divestiture of the 4 GM stores, General Motors Canada has a very significant interest credit attached to it. So we saw the elimination of some fairly substantial credits as they relate to those divested stores. We're also moving into kind of an inventory buildup moving into the Q2 and Q3 selling seasons. So we do have inventory on ground. We're also seeing a significant change in terms of price per vehicle as we move into that season. So we have a larger proportion of luxury on ground, because we own more luxury stores, operate more luxury stores at this point. And we've seen the emergence of and the introduction of more expensive units throughout some of the domestic lines as well. So we have more expensive inventory on a per unit basis and we're carrying more of it moving into the selling season with a lower interest credits coming back from the manufacturers, primarily related to the divested stores.
Your next question comes from the line of Michael Doumet with Scotiabank.
So I'm going to maybe put 2 of Chris' questions together. But I can appreciate there seems to be a few one-timers in the quarter, particularly as it relates to gross profits and maybe in the operating expenses as well. But as we think about margin expansion for the remainder of the year and, Chris, you spoke about it. I mean, how should we see that play out? I mean, what do you feel are the primary drivers? Is it the gross margin or should we see operating expenses line up a little bit? Or maybe a little bit of both?
Yes. I would actually say, Michael, that it's going to be components of both. So what we saw in the first quarter is a reduction in gross profit as well as a reduction in operating expense dollars. So that -- both of those play into the overall leverage perspective, which is where we saw the OpEx leverage kind of climb in the quarter. As we go out through the rest of 2018, the second, third and fourth quarters, I see the margin profile. The operating margins continue to improve, as I said, in parts and service. That will improve and should likely get back above the 50% range. We did see some volatility in used, which we also expect to improve and increase throughout the remainder of the year. But also to your question, I mean, we are hyper focused on operating leverage as well on those operating expenses and we continue to review those. There's always been a lag between the operating performance of our business as well as -- against the expense profile of our business. So we are focused on that. Obviously, the operating leverage that we see in the first quarter is not sustainable over the long period. We have to address both from a gross profit as well as an expense line as well.
Michael, I'll just add. If you -- the -- to echo what Chris was saying on the operating expenses, like, we have a process internally that we're looking at all of our vendor expenses and renegotiating where we can, because bringing the expenses down as well as for the gross profit coming up is really important. And so we're having so many dealerships and so many vendors that deal with both us centrally and our dealers, we are getting a handle on our operating expenses as it comes to basically The Street. And I would say that we're -- in the second, third and fourth quarter, we'll show some effective results as a result of the process we have internally.
Okay. So, I mean, my sense of putting that together. So you're executing on improvements. We're just not seeing it in the numbers directly in Q1. So maybe it's a lag due to counting recognition or something else. But how should we think about the size of those efficiencies?
Well, it's hard -- I look back at last 2 years and we've done so much to kind of ride the ship, if you will, or make things normal going forward and trying to get rid of the one-timer things that happen in each quarter. And we're basically there. Although the first quarter, we did have some one-time events that cost money. And now that -- and governance issues that cost money from an expense standpoint. But now that we have those behind us in Q1, and you couple that with the fact that we, like Chris said, we have focused on our operating cost. We're not just hoping that they're going to get better. But again, I trust that we'll see that in Q2 plus going forward. But I can't really give you guidance in terms of how to put math to it.
Okay. No, that's fair. I mean, maybe just another way to ask it. Does most of it show up in Q2? Is it your gradual process throughout the year?
No, it's through the balance of the year because every -- all the vendors we're working on is an annual basis. So as we look at contracts, renegotiate, they're all usually annual contracts. So they're -- it'll show through all 3 quarters.
Okay. Now that's very helpful. Maybe just one last. So still early days on Grossinger, but I think you guys will have the chance to meet in the quarter. Any new information that you can share with us, puts and takes, and maybe a better sense of how their high used vehicle sales were progressing or expected to progress?
Yes. I was chatting with the guys down in Chicago yesterday or almost every day. But we're only into week 3 so far. We had -- those last 3 weeks, we were with the change of inventory on used and new from vendor to new acquirer. So we're through the what would typically be the complication or the [indiscernible] of taking over a new store. And after the next quarter, we'll be able to have more stable results to review. But we sold something in the neighborhood of 660 new and used vehicles just in the last 3 weeks in Chicago and we're -- but that's not to be really compared -- it wouldn't help to compare that to anything because we did just basically knowing that it's up running and working and we kept, I would say, 95% of the management in the stores, the employees, the salespeople in the stores. And our team that's leading the platform is spending a lot of evenings and weekends training -- voluntary training for sales managers and basically utilizing the AutoCanada process of new and used vehicle sales and F&I training. We're using an F&I company in U.S. and that was ready to go day 1. And they're -- all of the dealers are trained on the new F&I process and new company and so, yes, it feels good, feels really good, excited.
Your next question comes from the line of Derek Dley with Canaccord Genuity.
Just wondering, can you comment on some of your specific OEMs, namely Chrysler. The national stats that we get have shown some market share losses from Chrysler. But did you guys see any different -- anything different in your dealers?
Well, we focus on our Chrysler dealers. I mean, we focus on all of them, but with our heavyweight in Chrysler, which incidentally has gone from the last year from 42% to 35% based on revenue, which is good, going in the right direction. But -- I'm sorry, that's Alberta, not Chrysler. That numbers I just mentioned. We -- I follow Chrysler, particularly, because of my history with them. And the strategy we think that Chrysler has is a -- it continues to be a strong one with Ram truck. Ram -- production of the new Ram truck started this week. So they're shipping and starting to arrive at dealerships. So having the new Ram as well as the old Ram is very strong. A lot of the -- and I'm just reading this in articles, but the negative on volumes for Chrysler in the U.S., I'm not sure if it's Canada as well, but it probably is. A lot of the negative is the fleet. Chrysler is really working hard as an OEM to reduce their fleet sales, which is good. And so when we look at our retail sales with Chrysler, we're not disappointed with where they are. Their gross margins and profit that are coming from our Chrysler stores continues to be some of the strongest net earnings in our company.
Okay. So it sounds like your Chrysler dealers are outperforming what we see nationally?
They're in line, put it that way. I wouldn't say they're -- they're in line, and in some cases outperforming. And that -- I'll give you some markets, in Maple Ridge, B.C. and Edmonton, our Chrysler stores are outperforming and where a lot of our larger stores are and they've had a good first quarter.
Okay. And then just, since you mentioned it, Alberta. Did you guys return to positive comps in Alberta this quarter?
Yes, we did.
And regionally, what other areas were -- what areas were the strongest?
I mean, definitely, Alberta was the strongest for us. B.C. was strong. Saskatchewan, we had pockets of strength. The eastern part of the country and East Coast of the country were average. The strength was really in the West.
Your next question comes from the line of Matt Bank with CIBC.
Just want to follow up on the Ram truck. Just how much of a needle mover can this be for you going to the spring and summer months?
It's really hard to tell, Matt, when the vehicle is brand new. And I think the good news for us is the current truck, the existing truck, is continuing production along with the new one. So we'll be able to tell what the -- how the take rate is going to be. They're literally just being shipped this week. So it's just a bit early to be able to comment. But next quarter, probably we'll have a lot more color.
Okay. And then on new vehicle margins overall, has this chasing of manufacturer goals continued into Q2? And then just, overall, like what is the plan to improve new vehicle margins from Q1 results?
Yes. I think, definitely, we were focused on attainment of manufacturer incentive in Q1, recognizing that those incentives were insufficient to result in the grosses that we are accustomed to, to earning and achieving. We have focused as an operational team towards more holding grosses. I think that there is a level of discipline among our operating teams and our staff and our dealers and general managers towards not necessarily taking skinnier deals. And that's an active and conscious decision as we move forward into Q2. So we saw that and that is being addressed presently.
And is that a cultural shift? Or it's more of a subtle thing that we should see in the short term?
Yes. It's -- I wouldn't characterize it as a cultural shift. This is not -- cultural shifts take a substantial amount of time to change. This is something -- this is a decision that can be pivoted more quickly and have been.
Okay, great. I wanted to ask on the Grossinger deal. So in the MD&A, the purchase price is $135 million and the press release said $110 million. So can you just explain what that gap is and how it played out?
Yes. So there is really the delta in the original announcement and the final closing price relates to some tangible property that we've also acquired in this transaction related to the finalized build-out and construction of a few other facilities. Our purchase agreement provided for us to acquire all of the property and equipment used in the business. So this increase in purchase price relates primarily to leasehold improvements, tenant improvements in certain of the stores that were under construction costs, which weren't known and couldn't be known at the initial announcement dates.
Okay. So then, does that mean that the leasing rate that you're paying also changed since that time?
Yes. I mean, it obviously has impact to the rates, the rent rates in each of those stores. This is a -- based on a specified cap rates, all of our rates are at market rent, will have an impact, an operating impact to the stores. That said, Matt, it continues to be a very attractive deal, a very accretive deal we believe, moving forward, in spite of the acquisition of these additional [ TIs ].
Okay, great. And then, can you guys share a bit -- it sounds like the strategy in use is changing. Can you share the plan there, please?
Yes. I think that a piece of this, Matt, is some changes that we've made previously. What we had found was that the best performing -- our best-performing stores had some of the highest turnover, not unsurprisingly, in their used-car departments. And we looked across the network for how to replicate that through some policy-driven decisions. And I would say that certain of those policies, one of the ones that we spoke about very publicly before in terms of a hard-term policy, i.e., moving vehicles -- moving used vehicles through the system more quickly, have resulted in us moving vehicles that potentially could have been sold at retail and earning and obtaining higher margins through wholesale channels, because of certain policies, i.e., the hard-term policies. So we're revisiting those now to make sure that we retain those vehicles and we capture those higher margins related to selling at retail versus wholesale.
Okay. And just last one for me, if it's okay. The NCI in the income statement looked a bit low to me. Is that as a percentage of earnings in Q1 a good run rate for here post this GM divestiture?
Yes. I would say, it was actually a pretty strong indicator of where the NCI would be, kind of the mid- to high 90s. The only remaining minority interests are effectively in our BMW stores and in our remaining GM stores.
Your next question comes from the line of Maggie MacDougall with Cormark Securities.
Just wondering if you guys could perhaps give us a little bit of color in terms of your M&A strategy going forward and the footprint in the United States as well as your locations in Canada? I think that we are pretty clear on what you're looking for in Canada in terms of geography. But wondering if you could give us a bit of guidance in the U.S. on what your focus is?
Maggie, yes the -- on the Grossinger acquisition, obviously, is our first acquisition in the U.S. and we -- it's a lots of dealerships. So we're going to -- we want to make sure and ensure that we integrate into our systems and processes and that's always going to take a little while. The -- this foray into the U.S. has created a lot of phone calls, a lot of attention, a lot of texts and e-mails from people in the U.S. and in terms of if we wanted to fill a pipeline for growth, we certainly can and knowing that some of the sellers see us as an opportunity to sell to. So from a standpoint of making new friends with potential deals in the future, it's great because we're building that book of contacts now. And for when we do our next acquisition in the U.S. and -- but I can't really put a time frame on it because there's nothing like in the imminent future in the U.S., but obviously, that's -- when you look at the map like we showed, it's a good continuance. Having Chicago as a platform is basically running east of Winnipeg and west of Toronto and just fits into our portfolio very well from a DNA perspective. And so I think that -- our strategy is -- continues to be having a larger store -- metro market-size stores and clusters and that continues to go along with or consistent with our strategy.
Okay, great. And then just one more question around the new car gross margin and -- sorry to, I guess, beat a dead horse here, but wondering if you can just clarify for us, dealer incentives at this point, do you feel that they're reasonable given the outlook for sort of a flat to maybe slightly down new light vehicle market in Canada this year?
Well, you're talking about the OEM incentives for dealers?
That's right, yes.
Yes. They certainly change on a monthly -- usually a 60-day basis and they change based on inventories, really, usually with the OEM. I mean, we looked, our inventories are pretty much the same volume levels as last year, both new and used. So the increase in -- the cost was driven by an increase in the finance rate. But on the OEM incentives, I would say, were efficient in the first quarter to get to where they need to go. We -- each OEM has a sales effectiveness number. And we try to hit that because as we hit their OEM sales effectiveness number, it gives us a better chance at future acquisitions. So we did stretch in the first quarter to hit that OEM sales effectiveness number, which had an impact on our margin because we stretched and it thinned the margin out a little bit. But there is -- it's a balancing act with the OEM to hit their number. And in this particular quarter, it was a bit of a thinner margin, but it was not something that was kind of -- we don't see that as something that will -- that continue.
Your next question comes from the line of Maxim Sytchev with National Bank Financial.
Would it be possible to quantify the impacts on margin from the GM stores' divestiture?
Yes. Max, we did provide additional detail in the year-end MD&A with respect to the divested GM stores. So I mean, the -- we never really discuss kind of the net operating performance on a discrete store basis. What I would say is that the divested stores were disclosed as having an annualized revenue of $375 million and the earnings profile of those stores would be average -- slightly above average as it flows down. So you could make -- kind of a model it out in terms of the $375 million. We provided gross profit as well on those stores as well as proportionate ownership in unit volumes. So with that data, I would suggest to you that it's average -- slightly above average for their overall earnings profile.
All right. Okay. And can you just maybe comment on the overall pricing trends for used? What you see now and how the year should progress?
I think that there is obviously always more volatility in used. As we've said, there's some countercyclicality to new car versus used car sales. So as -- they run opposite in the cycle. We've seen some stronger demands in new cars, which will reduce some of the demand in used and, therefore, could put some pressure on that. That said, we are focused on used-car price and margin and expect that to improve as we move into the second quarter and beyond.
And the fact that the demand right now from consumers is, obviously, focused on SUVs, in terms of the inventory that you have on used, is this a similar type of composition? Or is it more weighted towards the sedan so that there is a bit a mismatch from that perspective and hence puts more pressure?
Yes, I know, I understand. No, we're very comfortable with respect to where our inventories are, both new and used. In the end of the '17 fiscal year, we definitely, as we do always, kind of look to rationalize inventory to make sure that inventory is properly situated moving into the next fiscal year. So to your point, Max, we're quite comfortable with where our inventory is at from a value perspective and what our inventory is from a consumer demand perspective.
Okay. Now that's helpful. And can you maybe help us out a little bit on how noncash working capital should progress throughout the year? And I guess, just for the entire of 2018, how should we think about it?
Yes. I mean, obviously, in the first quarter, noncash working capital was in a negative position owing a lot -- in a lot of respects to the significant tax impact of the divestiture of the General Motor stores. I would not expect that trend to continue. Our cash on an annualized basis -- we're trailing 12 right now, just north of $50 million on an annualized basis. This business will continue to spin off kind of $70 million to $80 million in free cash flow through the improvement of working capital moving beyond the first quarter.
I'm sorry, when you talk about free cash flow, that's ex-working capital, right?
Correct.
Your next question comes from the line of Stephen Harris with GMP Securities.
Most of my questions were answered, but I just had one minor housekeeping item left. You indicated the Grossinger acquisition has closed. I didn't get a date for when that is going to become effective in your statements?
So it's -- 9 of the -- 8 of the 9 stores closed on April 9, and the last store closed on April 23.
Perfect. Okay. So essentially in there for all of Q2. That's all I had.
There are no further questions at this time. I would now like to turn the call back over to presenters.
Well, thank you, operator, and thank you, everyone, on the call for attending. And our next quarterly call will be in August. Thanks very much. Have a great summer and goodbye.
We'd like to thank you for your participation in AutoCanada Inc.'s First Quarter Results Conference Call. This concludes today's conference call. You may now disconnect.