LKQ Corporation Price & Performance (LKQ)

Thank you, operator, and good morning, everyone, and welcome to LKQ's first quarter twenty twenty five earnings conference call. With us today are Justin Jude, LKQ's President and Chief Executive Officer and Rick Galloway, our Senior Vice President and Chief Financial Officer. Please refer to the LKQ website at lkqcorp.com for earnings release issued this morning as well as the accompanying slide presentation for this call. Now let me quickly cover the safe harbor. Some of the statements that we make today may be considered forward looking, These include statements regarding our expectations, beliefs, hopes, intentions or strategies. Actual events or results may differ materially from those expressed or implied in the forward looking statements as a result of various factors. We assume no obligation to update any forward looking statements. For more information, please refer to the risk factors discussed in our Form 10 ks and subsequent reports filed with the SEC. During this call, we will present both GAAP and non GAAP financial measures. A reconciliation of GAAP to non GAAP measures is included in today's earnings press release, and slide presentation. Hopefully, everyone has had a chance to look at our eight ks, which we filed with the SEC earlier today.

And as normal, we are planning to file our 10 Q in the coming days. With that, I'm happy to turn the call over to CEO, Justin Jude. Thank you, Joe, and good morning to everyone joining us on the call. Since the tariffs were announced on April 2, much has changed. Capturing the interest of all of us on this call affecting the global economy. Before discussing tariffs, I would like to address several topics concerning our people, our operations and our performance.

What sets us apart from our competition is our dedicated workforce which we consider to be our most valuable asset. To ensure their safety, we implemented an in cab monitoring equipment in our fleets last year, achieving 95% coverage in North America by the end of Q1. This initiative has led to a nearly 40% reduction in on the road accidents. And we aim to implement these features in Europe where feasible. We value talent development have launched our global talent development function to unify our workforce through leadership competencies career planning. In February, a cohort of high potential global leaders began attending sessions to promote learning and idea sharing. This initiative will also help facilitate best practice sharing between our North America and European operations. During the quarter, we also held both our North American and European leadership conferences bringing together more than 1,300 of our top global leaders to align on our strategy and goals. As anticipated, part of the discussion revolved around navigating recent tariff developments in challenging macroeconomic conditions. Despite these challenges, our team managed to meet our expectations in achieving earnings per share of $0.79 for the quarter. Although the markets present uncertainties, we must continue executing our simplification strategy without delay.

I will highlight some of our operational accomplishments during the segment breakout, and Rick will provide more detail later in the call. Regarding our ongoing strategy to simplify the portfolio, we divested two operations, a self serve yard in Florida and a Europe based non core leisure business demonstrating our commitment to streamlining our portfolio. We remain committed to a balanced capital allocation strategy incorporating dividends, share repurchases and maintaining our investment grade rating. During the quarter, we repurchased 1,000,000 shares for about $40,000,000 and paid $78,000,000 in dividends in March. Now moving to our segments. North America's organic revenue fell by 4.1% per day, which has left of a decline, the last three quarters of twenty twenty four. Amid a nearly 10% decline in repairable claims. The drag on repairable claims resulting from declining used car pricing and rising insurance premiums really started worsening in Q2 of twenty twenty four, so the comps will start to ease as we progress through the year. Since 2015, we have outperformed the repairable claims count growth by over 400 bps per year and Q1 was five seventy bps better. Indicating market share gains against a low demand environment. North America also benefited from having a diversified portfolio of products and services, mitigating potential shortfalls in other business areas, We generated positive growth for our lead tech calibration and diagnostics business and our Bumper to Bumper hard parts business in Canada.

In Europe, organic revenue declined by 1.8% per day compared to a growth of 4.4% in Q1 of twenty twenty four. On a two year stack, organic revenue growth was 2.6%. There was noticeable softness in many markets impacted by consumer confidence. Europe also experienced a relatively mild winter year over year, impacting certain products such as batteries, are higher in demand during periods of inclement weather. Competitive pricing in some countries also contributed to challenging conditions that we believe will stabilize long term. Our comprehensive product and service offerings are best in class across Europe we consciously avoid making brass short term pricing decisions that dilute the value proposition we offer in Europe. Best practices support our daily success at LKQ. Our SKU rationalization project in Europe aims to reduce from and simplify our distribution network across all markets. Have reviewed over 60% of our product brands, and reduced stocking by an additional 17,000 SKUs. Additionally, our private label penetration increased by 20 basis points. As Andy and I mentioned at the Investor Day, the integration of Europe is mission critical and accelerating that effort is imperative given it has not progressed at the cadence we promised in the past.

In order to drive change management, we need the right leaders in place to truly achieve the benefits of scale of one LKQ Europe represents. Since taking the helm in Europe, Andy, alongside Rick and I, have replaced a fair number of the previous leadership team and have onboarded individuals that are aligned with operational excellence and lean management initiatives necessary to optimize our European operations. Our focus is on people, process and performance. Regarding specialty, our organic revenue declined by 4.9% on a per day basis, which is a sequential improvement compared to Q4 of twenty twenty four. At the start of 2025, there was optimism about special stabilizing later in the year, but consumer sentiment decreased significantly due to anticipated tariff pricing pressures. This sentiment along with inflationary pressures will likely continue throughout the year. Now turning to tariffs. While the current headlines of the tariffs are broadly known, the final decisions remain unclear. There are many dynamics of this tariff situation than those in the past. We have established an internal global tariff task force which includes leaders from procurement operations, finance, risk management, sales and marketing to help navigate and make decisions. If everyone remembers the supply chain constraint, following COVID where inflation was driving up product cost and a supply demand imbalance created huge increases in ocean freight, the team proved their agility of mitigating the impact we came out financially stronger.

Specific to our tariff exposure, less than 15% of our U. S. Businesses cost of goods are directly imported from outside The US with the majority of that product coming out of Taiwan. LKQ's advantage over our aftermarket collision parts competitors lies in our supply of recycled products. Which we anticipate will see an increase in demand given their competitive pricing relative to new OE parts. We expect the tariffs will raise part prices and increase used car values. Historically, these increases have benefited the industry as used car values are expected to rise faster than the vehicle repair cost potentially leading to more cars being repaired and kept on the road longer. Our tariff task force is working on mitigating tariff impacts through potential cost concessions from vendor partnerships and identifying supply chain optimization and SG and A reductions. The non discretionary nature of the North American business and the industry allows for need based pricing power enabling LKQ to pass on select price increases thus insulating the wholesale dynamic from the other parts suppliers in the market. Before I turn the call to Rick to discuss our Q1 results, I am pleased to announce that we will be publishing our 2024 sustainability report at the May.

Sustainability continues to be at the heart of what we do. Especially in our North American and Europe salvage operations. This is true today as it was when we started over twenty six years ago. Rick? Thank you, Justin, and welcome to everyone joining us today.

We are pleased with our start to 2025. Cost actions taken in 2024, including exiting underperforming businesses and driving our lean operating model have positioned us well to offset the top line headwinds across each of our segments. Overall, Q1 results were largely consistent with the trends we saw throughout the last several quarters. Europe continued its solid performance with a 60 basis point year over year improvement in segment EBITDA. North America, we were pleased with their performance given the anticipated top line pressure as we work through the decline in repairable claims.

Self-service delivered another quarter of year over year improvement in both EBITDA dollars and percentage. Specialty's results remained under pressure with soft demand in the RV and CEMA space, partially driven by softening consumer sentiment in light of the ongoing macroeconomic instability. Including uncertainty around the effect of tariffs. Now turning to the first quarter consolidated results.

Our first quarter performance in line with our expectations. We reported diluted earnings per share of $0.65 a $06 increase compared to Q1 twenty twenty four. On an adjusted diluted earnings per share basis, we reported point seven nine dollars a decrease of $03 per share versus prior year. The decrease in adjusted EPS is largely due to lower segment EBITDA dollars predominantly from our wholesale North America segment.

Higher legal and professional fees were also a $01 headwind as we reached the cooperation agreement with Ankora and ENGIE Capital in the first quarter. The impacts from interest and FX rates largely offset each other with interest being a slight positive and FX being a slight negative. On a positive note, lower share counts resulting from our disciplined share repurchase program drove $03 of incremental adjusted EPS versus prior year.

Now for segment results. Going to Slide eight. North America posted a segment EBITDA margin of 15.7% a 60 basis point decrease relative to last year primarily due to the organic revenue decline.

The decline in organic revenue was driven by a reduction repairable claims and having one less selling day. Partially offset by targeted actions to increase market penetration. Gross margin improved by 20 bps as a result of product mix and pricing initiatives. Overhead expenses declined by $16,000,000 relative to prior year including $24,000,000 of decreased personnel costs due to uniselect synergies and productivity initiatives. These were partially offset by inflationary cost pressures, related to facilities and vehicle expenses as well as higher legal and professional fees. The leverage effect of the organic revenue decline largely drove the increase in [indiscernible] as a percentage of revenue. We expect headwinds on repairable claims to continue in 2025, but abate somewhat toward the back half of the year. Excluding any potential impacts from tariffs, over the balance of the year, we still believe North America's EBITDA margins will be in the low sixteens on a full year basis.

Looking at slide nine, Europe reported a segment EBITDA margin of 9.3% a 60 basis point improvement over last year.

The year over year improvement was driven by higher gross margins the ongoing efforts to simplify the operations and portfolio, as well as productivity efforts to offset inflationary pressures on overhead costs. Overhead costs were also negatively affected in the prior year due to union related negotiations. Given the actions we've taken to drive productivity and simplify the portfolio, and absent any macroeconomic impact from the tariff situation, continue to project EBITDA margin, will be double digits on a full year basis in 2025. Moving to Slide 10.

Specialties EBITDA margin of five point four percent one hundred basis points below the prior year primarily driven by a decline in organic revenue and resulting leverage effect on overhead costs. Demand softness in the light vehicle and RV product lines remain challenges for the business. Economic instability stemming from tariffs has resulted in declines in consumer sentiment negatively impacts discretionary spending, in some of the markets in which Vestia operates. Given the ongoing uncertainty and demand softness, we expect segment EBITDA margin to be around the low end of the 7% to 8% range we provided when we issued full year 2025 guidance. Self-service generated $20,000,000 segment EBITDA in Q1. An increase of $4,000,000 and a two ninety bp improvement as a percentage of revenue.

Disciplined vehicle procurement combined with overhead cost controls helped to drive the fourth consecutive quarterly improvement in year over year profitability. Shifting to cash flows and the balance sheet. Free cash flow during the quarter was a net outflow of $57,000,000 This performance was in line with our expectations due to the timing of our payables, partially related to the investment in inventory in North America in anticipation of possible Q1 port strikes and higher interest payments for the €2,031 senior notes due to timing. We anticipate generating positive free cash flow in the next three quarters will bring us in line with our full year guidance.

Absent any significant tariff driven market turbulence. Moving to slide 11, we remained active in the market, allocating $40,000,000 in share repurchases for 1,000,000 shares. We also paid our quarterly dividend totaling $78,000,000. As a continuation of our disciplined capital allocation strategy, we did not make any acquisitions in the first quarter. We borrowed approximately $170,000,000 in the quarter As of March 31, we had total debt of $4,400,000,000 a total leverage ratio of 2.5 times EBITDA. Although the leverage ratio is slightly higher than the prior quarter, we anticipated the increase as we built trade working capital in Q1 largely associated to the seasonal nature of our business and the increase in inventory purchases in Q4 and Q1 to get ahead of potential disruptions at the ports, and from tariffs.

We remain committed to maintaining a manageable debt level and our investment grade rating. As of 03/31/2025, our current maturities were $558,000,000 including the $500,000,000 term loan coming due in Q1 twenty twenty six.

Normal practice, we actively manage our capital structure and we are working through our options with our lending group. We have no significant concerns regarding our ability to extend the maturity date. Our effective interest rate was 5.2% at the end of Q1, slightly down from Q4. We have $1,800,000,000 in variable rate debt of which $700,000,000 has been fixed with interest rate swaps which effectively provide fixed rate on approximately 75% of our debt.

Will conclude with our thoughts on 2025 guidance as shown on Slide 12.

Although there are always uncertainties, we believe we can deliver on our guidance provided back in February. Excluding any material impacts from tariffs.

The discussions around tariffs may affect our markets directly and indirectly.

Companies have taken a variety of methods in addressing the remainder of the year, will wait to fully analyze the pending changes and update you during our Q2 call when we believe the tariff situation becomes clear. That being said, our guidance is based on current market conditions and recent trends excluding the potential impacts of tariffs.

And assume scrap and precious metal prices hold near first quarter prices. On foreign exchange, our guidance is near March average rates including the euro at $1.08 the pound sterling at $1.28 and the Canadian dollar at $0.7 The global tax rate is at 27% which is consistent with our original guidance and prior year. In our original guidance, we expected organic parts and services revenue growth between 02% given our Q1 results. We are likely headed toward the lower end of that range. Excluding potential tariff impacts, our adjusted diluted EPS remains in the range of $3.4 to $3.7 and our free cash flow remains in the range of $750,000,000 to 900,000,000 We will balance our trade working capital and capital expenditure needs to fund our strategic growth objectives for 2025 and beyond.

Thanks for your time. I will now turn the call back to Justin for his closing comments.

Thanks, Rick, for the financial commentary. Before we open up for questions, I would like to remind everyone we remain committed to our long term key strategic priorities and our team is agile to navigate short term challenges.

First, need to grow above the market. Next, simplify. Simplify our operations by ensuring lean thinking is in everything we do. Simplify our portfolio across our markets businesses and product lines. Improve free cash flow by growing profitably and strengthening our balance sheet invest in growth organically and via small, highly synergistic tuck ins with a continuation on the moratorium of any large acquisitions. Focus on our capital allocation strategy around returning capital to our shareholders through a combination of share repurchases and dividends. In Q1, we met most of our strategic goals with our 46 employees adeptly managing volatile markets. Whether it's tariffs or some other challenge, no matter what our company may face, I'm truly proud of how consistent our team emerges stronger, and better prepared for the future. Operator, I'll now turn the call over for questions.

Thank you.

We ask all participants to limit their questions to one main and one follow-up. Then go back into the queue if you have another question. Our first question is from Scott Stember of Roth MKM. Your line is now open. Please go ahead.

Good morning and thanks for taking my questions.

Yes. Good morning, Scott. Regarding North America, it sounds as if the comparisons get a lot easier in the second quarter. Just on a repairable claim basis. But you talk about what what trends in a real time basis you're seeing from the insurance companies regarding used car pricing? Been any change in their behavior regarding know, whether or not they will junk a car or repair it?

Yes. So good question, Scott. Throughout the 2024, there's been a lot of shift in market share with insurance carriers We talked about a lot about the high rising insurance cost premiums, people raising their deductibles. I think with a lot of the shift of competition, we will not expect I don't expect to see rising insurance prices anymore for the time at least for the next year or so. Think they're going be more competitive From the used car standpoint, we added almost two year, I think, decline of used car values. Saw in April that number actually ticked up. Obviously, it's only one month, but it's nice to see that used cars have used car pricing has plateaued and started to improve. Those dynamics of flattening insurance premiums, rising used car prices, You know, and then we're gonna talk about tariffs, probably somebody's gonna ask that question, but tariffs typically will drive up car pricing, and that will be good for the industry. We actually had also one state that approved an increase in the repairable total loss value. So it used to be 70% and I think there's a small state called Rhode Island, but 70%. They raised it to 85% to help improve cars on the road and getting them repaired.

And we're seeing some of that noise start to happen in a good way in other states where they will increase the, the threshold of one a car totals out. So overall, we only got one good month of used car pricing, but we're starting to see some trends that hopefully will improve the repairable claims. Got you. And then the last question, of course, on tariffs. It seems like your biggest exposure in North America is Taiwan. It seems like there is, I think, a blanket reciprocal tariff on most countries for 10%. I think Taiwan is in there as well.

How would that have an impact on your business? Do you think you could put price increases through to cover that? Or is it just too soon to say right now?

Yeah. I'll probably answer that question in a few more. My guess is tariffs are on a lot of people's mind on the call. Rick and I are gonna spend a few minutes talking about that. First, I'll tell you historically, when the industry has seen tariffs, they've been good for the industry and they've been good for LKQ. One caveat of LKQ, we have a global footprint. Nearly 50% of our business in Europe is currently not subject to tariffs. But there's a lot of volatility right now with the tariffs. The the news seems like it's changing every day. As I mentioned on my on the call, we put a task force together to really dig into this. We'll talk about Taiwan. But we really had one of the task force to react pretty quick just because it seems to be changing every day. In that you know, what we've identified, obviously, is based on what we know, there's more tariffs than just Taiwan. There's other countries that we import product from. And if you look at the our product cost, we really broke those into two different buckets. The first bucket, I would say, is what's direct, meaning we import from China, we import from Mexico, we import from Taiwan.

Understanding what the tariff impact were and where we stand today with what we know on tariffs a little bit easier to identify and quantify. When you when we talk about the indirect piece, that's that gets a little bit more complex. So you think about one of our businesses in The U. S. Buying a product from a US distributor. That product could have been 100% imported from China or Taiwan, That product could have components. Take a Jeep lift kit that our specialty division sells. The supplier that we buy from could could get the fasteners and nuts and bolts from China. They could get the brackets from Mexico. So understanding the impact of our indirect is a little bit more complex. We're working with all of our suppliers on that. But we do have some qualifications of those buckets. Rick, if you want to talk about that. Sure. Yeah. Let me try to address a couple of things that I'm sure are on people's minds.

As well and quantify these things. So look, certain new tariffs took effect within the quarter The financial impact was immaterial for us within the quarter. Also, it's important to note that we've been living with the previous Trump tariffs we've been able to pass it along. So so, Scott, to your point, are we able to pass them along? Historically, we've been very, very successful in being able to pass those along.

If I quantify the couple of different things that Justin talked about, the direct imports those are the ones that are really exposed to the new tariffs in a direct way. The way we are looking at that and and to help quantify for for the folks on the call, is overall cost of goods sold. If I look at twenty twenty four's cost of goods sold, so kind of a baseline, look at the 10 ks, be able to quantify that. Less than 10% of our global cost of goods sold are in the bucket that Justin talked about being direct imports. So less than 10% of that is in there. The the quantification quantification before any mitigations is less than $200,000,000 of cost. That that would be the quantification of that 1010%, a little less than 10%. On the indirect population, to quantify that and and give you guys a little bit of visibility on the indirects, that's the one Justin was talking about. That are essentially purchased from a US company. But they're importing from somewhere else. That's roughly 20% of our global cost of goods sold.

So the direct portion is a little less than the 10%. The the indirect portion is a little less than 20% of our global cost of goods sold. That 20%, we can't really quantify at this point in time. Because we're not sure what is going to be passed along and we don't we're not sure what components of those items are imported by our suppliers. And so, you know, the the the key couple of key points is look, these are as of tariffs as of today, those could change in the coming hours or days as as we all have seen, and these will evolve over the changing landscape. And we're going to work diligently with our vendor partners to to try to figure out how we can mitigate some of these things. I don't know if you wanted to cover anything else. Yeah. And and, Scott, I know you talked about pricing. Before we get to that lever, we really as Rick talked about, we work with our supplier partners, making sure that know, they're in we're in this together. Can we share the burden of some of these tariffs? Are there opportunities where we can resource that product somewhere else to a different country, different [indiscernible] Reduce the impact on the tariff.

Are there any inefficiencies within our supply chain or logistics that we can remedy and help offset some of the cost. And then ultimately, know, if you think about the products that we import from Taiwan or your specific question on Taiwan, every aftermarket supplier that we compete with today sorry. Every aftermarket competitor and distributor that we compete with today importing those same exact product types from Taiwan. So we're all in this at the same level. Anything that's going to impact us is going to impact our pure aftermarket competitor. And so if we can't reduce the tariff impact by some of those other mitigating levers, then then, you know, gonna obviously pass that through to the, to the customer. We won't be left holding the bag. Got it. That's great. Thank you so much. Thank you.

Our next question comes from Craig Kennison of Baird.

Hey, good morning. Thanks for the additional color on tariffs. That's helpful. Maybe to pivot to Europe, Justin, have you seen any impact on revenue or on your fulfillment rates? Due to your SKU reduction program?

No. We have not. We've been able to offset the sale of reducing that SKU either to one of our private labels or to another brand that we keep. You know, we talk about some higher numbers, that 17,000 SKUs that we essentially delisted. A lot of those things that were you know, have those big, a lot of the products that we're delisting right now have very, very low volume. At the end of the day. Where we have other applications, have other part numbers that have that application, so we've not seen an impact of that. Most of the the the headwinds that we see is either competition given up price in a few markets We do see some countries that we operate in or just in a economic situation where you know, there's there's some delays in repairs and maintenance or some people are foregoing maintenance or extending maintenance on their vehicles, and we're seeing that impacted. You know, overall, we were pretty happy with our you know, once again, we look at it country by country to see how we're doing and how the market's doing. Pretty we're pretty confident we're not losing share. We're we're still growing.

We're still gaining share. And even with that revenue reduction that we saw in Europe, I was pretty proud of the team to be able to deliver improvement in EBITDA. When, you know, when the volume drops, normally, the you lose that leverage, but team actually has stepped up on some of these initiatives. So but overall, your main question, I don't we don't see any risk yet And we would slow down if we if we did on the SKU rationalization impacting revenue.

Thanks. And then as a related question, I in the press release, you mentioned a 20 basis point improvement in your private label program. Could you give us idea of what percentage of your revenue is from private label and where you think that could go over some long period of time?

Yeah. We're in that 21% to 22% range today. We think it can go to up to What we talked about in the last call is that, Craig, it would go by 02/1930, we're looking at around 30%. So as we move along, look, there'll be some small steps We're happy with the 20 basis point improvement that we had in the quarter. But we think that that number will likely go close to 30% across all of Europe by the 02/1930 timeframe. Thank you.

Thank you.

Our next question is from Josh Patua of JPMorgan. Your line is now open. Please go ahead.

Hi, good morning and thanks for taking my questions.

Building on the earlier discussion, I'd just like to focus on the North American business. You highlighted targeted actions to enhance market penetration. Which have positively impacted revenue along with the pricing initiatives that have improved gross margins? Could you provide some additional insights into these strategies Specifically, is there a link between your pricing initiative and potentially easing competitive landscape as some smaller competitors who were initially pricing aggressively might have now pulled back amidst the tariff uncertainties? Thanks and I have a follow-up.

Yeah. And, you may be confusing some of the comments on Europe. Some of the pricing pressures that we've seen have been in Europe and a few countries that have have put some pressure on the pricing improvements or or some gross margin. I want to make sure, are you specific? Talk about North America or Europe?

He's talking about the trade base that I talked about. [indiscernible] I was just referring to the discussion in the earnings presentation.

Yep. Yes.

So we have seen improvements across several different parts of our business to go after some market share gains. We're pleased with the performance of things like our services business. We're going after some new areas of opportunity.

There's not a pricing action that we took, Josh. So it's not we're not going after and chasing price. Instead, what we're doing is making sure that we have the best service levels.

Across the board and we're seeing nice gains across that. So Justin talked about the gap that we have between repairable claims and what we had for revenue. That widened a little bigger than what we've had historically, talking about how we're going after having really good fill rates, nice inventory levels and being able to provide a service level to our customers in order to gain back some of that share.

Understood. That's very helpful. And then just following up on the earlier discussion, thanks again for all the color there. But I just wanted to clarify if aftermarket part imports are subject to the 10% universal reciprocal tariff My understanding was that auto parts are exempt from the reciprocal tariffs and while there could be some moving pieces in there, but it would be just helpful to clarify that. And then relatedly, you also mentioned some mitigating strategies in relation to tariffs Is there an opportunity to introduce private label aftermarket collision repair parts in The U. S. As an a way to navigate this industry disruption? Thank you.

Yeah. In regard to the I'll start with the private label piece first. Majority of our sales that we have on the aftermarket side are private labeled under platinum plus. The uniqueness of collision parts, there's not a lot of brand recognition in the aftermarket collision space world. And so to create consistency, we've been branding a lot of our our products as private label under Keystone Platinum Plus for a few decades. So the majority of the collision parts, hoods, fenders, bumper covers, headlights are already branded. Regarding the tariffs, it's pretty complex. If you guys have researched it, whether it's 10%, 25% or even 32%. Some of our product lines fall into different buckets of those specifically coming from Taiwan. Obviously, if you get into China, some things 25%, some things are 145%. But average, I think the Taiwan is roughly 25%.

Yes. So, Jess, let me without going into so much detail because this is really complex issue, there's a section two thirty two. That that deals with both steel and aluminum and automotive. The the way that the reciprocals work is if it's in those tariffs, which are 25%, they're excluded from the additional 10%. So what you're saying is the exclusion of automotive it's excluded only because it's already got a 25% tariff on that item. So that's kind of the way to think through this. So what our team has done is they gone through every single SKU on the direct basis, looking at whether or not that included in the detail and is it part of the steel, aluminum or automotive if it's not, then there's a 10% reciprocal tariff. Great.

Thank you.

Our next question is from Gary Prestopino from Barrington Research. Gary, your line is now open. Please go ahead.

Hi, good morning, Walt. Could you just remind me what your targets are on your SKU rest rationalization in Europe? Yeah. So when we kicked this project off, we did say it's gonna take over three years because we we wanna make sure that we're not going too fast and impacting revenue. We feel as the improvement in private label, so adding more private label skews on top of the reduction of our existing SKUs This what's the exact number that we quote? Do know? Let me Gary, me get back to you on on those numbers. I I gotta pull them up on the specific items that we talked about. We talked about three different items that we are going go after. We're talking about SKU rationalization. We started around 750,000 750,000,000 items that that we had. And we brought that down to around 700 at this point. Overall, SKU reduction we believe, is going to get us down to about 600 by twenty end of twenty twenty seven.

So we start with seven fifty. We're gonna get down to about 600. That's inclusive of private labeling. So we're going to obviously go below that 600, and we're going to increase based on the private labeling. And then the other component we have is obviously we got to review these items. So so the the goal is to get to a % of that. By the end of twenty twenty six. By the end of twenty twenty five, we'll be at 80%. So we're we're north of 60 at this point. We've got another 20 to go for the rest of the year. And then the third item that we had was overall private labeling, and that's the one that that Scott asked, I think a little bit earlier or maybe Craig did. Trying to get up to what what was that number. And so what we said was about 30% by 2030.

K. Thank you. [indiscernible] Our final question comes from Bret Jordan of Jefferies. Bret, your line is now open. Please go ahead.

Hey, morning, guys.

When you're doing the tariff and looking at the imports from Taiwan, how does the delta to the OE product shake out here? Is the OE primarily USMCA compliant or domestic? I guess netting out the tariffs, does your value gap to OE remain equal? Or are you relatively more or less expensive than you were before? Yeah. Great question. I mean, the devil will be in the details of what the final decision is gonna come out to. As you know, you followed LKQ for a while. Our pricing is always typically higher than the pure aftermarket competitor just because of our quality of our service and fill rate. Then we hover below the OEM. So we always kind of play in that space somewhere in the middle between OEM and the other aftermarket pure players. If there's parity, meaning if if all the tariffs go through, there's really no exemption, we'll be on equal playing field. There's enough margin gap there where we can improve price and still be competitive and offer the insurance companies and the consumer savings to the OEM. It will really depend on what happens not only to the tariffs, but then how do the OEMs react.

I mean, we've actually seen a flat price change in the OEs on April some of the prices that we've seen come through for planning in May. So we haven't seen them move their needle yet. But if, you know, they're gonna be experiencing some of those tariffs that we are, then I expect them to raise their prices as well. But it'll really depend on what the final decision comes to. Okay.

Great. And then on the European price competition, is that primarily GSF or are there others over there that are being aggressive in other markets? Outside The UK?

I mean, we always have competition on pricing. The most aggressive is in the is in UK. I would say, we're starting to see some of that slow down. Some of their know, they've expanded quite a bit, but we've seen that expansion slowdown. But the main the main area has been in The UK.

Okay. Great.

Thank you.

We have no further questions. So I'll hand back to Justin Jude, CEO, for closing remarks.

Well, we appreciate everybody joining the call today. Truly, truly thankful for that, and we look forward to speaking every everyone in July when we report on our second quarter results. Thank you, everyone, and take care.

This concludes today's call. Thank you for joining. You may now disconnect your