Group 1 Automotive Reports Third-Quarter 2008 Financial Results


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HOUSTON--Group 1 Automotive, Inc. , a Fortune 500 automotive retailer, today reported 2008 third-quarter adjusted net income from continuing operations of $9.4 million, or $0.42 per diluted share. This compares to adjusted net income from continuing operations of $22.1 million, or $0.95 per diluted share, in the third quarter of 2007. As shown in the attached reconciliation table, results in both periods include lease termination charges; non-cash asset impairment charges; as well as, adjustments related to redemption of Group 1s 8.25% senior subordinated notes. The 2008 third-quarter results included a $48.1 million pretax charge for non-cash asset impairments. Including this charge, net income from continuing operations was $(20,571) million, or $(0.91) per diluted share.

Due to the overall decline in auto industry sales, as well as business interruption in several key markets caused by hurricanes, third-quarter 2008 same-store revenues fell 15.9 percent, to $1.4 billion. This decline was driven by an 18.2 percent reduction in new vehicle unit sales that resulted in 17.9 percent lower new vehicle revenues, as well as an 18.5 percent decrease in total used vehicle revenues. Retail used vehicle revenues fell 13.9 percent and used wholesale revenues declined 34.4 percent on 11.1 percent and 23.5 percent fewer unit sales, respectively. Finance and insurance (F&I) revenues fell 13.4 percent, despite a 3.0 percent increase in gross-profit-per-retail-unit-sold, as retail unit sales fell 15.9 percent. Remarkably, parts and service sales continued to demonstrate growth even in the face of the biggest auto retail industry downturn in two decades with a 1.1 percent increase in total revenues. The growth in parts and service included a 3.4 percent rise in service revenues.

Same-store gross margin improved 50 basis points, to 16.0 percent, from the third quarter of 2007. The gross margin growth reflected an increase in the mix of the higher-margin parts and service and F&I businesses, partially offset by lower margins in new vehicles, retail used vehicles and in the parts and service businesses.

On a consolidated basis, selling, general and administrative (SG&A) expenses as a percent of gross profit increased 540 basis points, to 82.4 percent, as lower gross profit offset the decline in SG&A expenses. SG&A expenses declined 2.2 percent, or $4.3 million, from the prior-year period, as cost saving measures were realized.

As we previously announced, third-quarter results were affected by Hurricane Gustav and Hurricane Ike, which negatively impacted our revenues, profits and expenses, said Earl J. Hesterberg, Group 1s president and chief executive officer. In addition, the current financial crisis has eroded consumer confidence and negatively impacted the traffic we are seeing at our stores. In this environment, we continue to focus on our parts and service business, which continued to show growth this quarter.

Share Repurchase

During the quarter, Group 1 repurchased 37,300 shares of its common stock at an average price of $20.76 under a board-authorized $20 million share repurchase program.

2008 Corporate Development Update

Group 1 reported that no acquisitions were completed during the third quarter. Year to date, Group 1 acquired a total of five franchises expected to generate $90.2 million in estimated annual revenues. The company announced that it does not anticipate completing any further acquisitions in 2008.

In addition, Group 1 disposed of five franchises in the third quarter with 12-month revenues of $17.7 million. These dispositions include the disposal of four franchises (Pontiac, Buick, GMC and Cadillac) in Beaumont, Texas, in late July that were previously announced and the termination of a Volkswagen franchise in Kansas on Aug. 31.

2008 Full-Year Guidance

Group 1 announced that it is suspending its 2008 full-year earnings guidance.

Given the current volatility in the automotive industry, consumer lending and the overall economy, it is virtually impossible to project near-term industry sales levels, said Hesterberg. Therefore our management team determined that it is not feasible to issue earnings guidance at this time. Group 1 wants our shareholders to know that we are taking the appropriate steps to rightsize the business for the current environment, including a series of additional cost-cutting actions we began to implement as of October. These actions should be fully implemented by year end and are expected to generate approximately $35 million in annualized savings.

Third-Quarter Earnings Conference Call

Group 1s senior management will host a conference call today at 10 a.m. EDT to discuss the third-quarter financial results and the companys outlook and strategy.

The conference call will be simulcast live on the Internet at www.group1auto.com through the Investor Relations section. A replay will be available for 30 days.

The conference call will also be available live by dialing in 10 minutes prior to the start of the call at: 800-257-2182 (domestic) or 303-262-2005 (international).

A telephonic replay will be available following the call through Nov. 4 by dialing: 800-405-2236 (domestic) or 303-590-3000 (international) with passcode 11120953#.

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