Dealer Group 1 Automotive Reports Record Results for Third Quarter
HOUSTON--Oct. 3, 20030, 2003--Group 1 Automotive, Inc. , a Fortune 500 specialty retailer, today reported record third-quarter net income of $21.7 million on record revenues of $1.2 billion for the three months ended Sept. 30, 2003. Diluted earnings per share increased 9.5 percent to $0.92 for the quarter."Reducing new vehicle inventory was a focus during the quarter," said B.B. Hollingsworth Jr., Group 1's chairman, president and chief executive officer. "We brought our new vehicle inventory down from 83 days supply at June 30 to 62 days supply at the end of the third quarter, in line with our target, while delivering growth in earnings and an improved operating margin. This quarter's performance keeps us on track to achieve a sixth consecutive year of earnings growth."
Third-Quarter Highlights:
-- Diluted EPS increased 9.5 percent to $0.92
-- Revenues increased 3.1 percent to $1.2 billion
-- Parts & service revenues increased 12.5 percent
-- Gross margin expanded to 15.7 percent vs. 15.0 percent
Summary Results of Operations (Unaudited)
(In millions, except per share amounts)
Three Months Ended Nine Months Ended
September 30, September 30,
------------------- -------------------
2003 2002 2003 2002
--------- --------- --------- ---------
Revenues $1,239.5 $1,202.6 $3,417.2 $3,181.8
Gross Profit $194.4 $180.5 $548.1 $492.8
Income from Operations $42.9 $40.1 $114.6 $109.1
Net Income $21.7 $20.1 $56.5 $54.8
Diluted Earnings per Share $0.92 $0.84 $2.42 $2.26
Results for the Third Quarter
During the third quarter, revenues grew 3.1 percent to $1.24 billion from $1.20 billion during the same period last year. As the overall automobile market declined, same store revenues fell 4.7 percent, compared with a 4.1 percent increase in the third quarter of 2002. Revenues contributed by dealerships acquired by the company during 2002 and 2003 offset this decline.
Hollingsworth noted that from a brand standpoint Lexus, Infiniti and Honda were among the strongest performers. "We had outstanding performances from our Los Angeles, Boston and Austin platforms," he added.
New vehicle retail revenues expanded 4.5 percent, on a unit sales increase of 1.7 percent. Used vehicle retail revenues declined 9.5 percent, with retail unit sales 9.2 percent lower. Parts and service and finance and insurance revenues grew 12.5 percent and 8.9 percent, respectively.
Gross margin for the quarter increased to 15.7 percent compared with 15.0 percent during the year-ago period, as the company benefited from rapid growth in its higher-margin parts and service, and finance and insurance businesses, as well as a $0.4 million decrease in the new vehicle valuation reserve resulting from a reduction in new vehicle days supply. Income from operations was $42.9 million versus $40.1 million, a 7.1 percent increase. Operating margin was 3.5 percent compared with 3.3 percent during the year-ago period.
Net income increased 7.7 percent to $21.7 million from $20.1 million, and diluted average shares outstanding decreased 1.7 percent to 23.6 million. Diluted earnings per share grew 9.5 percent to $0.92 from $0.84 a year ago.
Solid Performance for Nine Months
For the first nine months of 2003, revenues reached $3.4 billion, a 7.4 percent increase from $3.2 billion for the same period last year. Same store revenues fell 5.9 percent, compared with a 1.0 percent increase in the first nine months of 2002.
New vehicle revenues grew 8.0 percent on a 5.4 percent increase in unit sales. Used vehicle retail revenues fell 2.4 percent on a retail unit sales decrease of 3.1 percent. Parts and service and finance and insurance revenues grew 18.2 percent and 14.6 percent, respectively. Diluted earnings per share increased 7.1 percent to $2.42 on net income of $56.5 million, compared with $2.26 per diluted share on net income of $54.8 million, for the first nine months of 2002.
Year-to-date gross margin increased to 16.0 percent compared with 15.5 percent in the 2002 period. The shift in merchandising mix that impacted gross margin in the third quarter had a similar effect on the nine-month period. Income from operations rose 5.1 percent to $114.6 million from $109.1 million, and the operating margin remained stable at 3.4 percent.
Recent Developments
During the third quarter, Group 1 acquired Dodge, Lincoln-Mercury and Mitsubishi dealerships in the New Orleans area. The dealerships will operate as part of the Bohn Automotive Group platform and are expected to add approximately $110.0 million in aggregate annual revenues. Year to date, the company has acquired seven franchises with estimated annual revenues of $241.2 million. "While we may close additional tuck-in acquisitions this year, most of the transactions that are currently in process will not close before 2004," said Hollingsworth. "With 22,000 dealerships in the United States, there are ample acquisition opportunities that meet our criteria," he added.
Additionally, Group 1 expanded its brand diversity with Toyota's launch of Scion. The Scion brand operates under the Toyota Motor Sales marquee and is focused on trend-setting youthful buyers. Scion began its initial rollout in California in 2003 and is expected to expand geographically during 2004. Group 1 anticipates selling Scion in all nine Toyota franchises currently operated.
Management's Outlook
Group 1 expects a solid vehicle market for the balance of 2003 and for 2004. Based on recent financial performance and including the dilutive impact of the recently completed debt offering, the company expects diluted earnings per share for FY2003 of $3.05 to $3.15. Additionally, excluding future acquisitions, the company expects diluted earnings per share of $3.10 to $3.30 for FY2004. If Group 1 redeems its 10 7/8% bonds in March 2004, as expected, it will incur a one-time after-tax charge of approximately $4.1 million or $0.17 per diluted share. Management's 2004 earnings guidance does not include this one-time expense.
The company continues to seek additional strategic tuck-in acquisitions to augment its current markets, as well as platform acquisitions to enter new markets. With the carryover from 2003, the company is now targeting to add dealerships with aggregate annual revenues of approximately $1 billion in 2004.
Hollingsworth stated, "Group 1's stable cash flow from operations, combined with one of the strongest balance sheets in the industry, allows us to take advantage of opportunities to make investments that enhance shareholder value."
Third-Quarter Conference Call
Group 1 will hold a conference call to discuss the third-quarter results at 11 a.m. EST on Thursday, Oct. 30, 2003. The call can be accessed live and will be available for replay over the Internet at www.vcall.com, or through Group 1's website, www.group1auto.com, for 30 days. In addition, an updated slide presentation will be available on Group 1's website.
About Group 1 Automotive, Inc.
Group 1 currently owns 74 automotive dealerships comprised of 116 franchises, 30 brands, and 27 collision service centers located in California, Colorado, Florida, Georgia, Louisiana, Massachusetts, New Mexico, Oklahoma and Texas. Through its dealerships and Internet sites, the company sells new and used cars and light trucks; arranges related financing, vehicle service and insurance contracts; provides maintenance and repair services; and sells replacement parts.
Group 1 Automotive can be reached on the Internet at www.group1auto.com
This press release contains "forward-looking statements" within the meaning of the Securities Act of 1933 and the Securities Exchange Act of 1934. These statements include statements regarding our plans, goals, beliefs or current expectations, including those plans, goals, beliefs and expectations of our officers and directors with respect to, among other things:
-- earnings per share for the years ending 2003 and 2004
-- the completion of future acquisitions
-- operating cash flows and availability of capital
-- future stock repurchases
-- changes in sales volumes in the new and used vehicle and parts and service markets
-- business trends, including incentives, new vehicle sales, product cycles and interest rates
-- addition of new brands
-- dealership operating performance
-- the redemption of bonds
Any such forward-looking statements are not assurances of future performance and involve risks and uncertainties. Actual results may differ materially from anticipated results in the forward-looking statements for a number of reasons, including:
-- the future economic environment, including consumer confidence, interest rates, the level of manufacturer incentives and the availability of consumer credit may affect the demand for new and used vehicles and parts and service sales
-- the effect of adverse international developments such as war, terrorism, political conflicts or other hostilities
-- regulatory environment, adverse legislation, or unexpected litigation
-- our principal automobile manufacturers, especially Ford, Toyota/Lexus, GM and DaimlerChrysler, may not continue to produce or make available to us vehicles that are in high demand by our customers
-- requirements imposed on us by our manufacturers may affect our acquisitions and capital expenditures related to our dealership facilities
-- our dealership operations may not perform at expected levels or achieve expected improvements
-- we may not achieve expected future cost savings and our future costs could be higher than we expected
-- available capital resources and various debt agreements may limit our ability to complete acquisitions, complete construction of new or expanded facilities or repurchase shares
-- our cost of financing could increase significantly
-- new accounting standards could materially impact our reported earnings per share
-- we may not complete additional acquisitions or the pace of acquisitions may change
-- we may not be able to adjust our cost structure
-- we may lose key personnel
-- competition in our industry may impact our operations or our ability to complete acquisitions
-- we may not achieve expected sales volumes from the franchises granted to us
-- insurance costs could increase significantly
-- we may not obtain inventory of new and used vehicles and parts, including imported inventory, at the cost or in the volume we expect
This information and additional factors that could affect our operating results and performance are described in our Form 10-K, set forth under the headings "Business-Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations." We urge you to carefully consider those factors.
All forward-looking statements attributable to us are qualified in their entirety by this cautionary statement.
FINANCIAL TABLES TO FOLLOW
Group 1 Automotive, Inc.
Statements of Operations
(Unaudited)
(Dollars in thousands, except per share amounts)
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------- -----------------------
2003 2002 2003 2002
----------- ----------- ----------- -----------
REVENUES:
New vehicle retail
sales $772,632 $739,193 $2,059,840 $1,907,248
Used vehicle retail
sales 230,978 255,228 687,132 703,869
Used vehicle wholesale
sales 69,102 58,574 195,551 165,673
Parts & service sales 121,792 108,295 349,184 295,497
Retail finance fees 17,111 16,577 48,474 44,349
Vehicle service
contract fees 17,170 14,201 47,804 38,016
Other F&I revenues,
net 10,705 10,520 29,176 27,114
----------- ----------- ----------- -----------
Total revenues 1,239,490 1,202,588 3,417,161 3,181,766
COST OF SALES:
New vehicle retail
sales 716,014 686,312 1,909,026 1,764,269
Used vehicle retail
sales 203,428 227,120 603,268 623,637
Used vehicle wholesale
sales 71,373 60,797 201,832 170,618
Parts & service sales 54,228 47,851 154,924 130,462
----------- ----------- ----------- -----------
Total cost of
sales 1,045,043 1,022,080 2,869,050 2,688,986
Gross Profit 194,447 180,508 548,111 492,780
SELLING, GENERAL AND
ADMINISTRATIVE
EXPENSES 147,913 137,137 422,930 374,787
DEPRECIATION AND
AMORTIZATION EXPENSE 3,623 3,299 10,564 8,920
----------- ----------- ----------- -----------
Income from operations 42,911 40,072 114,617 109,073
OTHER EXPENSE:
Floorplan interest
expense (4,811) (5,082) (16,493) (13,814)
Other interest
expense, net (3,915) (2,424) (8,618) (7,615)
Other expense, net (18) (80) (107) (190)
----------- ----------- ----------- -----------
INCOME BEFORE INCOME
TAXES 34,167 32,486 89,399 87,454
PROVISION FOR INCOME
TAXES 12,473 12,345 32,909 32,683
----------- ----------- ----------- -----------
NET INCOME $21,694 $20,141 $56,490 $54,771
=========== =========== =========== ===========
Basic earnings per
share $0.96 $0.88 $2.51 $2.38
Diluted earnings per
share $0.92 $0.84 $2.42 $2.26
Weighted average
shares outstanding:
Basic 22,642,168 23,018,226 22,499,158 23,013,492
Diluted 23,611,631 24,026,015 23,299,130 24,222,717
OTHER DATA:
Gross margin 15.7% 15.0% 16.0% 15.5%
Operating margin 3.5% 3.3% 3.4% 3.4%
Pretax income margin 2.8% 2.7% 2.6% 2.7%
Same store revenues (4.7)% 4.1% (5.9)% 1.0%
Manufacturer floorplan
assistance $7,639 $7,736 $20,452 $20,382
Retail new vehicles
sold 28,477 27,994 76,117 72,249
Retail used vehicles
sold 16,521 18,194 49,000 50,574
----------- ----------- ----------- -----------
Total retail
sales 44,998 46,188 125,117 122,823
Group 1 Automotive, Inc.
Condensed Consolidated Balance Sheets
(Dollars in thousands)
September December
30, 31,
2003 2002
----------- -----------
(unaudited) (audited)
ASSETS:
Current assets:
Cash $27,498 $24,333
Contracts in transit and vehicle receivables 136,281 178,623
Inventories 602,099 622,205
Other assets 87,337 77,877
----------- -----------
Total current assets 853,215 903,038
----------- -----------
Property and equipment 124,887 116,270
Intangible assets 378,307 368,786
Investments and deferred costs from insurance
and vehicle service contract sales 32,763 32,637
Other assets 8,402 3,034
----------- -----------
Total assets $1,397,574 $1,423,765
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Floorplan notes payable $388,635 $652,538
Other interest-bearing liabilities 1,002 997
Accounts payable and accrued expenses 183,221 155,748
----------- -----------
Total current liabilities 572,858 809,283
----------- -----------
Debt 234,862 83,222
Other liabilities 43,307 38,656
----------- -----------
Total liabilities before deferred revenues 851,027 931,161
----------- -----------
Deferred revenues 40,691 49,187
Stockholders' equity 505,856 443,417
----------- -----------
Total liabilities and stockholders' equity $1,397,574 $1,423,765
=========== ===========
OTHER DATA:
Working capital $280,357 $93,755
Current ratio 1.49 1.12
Long-term debt to capitalization 32% 16%
Last 12 months return on average equity 15% 16%