Group 1 Automotive Reports Second-Quarter Earnings; Company Achieves Record Revenues Despite Challenging Market
HOUSTON--July 29, 2004--Group 1 Automotive, Inc. , a Fortune 500 specialty retailer, today reported second-quarter net income of $15.7 million, or $0.67 per diluted share, on record revenues of $1.3 billion for the three months ended June 30, 2004. These results include an after-tax charge of $1.8 million, or $0.08 per diluted share, related to the previously announced hailstorm that damaged or destroyed about 1,000 vehicles at the company's Amarillo, Texas, dealerships.Second-Quarter Highlights:
-- Total revenues increased 14.6 percent
-- Same store revenues increased 3.8 percent
-- New vehicle revenues increased 17.4 percent
-- Parts & service revenues grew 12.9 percent
-- Gross profit increased 7.8 percent to $198.5 million
Summary Results of Operations (Unaudited)
(In millions, except per share amounts)
Three Months Ended Six Months Ended
June 30, June 30,
------------------- -------------------
2004 2003 2004 2003
-------- -------- -------- --------
Revenues $1,314.9 $1,147.9 $2,461.9 $2,177.7
Gross Profit $ 198.5 $ 184.2 $ 381.9 $ 353.7
Income from Operations $ 34.5 $ 40.3 $ 67.2 $ 71.7
Net Income $ 15.7 $ 20.0 $ 26.2 $ 34.8
Diluted Earnings per Share $ 0.67 $ 0.86 $ 1.12 $ 1.50
Results for the Second Quarter
During the second quarter, revenues grew 14.6 percent to $1.3 billion from $1.1 billion during the same period last year. This increase is attributable to acquisitions, as well as higher same store revenues, which grew 3.8 percent from the second quarter of 2003 due primarily to a new vehicle unit sales increase of 3.6 percent.
New vehicle revenues grew 17.4 percent on a unit sales increase of 15.6 percent. Used vehicle retail revenues increased 4.5 percent on unit sales that were 1.6 percent higher. Parts and service revenues grew 12.9 percent, while finance and insurance revenues decreased 1.2 percent. Finance and insurance revenues were down primarily due to lower sales penetration on used vehicle sales.
Gross margin for the quarter was 15.1 percent compared with 16.0 percent during the year-ago period, reflecting the cumulative effect of declines in margins across the board. These margin declines were due to increased new vehicle competition in some markets, and to lower-margin wholesale sales growing at a faster pace than retail sales for both used vehicles and parts. Despite this decline, gross profit for the quarter increased 7.8 percent to $198.5 million from $184.2 million in the prior year, due largely to the revenue growth noted above.
Income from operations was $34.5 million versus $40.3 million, a 14.4 percent decrease. Operating margin was 2.6 percent compared with 3.5 percent during the year-ago period. This decline reflects the gross margin decline noted above, as well as a 14.1 percent increase in selling, general and administrative (SG&A) expenses from the second quarter of 2003. This $19.7 million increase in SG&A is largely attributable to acquisitions, the previously announced insurance charge and slightly higher same store SG&A expenses.
"The quarter did not reflect the market improvements we had anticipated, and we experienced margin pressures across most of our stores, especially at our Ford and Toyota dealerships," said B.B. Hollingsworth Jr., Group 1's chairman, president and chief executive officer. "Despite this challenging environment, certain platforms, including those in New England and Central Texas, delivered solid performances. In addition, our Honda, Nissan and luxury franchises performed well, and we are pleased that our recent acquisition activity has increased our exposure to these brands."
Hollingsworth also noted that the Atlanta platform, though still underperforming, showed signs of improvement compared with both the first quarter and the same period last year.
As previously announced, Group 1 incurred an after-tax charge of $1.8 million, or $0.08 per diluted share, resulting from a severe hailstorm that hit the company's Amarillo dealerships in June. The loss represented the company's financial exposure under the self-insured retention portion of its physical damage insurance program.
Net income decreased 21.4 percent to $15.7 million from $20.0 million, and diluted average shares outstanding increased 0.4 percent to 23.4 million shares. Diluted earnings per share were $0.67, including the $0.08 negative impact from the Amarillo hailstorm loss mentioned above, compared with $0.86 a year ago.
Six-Month Performance
For the first six months of 2004, revenues reached $2.5 billion, a 13.1 percent increase from $2.2 billion in 2003. Same store revenues grew 4.9 percent, compared with a 6.4 percent decline the previous year.
New vehicle revenues grew 15.7 percent on a 13.1 percent increase in unit sales. Used vehicle retail revenues grew 3.5 percent on a unit sales increase of 0.4 percent. Parts and service and finance and insurance revenues grew 12.3 percent and 1.2 percent, respectively. Gross margin fell to 15.5 percent from 16.2 percent in 2003. Despite this decline, gross profit increased 8.0 percent to $381.9 million from $353.7 million in the prior year, primarily due to revenue growth. Income from operations fell 6.3 percent to $67.2 million from $71.7 million due, in part, to an 11.5 percent increase in SG&A expenses. This increase in SG&A expenses is attributable to those same items previously noted as contributing to the increase in the second quarter. Operating margin was 2.7 percent compared with 3.3 percent from the year-ago period.
In the first quarter, the company incurred an after-tax charge of $4.0 million, or $0.17 per diluted share, in association with the previously announced redemption of all of its 10 7/8% senior subordinated notes on March 1, 2004.
Diluted earnings per share decreased 25.3 percent to $1.12, including both the $0.08 negative impact of the Amarillo hailstorm loss and the $0.17 negative impact from the notes redemption discussed above, on net income of $26.2 million. This compares with earnings per diluted share of $1.50 on net income of $34.8 million during the first six months of 2003.
Revolving Credit Facility
On July 28, 2004, the company expanded its existing syndicated revolving credit facility from $775.0 million to $937.0 million with additional commitments from certain existing lenders in the facility. These additions increase Group 1's total commitments under its various credit facilities to $1.237 billion. After giving effect to this increase, the company had more than $300 million of total availability under these credit facilities to be used, as needed, to fund its floorplan, working capital, acquisition and general corporate needs.
"The continued support we receive from our lenders, including our commercial banks and captive finance subsidiaries of our automobile manufacturer partners, gives us the resources to execute our operating and acquisition strategies," said Hollingsworth.
Acquisition Update
In addition to the acquisitions announced earlier this month in Houston and Beverly Hills, Calif., Group 1 opened its newly completed Miller Nissan store in Woodland Hills, Calif., during the second quarter. The Nissan franchise, which was granted and announced in September 2002, is the company's second Nissan dealership in the greater Los Angeles area, and is expected to generate approximately $50 million in annual revenues.
Year to date, Group 1 has added 19 franchises with expected annual revenues of approximately $1.0 billion. The aggregate consideration paid in completing these acquisitions was approximately $172.0 million in cash, net of cash received, and 360,693 shares of Group 1 common stock. The cash portion of these transactions was funded with a combination of cash on hand and borrowings under the company's revolving credit facility.
"We have achieved our full-year acquisition target of $1 billion of expected aggregate annual revenues during the first seven months of this year," stated Hollingsworth. "The brand mix of these franchises consists of 24 percent domestics and 76 percent imports, including 39 percent luxury brands. Most of the accretive earnings impact of these acquisitions will be realized in future periods. We continue to find qualified candidates that meet our stringent criteria and will continue to make acquisitions, although at a much slower pace than in the first half of the year."
Management's Outlook
Group 1 anticipates slightly improved same store performance for the second half of the year. Based on this expectation, coupled with the expected positive impact of the above-mentioned acquisitions, the company reaffirmed its revised FY2004 earnings guidance of $2.95 to $3.15 per diluted share. This guidance includes the $0.08 per diluted share negative impact from the Amarillo hailstorm loss, but excludes both the $0.17 per diluted share impact of the March 2004 notes redemption and any future acquisitions.
Hollingsworth stated, "Our main focus the balance of the year will be on integrating the dealerships we have acquired, as well as improving our margins across the board."
Second-Quarter Conference Call
Group 1 will hold a conference call to discuss the second-quarter results at 10 a.m. EDT on Thursday, July 29, 2004. The call can be accessed live and will be available for replay over the Internet at www.vcall.com, or through Group 1's Web site, www.group1auto.com, for 30 days. In addition, an updated slide presentation will be available on Group 1's Web site.
About Group 1 Automotive, Inc.
Group 1 currently owns 91 automotive dealerships comprised of 137 franchises, 31 brands and 31 collision service centers located in California, Colorado, Florida, Georgia, Louisiana, Massachusetts, New Jersey, 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:
-- our future operating performance
-- our ability to improve our margins
-- earnings per share for the year ending 2004
-- operating cash flows and availability of capital
-- the completion of future acquisitions
-- the future revenues of acquired dealerships
-- changes in sales volumes in the new and used retail vehicle and parts and service markets
-- business trends in the retail automotive industry, including the level of manufacturer incentives, new and used vehicle retail sales volume, customer demand and changes in industry-wide inventory levels
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, replacement parts, maintenance and repair services and finance and insurance products
-- adverse international developments such as war, terrorism, political conflicts or other hostilities may adversely affect the demand for our products and services
-- the future regulatory environment, adverse legislation, or unexpected litigation may impose additional costs on us or otherwise adversely affect us
-- our principal automobile manufacturers, especially Toyota/Lexus, Ford, DaimlerChrysler, General Motors, Honda and Nissan/Infiniti, 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 ability to complete acquisitions and increase the level of 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 to any reduction in the demand for our products and services
-- 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, and all of our losses may not be covered by insurance
-- we may not obtain inventory of new and used vehicles and parts, including imported inventory, at the cost or in the volume we expect
These factors, as well as 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 this information.
We undertake no duty to update the forward-looking statements.
All forward-looking statements attributable to us are qualified in their entirety by this cautionary statement.
FINANCIAL TABLES TO FOLLOW
Group 1 Automotive, Inc.
Consolidated Statements of Operations
(Unaudited) (Dollars in thousands, except per share amounts)
Three Months Ended Six Months Ended
June 30, June 30,
----------------------- -----------------------
2004 2003 2004 2003
----------- ----------- ----------- -----------
REVENUES:
New vehicle retail
sales $813,918 $693,454 $1,489,895 $1,287,208
Used vehicle retail
sales 241,342 230,956 471,997 456,154
Used vehicle wholesale
sales 87,106 65,445 163,297 126,449
Parts and service
sales 131,283 116,279 255,303 227,392
Retail finance fees 16,608 16,184 32,170 31,363
Vehicle service
contract fees 15,166 15,436 30,712 30,634
Other finance and
insurance revenues, net 9,478 10,126 18,554 18,471
----------- ----------- ----------- -----------
Total revenues 1,314,901 1,147,880 2,461,928 2,177,671
COST OF SALES:
New vehicle retail
sales 756,519 641,983 1,384,603 1,193,012
Used vehicle retail
sales 212,154 202,782 414,239 399,840
Used vehicle wholesale
sales 88,723 67,660 165,894 130,459
Parts and service
sales 58,995 51,239 115,254 100,696
----------- ----------- ----------- -----------
Total cost of
sales 1,116,391 963,664 2,079,990 1,824,007
Gross Profit 198,510 184,216 381,938 353,664
SELLING, GENERAL AND
ADMINISTRATIVE
EXPENSES 159,884 140,179 306,548 275,017
DEPRECIATION AND
AMORTIZATION EXPENSE 4,078 3,691 8,166 6,941
----------- ----------- ----------- -----------
Income from operations 34,548 40,346 67,224 71,706
OTHER INCOME AND (EXPENSE):
Floorplan interest
expense, excludes
manufacturer interest
assistance (5,723) (6,235) (10,362) (11,682)
Other interest
expense, net (3,564) (2,334) (8,404) (4,703)
Loss on redemption of
senior subordinated notes - - (6,381) -
Other expense, net (119) (63) (143) (89)
----------- ----------- ----------- -----------
INCOME BEFORE INCOME
TAXES 25,142 31,714 41,934 55,232
PROVISION FOR INCOME
TAXES (9,428) (11,734) (15,733) (20,436)
----------- ----------- ----------- -----------
NET INCOME $15,714 $19,980 $26,201 $34,796
=========== =========== =========== ===========
Basic earnings per
share $0.70 $0.89 $1.16 $1.55
Diluted earnings per
share $0.67 $0.86 $1.12 $1.50
Weighted average
shares outstanding:
Basic 22,582,332 22,488,643 22,552,916 22,426,468
Diluted 23,354,519 23,268,506 23,372,162 23,140,289
OTHER DATA:
Gross margin 15.1% 16.0% 15.5% 16.2%
Operating margin 2.6% 3.5% 2.7% 3.3%
Pretax income margin 1.9% 2.8% 1.7% 2.5%
Same store revenues 3.8% (5.1)% 4.9% (6.4)%
Manufacturer floorplan
assistance $8,260 $6,962 $14,959 $12,813
Retail new vehicles sold 29,441 25,463 53,873 47,640
Retail used vehicles sold 16,425 16,167 32,611 32,479
----------- ----------- ----------- -----------
Total retail sales 45,866 41,630 86,484 80,119
----------- ----------- ----------- -----------
Wholesale used
vehicles sold 11,894 10,714 22,684 20,811
Group 1 Automotive, Inc.
Condensed Consolidated Balance Sheets
(Dollars in thousands)
June 30, December 31,
2004 2003
----------- --------------
(unaudited) (audited)
ASSETS:
Current assets:
Cash $37,711 $25,441
Contracts-in-transit and vehicle
receivables, net 148,478 143,260
Inventories 840,064 671,279
Other current assets 99,048 90,943
----------- --------------
Total current assets 1,125,301 930,923
----------- --------------
Property and equipment, net 154,572 131,647
Goodwill and intangible assets 487,657 390,867
Investments and deferred costs from
insurance and vehicle
service contract sales 26,551 28,263
Other assets 12,121 6,465
----------- --------------
Total assets $1,806,202 $1,488,165
=========== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Floorplan notes payable $803,190 $493,568
Current maturities of long-term debt 868 910
Accounts payable and accrued expenses 182,060 159,915
----------- --------------
Total current liabilities 986,118 654,393
----------- --------------
Long-term debt 178,911 230,178
Other liabilities 51,162 44,730
----------- --------------
Total liabilities before
deferred revenues 1,216,191 929,301
----------- --------------
Deferred revenues 35,251 40,755
Stockholders' equity 554,760 518,109
----------- --------------
Total liabilities and
stockholders' equity $1,806,202 $1,488,165
=========== ==============
OTHER DATA:
Working capital $139,183 $276,530
Current ratio 1.14 1.42
Long-term debt to capitalization 24% 31%
Last 12 months return on average equity 13% 16%
Group 1 Automotive, Inc.
Second-Quarter Additional Information
(Unaudited)
Six Months Ended June 30,
-----------------------
NEW VEHICLE UNIT SALES GEOGRAPHIC MIX 2004 2003
------------------------------------- ----------- -----------
New England 13.0% 12.4%
Oklahoma 12.7 14.1
California 12.2 11.6
Houston 12.1 13.1
Central Texas 8.0 7.8
New Orleans 7.0 6.4
West Texas 6.8 7.3
Florida 6.6 7.8
Dallas 5.9 6.0
Atlanta 5.7 5.6
New Mexico 3.0 3.3
Beaumont 2.9 3.3
New Jersey 2.9 -
Denver 1.2 1.3
----------- -----------
Total 100.0% 100.0%
Six Months Ended June 30,
-----------------------
NEW VEHICLE UNIT SALES BRAND MIX 2004 2003
-------------------------------- ----------- -----------
Toyota/Scion/Lexus 27.4% 25.4%
Ford 22.0 25.9
DaimlerChrysler 13.6 11.7
GM 11.0 10.4
Nissan/Infiniti 10.7 10.1
Honda/Acura 10.4 10.4
Other 4.9 6.1
----------- -----------
Total 100.0% 100.0%
% from Luxury Brands 12.0% 11.6%
Car/Truck Mix 42.1%/57.9% 42.5%/57.5%
Domestic/Imports Mix 44.5%/55.5% 46.6%/53.4%
Three Months Six Months Ended June 30,
Ended June 30,
---------------- -----------------------
INDIVIDUAL PRODUCT DATA 2004 2003 2004 2003
---------------------------- ------- -------- ----------- -----------
New vehicle retail gross
margin 7.1% 7.4% 7.1% 7.3%
New vehicle gross profit per
retail unit $1,950 $2,021 $1,954 $1,977
Used vehicle retail gross
margin 11.4% 11.2% 11.7% 11.5%
Used vehicle gross profit per
retail unit $1,679 $1,606 $1,691 $1,610
Parts & service gross margin 55.1% 55.9% 54.9% 55.7%
Finance & insurance revenues,
net per retail unit $899 $1,003 $942 $1,004
Three Months Six Months Ended June 30,
Ended June 30,
---------------- -----------------------
SAME STORE REVENUES 2004 2003 2004 2003
---------------------------- ------- -------- ----------- -----------
New vehicle retail sales 5.2 % (4.8)% 6.6 % (7.5)%
Used vehicle retail sales (3.6)% (12.1)% (2.8)% (10.6)%
Used vehicle wholesale sales 22.1 % 4.2 % 21.4 % 3.9 %
Parts & service sales 2.6 % 5.6 % 4.8 % 4.4 %
Finance & insurance revenues,
net (5.6)% (8.0)% (3.7)% (6.9)%
Total revenues 3.8 % (5.1)% 4.9 % (6.4)%