Group 1 Automotive Reports Third-Quarter Results
HOUSTON--Oct. 2, 20048, 2004--| Company Records Atlanta Impairment Charge |
Group 1 Automotive, Inc. , a Fortune 500 specialty retailer, today reported a third-quarter net loss of $9.6 million, or $0.42 per diluted share, on revenues of $1.5 billion for the three months ended Sept. 30, 2004. These results include a non-cash, after-tax charge of $29.4 million, or $1.26 per diluted share, related to the impairment of goodwill at the company's Atlanta platform.
Excluding the impact of the impairment, third-quarter net income was $19.8 million, or $0.84 per diluted share, compared with net income of $21.7 million, or $0.92 per diluted share, in the prior-year period.
Third-Quarter Highlights:
-- Total revenues increased 23.6 percent
-- New vehicle revenues increased 24.5 percent
-- Parts & service revenues grew 26.7 percent
-- Gross profit increased 18.2 percent to $229.9 million
Summary Results of Operations (Unaudited)
(In millions, except per share amounts)
Three Months Ended Nine Months Ended
September 30, September 30,
------------------- -------------------
2004 2003 2004 2003
-------- -------- -------- --------
Revenues $1,532.4 $1,239.5 $3,994.3 $3,417.2
Gross Profit $ 229.9 $ 194.4 $ 611.8 $ 548.1
Income from Operations $ 1.4 $ 42.9 $ 68.6 $ 114.6
Net Income (Loss) $ (9.6) $ 21.7 $ 16.6 $ 56.5
Diluted Earnings (Loss)
per Share $ (0.42) $ 0.92 $ 0.71 $ 2.42
Results for the Third Quarter
During the third quarter, revenues grew 23.6 percent to $1.5 billion from $1.2 billion during the same period last year. This increase was attributable to acquisitions, as same store revenues decreased 1.4 percent from the third quarter of 2003. New vehicle revenues grew 24.5 percent on a unit sales increase of 19.4 percent. Used vehicle retail revenues increased 15.0 percent on unit sales that were 7.2 percent higher. Parts and service revenues grew 26.7 percent, while finance and insurance revenues increased 8.9 percent.
Gross margin for the quarter was 15.0 percent, compared with 15.7 percent during the year-ago period, reflecting the cumulative effect of declines in margins across the board. These margin declines reflected increased competition for new and used vehicle sales due, in part, to heavy manufacturer incentives on domestic vehicles, and lower-margin wholesale sales growing at a faster pace than retail sales for used vehicles. Despite this decline, gross profit for the quarter increased 18.2 percent to $229.9 million from $194.4 million in the prior year, due largely to the revenue growth noted above.
Upon completion of the goodwill recoverability assessment announced Oct. 21, 2004, the company determined that the fair market value of its Atlanta platform no longer supported the carrying value of the goodwill and certain other long-lived assets associated with it. As a result, the company recorded a non-cash, pretax charge of $41.4 million, which equates to $29.4 million after tax, or $1.26 per diluted share. The company determined the impairment charge in accordance with Statement of Financial Accounting Standards (SFAS) No. 142, "Goodwill and Other Intangible Assets," and SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." The charge recorded by the company reflects its estimate of the fair value of the Atlanta platform. The company may adjust the amount of this charge based on the results of a third-party valuation expected to be completed in the fourth quarter of 2004.
The company reported income from operations of $1.4 million. Excluding the impairment charge, operating margin was 2.8 percent, compared with 3.5 percent during the year-ago period. This decline reflected the above-noted decline in gross margin, as well as a 23.4 percent increase in selling, general and administrative (SG&A) expenses from the third quarter of 2003. This increase in SG&A expenses was largely attributable to acquisitions and partially offset by slightly lower same store SG&A expenses. Income from operations was $42.7 million versus $42.9 million in 2003, a 0.4 percent decline, as the increase in SG&A expenses was partially offset by the increase in gross profit.
"The quarter reflected market challenges that we've seen throughout the year, and we continued to experience margin pressures," said B.B. Hollingsworth Jr., Group 1's chairman, president and chief executive officer. "Despite this challenging environment, we had solid performances from our New England, Dallas and Los Angeles platforms, as well as our Honda and luxury brands. Unfortunately, our Atlanta platform has continued to struggle and, while we are working diligently to resolve the problems there, it was appropriate that we take the impairment charge."
Nine-Month Performance
For the first nine months of 2004, revenues reached $4.0 billion, a 16.9 percent increase from $3.4 billion in 2003. Same store revenues grew 2.7 percent, compared with a 5.9 percent decline the previous year. New vehicle revenues grew 19.0 percent on a 15.4 percent increase in unit sales. Used vehicle retail revenues grew 7.3 percent on a unit sales increase of 2.7 percent. Parts and service and finance and insurance revenues grew 17.3 percent and 4.0 percent, respectively.
Gross margin fell to 15.3 percent from 16.0 percent in 2003. Despite this decline, gross profit increased 11.6 percent to $611.8 million from $548.1 million in the prior year, primarily due to revenue growth. The company reported income from operations of $68.6 million. Excluding the impairment charge, operating margin was 2.8 percent, compared with 3.4 percent for the year-ago period. Income from operations fell 4.1 percent to $110.0 million from $114.6 million, as an increase in SG&A expenses was partially offset by the increase in gross profit. This increase in SG&A expenses was attributable to the same items that contributed to the third-quarter increase, as well as a pretax charge of $2.8 million, which equates to $1.8 million after tax, or $0.08 per diluted share, related to a severe hailstorm that hit the company's Amarillo, Texas, dealerships in June.
Including the impairment charge, net income was $16.6 million, or $0.71 per diluted share. These results also include $0.09 in charges resulting from weather-related losses and a previously announced $0.17 charge related to the redemption of all of the company's 10 7/8% senior subordinated notes on March 1, 2004. Excluding the impairment charge, earnings per diluted share were $1.96 on net income of $46.0 million. This compares with earnings per diluted share of $2.42 on net income of $56.5 million during the first nine months of 2003.
Acquisition Update
As announced on Sept. 9, 2004, Group 1 acquired the Hassel Auto Group in New York and opened the Ira Nissan Woburn add-point dealership in the Boston market.
Year to date, Group 1 has added 23 franchises with expected annual revenues of approximately $1.2 billion. The aggregate consideration paid for these acquisitions was approximately $221.7 million in cash, net of cash received, the assumption of approximately $109.7 million in inventory financing and 394,313 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 surpassed our full-year acquisition target of $1 billion of expected aggregate annual revenues, shifting our brand mix by acquiring primarily import and luxury franchises," said Hollingsworth. "The brand mix of these acquired franchises is 24 percent domestic and 76 percent import, including 39 percent luxury." Hollingsworth noted that the company does not anticipate closing any additional platform acquisitions for the remainder of the year.
Management's Outlook
Group 1 reaffirmed its revised full-year 2004 earnings guidance announced on Oct. 21, 2004, of $2.70 to $2.80 per diluted share. This guidance includes the $0.09 per diluted share in weather-related losses. It excludes the $0.17 per diluted share charge from the March 2004 notes redemption, the $1.26 per diluted share charge from the Atlanta impairment and any future acquisitions.
Hollingsworth stated, "As we navigate through this challenging automotive retailing market, our priorities for the remainder of the year include integrating the dealerships we have acquired, remedying the situation in Atlanta and improving our margins."
Third-Quarter Conference Call
About Group 1 Automotive, Inc.
Group 1 currently owns 95 automotive dealerships comprised of 141 franchises, 33 brands and 32 collision service centers located in California, Colorado, Florida, Georgia, Louisiana, Massachusetts, New Jersey, New Mexico, New York, 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.
FINANCIAL TABLES TO FOLLOW
Group 1 Automotive, Inc.
Consolidated Statements of Operations
(Unaudited) (Dollars in thousands, except share and per share)
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------- -----------------------
2004 2003 2004 2003
----------- ----------- ----------- -----------
REVENUES:
New vehicle retail
sales $962,021 $772,632 $2,451,916 $2,059,840
Used vehicle retail
sales 265,544 230,978 737,541 687,132
Used vehicle wholesale
sales 101,551 69,102 264,848 195,551
Parts and service sales 154,285 121,792 409,588 349,184
Retail finance fees 19,052 17,111 51,222 48,474
Vehicle service
contract fees 19,544 17,170 50,256 47,804
Other finance and
insurance revenues, net 10,410 10,705 28,964 29,176
----------- ----------- ----------- -----------
Total revenues 1,532,407 1,239,490 3,994,335 3,417,161
COST OF SALES:
New vehicle retail sales 895,634 716,014 2,280,237 1,909,026
Used vehicle retail
sales 232,779 203,428 647,018 603,268
Used vehicle wholesale
sales 104,132 71,373 270,026 201,832
Parts and service sales 69,978 54,228 185,232 154,924
----------- ----------- ----------- -----------
Total cost of
sales 1,302,523 1,045,043 3,382,513 2,869,050
Gross Profit 229,884 194,447 611,822 548,111
SELLING, GENERAL AND
ADMINISTRATIVE
EXPENSES 182,577 147,913 489,125 422,930
DEPRECIATION AND
AMORTIZATION EXPENSE 4,579 3,623 12,745 10,564
IMPAIRMENT OF GOODWILL
AND LONG-LIVED ASSETS 41,373 -- 41,373 --
----------- ----------- ----------- -----------
Income from operations 1,355 42,911 68,579 114,617
OTHER INCOME AND (EXPENSE):
Floorplan interest
expense, excluding
manufacturer interest
assistance (6,554) (4,811) (16,916) (16,493)
Other interest
expense, net (4,463) (3,915) (12,867) (8,618)
Loss on redemption of
senior subordinated
notes -- -- (6,381) --
Other expense, net (104) (18) (247) (107)
----------- ----------- ----------- -----------
INCOME (LOSS) BEFORE
INCOME TAXES (9,766) 34,167 32,168 89,399
PROVISION (BENEFIT)
FOR INCOME TAXES (151) 12,473 15,582 32,909
----------- ----------- ----------- -----------
NET INCOME (LOSS) $(9,615) $21,694 $16,586 $56,490
=========== =========== =========== ===========
Basic earnings (loss)
per share $(0.42) $0.96 $0.73 $2.51
Diluted earnings
(loss) per share $(0.42) $0.92 $0.71 $2.42
Weighted average
shares outstanding:
Basic 22,946,245 22,642,168 22,684,982 22,499,158
Diluted 22,946,245 23,611,631 23,229,153 23,299,130
OTHER DATA:
Gross margin 15.0 % 15.7 % 15.3 % 16.0 %
Operating margin 0.1 % 3.5 % 1.7 % 3.4 %
Pretax income margin (0.6) % 2.8 % 0.8 % 2.6 %
Same store revenues (1.4) % (4.7)% 2.7 % (5.9)%
Manufacturer floorplan
assistance $9,499 $7,639 $24,457 $20,452
Retail new vehicles sold 33,991 28,477 87,864 76,117
Retail used vehicles sold 17,707 16,521 50,318 49,000
----------- ----------- ----------- -----------
Total retail sales 51,698 44,998 138,182 125,117
----------- ----------- ----------- -----------
Wholesale used vehicles
sold 13,831 11,985 36,515 32,796
Group 1 Automotive, Inc.
Condensed Consolidated Balance Sheets
(Dollars in thousands)
September 30, December 31,
2004 2003
------------- ------------
(unaudited) (audited)
ASSETS:
Current assets:
Cash $34,591 $25,441
Contracts-in-transit and vehicle
receivables, net 162,288 143,260
Inventories 807,623 671,279
Other current assets 99,752 90,943
------------- ------------
Total current assets 1,104,254 930,923
------------- ------------
Property and equipment, net 161,391 131,647
Goodwill and intangible assets, net 558,968 390,867
Investments and deferred costs from
insurance and vehicle service contract sales 24,089 28,263
Other assets 5,330 6,465
------------- ------------
Total assets $1,854,032 $1,488,165
============= ============
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Floorplan notes payable $749,304 $493,568
Current maturities of long-term debt 969 910
Accounts payable and accrued expenses 189,860 159,915
------------- ------------
Total current liabilities 940,133 654,393
------------- ------------
Long-term debt 273,179 230,178
Other liabilities 57,604 44,730
------------- ------------
Total liabilities before deferred revenues 1,270,916 929,301
------------- ------------
Deferred revenues 33,301 40,755
Stockholders' equity 549,815 518,109
------------- ------------
Total liabilities and stockholders' equity $1,854,032 $1,488,165
============= ============
OTHER DATA:
Working capital $164,121 $276,530
Current ratio 1.17 1.42
Long-term debt to capitalization 33% 31%
Last 12 months return on average equity 7% 16%
Group 1 Automotive, Inc.
Third-Quarter Additional Information
(Unaudited)
Nine Months Ended Sept. 30,
---------------------------
NEW VEHICLE UNIT SALES GEOGRAPHIC MIX 2004 2003
----------------------------- ----------- -----------
California 14.5% 12.0%
New England 13.0 12.7
Oklahoma 12.5 14.3
Houston 11.8 12.5
Central Texas 8.0 7.6
New Orleans 6.7 6.4
West Texas 6.4 6.9
Florida 6.2 7.8
Dallas 5.5 6.0
Atlanta 5.3 6.0
Rocky Mountain 4.1 4.5
New Jersey 2.8 --
Beaumont 2.7 3.3
New York 0.5 --
-----------
Total 100.0% 100.0%
Nine Months Ended Sept. 30,
---------------------------
NEW VEHICLE UNIT SALES BRAND MIX 2004 2003
----------------------------- ----------- -----------
Toyota/Scion/Lexus 27.5% 25.7%
Ford 21.1 26.0
DaimlerChrysler 13.9 11.8
GM 11.0 10.4
Nissan/Infiniti 10.7 10.2
Honda/Acura 9.8 10.1
Other 6.0 5.8
----------- -----------
Total 100.0% 100.0%
Domestic/Imports Mix 43.2%/56.8% 46.9%/53.1%
% from Luxury Brands 12.7% 11.6%
Car/Truck Mix 42.5%/57.5% 42.0%/58.0%
Three Months Nine Months
Ended Sept. 30, Ended Sept. 30,
---------------- -----------------------
INDIVIDUAL PRODUCT DATA 2004 2003 2004 2003
----------------------------- ------- -------- ----------- -----------
New vehicle retail gross margin 6.9% 7.3% 7.0% 7.3%
New vehicle gross profit per
retail unit $1,953 $1,988 $1,954 $1,981
Used vehicle retail gross
margin 11.4% 10.9% 11.6% 11.3%
Used vehicle gross profit per
retail unit $1,705 $1,530 $1,696 $1,583
Parts & service gross margin 54.6% 55.5% 54.8% 55.6%
Finance & insurance revenues,
net per retail unit $948 $1,000 $944 $1,003
Three Months Nine Months
Ended Sept. 30, Ended Sept. 30,
---------------- -----------------------
SAME STORE REVENUES 2004 2003 2004 2003
----------------------------- ------- -------- ----------- -----------
New vehicle retail sales (2.5) % (4.4) % 3.3 % (6.7) %
Used vehicle retail sales (4.1) % (14.5) % (3.3)% (11.4) %
Used vehicle wholesale sales 20.4 % 10.7 % 21.4 % 6.2 %
Parts & service sales 0.2 % 8.4 % 3.2 % 5.9 %
Finance & insurance revenues,
net (8.2) % (6.1) % (5.2)% (6.9) %
Total revenues (1.4) % (4.7) % 2.7 % (5.9) %