Group 1 Automotive Reports 2005 First-Quarter Results
HOUSTON--May 4, 2005--| Company Updates 2005 Earnings Guidance |
Group 1 Automotive, Inc. , a Fortune 500 specialty retailer, today reported first-quarter income before cumulative effect of a change in accounting principle of $14.4 million, or $0.60 per diluted share, on revenues of $1.4 billion. This compares with $10.5 million, or $0.45 per diluted share, on revenues of $1.1 billion in the first quarter of 2004.
The prior-year results include an after-tax charge of $4.0 million, or $0.17 per diluted share, related to the early redemption of certain of the company's senior subordinated notes. Excluding this charge, first-quarter 2004 earnings were $0.62 per diluted share.
Summary of Results of Operations (Unaudited)
(in millions, except per share amounts)
Three Months Ended
March 31,
-------------------
2005 2004
--------- ---------
Revenues $1,396.7 $1,147.0
Gross Profit $224.5 $183.4
Income from Operations $36.6 $33.2
Income before Cumulative Effect of a
Change in Accounting Principle $14.4 $10.5
Diluted Earnings per Share before Cumulative
Effect of a Change in Accounting Principle $0.60 $0.45
Results for the First Quarter
During the first quarter, total revenues increased 21.8 percent, to $1.4 billion from $1.1 billion during the same period last year, due largely to acquisitions made in 2004. On a same store basis, total revenues grew 0.1 percent, highlighted by a 3.7 percent increase in parts and service. Same store new and total used vehicle revenues were down 0.1 percent and 1.0 percent, respectively, while same store finance and insurance revenues were 0.1 percent lower.
Gross profit for the quarter was $224.5 million, a 22.4 percent increase from $183.4 million in the prior-year period. On a same store basis, gross profit for the quarter grew 1.7 percent, highlighted by a 4.4 percent increase in total used vehicles and a 2.7 percent increase in parts and service. Same store gross profit for new vehicle sales was also up slightly from the prior-year period. Same store gross margin increased to 16.2 percent from 16.0 percent in the year-ago period. This increase was due largely to an increase in parts and service revenues as a percentage of total revenues, as well as a 50 basis point increase in total used vehicle gross margins.
The company reported income from operations of $36.6 million in the first quarter, a 10.1 percent increase from $33.2 million in the first quarter of 2004. Operating margin was 2.6 percent, compared with 2.9 percent in 2004. On a same store basis, operating margin declined to 2.7 percent from 2.9 percent in the prior-year period, as the above-noted increase in same store gross profit was more than offset by a 90 basis point increase in selling, general and administrative (SG&A) expenses as a percentage of gross profit.
During September 2004, the SEC staff issued Staff Announcement D-108, "Use of the Residual Method to Value Acquired Assets Other Than Goodwill" (EITF D-108), which, among other things, required that a "direct" method be used to determine the fair value of intangible assets other than goodwill in connection with impairment testing under Statement of Financial Accounting Standards (SFAS) No. 142, "Goodwill and Other Intangible Assets." As required by EITF D-108, during the first quarter, the company performed an impairment test using a direct method on all intangible assets that were previously valued using a "residual" method. Upon completion of this test, the carrying value of some of the company's intangible franchise rights exceeded the newly determined fair value of such assets. As a result, the company recorded a non-cash, after-tax charge of $16.0 million, or $0.67 per diluted share. As required per EITF D-108, the charge is reported in the company's first-quarter income statement as a cumulative effect of a change in accounting principle.
Including this charge, the company's net loss for the quarter was $1.6 million, or $0.07 per diluted share, compared with $0.45 per diluted share on net income of $10.5 million during 2004.
Management's Outlook
Group 1 announced that it expects to report 2005 earnings of $2.95 to $3.05 per diluted share before cumulative effect of a change in accounting principle. However, as a result of the SEC's recent announcement delaying the implementation of SFAS No. 123(R), "Share Based Payment," this guidance now excludes the previously estimated negative impact of $0.07 per diluted share related to the expensing of stock based compensation in the second half of 2005. The company's full-year guidance also excludes any future acquisitions. The guidance is based on average diluted shares outstanding of 24.1 million.
"We expect overall sales volumes to remain stable, but the intense competition among all brands will continue to put pressure on our margins," said Earl J. Hesterberg, Group 1's president and chief executive officer. "During the coming months, we will be re-examining our operations and making adjustments to improve operating processes and enhance overall profitability. In addition, we will place an even greater emphasis on inventory management and cost control."
The company reaffirmed its previously established full-year 2005 acquisition target of $300 million in anticipated aggregate annual revenues, noting that although it continues to seek accretive acquisitions that fit its stringent criteria, it will be at a much slower pace than in 2004. In February, Group 1 announced the January acquisition of two franchises with an estimated $46 million in annual revenues.
First-Quarter Conference Call
Group 1 will hold a conference call to discuss its first-quarter results at 10 a.m. EDT on Wednesday, May 4. The 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.
About Group 1 Automotive, Inc.
Group 1 owns 96 automotive dealerships comprised of 142 franchises, 33 brands and 31 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.
This press release and the attached schedules contain financial measures that have not been calculated in accordance with U.S. generally accepted accounting principles, or GAAP. These non-GAAP financial measures include net income and diluted earnings per share for the three-month period ended March 31, 2004, adjusted to exclude special items disclosed in the attached schedules. As required by SEC rules, the company has provided in the attachments to this press release reconciliations of these measures to the most directly comparable GAAP measures, as well as a discussion as to why the company believes these measures may be important to investors.
This press release contains "forward-looking statements," which are statements related to future, not past events. In this context, the forward-looking statements often include statements regarding our goals, plans, projections and guidance regarding our financial position, results of operations, market position, pending and potential future acquisitions and business strategy, and often contain words such as "expects," "anticipates," "intends," "plans," "believes," "seeks" or "will." Any such forward-looking statements are not assurances of future performance and involve risks and uncertainties that may cause results to differ materially from those set forth in the statements. These risks and uncertainties include, among other things, (a) general economic conditions, (b) the level of manufacturer incentives, (c) the future regulatory environment, (d) our ability to obtain an inventory of desirable new and used vehicles, (e) our relationship with our automobile manufacturers and the willingness of manufacturers to approve future acquisitions, (f) our cost of financing and the availability of credit for consumers, (g) our ability to complete acquisitions and the risks associated with acquisitions, and (h) our ability to retain key personnel. These factors, as well as additional factors that could affect our forward-looking statements, are described in our Form 10-K 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 our forward-looking statements, including our earnings outlook.
Group 1 Automotive, Inc.
Consolidated Statements of Operations
(Unaudited)
(Dollars in thousands, except per share amounts)
Three Months Ended March 31,
---------------------------------
2005 2004 % Change
----------- ----------- ---------
REVENUES:
New vehicle retail sales $833,945 $675,977 23.4%
Used vehicle retail sales 261,545 230,655 13.4
Used vehicle wholesale sales 96,194 76,191 26.3
Parts and service 159,460 124,020 28.6
Finance and insurance 45,583 40,184 13.4
----------- ----------- ---------
Total revenues 1,396,727 1,147,027 21.8%
COST OF SALES:
New vehicle retail sales 774,833 628,084 23.4%
Used vehicle retail sales 228,169 202,085 12.9
Used vehicle wholesale sales 96,076 77,171 24.5
Parts and service 73,159 56,259 30.0
----------- ----------- ---------
Total cost of sales 1,172,237 963,599 21.7%
GROSS PROFIT 224,490 183,428 22.4%
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES 182,282 146,664 24.3%
DEPRECIATION AND AMORTIZATION
EXPENSE 5,623 3,548 58.5%
----------- ----------- ---------
INCOME FROM OPERATIONS 36,585 33,216 10.1%
OTHER INCOME (EXPENSE):
Floorplan interest expense (8,665) (4,881) 77.5%
Other interest expense, net (5,124) (5,138) (0.3)
Loss on redemption of senior
subordinated notes - (6,381) (100.0)
Other expense, net (11) (24) (54.2)
----------- ----------- ---------
INCOME BEFORE INCOME TAXES 22,785 16,792 35.7%
PROVISION FOR INCOME TAXES 8,385 6,305 33.0%
----------- ----------- ---------
INCOME BEFORE CUMULATIVE EFFECT OF A
CHANGE IN ACCOUNTING PRINCIPLE 14,400 10,487 37.3
CUMULATIVE EFFECT OF A CHANGE IN
ACCOUNTING PRINCIPLE, NET OF TAX
BENEFIT OF $10,231 (16,038) - -
----------- ----------- ---------
NET INCOME (LOSS) $(1,638) $10,487 (115.6)%
=========== =========== =========
DILUTED EARNINGS (LOSS) PER SHARE:
Income before cumulative effect of a
change in accounting principle $0.60 $0.45 33.3%
Cumulative effect of a change in
accounting principle (0.67) - -
----------- -----------
Net income (loss) $(0.07) $0.45 (115.6)
=========== ===========
Weighted average diluted shares
outstanding 23,885,574 23,389,805 2.1%
Group 1 Automotive, Inc.
Consolidated Balance Sheets
(Unaudited)
(Dollars in thousands)
March 31, December 31,
2005 2004 % Change
----------- ------------ ----------
ASSETS:
CURRENT ASSETS:
Cash and cash equivalents $27,443 $37,750 (27.3)%
Contracts in transit and
vehicle receivables, net 164,772 172,402 (4.4)
Accounts and notes receivable,
net 76,943 76,687 0.3
Inventories 916,610 877,575 4.4
Deferred income taxes 16,842 14,755 14.1
Prepaid expenses and other
current assets 21,685 26,046 (16.7)
----------- ------------ ----------
Total current assets 1,224,295 1,205,215 1.6
PROPERTY AND EQUIPMENT, net 161,475 160,297 0.7
GOODWILL 371,662 366,673 1.4
INTANGIBLE FRANCHISE RIGHTS 163,334 187,135 (12.7)
OTHER ASSETS 27,895 27,900 (0.0)
----------- ------------ ----------
Total assets $1,948,661 $1,947,220 0.1%
=========== ============ ==========
LIABILITIES AND STOCKHOLDERS' EQUITY:
CURRENT LIABILITIES:
Floorplan notes payable $853,328 $848,260 0.6%
Current maturities of long-
term debt 1,135 1,054 7.7
Accounts payable 115,147 108,920 5.7
Accrued expenses 92,773 91,528 1.4
----------- ------------ ----------
Total current liabilities 1,062,383 1,049,762 1.2
LONG-TERM DEBT, net of current
maturities 158,344 156,747 1.0
ACQUISITION LINE 76,000 84,000 (9.5)
DEFERRED INCOME TAXES 25,215 33,197 (24.0)
OTHER LIABILITIES 25,605 24,288 5.4
----------- ------------ ----------
Total liabilities before
deferred revenues 1,347,547 1,347,994 (0.0)
----------- ------------ ----------
DEFERRED REVENUES 30,001 32,052 (6.4)
STOCKHOLDERS' EQUITY:
Common stock 240 239 0.4
Additional paid-in capital 267,491 265,645 0.7
Retained earnings 317,293 318,931 (0.5)
Accumulated other
comprehensive loss (203) (173) 17.3
Deferred stock-based
compensation (3,875) - N/A
Treasury stock (9,833) (17,468) (43.7)
----------- ------------ ----------
Total stockholders' equity 571,113 567,174 0.7
----------- ------------ ----------
Total liabilities and
stockholders' equity $1,948,661 $1,947,220 0.1%
=========== ============ ==========
BALANCE SHEET DATA:
Working capital $161,912 $155,453 4.2%
Current ratio 1.15 1.15 -
Long-term debt to
capitalization 29% 30%
Inventory days supply: (1)
New vehicle 69 70 (1.4)%
Used vehicle 26 29 (10.3)
(1) Inventory days supply equals units in inventory as of the end of
the period, divided by unit sales for the month then ended, times
30 days.
Group 1 Automotive, Inc.
Additional Information - Consolidated
(Unaudited)
Three Months Ended
March 31,
----------------------
2005 2004
----------- ----------
NEW VEHICLE UNIT SALES GEOGRAPHIC MIX:
Platform State(s)
-------------------------------- -------------
Ira Motor Group Massachusetts 12.9% 12.5%
Sterling McCall Automotive Group Texas 12.4 12.5
Miller Automotive Group California 11.8 12.1
Bob Howard Auto Group Oklahoma 11.2 12.7
Maxwell Automotive Group Texas 7.5 7.7
Gene Messer Auto Group Texas 7.0 9.4
Peterson Automotive Group California 6.4 -
Group 1 Florida Florida 6.0 6.7
Bohn Automotive Group Louisiana 5.5 7.2
Group 1 Atlanta Georgia 4.6 5.7
Rocky Mountain Automotive Group Colorado/New
Mexico 3.7 4.2
Courtesy Auto Group Texas 3.1 3.9
David Michael Motor Group New Jersey 2.9 2.4
Mike Smith Automotive Group Texas 2.6 3.0
Hassel Auto Group New York 2.4 -
----------- ----------
100.0% 100.0%
NEW VEHICLE UNIT SALES BRAND MIX:
Toyota/Scion/Lexus 28.4% 26.9%
Ford 18.4 22.7
DaimlerChrysler 14.6 13.3
Nissan/Infiniti 12.4 11.6
GM 10.1 10.6
Honda/Acura 9.2 10.3
Other 6.9 4.6
----------- ----------
100.0% 100.0%
NEW VEHICLE UNIT OTHER MIX:
Domestic 38.4% 44.6%
Import 46.1 43.3
Luxury 15.5 12.1
----------- ----------
100.0% 100.0%
Car 45.7% 41.7%
Truck 54.3 58.3
----------- ----------
100.0% 100.0%
Group 1 Automotive, Inc.
Additional Information - Consolidated
(Unaudited)
(Dollars in thousands, except per unit amounts)
Three Months Ended March 31,
-----------------------------------
2005 2004 % Change
----------- ----------- -----------
REVENUES:
New vehicle retail sales $833,945 $675,977 23.4%
Used vehicle retail sales 261,545 230,655 13.4
Used vehicle wholesale sales 96,194 76,191 26.3
----------- ----------- -----------
Total used 357,739 306,846 16.6
Parts and service 159,460 124,020 28.6
Finance and insurance 45,583 40,184 13.4
----------- ----------- -----------
Total $1,396,727 $1,147,027 21.8%
GROSS MARGIN:
New vehicle retail sales 7.1% 7.1%
Used vehicle retail sales 12.8 12.4
Used vehicle wholesale sales 0.1 (1.3)
----------- -----------
Total used 9.4 9.0
Parts and service 54.1 54.6
Finance and insurance 100.0 100.0
----------- -----------
Total 16.1% 16.0%
GROSS PROFIT (LOSS):
New vehicle retail sales $59,112 $47,893 23.4%
Used vehicle retail sales 33,376 28,570 16.8
Used vehicle wholesale sales 118 (980) 112.0
----------- ----------- -----------
Total used 33,494 27,590 21.4
Parts and service 86,301 67,761 27.4
Finance and insurance 45,583 40,184 13.4
----------- ----------- -----------
Total $224,490 $183,428 22.4%
UNITS SOLD:
Retail new vehicles sold 28,833 24,432 18.0%
Retail used vehicles sold 17,242 16,186 6.5
Wholesale used vehicles sold 12,448 10,790 15.4
----------- ----------- -----------
Total used 29,690 26,976 10.1%
GROSS PROFIT (LOSS) PER UNIT SOLD:
New vehicle retail sales $2,050 $1,960 4.6%
Used vehicle retail sales 1,936 1,765 9.7
Used vehicle wholesale sales 9 (91) 109.9
----------- ----------- -----------
Total used $1,128 $1,023 10.3%
Finance and insurance (per
retail unit) 989 989 -
OTHER:
Adjusted used gross margin(1) 12.8% 12.0%
Adjusted used gross profit per
retail unit(2) $1,943 $1,705 14.0%
SG&A expenses $182,282 $146,664 24.3%
SG&A as % revenues 13.1% 12.8%
SG&A as % gross profit 81.2% 80.0%
Operating margin 2.6% 2.9%
Pretax income margin 1.6% 1.5%
Floorplan interest $(8,665) $(4,881) 77.5%
Floorplan assistance 8,179 6,699 22.1
----------- ----------- -----------
Net floorplan benefit
(expense) $(486) $1,818 (126.7)%
(1) Adjusted used gross margin equals total used gross profit, which
includes net wholesale loss, divided by used vehicle retail sales
revenues. The profit or loss on wholesale sales is included in
this number, as these transactions facilitate retail vehicle sales
and are not expected to generate profit.
(2) Adjusted used gross profit per retail unit equals total used
vehicle gross profit, which includes net wholesale loss, divided
by used vehicle retail unit sales. The profit or loss on wholesale
sales are included in this number, as these transactions
facilitate retail vehicle sales and are not expected to generate
profit.
Group 1 Automotive, Inc.
Additional Information - Same Store(1)
(Unaudited)
(Dollars in thousands, except per unit amounts)
Three Months Ended March 31,
----------------------------------
2005 2004 % Change
----------- ----------- ----------
REVENUES:
New vehicle retail sales $675,505 $675,977 (0.1)%
Used vehicle retail sales 223,671 230,655 (3.0)
Used vehicle wholesale sales 80,002 76,191 5.0
----------- ----------- ----------
Total used 303,673 306,846 (1.0)
Parts and service 128,575 124,020 3.7
Finance and insurance 40,139 40,184 (0.1)
----------- ----------- ----------
Total $1,147,892 $1,147,027 0.1%
GROSS MARGIN:
New vehicle retail sales 7.1% 7.1%
Used vehicle retail sales 12.8 12.4
Used vehicle wholesale sales 0.2 (1.3)
----------- -----------
Total used 9.5 9.0
Parts and service 54.1 54.6
Finance and insurance 100.0 100.0
----------- -----------
Total 16.2% 16.0%
GROSS PROFIT (LOSS):
New vehicle retail sales $48,034 $47,893 0.3%
Used vehicle retail sales 28,646 28,570 0.3
Used vehicle wholesale sales 149 (980) 115.2
----------- ----------- ----------
Total used 28,795 27,590 4.4
Parts and service 69,558 67,761 2.7
Finance and insurance 40,139 40,184 (0.1)
----------- ----------- ----------
Total $186,526 $183,428 1.7%
UNITS SOLD:
Retail new vehicles sold 24,086 24,432 (1.4)%
Retail used vehicles sold 15,222 16,186 (6.0)
Wholesale used vehicles sold 10,696 10,790 (0.9)
----------- ----------- ----------
Total used 25,918 26,976 (3.9)%
GROSS PROFIT (LOSS) PER UNIT SOLD:
New vehicle retail sales $1,994 $1,960 1.7%
Used vehicle retail sales 1,882 1,765 6.6
Used vehicle wholesale sales 14 (91) 115.4
----------- ----------- ----------
Total used $1,111 $1,023 8.6%
Finance and insurance (per retail
unit) 1,021 989 3.2
OTHER:
Adjusted used gross margin(2) 12.9% 12.0%
Adjusted used gross profit per
retail unit(3) $1,892 $1,705 11.0%
SG&A expenses $150,969 $146,664 2.9%
SG&A as % revenues 13.2% 12.8%
SG&A as % gross profit 80.9% 80.0%
Operating margin 2.7% 2.9%
Floorplan interest $(7,155) $(4,881) 46.6%
Floorplan assistance 7,244 6,699 8.1
----------- ----------- ----------
Net floorplan benefit $89 $1,818 (95.1)%
(1) Same store amounts include the results for the identical months in
each period presented in the comparison, commencing with the first
month we owned the dealership and, in the case of dispositions,
ending with the last month we owned it. Same store results also
include the activities of the corporate office.
(2) Adjusted used gross margin equals total used gross profit, which
includes net wholesale loss, divided by used vehicle retail sales
revenues. The profit or loss on wholesale sales is included in
this number, as these transactions facilitate retail vehicle sales
and are not expected to generate profit.
(3) Adjusted used gross profit per retail unit equals total used
vehicle gross profit, which includes net wholesale loss, divided
by used vehicle retail unit sales. The profit or loss on wholesale
sales are included in this number, as these transactions
facilitate retail vehicle sales and are not expected to generate
profit.
Group 1 Automotive, Inc.
Reconciliation of Certain Non-GAAP Financial Measures
(Unaudited)
(Dollars in thousands, except per share amounts)
Net Income (Loss) Diluted EPS
--------------------------- -------------------------
Q1 2005 Q1 2004 % Change Q1 2005 Q1 2004 % Change
-------- -------- --------- ------- ------- ---------
Q1 2005 vs. Q1
2004
RECONCILIATION:
As reported $(1,638) $10,487 (115.6)% $(0.07) $0.45 (115.6)%
Adjustments:
Change in
accounting
principle 16,038 - 0.67
Loss on
redemption of
senior sub
notes - 4,011 - 0.17
-------- -------- --------- ------- ------- ---------
As adjusted
(1) $14,400 $14,498 (0.7)% $0.60 $0.62 (3.2)%
(1) As adjusted net income and net income per share means net income
or net income per share, as the case may be, plus charges related
to the loss on the redemption of our 10 7/8% Senior Subordinated
Notes in March 2004. We believe that adjusted net income and
adjusted net income per share provide additional information
regarding the performance of our operations. We believe the
presentation of this measure is relevant and useful to investors
because it improves the period-to-period comparability of our
financial performance by excluding certain unusual charges to our
results of operations that do not reflect our operating
performance during the period. Our management uses these adjusted
numbers in their own evaluation of the performance of the company.
Neither of these measures is a measure of financial performance
under GAAP. Accordingly, they should not be considered as
substitutes for net income or net income per share prepared in
accordance with GAAP. Although our management finds these non-GAAP
results useful in evaluating the performance of our business, our
reliance on these measures is limited because the adjustments
often have a material impact on our net income and net income per
share calculated in accordance with GAAP. Therefore, our
management typically uses these adjusted numbers in conjunction
with our GAAP results to address these limitations.
Although the Q1 2005 as adjusted net income equals the income
before cumulative effect of a change in accounting principle and
is thus a GAAP measure, we have included it in the above non-GAAP
reconciliation for comparative purposes.