Auto Dealer "Group 1" Reports 55 Percent Rise in First-Quarter Earnings
HOUSTON--May 2, 2006--| Significant Reduction in SG&A as a Percent of Gross Profit; Full-Year Guidance Raised |
Group 1 Automotive, Inc. , a Fortune 500 automotive retailer, today reported that first-quarter net income increased 54.9 percent to $22.3 million, on revenues of $1.42 billion. Diluted earnings per share grew 51.7 percent to $0.91. This compares with income before cumulative effect of a change in accounting principle of $14.4 million, or $0.60 per diluted share, in the first quarter of 2005.
First-quarter revenues were up 1.5 percent from year-ago levels, with increases in all reporting areas except wholesale used vehicles. Wholesale used vehicle revenues decreased 16.1 percent, as the company wholesaled 14.4 percent fewer vehicles; however, wholesale profit increased to $92 per unit from $9 per unit in the prior-year period. Concurrently, retail used vehicle revenues increased 1.7 percent.
Overall, the company's gross margin improved 60 basis points to 16.7 percent, reflecting improvements across the board, including a 100 basis-point increase in total used vehicle gross margin.
On a same-store basis, new vehicle revenues increased 1.6 percent and used vehicle retail revenues were 1.9 percent higher, on 0.7 percent and 4.6 percent lower unit sales, respectively. Parts and service and finance and insurance revenues rose 2.9 percent and 5.2 percent, respectively. Gross margin improved 70 basis points to 16.8 percent.
The company also achieved a 500 basis-point reduction in total selling, general and administrative expenses to 76.2 percent of gross profit, primarily attributable to reductions in its field management structure and increased operating efficiency.
Operating margin improved 110 basis points from prior-year levels to 3.7 percent, and pretax margin improved 90 basis points to 2.5 percent.
Floorplan interest expense expanded 36.7 percent to $11.8 million, reflecting a continued upward trend in interest rates. Partially offsetting the higher rates was a reduction in new vehicle inventory from year-ago levels of 69 days' supply to 62 days' supply, resulting in an $88.4 million reduction in average floorplan borrowings. Other interest expense also declined $1.1 million, or 22.2 percent, reflecting a decrease of $86.8 million in borrowings outstanding in the period. The long-term debt-to-equity ratio improved to 19 percent since year end and continues to reflect a strong balance sheet.
"We are extremely pleased with our first-quarter results," said Earl J. Hesterberg, Group 1's president and chief executive officer. "Our consolidation and expense reduction initiatives, as well as our focus on the used vehicle business, are beginning to deliver the significant improvements that we anticipated when we implemented our strategic initiatives late last year. I am very pleased with the speed at which we are moving and believe it is a direct reflection of the strength of the operating team we have in place."
Share Repurchase
During the first quarter, Group 1 did not repurchase any shares of its common stock pursuant to its previously-announced, board-authorized $42 million share repurchase program.
Acquisition Update
Year to date, Group 1 has acquired three franchises with $130 million in estimated annual revenues toward its full-year goal of $300 million.
Management's Outlook
Group 1 revised its 2006 full-year earnings guidance range upward to $3.40 to $3.70 per diluted share. This increased guidance is based on the company's strong first-quarter performance, as well as the following assumptions:
-- Industry seasonally adjusted annual sales rate of 16.8 to 17 million vehicles.
-- A 50 basis-point increase in interest rates over the remainder of the year.
-- An estimated average of 24.5 million shares outstanding.
-- The implementation of SFAS No. 123(R), "Share Based Payment," that the company estimates will have a full-year negative earnings impact of $0.10 per diluted share.
This guidance excludes the impacts of any future acquisitions or dispositions. The company's previous guidance, announced Feb. 23, 2006, was $3.15 to $3.45 per diluted share.
About Group 1 Automotive, Inc.
Group 1 owns 95 automotive dealerships comprised of 140 franchises, 32 brands and 30 collision service centers in California, Colorado, Florida, Georgia, Louisiana, Massachusetts, New Hampshire, New Jersey, New Mexico, New York, Oklahoma and Texas. Through its dealerships, 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.
Group 1 Automotive, Inc.
Consolidated Statements of Operations
(Unaudited)
(In thousands, except per share amounts)
Three Months Ended March 31,
------------------------------------
2006 2005 % Change
---------- ---------- ----------
REVENUES:
New vehicle retail sales $ 860,128 $ 833,945 3.1 %
Used vehicle retail sales 265,920 261,545 1.7
Used vehicle wholesale sales 80,693 96,194 (16.1)
Parts and service 162,867 159,460 2.1
Finance and insurance 47,958 45,583 5.2
---------- ---------- ----------
Total revenues 1,417,566 1,396,727 1.5
COST OF SALES:
New vehicle retail sales 795,614 774,833 2.7
Used vehicle retail sales 230,880 228,169 1.2
Used vehicle wholesale sales 79,714 96,076 (17.0)
Parts and service 74,533 73,159 1.9
---------- ---------- ----------
Total cost of sales 1,180,741 1,172,237 0.7
GROSS PROFIT 236,825 224,490 5.5
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 180,477 182,290 (1.0)
DEPRECIATION AND
AMORTIZATION EXPENSE 4,563 5,623 (18.9)
---------- ---------- ----------
INCOME FROM OPERATIONS 51,785 36,577 41.6
OTHER INCOME (EXPENSE):
Floorplan interest expense (11,846) (8,665) 36.7
Other interest expense, net (3,989) (5,124) (22.2)
Other income (expense), net 26 (3) (966.7)
---------- ---------- ----------
INCOME BEFORE INCOME TAXES 35,976 22,785 57.9
PROVISION FOR INCOME TAXES 13,665 8,385 63.0
---------- ---------- ----------
INCOME BEFORE CUMULATIVE EFFECT
OF A CHANGE IN ACCOUNTING
PRINCIPLE 22,311 14,400 54.9
CUMULATIVE EFFECT OF A CHANGE IN
ACCOUNTING PRINCIPLE, NET OF TAX
BENEFIT OF $10,231 - (16,038) -
---------- ---------- ----------
NET INCOME (LOSS) $ 22,311 $ (1,638) (1,462.1)%
========== ========== ==========
DILUTED EARNINGS (LOSS) PER
SHARE:
Income before cumulative effect
of a change in accounting
principle $ 0.91 $ 0.60 51.7 %
Cumulative effect of a change in
accounting principle - (0.67) -
---------- ---------- ----------
Net income (loss) $ 0.91 $ (0.07) (1,400.0)%
========== ========== ==========
Weighted average diluted shares
outstanding 24,453 23,886 2.4 %
Group 1 Automotive, Inc.
Consolidated Balance Sheets
(Dollars in thousands)
March 31, December 31,
2006 2005 % Change
---------- ---------- ---------
(Unaudited)
ASSETS:
CURRENT ASSETS:
Cash and cash equivalents $ 35,232 $ 37,695 (6.5)%
Contracts in transit and vehicle
receivables, net 157,584 187,769 (16.1)
Accounts and notes receivable, net 74,803 81,463 (8.2)
Inventories 845,367 756,838 11.7
Deferred income taxes 18,053 18,780 (3.9)
Prepaid expenses and other current
assets 21,614 23,283 (7.2)
---------- ---------- ---------
Total current assets 1,152,653 1,105,828 4.2
PROPERTY AND EQUIPMENT, net 170,136 161,317 5.5
GOODWILL 386,452 372,844 3.6
INTANGIBLE FRANCHISE RIGHTS 176,892 164,210 7.7
OTHER ASSETS 34,094 29,419 15.9
---------- ---------- ---------
Total assets $1,920,227 $1,833,618 4.7 %
========== ========== =========
LIABILITIES AND STOCKHOLDERS'
EQUITY:
CURRENT LIABILITIES:
Floorplan notes payable - credit
facility $ 454,187 $ 407,396 11.5 %
Floorplan notes payable -
manufacturer affiliates 334,692 316,189 5.9
Current maturities of long-term
debt 788 786 0.3
Accounts payable 116,964 124,857 (6.3)
Accrued expenses 105,678 119,404 (11.5)
---------- ---------- ---------
Total current liabilities 1,012,309 968,632 4.5
LONG-TERM DEBT, net of current
maturities 158,000 158,074 -
DEFERRED INCOME TAXES 31,888 28,862 10.5
OTHER LIABILITIES 25,517 25,356 0.6
---------- ---------- ---------
Total liabilities before deferred
revenues 1,227,714 1,180,924 4.0
---------- ---------- ---------
DEFERRED REVENUES 24,433 25,901 (5.7)
STOCKHOLDERS' EQUITY:
Common stock 248 246 0.8
Additional paid-in capital 274,082 276,904 (1.0)
Retained earnings 392,282 373,162 5.1
Accumulated other comprehensive
income (loss) 1,468 (706) (307.9)
Deferred stock-based compensation - (5,413) (100.0)
Treasury stock - (17,400) (100.0)
---------- ---------- ---------
Total stockholders' equity 668,080 626,793 6.6
---------- ---------- ---------
Total liabilities and
stockholders' equity $1,920,227 $1,833,618 4.7 %
========== ========== =========
BALANCE SHEET DATA:
Working capital $ 140,344 $ 137,196 2.3 %
Current ratio 1.14 1.14 -
Long-term debt to capitalization 19% 20%
Inventory days supply: (1)
New vehicle 62 56 10.7 %
Used vehicle 28 28 -
(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,
---------------
2006 2005
------- -------
NEW VEHICLE UNIT SALES GEOGRAPHIC MIX:
Region Geographic Market
------ -----------------
Northeast Massachusetts 13.3 % 12.9 %
New Hampshire 3.5 -
New Jersey 2.8 2.9
New York 2.5 2.4
------ ------
22.1 18.2
Southeast Florida 5.3 6.0
Georgia 3.8 4.6
Louisiana 6.2 5.5
------ ------
15.3 16.1
South Central Oklahoma 9.7 11.2
Central Texas 11.5 12.0
Southeast Texas 16.8 14.9
------ ------
38.0 38.1
West Central Colorado 0.3 1.1
New Mexico 2.1 2.6
West Texas 5.9 5.7
------ ------
8.3 9.4
California California 16.3 18.2
------ ------
100.0 % 100.0 %
NEW VEHICLE UNIT SALES BRAND MIX:
Toyota/Scion/Lexus 33.5 % 28.4 %
Ford 17.1 18.4
DaimlerChrysler 14.1 14.6
Nissan/Infiniti 10.5 12.4
Honda/Acura 9.4 9.2
GM 8.0 10.1
Other 7.4 6.9
------- -------
100.0 % 100.0 %
NEW VEHICLE UNIT OTHER MIX:
Import 49.4 % 47.1 %
Domestic 33.6 37.4
Luxury 17.0 15.5
------- -------
100.0 % 100.0 %
Car 47.4 % 45.6 %
Truck 52.6 54.4
------- -------
100.0 % 100.0 %
Group 1 Automotive, Inc.
Additional Information - Consolidated
(Unaudited)
(Dollars in thousands, except per unit amounts)
Three Months Ended March 31,
-----------------------------------
2006 2005 % Change
----------- ----------- ---------
REVENUES:
New vehicle retail sales $ 860,128 $ 833,945 3.1 %
Used vehicle retail sales 265,920 261,545 1.7
Used vehicle wholesale sales 80,693 96,194 (16.1)
----------- ----------- ---------
Total used 346,613 357,739 (3.1)
Parts and service 162,867 159,460 2.1
Finance and insurance 47,958 45,583 5.2
----------- ----------- ---------
Total $1,417,566 $1,396,727 1.5 %
GROSS MARGIN:
New vehicle retail sales 7.5 % 7.1 %
Used vehicle retail sales 13.2 12.8
Used vehicle wholesale sales 1.2 0.1
----------- -----------
Total used 10.4 9.4
Parts and service 54.2 54.1
Finance and insurance 100.0 100.0
----------- -----------
Total 16.7 % 16.1 %
GROSS PROFIT:
New vehicle retail sales $ 64,514 $ 59,112 9.1 %
Used vehicle retail sales 35,040 33,376 5.0
Used vehicle wholesale sales 979 118 (729.7)
----------- ----------- ---------
Total used 36,019 33,494 7.5
Parts and service 88,334 86,301 2.4
Finance and insurance 47,958 45,583 5.2
----------- ----------- ---------
Total $ 236,825 $ 224,490 5.5 %
UNITS SOLD:
Retail new vehicles sold 28,969 28,833 0.5 %
Retail used vehicles sold 16,263 17,242 (5.7)
Wholesale used vehicles sold 10,655 12,448 (14.4)
----------- ----------- ---------
Total used 26,918 29,690 (9.3)%
GROSS PROFIT PER UNIT SOLD:
New vehicle retail sales $ 2,227 $ 2,050 8.6 %
Used vehicle retail sales 2,155 1,936 11.3
Used vehicle wholesale sales 92 9 (922.2)
Total used 1,338 1,128 18.6
Finance and insurance (per
retail unit) 1,060 989 7.2
OTHER:
Adjusted used gross margin(1) 13.5 % 12.8 %
Adjusted used gross profit per
retail unit(2) $ 2,215 $ 1,943 14.0 %
SG&A expenses $ 180,477 $ 182,290 (1.0)%
SG&A as % revenues 12.7 % 13.1 %
SG&A as % gross profit 76.2 % 81.2 %
Operating margin 3.7 % 2.6 %
Pretax income margin 2.5 % 1.6 %
Floorplan interest $ (11,846) $ (8,665) 36.7 %
Floorplan assistance 8,471 8,179 3.6
----------- ----------- ---------
Net floorplan expense $ (3,375) $ (486) 594.4 %
(1) Adjusted used gross margin equals total used vehicle gross profit,
which includes net wholesale profit or 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.
(2) Adjusted used gross profit per retail unit equals total used
vehicle gross profit, which includes net wholesale profit or loss,
divided by retail used vehicle unit sales. The profit or loss on
wholesale sales is included in this number, as these transactions
facilitate retail vehicle sales.
Group 1 Automotive, Inc.
Additional Information - Same Store(1)
(Unaudited)
(Dollars in thousands, except per unit amounts)
Three Months Ended March 31,
-----------------------------------
2006 2005 % Change
----------- ----------- ---------
REVENUES:
New vehicle retail sales $ 828,251 $ 814,904 1.6 %
Used vehicle retail sales 258,550 253,631 1.9
Used vehicle wholesale sales 77,528 93,206 (16.8)
----------- ----------- ---------
Total used 336,078 346,837 (3.1)
Parts and service 159,660 155,227 2.9
Finance and insurance 46,787 44,456 5.2
----------- ----------- ---------
Total $1,370,776 $1,361,424 0.7 %
GROSS MARGIN:
New vehicle retail sales 7.5 % 7.1 %
Used vehicle retail sales 13.3 12.7
Used vehicle wholesale sales 1.2 0.2
----------- -----------
Total used 10.5 9.3
Parts and service 54.1 54.1
Finance and insurance 100.0 100.0
----------- -----------
Total 16.8 % 16.1 %
GROSS PROFIT:
New vehicle retail sales $ 62,276 $ 58,151 7.1 %
Used vehicle retail sales 34,303 32,206 6.5
Used vehicle wholesale sales 959 221 (333.9)
----------- ----------- ---------
Total used 35,262 32,427 8.7
Parts and service 86,397 84,045 2.8
Finance and insurance 46,787 44,456 5.2
----------- ----------- ---------
Total $ 230,722 $ 219,079 5.3 %
UNITS SOLD:
Retail new vehicles sold 27,900 28,092 (0.7)%
Retail used vehicles sold 15,927 16,691 (4.6)
Wholesale used vehicles sold 10,249 11,968 (14.4)
----------- ----------- ---------
Total used 26,176 28,659 (8.7)%
GROSS PROFIT PER UNIT SOLD:
New vehicle retail sales $ 2,232 $ 2,070 7.8 %
Used vehicle retail sales 2,154 1,930 11.6
Used vehicle wholesale sales 94 18 (422.2)
Total used 1,347 1,131 19.1
Finance and insurance (per
retail unit) 1,068 993 7.6
OTHER:
Adjusted used gross margin(2) 13.6 % 12.8 %
Adjusted used gross profit per
retail unit(3) $ 2,214 $ 1,943 13.9 %
SG&A expenses $ 175,593 $ 176,298 (0.4)%
SG&A as % revenues 12.8 % 12.9 %
SG&A as % gross profit 76.1 % 80.5 %
Operating margin 3.7 % 2.7 %
Floorplan interest $ (11,495) $ (8,296) 38.6 %
Floorplan assistance 8,217 7,954 3.3
----------- ----------- ---------
Net floorplan expense $ (3,278) $ (342) 858.5 %
(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 vehicle gross profit,
which includes net wholesale profit or 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.
(3) Adjusted used gross profit per retail unit equals total used
vehicle gross profit, which includes net wholesale profit or loss,
divided by retail used vehicle unit sales. The profit or loss on
wholesale sales is included in this number, as these transactions
facilitate retail vehicle sales.