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Group 1 Automotive Reports Solid First-Quarter Earnings on Strong Revenue Growth

HOUSTON--Group 1 Automotive, Inc. , a Fortune 500 automotive retailer, today reported first-quarter adjusted net income of $10.4 million, or $0.44 per diluted share, for the period ended March 31, 2010, as compared to adjusted net income of $4.7 million, or $0.20 per diluted share, for the first quarter of 2009.

“Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

For comparison purposes, as shown in the attached reconciliation table, the adjusted first-quarter 2010 results exclude net after-tax losses of $2.5 million, or $0.10 per diluted share, associated with the early redemption of the company’s 8.25 percent senior subordinated notes in 2010. The adjusted first-quarter 2009 results exclude net after-tax gains of $3.7 million, or $0.17 per diluted share, comprised of gains on debt redemptions partially offset by a loss incurred on a dealership disposition. Including these items, net income for the first quarter of 2010 was $8.0 million, or $0.34 per diluted share.

First-Quarter Operating Highlights

  • Group 1’s total consolidated revenues grew 16.8 percent, with new vehicle and used vehicle retail sales increasing 18.1 percent and 24.3 percent, respectively.
  • Same-store revenues reflected even stronger increases, with total revenue growth of 17.4 percent compared to the prior year.
  • Group 1’s same-store gross margin was 17.2 percent, largely driven by a significant sequential improvement in used retail vehicle margins to 9.5 percent, as well as improvements in both new vehicle and parts and service margins.
  • On a same-store per-retail-unit basis, new vehicle gross profit improved 13.6 percent to $1,891, and finance and insurance gross profit grew to $1,063.
  • Same-store wholesale used vehicle gross profit increased 58.9 percent to $251 per unit sold, as wholesale used vehicle auction prices continue to be strong.
  • Group 1’s consolidated selling, general and administrative (SG&A) expenses as a percent of gross profit improved 250 basis points, to 81.4 percent, compared to the prior-year period.

“Fueled by an improved industry selling environment late in the first quarter, we were successful in delivering a strong start to 2010 with adjusted earnings per share more than doubling from the same period a year ago,�?? said Earl J. Hesterberg, Group 1’s president and chief executive officer. “These solid results reflect the benefits of an improved business structure coupled with a strengthening auto retail market.�??

Corporate Development Update

Group 1 announced it acquired an Audi dealership in Columbia, S.C., on April 26. The dealership is expected to generate $14.5 million of estimated annual revenues. This dealership will complement the company’s existing BMW of Columbia store.

The company previously announced that it had acquired Toyota/Scion of Rock Hill in South Carolina with expected annual revenues of $55 million in April.

During the first quarter, as previously announced, Group 1 acquired two BMW/Mini dealerships in the United Kingdom – Barons Farnborough and Barons Hindhead – located southwest of London. Additionally, Mercedes-Benz USA awarded Group 1 Sprinter franchises in Massapequa, N.Y., and Augusta, Ga.

Year to date, Group 1 has added eight franchises that are expected to generate $242.2 million in estimated annual revenues.

Balance Sheet

New vehicle inventory was $454.3 million as of March 31, 2010, an increase of $26.4 million compared to Dec. 31, 2009. During the first quarter, the company issued $100.0 million of 3.00 percent convertible bonds and subsequently redeemed all of its outstanding 8.25 percent senior subordinated notes. The company ended the quarter with overall immediately available funds of $113.6 million and overall available liquidity of $291.0 million.

First-Quarter Earnings Conference Call

Group 1’s senior management will host a conference call today at 10 a.m. ET to discuss the first-quarter financial results and the company’s outlook and strategy.

The conference 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. A slide presentation will be posted to Group 1’s website prior to the call.

The conference call will also be available live by dialing in 10 minutes prior to the start of the call at:

      Domestic: 888.417.2254
International: 719.457.2605
Participant Passcode: 7454724

A telephonic replay will be available following the call through May 4 by dialing:

      Domestic: 888.203.1112
International: 719.457.0820
Replay Passcode: 7454724

About Group 1 Automotive, Inc.

Group 1 owns and operates 102 automotive dealerships, 138 franchises, and 25 collision service centers in the United States and the United Kingdom that offer 32 brands of automobiles. 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.

This press release contains "forward-looking statements," which are statements related to future, not past, events and are based on our current expectations and assumptions regarding our business, the economy and other future conditions. 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,�?? “may�?? or “will�?? and similar expressions. Any such forward-looking statements are not assurances of future performance and involve risks and uncertainties that may cause actual results to differ materially from those set forth in the statements. These risks and uncertainties include, among other things, (a) general economic and business 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 dispositions and the risks associated therewith, (h) foreign exchange controls and currency fluctuations, and (i) 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, whether as a result of new information, future developments or otherwise, except as may be required by law.

 
Group 1 Automotive, Inc.
Consolidated Statements of Operations
(Unaudited)
(In thousands, except per share amounts)
           
Three Months Ended March 31,
  2010     2009   % Change
REVENUES:
New vehicle retail sales $ 646,121 $ 547,292 18.1 %
Used vehicle retail sales 279,609 224,859 24.3
Used vehicle wholesale sales 42,512 34,736 22.4
Parts and service 185,435 180,865 2.5
Finance and insurance   37,476     32,065   16.9  
Total revenues 1,191,153 1,019,817 16.8
 
COST OF SALES:
New vehicle retail sales 606,747 517,818 17.2
Used vehicle retail sales 253,172 200,253 26.4
Used vehicle wholesale sales 40,849 33,792 20.9
Parts and service   85,864     85,300   0.7  
Total cost of sales 986,632 837,163 17.9
     
GROSS PROFIT 204,521 182,654 12.0
 
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 166,406 153,234 8.6
 
DEPRECIATION AND
AMORTIZATION EXPENSE 6,485 6,508 (0.4 )
     
OPERATING INCOME 31,630 22,912 38.0
 
OTHER INCOME (EXPENSE):
Floorplan interest expense (7,566 ) (8,962 ) (15.6 )
 
Other interest expense, net (7,104 ) (6,963 ) 2.0
 
Gain (loss) on redemption of long-term debt (3,872 ) 7,381 (152.5 )
 
Other income, net - 3 (100.0 )
 
     
INCOME BEFORE INCOME TAXES 13,088 14,371 (8.9 )
 
PROVISION FOR INCOME TAXES (5,107 ) (5,996 ) (14.8 )
     
NET INCOME $ 7,981   $ 8,375   (4.7 ) %
 
DILUTED INCOME PER SHARE $ 0.34 $ 0.37 (8.1 ) %
 
Weighted average diluted shares outstanding 23,688 22,923 3.3 %
 
Group 1 Automotive, Inc.
Consolidated Balance Sheets
(Dollars in thousands)
             
March 31, December 31,
  2010     2009   % Change
(Unaudited)
ASSETS:
 
CURRENT ASSETS:
Cash and cash equivalents $ 28,172 $ 13,221 113.1 %
Contracts in transit and vehicle receivables, net 105,535 86,500 22.0
Accounts and notes receivable, net 65,337 62,496 4.5
Inventories 654,660 596,743 9.7
Deferred income taxes 15,385 14,653 5.0
Prepaid expenses and other current assets   44,375     48,425   (8.4 )
Total current assets 913,464 822,038 11.1
PROPERTY AND EQUIPMENT, net 480,285 475,828 0.9
GOODWILL AND INTANGIBLE FRANCHISE RIGHTS 660,811 658,281 0.4
OTHER ASSETS   12,253     13,267   (7.6 )
Total assets $ 2,066,813   $ 1,969,414   4.9   %
 
LIABILITIES AND STOCKHOLDERS' EQUITY:
 
CURRENT LIABILITIES:
Floorplan notes payable - credit facility $ 559,439 $ 491,892 13.7 %
Offset account related to floorplan notes payable - credit facility (85,353 ) (71,573 ) 19.3
Floorplan notes payable - manufacturer affiliates 114,249 115,180 (0.8 )
Current maturities of long-term debt 14,862 14,355 3.5
Current liabilities from interest rate risk management activities 8,304 10,412 (20.2 )
Accounts payable 97,141 72,276 34.4
Accrued expenses   84,777     86,271   (1.7 )
Total current liabilities 793,419 718,813 10.4
2.25% CONVERTIBLE SENIOR NOTES (aggregate principal of
$182,753 at March 31, 2010 and December 31, 2009) 133,443 131,932 1.1
3.00% CONVERTIBLE SENIOR NOTES (aggregate principal of
$100,000 at March 31, 2010) 62,835 - 100.0
8.25% SENIOR SUBORDINATED NOTES - 73,267 (100.0 )
MORTGAGE FACILITY, net of current maturities 179,572 182,216 (1.5 )
OTHER REAL ESTATE RELATED AND LONG-TERM DEBT,
net of current maturities 17,599 19,040 (7.6 )
CAPITAL LEASE OBLIGATIONS RELATED TO REAL ESTATE,
net of current maturities 37,237 37,686 (1.2 )
DEFERRED INCOME TAXES 36,979 33,932 9.0
LIABILITIES FROM INTEREST RATE RISK MANAGEMENT ACTIVITIES 21,238 20,151 5.4
OTHER LIABILITIES 27,780 26,633 4.3
DEFERRED REVENUES 4,690 5,588 (16.1 )
 
STOCKHOLDERS' EQUITY:
Common stock 262 262 -
Additional paid-in capital 368,314 346,055 6.4
Retained earnings 479,913 471,932 1.7
Accumulated other comprehensive loss (27,268 ) (26,256 ) 3.9
Treasury stock   (69,200 )   (71,837 ) (3.7 )
Total stockholders' equity   752,021     720,156   4.4  
Total liabilities and stockholders' equity $ 2,066,813   $ 1,969,414   4.9   %
 
 
KEY DEBT COVENANT METRICS:
Senior secured leverage ratio (must be less than 2.75) 1.39 1.31
Total leverage ratio (must be less than 4.50) 3.71 3.29
Fixed charge coverage ratio (must be greater than 1.25) 1.67 1.76
Current ratio (must be greater than 1.15) 1.39 1.34
 
Group 1 Automotive, Inc.
Consolidated Statements of Adjusted Cash Flows from Operating Activities
(Unaudited)
(In thousands)
 
      Three Months Ended March 31,
  2010         2009       % Change    
 
Net income $ 7,981 $ 8,375 (4.7 ) %
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 6,485 6,508 (0.4 )
Deferred income taxes 4,330 6,138 (29.5 )
(Gain) loss on redemption of long-term debt 3,872 (7,381 ) 152.5
Stock-based compensation 2,697 2,237 20.6
Amortization of debt discount and issue costs 1,635 1,971 (17.0 )
Tax effect from stock-based compensation 116 384 (69.8 )
Other 233 (649 ) 135.9
Changes in operating assets and liabilities, net of effects
of acquisitions and dispositions:
Inventories (48,234 ) 202,026 (123.9 )
Floorplan notes payable - credit facility 67,547 (197,660 ) 134.2
Floorplan notes payable - manufacturer affiliates (693 ) (25,285 ) (97.3 )
Contracts-in-transit and vehicle receivables (19,097 ) 16,910 (212.9 )
Accounts and notes receivable (3,091 ) 12,655 (124.4 )
Prepaid expenses and other assets 1,622 5,569 (70.9 )
Deferred revenues (898 ) (1,241 ) (27.6 )
Accounts payable and accrued expenses   22,960     (10,715 ) 314.3    
Adjusted net cash provided by operating activities $ 47,465   $ 19,842   139.2   %
 
Group 1 Automotive, Inc.
Additional Information - Consolidated
(Unaudited)
 
                                Three Months Ended
March 31,
2010   2009
NEW VEHICLE UNIT SALES GEOGRAPHIC MIX:

Region

Geographic Market

Eastern Massachusetts 15.3 % 13.8 %
New Jersey 6.5 7.0
New Hampshire 4.6 3.7
New York 3.7 4.3
Georgia 3.7 3.6
Louisiana 2.9 3.4
Florida 1.9 2.1
Mississippi 1.9 1.6
Alabama 1.4 0.7
Maryland 0.7 0.9
South Carolina 0.3   0.3  
42.9 41.4
 
Central Texas 30.9 31.9
Oklahoma 7.7 8.3
Kansas 0.9   1.0  
39.5 41.2
 
Western California 13.8 15.6
 
International United Kingdom 3.8   1.8  
100.0 % 100.0 %
 
NEW VEHICLE UNIT SALES BRAND MIX:
Toyota/Scion/Lexus 34.8 % 35.1 %
Nissan/Infiniti 15.8 11.7
Honda/Acura 12.6 13.6
BMW/Mini 10.4 9.1
Ford 9.2 9.2
Mercedes-Benz 5.6 6.2
GM 3.6 3.9
Chrysler 2.8 6.9
Other 5.2 4.3  
100.0 % 100.0 %
 
NEW VEHICLE UNIT SALES OTHER MIX:
Import 58.5 % 55.6 %
Luxury 26.9 25.4
Domestic 14.6   19.0  
100.0 % 100.0 %
 
Car 57.7 % 56.0 %
Truck 42.3   44.0  
100.0 % 100.0 %
 
Group 1 Automotive, Inc.
Additional Information - Consolidated
(Unaudited)
(Dollars in thousands, except per unit amounts)
 
      Three Months Ended March 31,
2010   2009   % Change
REVENUES:    
New vehicle retail sales $ 646,121 $ 547,292 18.1 %
Used vehicle retail sales 279,609 224,859 24.3
Used vehicle wholesale sales   42,512     34,736   22.4
Total used 322,121 259,595 24.1
Parts and service 185,435 180,865 2.5
Finance and insurance   37,476     32,065   16.9
Total $ 1,191,153 $ 1,019,817 16.8 %
 
GROSS MARGIN:
New vehicle retail sales 6.1 % 5.4 %
Used vehicle retail sales 9.5 10.9
Used vehicle wholesale sales 3.9 2.7
Total used 8.7 9.8
Parts and service 53.7 52.8
Finance and insurance 100.0 100.0
Total 17.2 % 17.9 %
 
GROSS PROFIT:
New vehicle retail sales $ 39,374 $ 29,474 33.6 %
Used vehicle retail sales 26,437 24,606 7.4
Used vehicle wholesale sales   1,663     944   76.2
Total used 28,100 25,550 10.0
Parts and service 99,571 95,565 4.2
Finance and insurance   37,476     32,065   16.9
Total $ 204,521 $ 182,654 12.0 %
 
UNITS SOLD:
Retail new vehicles sold 20,631 17,931 15.1 %
Retail used vehicles sold 14,993 13,092 14.5
Wholesale used vehicles sold   6,716     6,429   4.5
Total used 21,709 19,521 11.2 %
 
GROSS PROFIT PER UNIT SOLD:
New vehicle retail sales $ 1,908 $ 1,644 16.1 %
Used vehicle retail sales 1,763 1,879 (6.2 )
Used vehicle wholesale sales 248 147 68.7
Total used 1,294 1,309 (1.1 )
Finance and insurance (per retail unit) $ 1,052 $ 1,034 1.7 %
 
OTHER:
SG&A expenses $ 166,406 $ 153,234 8.6 %
SG&A as % revenues 14.0 % 15.0 %
SG&A as % gross profit 81.4 % 83.9 %
Operating margin 2.7 % 2.2 %
Pretax margin 1.1 % 1.4 %
 
Floorplan interest $ (7,566 ) $ (8,962 ) (15.6 ) %
Floorplan assistance   5,235     4,534   15.5
Net floorplan expense $ (2,331 ) $ (4,428 ) (47.4 ) %
 
Group 1 Automotive, Inc.
Additional Information - Same Store(1)
(Unaudited)
(Dollars in thousands, except per unit amounts)
 
      Three Months Ended March 31,
2010   2009     % Change
REVENUES:  
New vehicle retail sales $ 633,037 $ 534,093 18.5 %
Used vehicle retail sales 272,500 218,587 24.7
Used vehicle wholesale sales   41,588     33,778   23.1
Total used 314,088 252,365 24.5
Parts and service 182,764 175,860 3.9
Finance and insurance   37,117     31,394   18.2
Total $ 1,167,006 $ 993,712 17.4 %
 
GROSS MARGIN:
New vehicle retail sales 6.0 % 5.5 %
Used vehicle retail sales 9.5 10.9
Used vehicle wholesale sales 4.0 2.9
Total used 8.8 9.9
Parts and service 53.7 52.9
Finance and insurance 100.0 100.0
Total 17.2 % 18.0 %
 
GROSS PROFIT:
New vehicle retail sales $ 38,244 $ 29,130 31.3 %
Used vehicle retail sales 25,915 23,923 8.3
Used vehicle wholesale sales   1,669     990   68.6
Total used 27,584 24,913 10.7
Parts and service 98,167 93,077 5.5
Finance and insurance   37,117     31,394   18.2
Total $ 201,112 $ 178,514 12.7 %
 
UNITS SOLD:
Retail new vehicles sold 20,222 17,491 15.6 %
Retail used vehicles sold 14,691 12,679 15.9
Wholesale used vehicles sold   6,637     6,257   6.1
Total used 21,328 18,936 12.6 %
 
GROSS PROFIT PER UNIT SOLD:
New vehicle retail sales $ 1,891 $ 1,665 13.6 %
Used vehicle retail sales 1,764 1,887 (6.5 )
Used vehicle wholesale sales 251 158 58.9
Total used 1,293 1,316 (1.7 )
Finance and insurance (per retail unit) $ 1,063 $ 1,041 2.1 %
 
OTHER:
SG&A expenses $ 163,258 $ 147,630 10.6 %
SG&A as % revenues 14.0 % 14.9 %
SG&A as % gross profit 81.2 % 82.7 %
Operating margin 2.7 % 2.5 %
 
Floorplan interest $ (7,505 ) $ (8,849 ) (15.2 ) %
Floorplan assistance   5,220     4,381   19.2
Net floorplan expense $ (2,285 ) $ (4,468 ) (48.9 ) %
 
(1)

Same store amounts include the results for the identical months in each period presented in the comparison,
commencing with the first full month we owned the dealership and, in the case of dispositions, ending with the
last full month we owned it. Same store results also include the activities of our corporate office.

 
Group 1 Automotive, Inc.
Reconciliation of Certain Non-GAAP Financial Measures
(Unaudited)
(Dollars in thousands, except per share amounts)
 
 
    Three Months Ended March 31,
NET INCOME RECONCILIATION: 2010     2009     % Change
 
As reported $ 7,981 $

8,375

(4.7 ) %
Adjustments:
Loss on dealership disposition (2) - 549
Loss (gain) on debt redemption (3)   2,458     (4,217 )
Adjusted net income (1) $ 10,439 $ 4,707 121.8 %
 
 
 
DILUTED INCOME PER SHARE RECONCILIATION:
 
As reported $ 0.34 $ 0.37 (8.1 ) %
Adjustments:

 

Loss on dealership disposition - 0.02
Loss (gain) on debt redemption   0.10     (0.19 )
Adjusted diluted income per share (1) $ 0.44 $ 0.20 120.0 %
 
 
 
Three Months Ended March 31,
CASH FLOWS FROM OPERATING ACTIVITIES RECONCILIATION: 2010 2009 % Change
 
Net cash provided by (used in) operating activities $ (20,082 ) $ 217,502 (109.2 ) %
Change in floorplan notes payable-credit facility, excluding floorplan offset account   67,547     (197,660 )

Adjusted net cash provided by operating activities (1)

$ 47,465 $ 19,842 139.2 %
 
(1)

Adjusted net income, adjusted diluted income per share and adjusted net cash provided by operating activities, mean net income, diluted income per share and net cash provided by operating activities in accordance with GAAP, as the case may be, plus the adjustments noted above.  We believe that these adjusted financial measures are relevant and useful to investors because they provide additional information regarding the performance of our operations and  improve period-to-period comparability.  These measures are not measures of financial performance under GAAP.  Accordingly, they should not be considered as substitutes for their unadjusted counterparts, which are prepared in accordance with GAAP.  Although we find 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 financial statements calculated in accordance with GAAP.  Therefore, we typically use these adjusted numbers in conjunction with our GAAP results to address these limitations.

 
(2) Adjustment is net of a tax benefit of $135 for the three months ended March 31, 2009, calculated utilizing the applicable federal and state tax rates for the adjustment.
 
(3) Adjustments are net of tax benefit of $1,414 and tax provision of $3,164 for the three months ended March 31, 2010 and 2009, respectively, calculated utilizing the applicable federal and state tax rates for the adjustment.