Group 1 Automotive Announces Second Quarter 2020 Financial Results

HOUSTON, July 30, 2020 /PRNewswire/ -- Group 1 Automotive, Inc.(NYSE: GPI), ("Group 1" or the "Company"), an international, Fortune 500 automotive retailer, today reported 2020 second quarter net income of $30.2 million, diluted earnings per common share of $1.63, adjusted net income (a non-GAAP measure) of $69.6 million, and adjusted diluted earnings per common share (a non-GAAP measure) of $3.77. The Company's 2020 second quarter total revenue was $2.1 billion.

Second quarter 2020 adjusted net income and diluted earnings per share excluded a net after-tax adjustment of $39.4 million, or $2.14 per share, primarily related to the following: non-cash asset impairments of $20.6 million, or $1.11 per share; out-of-period adjustment to accelerate stock-based compensation expense for retirement of eligible employees of $9.7 million, or $0.53 per share; loss on debt extinguishment of $8.1 million, or $0.44 per share; and U.K. severance costs of $1.0 million, or $0.05 per share. Second quarter 2019 adjusted net income and diluted earnings per share excluded approximately $3.5 million net after-tax adjustments, or $0.19 per common share. These adjustments consist primarily of $3.0 million related to catastrophic weather events, or $0.16 per common share; and non-cash asset impairments of $0.5 million, or $0.03 per common share. Reconciliations of non-GAAP financial measures are included in the attached financial tables. Certain disclosures may not compute due to rounding.

"Our ability to react quickly to uncertain, dramatically lower levels of business activity resulting from the pandemic was completely due to the hard work and commitment of our employees and I must sincerely thank them for that. Rapid and deep cost cuts, combined with a quicker-than-expected U.S. auto market recovery, enabled us to achieve very strong operating results in the second quarter," said Earl J. Hesterberg, Group 1's President and Chief Executive Officer. "Beginning in late March, we experienced sudden and dramatic shutdowns in all three of our markets. By early April, our U.S. sales and service business had dropped by 50% and we were completely closed in the U.K., except for a small volume of emergency service work. Due to this severe decline in customer traffic, we had no choice but to execute a comprehensive cost reduction plan across our entire company that touched all areas of the business. Our U.S. business recovered steadily in May and June led by our used vehicle and service businesses. We benefited greatly during this time period from the effectiveness of our online vehicle purchasing platform, Acceleride, as online shopping increased in popularity. As business improved, we began to call back some of our furloughed employees and have currently returned to approximately 70% of our Pre-COVID employment levels in both the U.S. and U.K. Our U.S. and U.K. businesses are operating at their highest efficiency levels ever and we expect this to carry forward."

Consolidated Results for Second Quarter 2020 (year-over-year comparable basis)

For ease of comparison, we have included constant currency metrics (a non-GAAP measure) both below (shown in parenthesis) and in the financial tables that follow:

• Total revenue decreased 29.1 percent (-28.4 percent), to $2.1 billion.
• Total gross profit decreased 21.0 percent (-20.4 percent), to $358.8 million.
• New vehicle revenues decreased 32.1 percent (-31.4 percent) on a 37.1 percent decrease in unit sales.
• Retail used vehicle revenues decreased 23.6 percent (-22.9 percent) on 23.2 percent lower unit sales.
• Parts and service gross profit decreased 26.5 percent (-25.9 percent) on revenue decrease of 25.4 percent (-24.7 percent).
• Finance and Insurance (F&I) gross profit per retail unit (PRU) increased 9.1 percent (+9.6 percent), to $1,697.
• Selling, General and Administrative (SG&A) expenses as a percent of gross profit decreased 850.0 basis points, to 66.1 percent. Adjusted SG&A as a percent of gross profit decreased 1,100 basis points, to 62.8 percent.

Segment Results for Second Quarter 2020 (year-over-year comparable basis)

• United States:

The Company's U.S. operations accounted for 85.9 percent of total revenues and 90.4 percent of total gross profit. Total U.S. revenues decreased 19.6 percent, to $1.8 billion. Total gross profit decreased 13.9 percent, to $324.5 million. Same Store U.S. total gross profit decreased 15.1 percent, to $317.9 million.

• Same Store new vehicle revenue declined 24.2 percent, with units decreasing 28.5 percent. New vehicle gross profit increased 0.2 percent as gross profit per unit increased $725, a 40.1 percent increase, to $2,533 and more than offset lower volumes.
• Same Store total used revenue declined 16 percent, with units decreasing 16.5 percent, as inventory shortages hampered sales later in the quarter. Same Store total used gross profit declined 5.4 percent as higher gross profit per unit (used retail gross profit per unit increased $129 to $1,557) partially offset the volume decline.
• Parts and service revenues decreased 17.9 percent and gross profit decreased by 18.9 percent. Same Store parts and service revenues decreased 19.0 percent. Same Store parts and service gross profits decreased 20.0 percent, to $133.0 million.
• F&I revenues decreased 18.8 percent, to $89.8 million. F&I gross profit PRU grew $50, to $1,868, or 2.7 percent. Same Store F&I gross profit PRU increased $58, to $1,882, or 3.2 percent.
• SG&A expenses as a percent of gross profit decreased 850 basis points, to 62.6 percent. Adjusted SG&A expenses as a percent of gross profit decreased 1,070 basis points, to 59.4 percent.

"The rapid action by our dealership operating teams to significantly cut costs in late March and the strong new and used vehicle margins in late May and June, helped deliver an exceptional quarter for our U.S. operations. Highlights include adjusted Same Store SG&A as a percentage of gross profit, which came in at an all-time low of 59.4% and delivering flat Same store new vehicle gross profit in an environment where the new vehicle industry declined 34%. Our aftersales business improved throughout the quarter. In June, our customer pay service gross profit was up versus previous year. Additionally, our U.S. omni-channel platform AcceleRide® was instrumental in allowing us to connect with and serve our customers from the comfort of their remote locations. Second quarter AcceleRide® leads were up 203 percent and AcceleRide® sales were up 190 percent from a year ago and we averaged close to 1,000 retail unit sales per month via this channel. Also, our online service scheduling penetration had strong growth from 25 percent to over 30 percent. Our omni-channel initiatives are allowing us to do business with our customers how and when they choose, and will allow us to stay at the technological forefront as consumer preferences continue to shift more towards online automotive retail," said Daryl Kenningham, Group 1's President of U.S. and Brazilian Operations.

• United Kingdom:

The Company's U.K. operations accounted for 12.4 percent of total revenues and 8.2 percent of total gross profit as stringent lockdown orders in the U.K. halted service operations for six weeks and dealership sales for two months. On as constant currency basis, Same Store total revenues decreased -57.9 percent, to $242.4 million. Same Store total gross profit decreased 54.7 percent, to $27.1 million. Same Store SG&A expenses as a percent of gross profit increased 90 basis points, to 91.5 percent. Adjusted Same Store SG&A expenses as a percent of gross profit decreased 360 basis points, to 87.0 percent.

Hesterberg added, "Our U.K. businesses were almost completely shut down from late March until May 18th when our workshops were permitted to reopen. Our showrooms were closed for more than two months and did not open until June 1st. This made it impossible to generate a profit in either April or May in the U.K. However, our decisive cost reduction actions minimized the financial damage in the first two months of the quarter and brought us back to a reasonable level of profit in June as the market snapped back. Our momentum continued into July and I believe our U.K. business is in the strongest position we have seen in several years."

• Brazil:

The Company's Brazilian operations accounted for 1.7 percent of total revenues and 1.4 percent of total gross profit. On a constant currency basis, Same Store total revenues decreased 53.9 percent, driven by constant currency revenue decreases of 63.0 percent in new vehicles, 55.0 percent in F&I, 35.4 percent in total used vehicles, and 32.0 percent in parts and service as various local shelter-in-place orders completely closed our operations for over a month on average in the quarter combined with restrictions on operating hours that continue in force. Same Store SG&A expenses as a percent of gross profit increased 2,390 basis points, to 114.0 percent. Although the market was unprofitable for the quarter, aggressive cost reduction actions and a slowly rebounding market allowed the operation to generate a small profit in June.

"The challenges we faced in the second quarter required our operating team to be responsive and resourceful. We have proven that we can react to rapidly changing conditions in all of our markets. In addition to dealing with the disruptions to the U.S. market, our U.S. team was strong enough to offset the losses generated by a more stringent shutdown in the U.K. and parts of Brazil. Both our U.K. and U.S. teams have taken actions that will put us in an even more competitive position in the future," commented Hesterberg.

Second Quarter 2020 Earnings Conference Call Details

Group 1's senior management will host a conference call today at 10 a.m. ET to discuss the second quarter 2020 financial results. The conference call will be simulcast live on the Internet at www.group1auto.com, then click on 'Investor Relations' and then 'Events' or through this link: http://www.group1corp.com/events. A webcast replay will be available for 30 days.

The conference call will also be available live by dialing in 15 minutes prior to the start of the call at:

Domestic: 1-888-317-6003
International: 1-412-317-6061
Conference ID: 3487938

A telephonic replay will be available following the call through May 12, 2020 by dialing:

Domestic: 1-877-344-7529
International: 1-412-317-0088
Replay ID: 10146303

ABOUT GROUP 1 AUTOMOTIVE, INC.
Group 1 owns and operates 186 automotive dealerships, 242 franchises, and 49 collision centers in the United States, the United Kingdom and Brazil that offer 31 brands of automobiles. Through its dealerships, the Company sells new and used cars and light trucks; arranges related vehicle financing; sells service contracts; provides automotive maintenance and repair services; and sells vehicle parts.

Investors please visit www.group1corp.com, www.group1auto.com, www.group1collision.com, www.facebook.com/group1auto, and www.twitter.com/group1auto, where Group 1 discloses additional information about the Company, its business, and its results of operations.

FORWARD-LOOKING STATEMENTS
This press release contains "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995, 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 strategic investments, goals, plans, projections and guidance regarding our financial position, results of operations, business strategy, and often contain words such as "expects," "anticipates," "intends," "plans," "believes," "seeks," "should," "foresee," "may" or "will" and similar expressions. While management believes that these forward-looking statements are reasonable as and when made, there can be no assurance that future developments affecting us will be those that we anticipate. 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, (i) our ability to retain key personnel, (j) the impacts of COVID-19 on our business, (k) the impacts of any potential global recession and (l) our ability to maintain sufficient liquidity to operate. For additional information regarding known material factors that could cause our actual results to differ from our projected results, please see our filings with the SEC, including our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K. Readers are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date hereof. We undertake no obligation to publicly update or revise any forward-looking statements after the date they are made, whether as a result of new information, future events or otherwise.

NON-GAAP FINANCIAL MEASURES, SAME STORE DATA, AND OTHER DATA
In addition to evaluating the financial condition and results of our operations in accordance with U.S. GAAP, from time to time our management evaluates and analyzes results and any impact on the Company of strategic decisions and actions relating to, among other things, cost reduction, growth, profitability improvement initiatives, and other events outside of normal, or "core," business and operations, by considering alternative financial measures not prepared in accordance with U.S. GAAP. In our evaluation of results from time to time, we exclude items that do not arise directly from core operations, such as non-cash asset impairment charges, out-of-period adjustments, legal matters, gains and losses on dealership franchise or real estate transactions, and catastrophic events, such as hailstorms, hurricanes, and snow storms. Because these non-core charges and gains materially affect the Company's financial condition or results in the specific period in which they are recognized, management also evaluates, and makes resource allocation and performance evaluation decisions based on, the related non-GAAP measures excluding such items. This includes evaluating measures such as adjusted selling, general and administrative expenses, adjusted net income, adjusted diluted earnings per share, and constant currency. These adjusted measures are not measures of financial performance under U.S. GAAP, but are instead considered non-GAAP financial performance measures. Non-GAAP measures do not have definitions under U.S. GAAP and may be defined differently by, and not be comparable to similarly titled measures used by, other companies. As a result, any non-GAAP financial measures considered and evaluated by management are reviewed in conjunction with a review of the most directly comparable measures calculated in accordance with U.S. GAAP. We caution investors not to place undue reliance on such non-GAAP measures, but also to consider them with the most directly comparable U.S. GAAP measures.

In addition to using such non-GAAP measures to evaluate results in a specific period, management believes that such measures may provide more complete and consistent comparisons of operational performance on a period-over-period historical basis and a better indication of expected future trends. Our management also uses these adjusted measures in conjunction with U.S. GAAP financial measures to assess our business, including communication with our Board of Directors, investors, and industry analysts concerning financial performance. We disclose these non-GAAP measures, and the related reconciliations, because we believe investors use these metrics in evaluating longer-term period-over-period performance, and to allow investors to better understand and evaluate the information used by management to assess operating performance. The exclusion of certain expenses in the calculation of non-GAAP financial measures should not be construed as an inference that these costs are unusual or infrequent. We anticipate excluding these expenses in the future presentation of our non-GAAP financial measures.

In addition, we evaluate our results of operations on both an as reported and a constant currency basis. The constant currency presentation, which is a non-GAAP measure, excludes the impact of fluctuations in foreign currency exchange rates. We believe providing constant currency information provides valuable supplemental information regarding our underlying business and results of operations, consistent with how we evaluate our performance. We calculate constant currency percentages by converting our current period reported results for entities reporting in currencies other than U.S. dollars using comparative period exchange rates rather than the actual exchange rates in effect during the respective periods. The constant currency performance measures should not be considered a substitute for, or superior to, the measures of financial performance prepared in accordance with U.S. GAAP.

The Same Store amounts presented include the results of dealerships for the identical months in each period presented in comparison, commencing with the first full month in which the dealership was owned by us and, in the case of dispositions, ending with the last full month it was owned by us. Same Store results also include the activities of our corporate headquarters.

Certain disclosures are reported as zero balances or may not compute due to rounding.

Investor contacts:
Sheila Roth
Manager, Investor Relations
Group 1 Automotive, Inc.
713-647-5741 | sroth@group1auto.com

Media contacts:
Pete DeLongchamps
Senior Vice President, Manufacturer Relations, Financial Services and Public Affairs
Group 1 Automotive, Inc.
713-647-5770 | pdelongchamps@group1auto.com
or
Clint Woods
Pierpont Communications, Inc.
713-627-2223 | cwoods@piercom.com

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SOURCE Group 1 Automotive, Inc.