Group 1 Automotive Reports Record Fourth Quarter & Full Year 2017 Financial Results

HOUSTON, Feb. 8, 2018 /PRNewswire/ -- Group 1 Automotive, Inc. (NYSE: GPI), ("Group 1" or the "Company"), an international, Fortune 500 automotive retailer, today reported 2017 fourth quarter net income of $110.5 million, diluted earnings per common share of $5.27, adjusted net income (a non-GAAP measure) of $44.3 million, and adjusted diluted earnings per common share (a non-GAAP measure) of $2.11.

As shown in the attached non-GAAP reconciliation tables, the 2017 fourth quarter adjusted results (non-GAAP measures) exclude approximately $66.2 million of net after-tax adjustments, or $3.16 per share, for non-core items. These items primarily relate to a reduction in the corporate income tax rate enacted in the U.S. Tax Reform Bill, which benefited the Company in the fourth quarter of 2017 by approximately $73.0 million after-tax, or $3.48 per share. This benefit was partially offset by non-cash asset impairment charges of approximately $6.5 million after-tax, or $0.30 per share.

For the full year of 2017, net income increased 45.1 percent from the comparable prior-year period, to $213.4 million; and diluted earnings per common share increased 51.1 percent, to $10.08. Full year 2017 adjusted net income was nearly flat at $163.5 million; and adjusted diluted earnings per common share increased 4.2 percent, to an all-time high of $7.73. Total revenue grew 2.2 percent (increased 2.7 percent on a constant currency basis), to a record $11.1 billion.

"Despite the headwinds we encountered in the first half of 2017 in our oil-impacted markets and the significant disruptions across our Southeast Texas markets from Hurricane Harvey, we are pleased to have delivered all-time record revenue of $11.1 billion and all-time record adjusted diluted earnings per share of $7.73 for 2017," said Earl J. Hesterberg, Group 1's president and chief executive officer. "Contributing to the record earnings is the impressive work the teams have done on cost control in the U.S. and Brazil during 2017, with the results of those efforts continuing to provide benefits going forward.  In addition, our team in the U.K. continues to outperform the market, delivering impressive growth even as the overall market slows.  I am pleased with the results in all three regions and believe we are well positioned as we enter 2018."

Consolidated Results for Fourth Quarter 2017 (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 grew 9.2 percent (7.9 percent) to $2.9 billion.
• Total gross profit grew 9.4 percent (8.3 percent), to $425.7 million.
• New vehicle revenues increased 10.2 percent (9.0 percent) on 6.4 percent higher unit sales. New vehicle gross profit improved 7.8 percent (6.5 percent), to $89.5 million.
• Retail used vehicle revenues increased 8.9 percent (7.4 percent) on 5.4 percent higher unit sales. Retail used vehicle gross profit increased 3.8 percent (2.6 percent), to $40.5 million.
• Parts and service gross profit increased 9.9 percent (8.9 percent) on revenue growth of 10.5 percent (9.5 percent). Same Store parts and service gross profit increased 6.3 percent (5.5 percent) on revenue growth of 7.3 percent (6.5 percent). U.S. Same Store parts and service gross profit increased 5.3 percent on revenue growth of 6.6 percent.
• Finance and Insurance (F&I) gross profit PRU increased 3.8 percent (3.0 percent), to $1,495. U.S. F&I gross profit PRU increased $56, or 3.4 percent, to an all-time record of $1,700.
• Selling, General and Administrative (SG&A) expenses as a percent of gross profit increased 100 basis points, to 72.7 percent. Adjusted SG&A expenses as a percent of gross profit improved 180 basis points, to 72.6 percent.

Consolidated Results for Full Year 2017 (year-over-year comparable basis)

• Total revenue increased 2.2 percent (2.7 percent), to a record $11.1 billion.
• Total gross profit grew 3.2 percent (3.6 percent).
• New vehicle gross profit increased 1.8 percent (2.2 percent) on 1.8 percent (2.3 percent) higher revenues, as the Company retailed 172,200 new vehicles in 2017.
• Retail used vehicle gross profit decreased 2.7 percent (decreased 2.1 percent) on a revenue increase of 1.5 percent (2.2 percent).  The Company retailed 129,933 used vehicles in 2017, a 0.6 percent increase over 2016.
• Parts and service gross profit rose 5.8 percent (6.3 percent) on 6.1 percent (6.4 percent) higher revenues.
• Adjusted F&I revenues rose 3.5 percent (3.8 percent).  U.S. Adjusted F&I gross PRU increased $76, to $1,675.
• SG&A expenses as a percent of gross profit increased 110 basis points, to 74.5 percent. Adjusted SG&A expenses as a percent of gross profit remained flat at 73.7. Adjusted U.S. SG&A expenses as a percent of gross profit improved 60 basis points, to 71.1 percent.
• Operating margin and adjusted operating margin remained flat at 3.1 and 3.4 percent, respectively.

Segment Results for Fourth Quarter 2017 (year-over-year comparable basis)

• United States:
  The Company's U.S. operations accounted for 78.3 percent of total revenues and 82.4 percent of total gross profit. Total U.S. revenues were $2.3 billion, an increase of 5.4 percent, driven by an 8.5 percent increase in retail new vehicle revenue. New vehicle gross profit PRU grew $18, or 0.9 percent per unit, to $2,067; and total gross profit grew 5.8 percent, to $350.7 million.  The Company has delivered new vehicle gross profit PRU growth for seven of the last eight quarters.  New vehicle inventory ended the quarter at 64 days' supply.

Same Store SG&A expenses as a percent of gross profit improved 60 basis points to 68.9 percent and operating margin improved 40 basis points to 4.1 percent. Adjusted Same Store SG&A expenses as a percent of gross profit improved 300 basis points, to an all-time record of 68.9 percent. Adjusted operating margin improved 40 basis points to an all-time record of 4.2 percent.

• United Kingdom:
  The Company's U.K. operations accounted for 17.4 percent of total revenues and 14.2 percent of total gross profit. Total U.K. revenues increased 31.1 percent (22.8 percent), to $507.8 million, and were driven by double-digit revenue growth across each business segment, despite the industry decreasing by nearly 13 percent.  Total gross profit increased 36.0 percent (27.4 percent), to $60.4 million. 
  

Same Store SG&A expenses as a percent of gross profit improved 30 basis points to 87.1 percent and operating margin improved 10 basis points to 1.1 percent.

• Brazil:
  The Company's Brazilian operations were profitable during the fourth quarter and accounted for 4.3 percent of total revenues and 3.4 percent of total gross profit. The Company's Same Store new vehicle revenue grew 14.7 percent on a constant currency basis, which outpaced the industry's rebound of 13.5 percent. On a Same Store basis, total revenues grew 13.8 percent, driven by revenue growth of 31.1 percent in F&I, 14.7 percent in new vehicles, 12.2 percent in total used vehicles, and 8.0 percent in parts & service.  F&I gross profit PRU grew 18.8 percent.

The Company's used vehicle operations in Brazil continued to improve during the quarter. On a Same Store constant currency basis, total used vehicle retail margins increased 60 basis points to 7.5 percent and total used vehicle gross profit grew 23.5 percent, on a constant currency basis.

Same Store SG&A expenses as a percent of gross profit increased 150 basis points to 92.0 percent.  Adjusted Same Store SG&A as a percent of gross profit improved 180 basis points to 88.7 percent.

Share Repurchase Authorization

For the full year of 2017, the Company repurchased 649,298 shares at an average price per common share of $61.75 for a total of $40.1 million. As of February 8, 2018, $49.6 million remains available under the Company's prior common stock share repurchase authorization.

Future repurchases may be made from time to time, based on market conditions, legal requirements and other corporate considerations, in the open market or in privately negotiated transactions, and subject to Board approval and covenant restrictions.

Corporate Development

As previously announced in 2018, the Company:

• Opened a Land Rover franchise in Watford, a North London suburb in the U.K., which is expected to generate approximately $35 million in annualized revenues;
• Acquired Audi El Paso, which is expected to generate approximately $35 million in annualized revenues; and
• Acquired Subaru El Paso, which is expected to generate approximately $30 million in annualized revenues.

During 2017, the Company acquired a total of 20 franchises, which are expected to generate an estimated $490 million in annual revenues. The Company disposed of three franchises that generated approximately $35 million in trailing-twelve-month revenues at the time of disposition.

Corporate Tax Reform

As a result of the U.S. Tax Reform Bill, which was enacted on December 22, 2017, the federal statutory corporate tax rate was reduced from 35 percent to 21 percent.  This change allowed the Company to record a tax benefit of $73 million based on the revaluation of its net deferred tax liabilities as of the enactment date.  Beginning in 2018, and going forward, the Company estimates this change will reduce its effective tax rate from approximately 36 percent to a range of 23-24 percent, and improve annual cash flow by about $20 million.  As a result of this tax savings, the Company announced it will pay a $500 bonus to approximately 6,600 tenured, non-management, dealership employees and support staff on March 1, 2018 at a total cost of approximately $3.3 million.  This one-time payment will be reflected in the Company's first quarter 2018 results. 

Fourth Quarter 2017 Earnings Conference Call Details

Group 1's senior management will host a conference call today at 10 a.m. ET to discuss the fourth quarter financial results and the Company's outlook and strategy.

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:

A telephonic replay will be available following the call through February 15, 2018 by dialing:

About Group 1 Automotive, Inc.

Group 1 owns and operates 175 automotive dealerships, 230 franchises, and 48 collision centers in the United States, the United Kingdom and Brazil that offer 32 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 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," "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, and (i) our ability to retain key personnel. 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

In addition to evaluating the financial condition and results of our operations in accordance with 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, and profitability improvement initiatives, and other events outside of normal, or "core," business and operations, by considering alternative financial measures not prepared in accordance with GAAP. This includes evaluating measures such as adjusted selling, general and administrative expenses, adjusted net income and adjusted diluted earnings per share. 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 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 GAAP. We caution investors not to place undue reliance on such non-GAAP measures, but also to consider them with the most directly comparable GAAP measures. 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, gains and losses on dealership franchise or real estate transactions, and catastrophic weather events such as hail storms, 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.

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 United States 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.

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