Group 1 Automotive ((GPI)) has held its Q1 earnings call. Read on for the main highlights of the call.
Group 1 Automotive’s latest earnings call painted a mixed picture, highlighting robust revenue performance and strategic growth in both the UK and US markets. However, the company faces challenges in managing costs, particularly with SG&A leverage, and the impact of lower gross profit per unit (GPU) on profitability. While there were notable achievements in aftersales and share repurchases, concerns remain regarding the decline in gross profit and the drag from electric vehicle GPUs.
Record UK Performance
Group 1 Automotive achieved record results in the UK during Q1 2025, with the market growing by 6.4% and the retail sector expanding by 9.5%. The successful integration of acquisitions significantly bolstered the company’s market presence, allowing it to meet internal profit and cost targets.
US Revenue Growth
In the US, Group 1 Automotive reported a 9.4% increase in new vehicle revenues on a reported basis, with used vehicle revenues also on the rise. The improvement in Finance & Insurance (F&I) performance by $98 on a same-store basis contributed positively to the overall revenue growth.
Aftersales Growth
Aftersales revenues saw a notable increase, rising by 7.7% on a reported basis and 5.6% on a same-store basis. Customer pay was up over 6%, and warranty revenue surged nearly 30%, underscoring the strength in this segment.
Technician Workforce Increase
The company expanded its US technician workforce by nearly 8% year over year, focusing on enhancing aftersales capacity and boosting technician productivity, which is crucial for sustaining growth in aftersales services.
Share Repurchase and Capital Allocation
Group 1 Automotive repurchased approximately 287,000 shares for $123 million, effectively reducing the share count by about 3% since January. This move reflects the company’s strategic capital allocation and strong liquidity position.
Decline in Gross Profit
Despite the revenue growth, Group 1 experienced a modest decline in same-store and reported gross profit by less than 0.9% and 4.9%, respectively. This was attributed to lower GPUs and higher volumes, which impacted profitability.
SG&A Leverage Challenges
In the US, SG&A as a percentage of gross profit increased by 28 basis points to 66.9%, highlighting the challenges in managing operational efficiency and controlling costs.
EV GPU Drag
Electric vehicle GPUs remained approximately $1,000 lower than those of internal combustion engine vehicles, posing a significant challenge to the company’s overall profitability.
Weather Impact on Service Business
Severe weather in February affected service operations in the Northeast and Houston, making it difficult for the company to recover lost service work, which impacted the service business performance.
Forward-Looking Guidance
Looking ahead, Group 1 Automotive reported strong financial metrics for Q1 2025, with a record gross profit of $892 million and an adjusted net income of $134.7 million. The company achieved an adjusted diluted earnings per share from continuing operations of $10.17. In the UK, the market showed a 6.4% growth, with the retail sector rising by 9.5%. The US operations also saw a 9.4% increase in new vehicle revenue. Despite challenges, the company maintained operational efficiency and executed a strategic capital allocation plan, acquiring $100 million in revenues and repurchasing 2% of its shares for $122.8 million.
In summary, Group 1 Automotive’s earnings call reflected a balanced mix of achievements and challenges. While the company demonstrated strong revenue growth and strategic advancements in key markets, it faces hurdles in cost management and profitability, particularly concerning SG&A leverage and EV GPUs. The forward-looking guidance suggests continued focus on strategic growth and operational efficiency.