Group 1 Automotive, Inc. — Q2 2022 Form 10-Q
Reporting period: Three and six months ended June 30, 2022; comparisons are with the corresponding 2021 periods. Group 1 operates automotive dealerships in the U.S. and U.K. Brazil is presented as discontinued operations; its sale closed July 1, 2022, one day after quarter-end. Unless noted, amounts are in U.S. dollars.
Financial performance
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Revenue | $4,145.4M | $3,625.6M | $7,989.7M | $6,579.6M |
| Gross profit / margin | $768.4M / 18.5% | $649.5M / 17.9% | $1,493.1M / 18.7% | $1,130.7M / 17.2% |
| Operating income | $284.5M | $262.5M | $569.5M | $413.2M |
| Net income from continuing operations | $199.3M | $188.8M | $400.4M | $289.7M |
| Total net income | $195.9M | $191.0M | $398.9M | $292.9M |
| Diluted EPS | $11.90 | $10.35 | $23.79 | $15.88 |
- Q2 revenue rose 14.3% reported (16.5% constant currency); gross profit increased 18.3%. For the first half, revenue rose 21.4% reported and gross profit 32.0%.
- Q2 SG&A was $460.2M, up 24.8%; SG&A was 59.9% of gross profit versus 56.8% a year earlier. Other interest expense rose 36.1% to $18.5M, while floorplan interest fell 31.8% to $5.9M.
- Q2 new-vehicle retail gross margin improved to 11.4% from 8.9%; used-vehicle retail margin declined to 5.9% from 9.1%. Used wholesale gross profit per unit fell sharply, and wholesale gross profit was $0.8M versus $8.9M.
- Reported Q2 revenue growth included acquisitions. Same-store consolidated revenue fell 4.3% reported (2.3% constant currency), while same-store gross profit was down 1.4% reported and approximately flat constant currency.
Cash flow, debt and liquidity
- First-half operating cash flow was $360.2M, down from $752.1M. Management’s adjusted, non-GAAP operating cash flow was $456.5M, up from $359.4M; inventory growth was a significant use of cash.
- First-half investing cash outflow was $295.6M, including $318.1M of net acquisition payments and $63.0M of property and equipment purchases, partly offset by $96.2M of disposition proceeds. Financing cash outflow was $43.9M.
- At June 30, cash and cash equivalents were $26.3M; total reported debt was $1,981.3M, excluding floorplan notes payable. Floorplan notes were $576.0M under credit facility and other arrangements and $204.9M with manufacturer affiliates.
- Management reported available liquidity of $345.6M, including $26.3M cash, $83.4M of floorplan offset accounts and $235.9M available under the Acquisition Line. The revolving credit facility was amended to $2.0B of capacity and extended to March 2027.
- The company was in compliance with debt covenants. Actual total adjusted leverage ratio was 1.80 against a maximum of 5.75; fixed-charge coverage was 6.10 against a minimum of 1.20.
Material developments, outlook and risks
- Two U.S. Toyota dealership acquisitions cost $319.0M in the first half. Acquisitions contributed to reported growth; Prime contributed $456.9M of Q2 revenue and $27.2M of Q2 net income.
- The Brazil disposal closed July 1 for approximately BRL 510M. The company estimated a net disposal loss of $83.8M, driven principally by a $122.8M accumulated currency translation loss reclassified from equity; the filing says this was non-cash. A BRL 115M portion of proceeds is subject to a five-year escrow holdback.
- The company repurchased 1.44M shares for $254.1M in the first half at an average $176.74 per share. It paid a $0.37 quarterly dividend and had $139.0M remaining under its repurchase authorization at June 30.
- New-vehicle supply remained constrained by semiconductor and other parts shortages; U.S. new-vehicle inventory was about 11 days and U.K. inventory 31 days. Management cited inflation, labor and logistics costs, rising interest rates, elevated energy prices, and potential recession risks. Used-car retail and wholesale unit economics weakened in several comparisons.
- Management expected a 2022 effective tax rate of 23.5%–24.0% and forecast full-year capital expenditures of approximately $130M, excluding real estate purchases and future acquisitions. It anticipated adequate liquidity and no material covenant constraints; no earnings or revenue forecast was provided.
- Interest-rate exposure remains: management estimated a 100-basis-point rate change would alter annual interest expense by approximately $6.7M, after swaps, based on first-half variable-rate borrowings. Foreign-currency translation exposure is not hedged. The filing also notes supply-chain and geopolitical risks, including possible further disruption related to the Russia-Ukraine conflict.
- No legal proceedings were identified as reasonably expected to have a material adverse effect. The company estimated $22.4M of remaining lease obligations guaranteed for former dealership tenants.
Important facts for investors to verify
- Separate acquisition-driven reported growth from underlying same-store performance, and track new-vehicle availability and used-vehicle margins.
- Review cash conversion, inventory investment, acquisition spending and the reconciliation of management’s adjusted cash-flow measures to GAAP cash flow.
- Monitor total debt and floorplan financing, borrowing costs, interest-rate hedges, liquidity availability and covenant headroom as rates change.
- Confirm final Brazil sale proceeds, escrow holdback terms and any subsequent adjustments to the estimated disposal loss.
- Assess capital allocation—especially share repurchases, dividends and acquisitions—against operating cash flow and balance-sheet capacity.