GROUP 1 AUTOMOTIVE INC quarterly report, Q2 FY2023

Group 1 Automotive, Inc. — Q2 2023 Form 10-Q

Reporting period: Three and six months ended June 30, 2023. Group 1 operates automotive dealerships in the U.S. and U.K.; at quarter-end it had 150 U.S. and 55 U.K. dealerships. Unless noted, figures are in millions of U.S. dollars and reflect continuing operations.

Financial performance

MetricQ2 2023Q2 2022Six months 2023Six months 2022
Revenue$4,558.5$4,145.4$8,688.5$7,989.7
Gross profit$775.5$768.4$1,503.4$1,493.1
Income from operations$270.8$284.5$512.3$569.5
Net income$170.5$195.9$329.0$398.9
Diluted EPS$12.04$11.90$23.13$23.79
Total gross margin17.0%18.5%17.3%18.7%
  • Q2 revenue grew 10.0%, led by new vehicle retail sales (+21.2%) and parts and service (+11.8%); used vehicle retail sales declined 3.6%. Gross profit rose 0.9%, while operating income fell 4.8% and net income fell 13.0%.
  • Q2 new retail units sold increased 15.2%; used retail units declined 4.4%. New vehicle gross profit per unit fell 16.9% to $4,503; used retail gross profit per unit fell 7.9% to $1,684. F&I revenue was nearly flat, but F&I gross profit per unit declined 4.1% to $2,080.
  • For the first half, revenue rose 8.7%, but operating income declined 10.1% and net income declined 17.5%. Diluted EPS increased in Q2 despite lower net income, alongside a reduction in weighted-average diluted shares to 13.8 million from 16.0 million.

Cash flow, debt and liquidity

  • Six-month operating cash flow was $239.0, down from $360.2; the company’s adjusted non-GAAP operating cash flow was $386.7 versus $456.5. Inventory growth was a major cash use: inventory increased $283.8 in operating cash flows.
  • Investing cash outflow was $369.1, including $363.5 paid for acquisitions and $86.7 for property and equipment. Financing cash inflow was $103.0. Cash declined to $22.8 from $47.9 at year-end.
  • At June 30, gross debt reported in the debt note was $2,259.1, up from $2,092.7 at December 31; this excludes floorplan notes payable. Net floorplan notes payable totaled $1,160.5. The $450.0 acquisition-line borrowing carried an average Q2 rate of 6.04%; the U.S. floorplan line’s weighted-average rate was 6.31% at quarter-end.
  • Reported available liquidity was $628.3, comprising $22.8 cash, $267.7 in floorplan offset accounts and $337.8 available under the acquisition line. The company reported compliance with debt covenants: actual leverage ratio 2.11 against a maximum of 5.75, and fixed-charge coverage 4.97 against a minimum of 1.20.

Changes, outlook and risks

  • Vehicle supply improved for some manufacturers, lifting new-unit sales and inventory, but supply remained constrained versus pre-pandemic levels. New vehicle inventory was about 27 days in the U.S. and 29 days in the U.K. Used-vehicle margins weakened amid supply constraints, price volatility, inflation and higher financing rates. Certain EV inventories were building faster than non-EV inventory.
  • Higher inventory and interest rates drove floorplan interest expense up 165.3% in Q2 to $15.6; other interest expense rose 40.2% to $25.9. Management cited acquisitions and inventory growth as contributing factors.
  • The company acquired five U.S. dealerships for $363.5 during the first half; purchase accounting remains preliminary. It also recorded a $10.1 pretax gain from four U.S. dealership dispositions.
  • Management stated it expects operating cash flow, cash and borrowing capacity to fund working capital, debt service and recurring needs, and does not anticipate material liquidity constraints or covenant-compliance issues. The filing provides no specific numerical earnings or revenue guidance.
  • Risks include further vehicle-supply or used-price volatility, consumer affordability and lender tightening, rising rates, financial-institution or counterparty disruption, foreign-exchange movements and proposed U.S. emissions rules that could affect vehicle mix. A floorplan lender’s capacity was replaced by an existing facility lender.
  • No legal proceeding was identified as reasonably expected to have a material adverse effect. A $33.4 payment for an additional dealership remains classified as goodwill while distributor approval is pending; the seller’s legal action seeking approval remains unresolved. The company also estimated $34.4 of remaining lease obligations guaranteed after dealership dispositions.

Important facts for investors to verify

  • Whether vehicle margins, especially U.S. new and used retail gross profit per unit, stabilize as inventory and supply conditions change.
  • Whether cash generation improves as inventory investment and acquisition spending evolve, and how reported liquidity is affected by floorplan offset balances and borrowing availability.
  • Debt and interest-cost trends, including utilization and rates on floorplan and acquisition facilities, and continued covenant compliance.
  • Final purchase-price allocations for the 2023 acquisitions, the pending dealership approval and related litigation, and recovery of the Brazil disposal escrow receivable.
  • How inflation, consumer financing conditions, financial-counterparty risks and proposed emissions regulation affect demand, F&I income and vehicle mix.