May 5, 2022, 3:57 p.m. EDT

10-Q: GROUP 1 AUTOMOTIVE INC

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(EDGAR Online via COMTEX) -- Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

Management's Discussion and Analysis of Financial Condition and Results of Operations, or MD&A, should be read in conjunction with the accompanying unaudited Condensed Consolidated Financial Statements and the notes thereto, as well as our 2021 Form 10-K.

Unless the context requires otherwise, references to "we," "us" and "our" are intended to mean the business and operations of Group 1 Automotive, Inc. and its subsidiaries.

Overview

We are a leading operator in the automotive retail industry. Through our omni-channel platform, we sell new and used cars and light trucks; arrange related vehicle financing; sell service and insurance contracts; provide automotive maintenance and repair services; and sell vehicle parts. We operate in geographically diverse markets that extend across 17 states in the U.S. and 35 towns and cities in the U.K. As of March 31, 2022, our retail network consisted of 146 dealerships in the U.S. and 55 dealerships in the U.K.

On November 12, 2021, we entered into a Share Purchase Agreement (the "Brazil Agreement") with Original Holdings S.A. ("Buyer"). Pursuant to the terms and conditions set forth in the Brazil Agreement, Buyer will acquire 100% of the issued and outstanding equity interests of our Brazilian operations (the "Brazil Disposal Group") for approximately BRL 510 million in cash (the "Brazil Disposal"). The transaction is expected to close before the end of the second quarter of 2022. The Brazil Disposal Group met the criteria to be reported as discontinued operations. Therefore, the related assets, liabilities and operating results of the Brazil Disposal Group are reported as discontinued operations (the "Brazil Discontinued Operations") for all periods presented. Effective as of the fourth quarter of 2021, we are aligned into two reportable segments: the U.S. and the U.K. Refer to Note 4. Discontinued Operations and Other Divestitures within the Notes to Condensed Consolidated Financial Statements within this Form 10-Q, for additional information regarding business dispositions. Unless otherwise specified, disclosures in this Form 10-Q reflect continuing operations only.

Recent Events

There has continued to be widespread impact from the COVID-19 pandemic. Infection rates and regulations continue to fluctuate in various regions and there are ongoing global impacts resulting from the pandemic, including challenges and increases in costs for logistics and supply chains, such as increased port congestion, intermittent supplier delays and a shortfall of semiconductor and other parts supplies, all of which impact our business either directly or indirectly.

Additionally, our manufacturers' production is currently at reduced levels as a result of global semiconductor and other parts shortages, which is impacting new vehicle sales and inventory levels in all our markets. The increased demand for new vehicles and reduced production levels have significantly reduced our new vehicle inventory levels. Our new vehicle days' supply of inventory was approximately 11 days as of the quarter ended March 31, 2022 ("Current Quarter"), as compared to 12 days as of the quarter ended December 31, 2021, and 33 days as of the quarter ended March 31, 2021 ("Prior Year Quarter").

On February 24, 2022, Russia launched a military invasion of Ukraine (the "Russia and Ukraine Conflict"). The ongoing Russia and Ukraine Conflict has provoked strong reactions from the U.S., the U.K., the European Union and various other countries around the world, including the imposition of broad financial and economic sanctions against Russia. While the precise effects of the ongoing military conflict and these sanctions on the Russian and global economies remain uncertain, they have already resulted in significant volatility in financial markets, an increase in energy and commodity prices globally and further disruption of the global supply chain for certain raw materials and manufactured goods, including vehicle parts.

Critical Accounting Policies and Accounting Estimates

For discussion of our critical accounting policies and accounting estimates, refer to Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations of our 2021 Form 10-K. There have been no material changes to our critical accounting policies or accounting estimates since December 31, 2021.

Results of Operations

The "same store" amounts presented below include the results of dealerships and corporate headquarters 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. For example, the results for a dealership acquired on August 15, 2020, will appear in our same store comparison beginning in 2021 for the period September 2021 through December 2021, when comparing to September 2020 through December 2020 results. If we disposed of a store on August 15, 2020, the results from this store would be excluded from same store results beginning in August 2020 as July 2020 was the last full month the dealership was owned by us. Same store results provide a measurement of our ability to grow revenues and profitability of our existing stores and also provide a metric for peer group comparisons. For these reasons, same store results allow management to manage and monitor the performance of the business and is also useful to investors.







        Table of     Contents
        


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 USD 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. Additionally, we caution investors not to place undue reliance on non-GAAP measures, but also to consider them with the most directly comparable U.S. GAAP measures. Our management also uses constant currency and adjusted cash flows from operating, investing and financing activities 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. These metrics also allow investors to better understand and evaluate the information used by management to assess operating performance.

Certain amounts in the financial statements may not compute due to rounding. All computations have been calculated using unrounded amounts for all periods presented.

Table of Contents

The following tables summarize our operating results on a reported basis and on a same store basis:







        Reported Operating Data - Consolidated
        (In millions, except unit data)
                                                                                          Three Months Ended March 31,
                                                                                                                                  Currency Impact          Constant
                                                                                  Increase/                                         on Current            Currency %
                                             2022               2021              (Decrease)             % Change                 Period Results            Change
        Revenues:
        New vehicle retail sales         $ 1,745.1          $ 1,509.2          $     235.9                    15.6  %             $      (11.1)                 16.4  %
        Used vehicle retail sales          1,359.9              888.1                471.8                    53.1  %                     (9.5)                 54.2  %
        Used vehicle wholesale sales          93.5               78.2                 15.2                    19.5  %                     (1.0)                 20.8  %
        Total used                         1,453.4              966.3                487.0                    50.4  %                    (10.5)                 51.5  %
        Parts and service sales              472.9              352.8                120.1                    34.0  %                     (1.9)                 34.6  %
        F&I, net                             173.0              125.6                 47.4                    37.7  %                     (0.6)                 38.2  %
        Total revenues                   $ 3,844.4          $ 2,953.9          $     890.4                    30.1  %             $      (24.1)                 31.0  %
        Gross profit:
        New vehicle retail sales         $   201.3          $    95.7          $     105.6                   110.4  %             $       (1.1)                111.5  %
        Used vehicle retail sales             87.8               58.5                 29.4                    50.2  %                     (0.6)                 51.1  %
        Used vehicle wholesale sales           2.8                3.8                 (0.9)                  (25.1) %                        -                 (25.6) %
        Total used                            90.7               62.3                 28.4                    45.6  %                     (0.5)                 46.5  %
        Parts and service sales              259.8              197.7                 62.1                    31.4  %                     (1.2)                 32.0  %
        F&I, net                             173.0              125.6                 47.4                    37.7  %                     (0.6)                 38.2  %
        Total gross profit               $   724.7          $   481.3          $     243.4                    50.6  %             $       (3.4)                 51.3  %
        Gross margin:
        New vehicle retail sales              11.5  %             6.3  %               5.2    %
        Used vehicle retail sales              6.5  %             6.6  %              (0.1)   %
        Used vehicle wholesale sales           3.0  %             4.8  %              (1.8)   %
        Total used                             6.2  %             6.4  %              (0.2)   %
        Parts and service sales               54.9  %            56.1  %              (1.1)   %
        Total gross margin                    18.9  %            16.3  %               2.6    %
        Units sold:
        Retail new vehicles sold            36,733             35,692                1,041                     2.9  %
        Retail used vehicles sold           43,806             37,543                6,263                    16.7  %
        Wholesale used vehicles sold         9,099              9,578                 (479)                   (5.0) %
        Total used                          52,905             47,121                5,784                    12.3  %
        Average sales price per unit
        sold:
        New vehicle retail               $  47,509          $  42,285          $     5,224                    12.4  %             $       (301)                 13.1  %
        Used vehicle retail              $  31,043          $  23,656          $     7,387                    31.2  %             $       (217)                 32.1  %
        Gross profit per unit sold:
        New vehicle retail sales         $   5,479          $   2,680          $     2,799                   104.4  %             $        (30)                105.5  %
        Used vehicle retail sales        $   2,005          $   1,558          $       447                    28.7  %             $        (13)                 29.5  %
        Used vehicle wholesale sales     $     310          $     394          $       (83)                  (21.2) %             $          2                 (21.7) %
        Total used                       $   1,714          $   1,321          $       392                    29.7  %             $        (10)                 30.5  %
        F&I PRU                          $   2,148          $   1,715          $       432                    25.2  %             $         (8)                 25.7  %
        Other:
        SG&A expenses                    $   418.5          $   311.4          $     107.1                    34.4  %             $       (1.8)                 35.0  %
        SG&A as % gross profit                57.7  %            64.7  %              (6.9)   %
        Floorplan expense:
        Floorplan interest expense       $     5.3          $     7.5          $      (2.2)                  (29.9) %             $          -                 (29.3) %
        Less: floorplan assistance (1)        14.0               13.2                  0.8                     6.3  %                        -                   6.3  %
        Net floorplan expense            $    (8.8)         $    (5.7)         $      (3.1)                                       $          -
        


(1) Floorplan assistance is included within New vehicle retail sales Gross profit above and New vehicle retail sales Cost of sales in our Condensed Consolidated Statements of Operations. Table of Contents







        Same Store Operating Data - Consolidated
        (In millions, except unit data)
                                                                                         Three Months Ended March 31,
                                                                                                                                 Currency Impact          Constant
                                                                                 Increase/                                         on Current            Currency %
                                            2022               2021              (Decrease)             % Change                 Period Results            Change
        Revenues:
        New vehicle retail sales        $ 1,440.7          $ 1,490.4          $     (49.6)                   (3.3) %             $      (10.1)                 (2.7) %
        Used vehicle retail sales         1,163.1              878.3                284.8                    32.4  %                     (8.4)                 33.4  %
        Used vehicle wholesale sales         79.6               77.5                  2.1                     2.8  %                     (0.9)                  4.0  %
        Total used                        1,242.7              955.8                287.0                    30.0  %                     (9.3)                 31.0  %
        Parts and service sales             405.0              347.1                 57.9                    16.7  %                     (1.7)                 17.2  %
        F&I, net                            148.7              123.9                 24.8                    20.0  %                     (0.6)                 20.4  %
        Total revenues                  $ 3,237.2          $ 2,917.1          $     320.1                    11.0  %             $      (21.7)                 11.7  %
        Gross profit:
        New vehicle retail sales        $   163.6          $    94.6          $      69.0                    72.9  %             $       (1.0)                 74.0  %
        Used vehicle retail sales            73.9               58.0                 15.9                    27.5  %                     (0.5)                 28.3  %
        Used vehicle wholesale sales          1.8                3.8                 (2.0)                  (51.8) %                        -                 (52.3) %
        Total used                           75.7               61.7                 14.0                    22.7  %                     (0.5)                 23.4  %
        Parts and service sales             218.9              194.7                 24.2                    12.4  %                     (1.1)                 13.0  %
        F&I, net                            148.7              123.9                 24.8                    20.0  %                     (0.6)                 20.4  %
        Total gross profit              $   606.9          $   474.9          $     132.0                    27.8  %             $       (3.1)                 28.4  %
        Gross margin:
        New vehicle retail sales             11.4  %             6.3  %               5.0    %
        Used vehicle retail sales             6.4  %             6.6  %              (0.2)   %
        Used vehicle wholesale sales          2.3  %             4.9  %              (2.6)   %
        Total used                            6.1  %             6.5  %              (0.4)   %
        Parts and service sales              54.0  %            56.1  %              (2.0)   %
        Total gross margin                   18.7  %            16.3  %               2.5    %
        Units sold:
        Retail new vehicles sold           30,260             35,263               (5,003)                  (14.2) %
        Retail used vehicles sold          37,415             37,092                  323                     0.9  %
        Wholesale used vehicles sold        7,377              9,457               (2,080)                  (22.0) %
        Total used                         44,792             46,549               (1,757)                   (3.8) %
        Average sales price per unit
        sold:
        New vehicle retail              $  47,612          $  42,264          $     5,348                    12.7  %             $       (334)                 13.4  %
        Used vehicle retail             $  31,087          $  23,679          $     7,408                    31.3  %             $       (224)                 32.2  %
        Gross profit per unit sold:
        New vehicle retail sales        $   5,407          $   2,683          $     2,724                   101.5  %             $        (33)                102.8  %
        Used vehicle retail sales       $   1,975          $   1,563          $       412                    26.4  %             $        (13)                 27.2  %
        Used vehicle wholesale sales    $     246          $     398          $      (152)                  (38.2) %             $          2                 (38.8) %
        Total used                      $   1,691          $   1,326          $       364                    27.5  %             $        (10)                 28.3  %
        F&I PRU                         $   2,197          $   1,712          $       484                    28.3  %             $         (8)                 28.8  %
        Other:
        SG&A expenses                   $   367.0          $   306.5          $      60.5                    19.7  %             $       (1.8)                 20.3  %
        SG&A as % gross profit               60.5  %            64.5  %              (4.1)   %
        


Table of Contents







        Reported Operating Data - U.S.
        (In millions, except unit data)
                                                                                         Three Months Ended March 31,
                                                                   2022               2021            Increase/(Decrease)           % Change
        Revenues:
        New vehicle retail sales                               $ 1,433.1          $ 1,246.0          $            187.1                  15.0  %
        Used vehicle retail sales                                1,037.9              696.5                       341.4                  49.0  %
        Used vehicle wholesale sales                                57.2               50.4                         6.8                  13.5  %
        Total used                                               1,095.1              746.9                       348.2                  46.6  %
        Parts and service sales                                    408.4              296.3                       112.1                  37.8  %
        F&I, net                                                   154.7              115.1                        39.7                  34.5  %
        Total revenues                                         $ 3,091.3          $ 2,404.3          $            687.0                  28.6  %
        Gross profit:
        New vehicle retail sales                               $   173.3          $    80.9          $             92.5                 114.3  %
        Used vehicle retail sales                                   68.7               50.3                        18.3                  36.5  %
        Used vehicle wholesale sales                                 3.2                3.9                        (0.7)                (17.5) %
        Total used                                                  71.9               54.3                        17.7                  32.5  %
        Parts and service sales                                    221.0              165.1                        55.9                  33.8  %
        F&I, net                                                   154.7              115.1                        39.7                  34.5  %
        Total gross profit                                     $   620.9          $   415.3          $            205.6                  49.5  %
        Gross margin:
        New vehicle retail sales                                    12.1  %             6.5  %                      5.6  %
        Used vehicle retail sales                                    6.6  %             7.2  %                     (0.6) %
        Used vehicle wholesale sales                                 5.7  %             7.8  %                     (2.1) %
        Total used                                                   6.6  %             7.3  %                     (0.7) %
        Parts and service sales                                     54.1  %            55.7  %                     (1.6) %
        Total gross margin                                          20.1  %            17.3  %                      2.8  %
        Units sold:
        Retail new vehicles sold                                  29,498             29,152                         346                   1.2  %
        Retail used vehicles sold                                 33,940             30,431                       3,509                  11.5  %
        Wholesale used vehicles sold                               6,001              6,440                        (439)                 (6.8) %
        Total used                                                39,941             36,871                       3,070                   8.3  %
        Average sales price per unit sold:
        New vehicle retail                                     $  48,583          $  42,743          $            5,840                  13.7  %
        Used vehicle retail                                    $  30,580          $  22,888          $            7,692                  33.6  %
        Gross profit per unit sold:
        New vehicle retail sales                               $   5,876          $   2,774          $            3,102                 111.8  %
        Used vehicle retail sales                              $   2,023          $   1,654          $              369                  22.3  %
        Used vehicle wholesale sales                           $     540          $     610          $              (70)                (11.5) %
        Total used                                             $   1,800          $   1,471          $              329                  22.4  %
        F&I PRU                                                $   2,439          $   1,931          $              508                  26.3  %
        Other:
        SG&A expenses                                          $   353.6          $   261.7          $             91.9                  35.1  %
        SG&A as % gross profit                                      56.9  %            63.0  %                     (6.1) %
        


Table of Contents







        Same Store Operating Data - U.S.
        (In millions, except unit data)
                                                                                    Three Months Ended March 31,
                                                              2022               2021            Increase/(Decrease)           % Change
        Revenues:
        New vehicle retail sales                          $ 1,155.8          $ 1,227.6          $            (71.8)                 (5.8) %
        Used vehicle retail sales                             878.0              687.7                       190.4                  27.7  %
        Used vehicle wholesale sales                           46.3               49.7                        (3.4)                 (6.9) %
        Total used                                            924.4              737.4                       187.0                  25.4  %
        Parts and service sales                               347.8              293.3                        54.5                  18.6  %
        F&I, net                                              131.9              113.4                        18.5                  16.3  %
        Total revenues                                    $ 2,559.8          $ 2,371.6          $            188.2                   7.9  %
        Gross profit:
        New vehicle retail sales                          $   138.3          $    79.9          $             58.5                  73.2  %
        Used vehicle retail sales                              57.0               49.8                         7.2                  14.4  %
        Used vehicle wholesale sales                            2.2                3.9                        (1.7)                (42.9) %
        Total used                                             59.3               53.7                         5.5                  10.3  %
        Parts and service sales                               184.4              163.2                        21.2                  13.0  %
        F&I, net                                              131.9              113.4                        18.5                  16.3  %
        Total gross profit                                $   513.9          $   410.2          $            103.7                  25.3  %
        Gross margin:
        New vehicle retail sales                               12.0  %             6.5  %                      5.5  %
        Used vehicle retail sales                               6.5  %             7.2  %                     (0.8) %
        Used vehicle wholesale sales                            4.8  %             7.8  %                     (3.0) %
        Total used                                              6.4  %             7.3  %                     (0.9) %
        Parts and service sales                                53.0  %            55.7  %                     (2.6) %
        Total gross margin                                     20.1  %            17.3  %                      2.8  %
        Units sold:
        Retail new vehicles sold                             23,769             28,739                      (4,970)                (17.3) %
        Retail used vehicles sold                            28,901             30,037                      (1,136)                 (3.8) %
        Wholesale used vehicles sold                          4,639              6,344                      (1,705)                (26.9) %
        Total used                                           33,540             36,381                      (2,841)                 (7.8) %
        Average sales price per unit sold:
        New vehicle retail                                $  48,625          $  42,714          $            5,912                  13.8  %
        Used vehicle retail                               $  30,381          $  22,894          $            7,488                  32.7  %
        Gross profit per unit sold:
        New vehicle retail sales                          $   5,819          $   2,779          $            3,041                 109.4  %
        Used vehicle retail sales                         $   1,974          $   1,660          $              314                  18.9  %
        Used vehicle wholesale sales                      $     477          $     611          $             (134)                (21.9) %
        Total used                                        $   1,767          $   1,477          $              290                  19.7  %
        F&I PRU                                           $   2,504          $   1,929          $              575                  29.8  %
        . . .
        


May 05, 2022

COMTEX_406754446/2041/2022-05-05T15:57:28

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