Group 1 Automotive, Inc. (GPI), a leading automotive retailer, reported its second quarter 2024 financial results, showcasing resilience in the face of various headwinds. The company's net income for the full year 2023 stood at $601.6 million, while annual revenue reached $17.87 billion. However, the company's annual operating cash flow was $63.5 million, and its annual free cash flow was -$121.9 million.

Financials

In the second quarter of 2024, Group 1 Automotive reported adjusted net income of $133.1 million and adjusted diluted EPS from continuing operations of $9.80. The company's total revenues for the quarter reached a record $4.7 billion, up from $4.56 billion in the prior year quarter.

U.S. Operations

The company's U.S. operations were the primary driver of this performance, with new vehicle retail sales increasing 4.9% year-over-year to $2.01 billion. Total retail new vehicles sold in the U.S. were 39,273 units, up 7.0% compared to the prior year quarter. However, the average sales price per new vehicle retail unit in the U.S. declined 2.0% to $51,169.

In the used vehicle segment, the company's U.S. retail sales increased 1.1% year-over-year to $1.15 billion, with total retail used vehicles sold reaching 38,611 units, up 6.3% compared to the prior year quarter. The average sales price per used vehicle retail unit in the U.S. decreased 5.0% to $29,834.

The company's parts and service business in the U.S. also performed well, with revenues increasing 1.3% year-over-year to $497.4 million. Finance and insurance (F&I) revenues in the U.S. grew 6.1% to $183.9 million.

U.K. Operations

Turning to the company's U.K. operations, total revenues increased 2.1% year-over-year to $775.2 million. New vehicle retail sales in the U.K. grew 8.2% to $354.6 million, while used vehicle retail sales declined 3.0% to $301.3 million. Parts and service revenues in the U.K. increased 9.0% to $77.1 million, but F&I revenues decreased 4.7% to $16.3 million.

The company's overall gross profit during the quarter decreased 1.2% to $766.5 million, with the U.S. segment contributing $667.7 million and the U.K. segment contributing $98.8 million. Selling, general, and administrative (SG&A) expenses increased 3.6% to $497.2 million.

Risks and Challenges

One of the key challenges faced by the company during the quarter was the CDK Incident, a cybersecurity event that temporarily disrupted the company's U.S. operations. The company estimates the pre-tax income impact of the CDK Incident to be approximately $17 million, or $0.97 in diluted earnings per share. Additionally, the company made $5.9 million in one-time pre-tax compensation payments to employees, or approximately $0.34 in earnings per diluted share.

Outlook

Despite these challenges, the company's management remains optimistic about the future. Daryl Kenningham, the company's President and Chief Executive Officer, highlighted the company's disciplined execution, strong partnerships with OEM partners, and strategic capital allocation as key differentiators.

Liquidity

The company's balance sheet and liquidity position remain strong, with $644.3 million in available liquidity as of June 30, 2024. The company's rent-adjusted leverage, as defined by its U.S. syndicated credit facility, was 2.44x at the end of the quarter.

Recent Developments

Looking ahead, the company is focused on integrating its recent acquisitions, including the pending acquisition of Inchcape's U.K. automotive retailing business, which is expected to add $2.7 billion in revenue and double the company's size in the U.K. market. The company also continues to evaluate share buybacks as part of its capital allocation strategy, having repurchased 2.6% of its outstanding shares for $100 million during the first half of 2024.

Conclusion

Group 1 Automotive's second quarter 2024 results demonstrate the company's ability to navigate challenging market conditions and execute on its strategic priorities. The company's focus on disciplined operations, strong OEM partnerships, and strategic capital allocation positions it well for continued success in the automotive retail industry.