HOUSTON, Feb. 5, 2019 /PRNewswire/ -- Group 1 Automotive, Inc. (NYSE:GPI), ("Group 1" or the "Company"), an international, Fortune 500 automotive retailer, today reported 2018 fourth quarter net income of $30.7 million; diluted earnings per common share of $1.62; adjusted net income (a non-GAAP measure) of $43.8 million; and adjusted diluted earnings per common share (a non-GAAP measure) of $2.31.

As shown in the attached non-GAAP reconciliation tables, the 2018 fourth quarter adjusted results (non-GAAP measures) exclude approximately $13.1 million of net after-tax adjustments, or $0.69 per common share. These adjustments primarily reflect annual intangible asset testing, which resulted in non-cash franchise rights asset impairments of approximately $12.7 million after-tax, or $0.67 per share. 

For the full year of 2018, net income decreased 26.1 percent from the comparable prior-year period, to $157.8 million; and diluted earnings per common share decreased 22.3 percent, to $7.83. Full year 2018 adjusted net income increased 9.8 percent, to $179.6 million; and adjusted diluted earnings per common share increased 15.3 percent, to an all-time high of $8.91. Total revenue grew 4.3 percent to a record $11.6 billion.

Full year and fourth quarter 2017 net after-tax adjustments are primarily explained by exclusion of benefits associated with U.S. tax reform legislation, which generated a gain of $73.0 million, or $3.45 per common share (see attached non-GAAP reconciliation tables for additional details). 

"We are pleased with our 2018 performance that resulted in all-time records in revenue of $11.6 billion and adjusted diluted earnings per share of $8.91," said Earl J. Hesterberg, Group 1's president and chief executive officer. "We faced difficult new vehicle sales comparisons due to unprecedented replacement demand following Hurricane Harvey last year, as well as new vehicle supply shortages this year in the U.K. caused by Worldwide Harmonised Light Vehicle Test Procedure ("WLTP") legislation. Our strong performance in used vehicles, parts and service, and F&I allowed us to deliver positive Same Store gross profit growth despite these very significant headwinds in our new vehicle business."

Consolidated Results for Fourth Quarter 2018 (year-over-year comparable basis)
For ease of comparison, we have included constant currency metrics (a non-GAAP measure) both below (shown in parenthesis) and in the financial tables that follow:

• Total revenue was nearly flat at $2.9 billion against difficult prior year Hurricane Harvey driven comparisons and continued disruptions in the U.K. from WLTP legislation.
• Total gross profit grew 1.5 percent (2.6 percent), to $432.1 million.
• New vehicle revenues decreased 5.3 percent (decreased 4.1 percent) on 5.5 percent lower unit sales. New vehicle gross profit decreased 9.2 percent (decreased 7.7 percent), to $81.3 million.
• Retail used vehicle revenues increased 8.8 percent (10.0 percent) on 12.8 percent higher unit sales. Retail used vehicle gross profit increased 1.4 percent (2.4 percent), to $41.1 million.
• Parts and service gross profit increased 1.3 percent (2.2 percent) on revenue growth of 3.3 percent (4.3 percent).
• Finance and Insurance (F&I) gross profit PRU increased 5.8 percent (6.8 percent), to $1,582. U.S. F&I gross profit PRU increased $60, or 3.5 percent, to an all-time record of $1,760. Same Store U.S. F&I gross profit PRU increased $70, or 4.1 percent, to an all-time record of $1,767.
• Selling, General and Administrative (SG&A) expenses as a percent of gross profit increased 230 basis points, to 75.0 percent. Adjusted SG&A expenses as a percent of gross profit increased 220 basis points, to 74.8 percent.

Consolidated Results for Full Year 2018 (year-over-year comparable basis)

• Total revenue increased 4.3 percent (4.1 percent), to a record $11.6 billion.
• Total gross profit grew 4.8 percent (4.8 percent).
• New vehicle gross profit decreased 3.5 percent (decreased 3.2 percent). The Company retailed 170,517 new vehicles in 2018, which represented a one-percent decrease of new vehicle unit sales from 2017.
• Retail used vehicle gross profit increased 4.7 percent (4.4 percent) on a revenue increase of 13.1 percent (12.6 percent). The Company retailed 147,999 used vehicles in 2018, a 13.9 percent increase over 2017.
• Parts and service gross profit rose 5.5 percent (5.3 percent) on 5.9 percent (5.8 percent) higher revenues.
• F&I revenues rose 9.0 percent (8.9 percent). U.S. F&I gross profit PRU increased $63, to $1,710. U.S. Same Store F&I gross profit PRU increased $66, to $1,707.
• SG&A expenses as a percent of gross profit decreased 70 basis points, to 73.8 percent. Adjusted SG&A expenses as a percent of gross profit increased 90 basis points, to 74.6 percent. Adjusted U.S. SG&A expenses as a percent of gross profit increased 80 basis points, to 71.9 percent.
• Operating margin decreased 20 basis points to 2.9 percent. Adjusted operating margin decreased 20 basis points to 3.2 percent.

Segment Results for Fourth Quarter 2018 (year-over-year comparable basis)

• United States:
  The Company's U.S. operations accounted for 77.9 percent of total revenues and 81.6 percent of total gross profit. Total U.S. revenues were $2.3 billion, a decrease of 0.9 percent, driven by a 4.7 percent decrease in retail new vehicle revenue. New vehicle gross profit PRU decreased $105, or 5.1 percent, to $1,962; and total gross profit grew 0.5 percent, to $352.5 million. New vehicle inventory ended the quarter at 68 days' supply. 
   
  As a reminder, our year-over-year comparisons were significantly influenced by Hurricane Harvey, as our Houston and Beaumont markets' combined new vehicle unit sales declined 16 percent from the fourth quarter 2017. These two markets represent approximately 26 percent of our U.S. new vehicle sales.  
   
  Same Store SG&A expenses as a percent of gross profit increased 150 basis points to 70.5 percent. Adjusted Same Store SG&A expenses as a percent of gross profit increased 130 basis points, to 70.3 percent. 
   
  Same Store operating margin decreased 90 basis points to 3.3 percent. Adjusted operating margin decreased 20 basis points, to 4.0 percent.
   
• United Kingdom:
  The Company's U.K. operations accounted for 18.0 percent of total revenues and 15.0 percent of total gross profit. Total U.K. revenues increased 3.2 percent (6.3 percent), to $524.0 million, and were driven by double-digit revenue growth across used vehicles, aftersales, and F&I, despite the new vehicle industry decreasing by four percent.  WLTP-related supply disruption continued in the quarter with the biggest impact being in the Audi brand, which historically represents approximately 30 percent of our U.K. new vehicle mix. Audi's new vehicle industry sales declined 46 percent for the quarter.  Total gross profit increased 7.4 percent (11.1 percent), to $64.9 million.   
   
  Same Store SG&A expenses as a percent of gross profit increased 240 basis points to 91.6 percent and Same Store operating margin decreased 50 basis points to 0.3 percent.
   
• Brazil:
  The Company's Brazilian operations were profitable during the fourth quarter and accounted for 4.1 percent of total revenues and 3.4 percent of total gross profit. The Company's Same Store gross profit grew 10.5 percent on a constant currency basis, driven by revenue growth of 44.2 percent in F&I, 11.8 percent in new vehicles, and 5.3 percent in aftersales.  Same Store F&I gross profit PRU grew 52.6 percent on a constant currency basis. 
   
  Same Store SG&A expenses as a percent of gross profit decreased 900 basis points to 83.4 percent.  Adjusted Same Store SG&A as a percent of gross profit decreased 570 basis points to 83.4 percent. 
   
  Same Store operating margin and Same Store adjusted operating margin increased 650 basis points and 70 basis points respectively, to 1.7 percent.

Share Repurchase Authorization

In the fourth quarter 2018, the Company repurchased 1,313,786 shares at an average price per common share of $57.31 for a total of $75.3 million.  For the full year of 2018, the Company repurchased 2,849,652 shares, or approximately 14 percent of the common shares outstanding at the start of the year, at an average price per common share of $63.75 for a total of $181.7 million. As of February 5, 2019, $49.7 million remains available under the Company's prior common stock share repurchase authorization.

Future repurchases may be made from time to time, based on market conditions, legal requirements and other corporate considerations, in the open market or in privately negotiated transactions, and subject to Board approval and covenant restrictions.

Corporate Development

During the fourth quarter 2018, as previously announced, the Company opened the following three add points:

• Sterling McCall Acura Sugarland, an add point in greater Houston, Texas, which is expected to generate approximately $40 million in annualized revenues;
• Toyota Aricanduva in São Paulo, Brazil, which is expected to generate approximately $25 million in annualized revenues; and
• Skoda Southend in East London, U.K., which is expected to generate approximately $20 million in annualized revenues.

During the fourth quarter of 2018, the Company disposed of a Vauxhall franchise in Maidstone, southeast of London (U.K.), as well as a Volvo franchise in Columbus, Georgia.  In January 2019, the Company disposed of a Hyundai franchise in Kansas City, Kansas, as well as a Mazda franchise in Houston, TX.  These four franchises generated approximately $65 million in trailing-twelve-month revenues.  The disposals are consistent with Group 1's strategy of actively managing its dealership portfolio to ensure appropriate returns on invested capital.

During 2018, the Company acquired a total of 17 franchises, which are expected to generate an estimated $615 million in annual revenues. The Company disposed of six franchises that generated approximately $195 million in trailing-twelve-month revenues at the time of disposition.

In January 2019, the Company opened Porsche of El Paso in Texas, which is expected to generate $25 million in annualized revenues.

Fourth Quarter 2018 Earnings Conference Call Details

Group 1's senior management will host a conference call today at 10 a.m. ET to discuss the fourth quarter financial results and the Company's outlook and strategy.

The conference call will be simulcast live on the Internet at www.group1auto.com, then click on 'Investor Relations' and then 'Events' or through this link: http://www.group1corp.com/events. A webcast replay will be available for 30 days.

The conference call will also be available live by dialing in 15 minutes prior to the start of the call at:

A telephonic replay will be available following the call through February 12, 2019 by dialing:

ABOUT GROUP 1 AUTOMOTIVE, INC.
Group 1 owns and operates 182 automotive dealerships, 237 franchises, and 47 collision centers in the United States, the United Kingdom and Brazil that offer 30 brands of automobiles. Through its dealerships, the Company sells new and used cars and light trucks; arranges related vehicle financing; sells service contracts; provides automotive maintenance and repair services; and sells vehicle parts.

Investors please visit www.group1corp.com, www.group1auto.com, www.group1collision.com, www.facebook.com/group1auto, and www.twitter.com/group1auto, where Group 1 discloses additional information about the Company, its business, and its results of operations.

FORWARD-LOOKING STATEMENTS
This press release contains "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995, which are statements related to future, not past, events and are based on our current expectations and assumptions regarding our business, the economy and other future conditions. In this context, the forward-looking statements often include statements regarding our goals, plans, projections and guidance regarding our financial position, results of operations, market position, pending and potential future acquisitions and business strategy, and often contain words such as "expects," "anticipates," "intends," "plans," "believes," "seeks," "should," "foresee," "may" or "will" and similar expressions. While management believes that these forward-looking statements are reasonable as and when made, there can be no assurance that future developments affecting us will be those that we anticipate. Any such forward-looking statements are not assurances of future performance and involve risks and uncertainties that may cause actual results to differ materially from those set forth in the statements. These risks and uncertainties include, among other things, (a) general economic and business conditions, (b) the level of manufacturer incentives, (c) the future regulatory environment, (d) our ability to obtain an inventory of desirable new and used vehicles, (e) our relationship with our automobile manufacturers and the willingness of manufacturers to approve future acquisitions, (f) our cost of financing and the availability of credit for consumers, (g) our ability to complete acquisitions and dispositions and the risks associated therewith, (h) foreign exchange controls and currency fluctuations, and (i) our ability to retain key personnel. For additional information regarding known material factors that could cause our actual results to differ from our projected results, please see our filings with the SEC, including our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K. Readers are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date hereof. We undertake no obligation to publicly update or revise any forward-looking statements after the date they are made, whether as a result of new information, future events or otherwise.

NON-GAAP FINANCIAL MEASURES
In addition to evaluating the financial condition and results of our operations in accordance with GAAP, from time to time our management evaluates and analyzes results and any impact on the Company of strategic decisions and actions relating to, among other things, cost reduction, growth, and profitability improvement initiatives, and other events outside of normal, or "core," business and operations, by considering alternative financial measures not prepared in accordance with GAAP. This includes evaluating measures such as adjusted selling, general and administrative expenses, adjusted net income and adjusted diluted earnings per share. These adjusted measures are not measures of financial performance under U.S. GAAP, but are instead considered non-GAAP financial performance measures. Non-GAAP measures do not have definitions under GAAP and may be defined differently by and not be comparable to similarly titled measures used by other companies. As a result, any non-GAAP financial measures considered and evaluated by management are reviewed in conjunction with a review of the most directly comparable measures calculated in accordance with GAAP. We caution investors not to place undue reliance on such non-GAAP measures, but also to consider them with the most directly comparable GAAP measures. In our evaluation of results from time to time, we exclude items that do not arise directly from core operations, such as non-cash asset impairment charges, gains and losses on dealership franchise or real estate transactions, and catastrophic weather events such as hail storms, hurricanes, and snow storms. Because these non-core charges and gains materially affect the Company's financial condition or results in the specific period in which they are recognized, management also evaluates, and makes resource allocation and performance evaluation decisions based on, the related non-GAAP measures excluding such items.

In addition to using such non-GAAP measures to evaluate results in a specific period, management believes that such measures may provide more complete and consistent comparisons of operational performance on a period-over-period historical basis and a better indication of expected future trends. Our management also uses these adjusted measures 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, and to allow investors to better understand and evaluate the information used by management to assess operating performance. The exclusion of certain expenses in the calculation of non-GAAP financial measures should not be construed as an inference that these costs are unusual or infrequent. We anticipate excluding these expenses in the future presentation of our non-GAAP financial measures.

In addition, 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 United States dollars 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.

Investor contacts:
Sheila Roth
Manager, Investor Relations
Group 1 Automotive, Inc.
713-647-5741 | sroth@group1auto.com

Media contacts:
Pete DeLongchamps
Senior Vice President, Manufacturer Relations, Financial Services and Public Affairs
Group 1 Automotive, Inc.
713-647-5770 | pdelongchamps@group1auto.com
or
Clint Woods
Pierpont Communications, Inc.
713-627-2223 | cwoods@piercom.com