Group 1 Automotive, Inc. (GPI)

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Group 1 Automotive (GPI)

Q4 2012 Earnings Call

February 19, 2013 10:00 am ET

Executives

Peter C. Delongchamps - Vice President of Financial Services and Manufacturer Relations

Earl J. Hesterberg - Chief Executive Officer, President, Executive Director and Member of Finance/Risk Management Committee

John C. Rickel - Chief Financial Officer, Chief Accounting Officer and Senior Vice President

Analysts

John Murphy - BofA Merrill Lynch, Research Division

Ravi Shanker - Morgan Stanley, Research Division

James J. Albertine - Stifel, Nicolaus & Co., Inc., Research Division

Patrick Archambault - Goldman Sachs Group Inc., Research Division

Scott L. Stember - Sidoti & Company, LLC

Brett D. Hoselton - KeyBanc Capital Markets Inc., Research Division

William R. Armstrong - CL King & Associates, Inc., Research Division

Matthew R. Nemer - Wells Fargo Securities, LLC, Research Division

Presentation

Operator

Good morning, ladies and gentlemen, and welcome to the Group 1 Automotive's 2012 Fourth Quarter and Full Year Earnings Conference Call. [Operator Instructions] Please be advised, this call is being recorded. I would now like to turn the conference over to Mr. Pete Delongchamps, Vice President of Financial Services and Manufacturer Relations. Please go ahead, Mr. Delongchamps.

Peter C. Delongchamps

Thank you, Laura, and good morning, everyone, and welcome to today's call. The earnings release we issued this morning and a related slide presentation that include reconciliations related to the adjusted results were referred to on this call for comparisons purposes, have been posted to Group 1's website.

Before we begin, I'd like to make some brief remarks about forward-looking statements and the use of non-GAAP financial measures. Except for historical information mentioned during the conference call, statements made by management of Group 1 Automotive are forward-looking statements that are pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve both known and unknown risks and uncertainties, which may cause the company's actual results in future periods to differ materially from forecasted results. Those risks include, but are not limited to, risks associated with pricing, volume and the conditions of markets. Those and other risks are described in the company's filings with the Securities and Exchange Commission over the last 12 months. Copies of these filings are available from both the SEC and the company.

In addition, certain non-GAAP financial measures, as defined under SEC rules, may be discussed on this call. As required by applicable SEC rules, the company provides reconciliations of any such non-GAAP financial measures to the most directly comparable GAAP measures on its website.

Participating today with me on the call, Earl Hesterberg, our President and Chief Executive Officer; John Rickel, our Senior Vice President and Chief Financial Officer; and Lance Parker, our Vice President and Corporate Controller. Please note that all comparisons in the prepared remarks are to the same prior year period, unless otherwise stated.

I'd now like to hand the call over to Earl.

Earl J. Hesterberg

Thank you, Pete, and good morning, everyone. For the full year 2012, Group 1 retailed 128,550 new vehicles, driving a 23% revenue increase to a record $7.5 billion. Adjusted earnings per diluted share were a record $4.53 on a 25.8% net income increase to $108.2 million.

Our corporate focus in 2012 was on growth, and I'm pleased to report that Group 1's new vehicle unit sales outpaced the industry's 13.4% increase by growing 26% on a consolidated basis and 16.4% on a same-store basis. We significantly outpaced the industry's used vehicle retail unit sales growth of 4.5%, as reported by CNW Research, by retailing 21% more used vehicles in total, with 12.9% increase on a same-store basis.

Turning now to our fourth quarter results. Group 1 reported a 9.4% increase in adjusted net income to $24 million or $0.99 per diluted share on a 19.3% revenue increase. While we were pleased to continue with a very strong top line growth rate, our cost leverage did not meet our expectations. I will cover the issues and the actions we're taking to address this in just a moment.

Turning first, though, to our sales performance. Same-store new vehicle revenues grew 15.8%, as we retailed 14.6% more units compared with industry retail growth of 11% in the quarter. New vehicle gross profit increased 3.7%, as gross profit per unit decreased $199 to $1,897, partially reflecting the inflated margins on import vehicles in the fourth quarter last year due to inventory shortages. New vehicle average sales price increased slightly to $34,965, due to stronger luxury sales in the quarter.

On a consolidated basis in the fourth quarter, Group 1's luxury mix expanded to 32% of new vehicle unit sales. Import brands contributed 50% and domestic brands accounted for 18% of the units sold.

Toyota/Lexus sales accounted for 29% of our new vehicle unit sales with BMW/MINI, Honda/Acura, VW/Audi/Porsche and Hyundai/Kia increasing their share of Group 1's new vehicle unit sales during the quarter.

New vehicle inventory held steady at 63 day supply or 26,615 units. Same-store used retail gross profit increased 7.4% on a 9% higher revenues, as gross profit per unit grew slightly to $1,635. The average selling price increased 1.8% to $20,842, reflecting an expanded mix of used vehicle sales at our luxury stores.

And a 38-day supply used vehicle inventory was a little higher at the end of the fourth quarter than what we've been running during the past few quarters. We're comfortable at this level as much of it came in the last 10 days of December due to the exceptionally strong year-end new vehicle sales trade-ins.

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