Group 1 Automotive (GPI) 8-K Results of Operations and Financial Condition

Exhibit 99.1
 

NEWS RELEASE 950 Echo Lane, Suite 100 Houston, TX 77024

AT GROUP 1:	President and CEO	Earl J. Hesterberg	(713) 647-5700
	Senior Vice President and CFO	John C. Rickel	(713) 647-5700
	Manager, Investor Relations	Kim Paper Canning	(713) 647-5700
AT Fleishman-Hillard:	Investors	Russell A. Johnson	(713) 513-9515
AT Pierpont Communications:	Media	Clint L. Woods	(713) 429-6419

FOR IMMEDIATE RELEASE
TUESDAY, OCT. 31, 2006

GROUP 1 AUTOMOTIVE REPORTS 25 PERCENT INCREASE IN
THIRD-QUARTER EARNINGS PER SHARE

Full-Year Guidance Raised

HOUSTON, Oct. 31, 2006 — Group 1 Automotive, Inc. (NYSE: GPI),a Fortune 500 automotive retailer, today reported that net income for the third quarter ended Sept. 30, 2006, increased 22.2 percent to $26.4 million, on revenues of $1.6 billion. Diluted earnings per share grew 25.0 percent to $1.10. This compares with net income of $21.6 million, or $0.88 per diluted share, in the third quarter of 2005.

Group 1’s third-quarter performance featured the following highlights:

• Same-store revenue was flat as strong performance from the company’s Toyota franchises offset weaker sales at its domestic stores. Toyota/Scion/Lexus represented nearly 38 percent of new vehicle unit sales in the quarter.

• Gross margin improved 10 basis points to 15.6 percent, primarily attributable to an 80 basis-point increase in total used vehicle margin and a 30 basis-point increase in parts and service margin.

• Used vehicle gross profit rose 8.5 percent, reflecting an increase of 4.8 percent in used retail revenues and a 7.2 percent increase in retail gross profits.

• New vehicle gross profit increased 2.7 percent on 3.3 percent higher revenues.

• Finance and insurance revenues increased 2.6 percent, reflecting higher new vehicle unit sales from recent acquisitions.

Group 1 achieved a 130 basis-point reduction in total selling, general and administrative expenses to 75.3 percent of gross profit, primarily attributable to gross profit improvements and its continued focus on increasing operating efficiencies.

Operating margin improved 60 basis points from the prior year to 3.6 percent, and pretax margin improved 40 basis points to 2.6 percent.

“Our margin improvements reflect management’s continued focus on operations, particularly in our used vehicle business, where gross profit per unit sold increased by more than 13 percent,” said Earl J. Hesterberg, Group 1’s president and chief executive officer. “The results we’ve delivered in this challenging new vehicle market are a testament to the success of the initiatives we are implementing and the strength of our management team.”

Group 1 Automotive, Inc.

On a same-store basis, total revenues were flat as strong Toyota new vehicle sales and improved used vehicle retail sales were offset by lower domestic new vehicle sales and a reduction in used vehicle wholesale sales. Specifically, used vehicle retail revenues increased 4.9 percent on 1.8 percent higher unit sales, and gross profit per retail unit increased $90 year over year. New vehicle revenues were basically flat as strong growth of 8.3 percent in import/luxury vehicle unit sales was offset by a 17.8 percent decrease in domestic brand sales. Parts and service revenues rose 1.5 percent, and finance and insurance revenues fell 0.1 percent. Total gross margin improved 20 basis points to 15.7 percent.

Total floorplan interest expense expanded 8.7 percent to $10.1 million, reflecting a continued upward trend in interest rates. Partially offsetting the higher rates was a $141.7 million decrease in weighted average floorplan borrowings. Other interest expense also increased $1.0 million, or 23.5 percent, primarily due to a $237.5 million increase in weighted average borrowings outstanding in the period, reflecting the issuance of the 2.25% convertible notes in June.

Share Repurchase
During the quarter, Group 1 repurchased 20,000 shares of its common stock at an average price of $45.88 under a board authorization to fund the share delivery requirements of its existing employee stock purchase plan.

Acquisition and Disposition Update
As previously announced, during the third quarter, Group 1 acquired a Toyota/Scion franchise and a Nissan franchise in the Los Angeles metro market; a Buick franchise in Oklahoma City that is operated out of its existing Pontiac-GMC dealership; the Pat Peck dealerships consisting of Honda, Kia and two Nissan franchises in Alabama and Mississippi; and, in October, three import stores in New Jersey that include BMW, Honda and two Acura franchises.

“With the addition of these franchises, we have shifted our brand mix to over 70 percent import/luxury from 61 percent a year ago,” said Hesterberg. “We continue to look for acquisition opportunities that will improve our portfolio of dealerships and position us for future growth.”

Year to date, the company has added one domestic franchise and 14 import franchises, including three Nissan; two each of Toyota/Scion, Acura and Honda; and a single BMW franchise. These 15 franchises are expected to generate $732 million in estimated annual revenues. The addition of these 15 franchises substantially completes the company’s acquisition program for 2006.

Also previously announced, Group 1 disposed of three dealerships during the quarter that generated $63.3 million in revenues during the trailing twelve-month period. Year to date, the company has disposed of 13 franchises with $197.8 million in trailing twelve-month revenues, exceeding its full-year target of $190 million.

Management’s Outlook
Group 1 raised its 2006 full-year earnings guidance range from $3.40 — $3.70 to $3.65 — $3.75 per diluted share. This guidance is based on the following assumptions:

• Industry seasonally adjusted annual sales rate of 16.5 to 16.7 million vehicles.

• An estimated average of 24.4 million shares outstanding.

• The implementation of SFAS No. 123(R), “Share Based Payment,” that the company estimates will have a full-year negative earnings impact of $0.10 per diluted share.

This guidance excludes the impacts of any future acquisitions or dispositions. It also excludes any potential impairment charges as the company undertakes its required annual review of goodwill and intangible franchise rights during the fourth quarter.

Group 1 Automotive, Inc.

Third-Quarter Conference Call and Presentation
Group 1’s senior management team will host a conference call to discuss these results today at 10 a.m. EST.

The live simulcast call, and a slide presentation, may be accessed on the Internet at www.group1auto.com through the Investor Relations section. A replay will be available for 30 days.

The conference call will also be available live by dialing in 10 minutes prior to the call at: 800-219-6110 (domestic) or 303-262-2140 (international).

A telephonic replay will be available through Nov. 7 by dialing: 800-405-2236 (domestic) or 303-590-3000 (international), with passcode: 11073239#.

About Group 1 Automotive, Inc.
Group 1 owns 101 automotive dealerships comprised of 143 franchises, 33 brands and 30 collision service centers in Alabama, California, Florida, Georgia, Louisiana, Massachusetts, Mississippi, New Hampshire, New Jersey, New Mexico, New York, Oklahoma and Texas. Through its dealerships, the company sells new and used cars and light trucks; arranges related financing, vehicle service and insurance contracts; provides maintenance and repair services; and sells replacement parts.

Group 1 Automotive can be reached on the Internet at www.group1auto.com.

This press release contains “forward-looking statements,” which are statements related to future, not past, events. 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” or “will.” Any such forward-looking statements are not assurances of future performance and involve risks and uncertainties that may cause results to differ materially from those set forth in the statements. These risks and uncertainties include, among other things, (a) general economic 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, and (h) our ability to retain key personnel. These factors, as well as additional factors that could affect our forward-looking statements, are described in our Form 10-K under the headings “Business—Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” We urge you to carefully consider this information. We undertake no duty to update our forward-looking statements, including our earnings outlook.

FINANCIAL TABLES TO FOLLOW

TABLE OF CONTENTS

Group 1 Automotive, Inc.
Consolidated Statements of Operations
(Unaudited)
(In thousands, except per share amounts)

	Three Months Ended September 30,									Nine Months Ended September 30,
	2006			2005			% Change			2006			2005			% Change
REVENUES:
New vehicle retail sales	$	1,009,300		$	977,492			3.3	%	$	2,837,827		$	2,791,812			1.6	%
Used vehicle retail sales		292,931			279,484			4.8			848,611			819,816			3.5
Used vehicle wholesale sales		83,264			98,439			(15.4	)		251,010			301,419			(16.7	)
Parts and service		165,296			165,017			0.2			492,803			487,534			1.1
Finance and insurance		51,021			49,737			2.6			146,172			143,648			1.8
Total revenues		1,601,812			1,570,169			2.0	%		4,576,423			4,544,229			0.7	%
COST OF SALES:
New vehicle retail sales		937,629			907,731			3.3	%		2,631,330			2,594,379			1.4	%
Used vehicle retail sales		254,648			243,756			4.5			738,160			715,978			3.1
Used vehicle wholesale sales		84,757			100,248			(15.5	)		252,254			303,702			(16.9	)
Parts and service		74,930			75,316			(0.5	)		224,345			222,473			0.8
Total cost of sales		1,351,964			1,327,051			1.9	%		3,846,089			3,836,532			0.2	%
GROSS PROFIT		249,848			243,118			2.8	%		730,334			707,697			3.2	%
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES		188,043			186,216			1.0	%		551,463			560,853			(1.7	)%
DEPRECIATION AND AMORTIZATION EXPENSE		4,449			4,597			(3.2	)%		13,384			14,522			(7.8	)%
ASSET IMPAIRMENTS		—			4,987			(100.0	)%		—			4,987			(100.0	)%
INCOME FROM OPERATIONS		57,356			47,318			21.2	%		165,487			127,335			30.0	%
OTHER INCOME (EXPENSE):
Floorplan interest expense		(10,065	)		(9,259	)		8.7	%		(34,943	)		(27,998	)		24.8	%
Other interest expense, net		(5,366	)		(4,344	)		23.5			(13,353	)		(14,174	)		(5.9	)
Other income (expense), net		(122	)		87			(240.2	)		(367	)		95			(486.3	)
INCOME BEFORE INCOME TAXES		41,803			33,802			23.7	%		116,824			85,258			37.0	%
PROVISION FOR INCOME TAXES		15,383			12,176			26.3	%		43,221			31,143			38.8	%
INCOME BEFORE CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING PRINCIPLE		26,420			21,626			22.2	%		73,603			54,115			36.0	%
CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING PRINCIPLE, NET OF TAX BENEFIT OF $10,231		—			—			—			—			(16,038	)		N/A
NET INCOME	$	26,420		$	21,626			22.2	%	$	73,603		$	38,077			93.3	%
DILUTED EARNINGS PER SHARE:
Income before cumulative effect of a change in accounting principle	$	1.10		$	0.88			25.0	%	$	3.01		$	2.24			34.4	%
Cumulative effect of a change in accounting principle		—			—			—			—			(0.66	)		—
Net income	$	1.10		$	0.88			25.0	%	$	3.01		$	1.58			90.5	%
Weighted average diluted shares outstanding		24,009			24,571			(2.3	)%		24,432			24,150			1.2	%

Group 1 Automotive, Inc.
Consolidated Balance Sheets
(Dollars in thousands)

	September 30,			December 31,
	2006			2005			% Change
	(Unaudited)
ASSETS:
CURRENT ASSETS:
Cash and cash equivalents	$	34,857		$	37,695			(7.5	)%
Contracts in transit and vehicle receivables, net		145,667			187,769			(22.4	)
Accounts and notes receivable, net		71,170			81,463			(12.6	)
Inventories		769,965			756,838			1.7
Deferred income taxes		21,636			18,780			12.2
Prepaid expenses and other current assets		13,080			23,283			(43.8	)
Total current assets		1,056,375			1,105,828			(4.5	)
PROPERTY AND EQUIPMENT, net		204,729			161,317			26.9
GOODWILL		415,460			372,844			26.4
INTANGIBLE FRANCHISE RIGHTS		233,889			164,212			8.5
OTHER ASSETS		31,212			29,419			6.1
Total assets	$	1,941,665		$	1,833,618			5.9	%
LIABILITIES AND STOCKHOLDERS’ EQUITY:
CURRENT LIABILITIES:
Floorplan notes payable — credit facility	$	279,685		$	407,396			(31.3	)%
Floorplan notes payable — manufacturer affiliates		293,119			316,189			(7.3	)
Current maturities of long-term debt		823			786			4.7
Accounts payable		102,969			124,857			(17.5	)
Accrued expenses		110,725			119,404			(8.5	)
Total current liabilities		787,321			968,632			(18.9	)
LONG-TERM DEBT, net of current maturities		428,641			158,074			171.2
DEFERRED INCOME TAXES		1,315			28,862			(97.4	)
OTHER LIABILITIES		25,505			25,356			6.4
Total liabilities before deferred revenues		1,242,782			1,180,924			5.2
DEFERRED REVENUES		21,632			25,901			(16.5	)
STOCKHOLDERS’ EQUITY:
Common stock		250			246			1.6
Additional paid-in capital		289,495			276,904			4.5
Retained earnings		436,732			373,162			17.0
Accumulated other comprehensive income (loss)		399			(706	)		(156.5	)
Deferred stock-based compensation		—			(5,413	)		(100.0	)
Treasury stock		(49,625	)		(17,400	)		185.2
Total stockholders’ equity		677,251			626,793			8.1
Total liabilities and stockholders’ equity	$	1,941,665		$	1,833,618			5.9	%
BALANCE SHEET DATA:
Working capital	$	269,054		$	137,196			96.8	%
Current ratio		1.34			1.14			17.5
Long-term debt to capitalization		39	%		20	%
Inventory days supply:(1)
New vehicle		55			56			(1.8	)%
Used vehicle		29			28			3.6

⁽¹⁾ Inventory days supply equals units in inventory as of the end of the period, divided by unit sales for the month then ended, times 30 days.

Group 1 Automotive, Inc.
Additional Information — Consolidated
(Unaudited)

		Three Months Ended						Nine Months Ended,
		September 30,						September 30,
		2006			2005			2006			2005
NEW VEHICLE UNIT SALES GEOGRAPHIC MIX:
Region	Geographic Market
Northeast	Massachusetts		12.7	%		13.9	%		12.9	%		13.2	%
	New Hampshire		4.0			0.5			3.9			0.2
	New Jersey		2.5			2.9			2.7			2.9
	New York		2.2			2.1			2.4			2.4
			21.4			19.4			21.9			18.7
Southeast	Florida		4.6			6.4			4.8			6.1
	Louisiana		4.5			4.4			5.4			5.2
	Georgia		3.9			5.3			3.9			4.9
	Mississippi		0.6			—			0.2			—
	Alabama		0.4			—			0.1			—
			14.0			16.1			14.4			16.2
Central	Southeast Texas		16.9			14.0			17.1			14.5
	Oklahoma		11.2			12.2			10.8			11.9
	Central Texas		10.4			12.7			10.9			12.3
	West Texas		5.6			5.7			5.7			5.6
	New Mexico		2.3			2.5			2.1			2.7
	Colorado		0.1			0.7			0.3			0.9
			46.5			47.8			46.9			47.9
West	California		18.1			16.7			16.8			17.2
			100.0	%		100.0	%		100.0	%		100.0	%
NEW VEHICLE UNIT SALES BRAND MIX:
Toyota/Scion/Lexus			37.8	%		28.6	%		35.8	%		28.6	%
Ford			15.4			19.7			16.1			18.8
DaimlerChrysler			11.8			15.6			12.8			15.0
Nissan/Infiniti			11.5			10.7			10.7			11.2
Honda/Acura			9.7			9.6			9.7			9.4
GM			7.7			8.9			8.1			10.1
Other			6.1			6.9			6.8			6.9
			100.0	%		100.0	%		100.0	%		100.0	%
NEW VEHICLE UNIT OTHER MIX:
Import			54.7	%		45.8	%		52.0	%		46.1	%
Domestic			29.6			39.2			31.6			38.5
Luxury			15.7			15.0			16.4			15.4
			100.0	%		100.0	%		100.0	%		100.0	%
Car			49.9	%		46.3	%		49.4	%		45.8	%
Truck			50.1			53.7			50.6			54.2
			100.0	%		100.0	%		100.0	%		100.0	%

Group 1 Automotive, Inc.
Additional Information — Consolidated
(Unaudited)
(Dollars in thousands, except per unit amounts)

	Three Months Ended September 30,									Nine Months Ended September 30,
	2006			2005			% Change			2006			2005			% Change
REVENUES:
New vehicle retail sales	$	1,009,300		$	977,492			3.3	%	$	2,837,827		$	2,791,812			1.6	%
Used vehicle retail sales		292,931			279,484			4.8			848,611			819,816			3.5
Used vehicle wholesale sales		83,264			98,439			(15.4	)		251,010			301,419			(16.7	)
Total used		376,195			377,923			(0.5	)		1,099,621			1,121,235			(1.9	)
Parts and service		165,296			165,017			0.2			492,803			487,534			1.1
Finance and insurance		51,021			49,737			2.6			146,172			143,648			1.8
Total	$	1,601,812		$	1,570,169			2.0	%	$	4,576,423		$	4,544,229			0.7	%
GROSS MARGIN:
New vehicle retail sales		7.1	%		7.1	%					7.3	%		7.1	%
Used vehicle retail sales		13.1			12.8						13.0			12.7
Used vehicle wholesale sales		(1.8	)		(1.8	)					(0.5	)		(0.8	)
Total used		9.8			9.0						9.9			9.1
Parts and service		54.7			54.4						54.5			54.4
Finance and insurance		100.0			100.0						100.0			100.0
Total		15.6	%		15.5	%					16.0	%		15.6	%
GROSS PROFIT:
New vehicle retail sales	$	71,671		$	69,761			2.7	%	$	206,497		$	197,433			4.6	%
Used vehicle retail sales		38,283			35,728			7.2			110,451			103,838			6.4
Used vehicle wholesale sales		(1,493	)		(1,809	)		17.5			(1,244	)		(2,283	)		45.5
Total used		36,790			33,919			8.5			109,207			101,555			7.5
Parts and service		90,366			89,701			0.7			268,458			265,061			1.3
Finance and insurance		51,021			49,737			2.6			146,172			143,648			1.8
Total	$	249,848		$	243,118			2.8	%	$	730,334		$	707,697			3.2	%
UNITS SOLD:
Retail new vehicles sold		35,182			34,355			2.4	%		97,593			96,909			0.7	%
Retail used vehicles sold		18,064			17,826			1.3			51,876			52,509			(1.2	)
Wholesale used vehicles sold		12,211			13,832			(11.7	)		34,623			39,520			(12.4	)
Total used		30,275			31,658			(4.4	)%		86,499			92,029			(6.0	)%
GROSS PROFIT PER UNIT SOLD:
New vehicle retail sales	$	2,037		$	2,031			0.3	%	$	2,116		$	2,037			3.9	%
Used vehicle retail sales		2,119			2,004			5.7			2,129			1,978			7.6
Used vehicle wholesale sales		(122	)		(131	)		6.9			(36	)		(58	)		37.9
Total used		1,215			1,071			13.4			1,263			1,104			14.4
Finance and insurance (per retail unit)		958			953			0.5			978			961			1.8
OTHER:
SG&A expenses	$	188,043		$	186,216			1.0	%	$	551,463		$	560,853			(1.7	)%
SG&A as % revenues		11.7	%		11.9	%					12.1	%		12.3	%
SG&A as % gross profit		75.3	%		76.6	%					75.5	%		79.3	%
Operating margin		3.6	%		3.0	%					3.6	%		2.8	%
Pretax income margin		2.6	%		2.2	%					2.6	%		1.9	%
Floorplan interest	$	(10,065	)	$	(9,259	)		8.7	%	$	(34,943	)	$	(27,998	)		24.8	%
Floorplan assistance		10,365			9,691			7.0			28,527			27,527			3.6
Net floorplan (expense) income	$	300		$	432			(30.6	)%	$	(6,416	)	$	(471	)		1,262.2	%

Group 1 Automotive, Inc.
Additional Information — Same Store⁽¹⁾
(Unaudited)
(Dollars in thousands, except per unit amounts)

	Three Months Ended September 30,									Nine Months Ended September 30,
	2006			2005			% Change			2006			2005			% Change
REVENUES:
New vehicle retail sales	$	943,383		$	944,298			(0.1	)%	$	2,700,516		$	2,711,452			(0.4	)%
Used vehicle retail sales		279,540			266,494			4.9			819,771			789,118			3.9
Used vehicle wholesale sales		78,394			92,824			(15.5	)		239,024			287,778			(16.9	)
Total used		357,934			359,318			(0.4	)		1,058,795			1,076,896			(1.7	)
Parts and service		158,437			156,109			1.5			479,079			468,316			2.3
Finance and insurance		47,998			48,060			(0.1	)		140,438			139,298			0.8
Total	$	1,507,752		$	1,507,785			(0.0	)%	$	4,378,828		$	4,395,962			(0.4	)%
GROSS MARGIN:
New vehicle retail sales		7.1	%		7.1	%					7.3	%		7.1	%
Used vehicle retail sales		13.0			12.8						13.1			12.7
Used vehicle wholesale sales		(2.1	)		(1.5	)					(0.6	)		(0.6	)
Total used		9.7			9.1						10.0			9.1
Parts and service		54.7			54.6						54.4			54.5
Finance and insurance		100.0			100.0						100.0			100.0
Total		15.7	%		15.5	%					16.1	%		15.6	%
GROSS PROFIT:
New vehicle retail sales	$	67,050		$	67,514			(0.7	)%	$	196,879		$	192,746			2.1	%
Used vehicle retail sales		36,382			34,227			6.3			107,029			99,986			7.0
Used vehicle wholesale sales		(1,654	)		(1,365	)		(21.2	)		(1,469	)		(1,593	)		7.8
Total used		34,728			32,862			5.7			105,560			98,393			7.3
Parts and service		86,600			85,263			1.6			260,532			255,115			2.1
Finance and insurance		47,998			48,060			(0.1	)		140,438			139,298			0.8
Total	$	236,376		$	233,699			1.1	%	$	703,409		$	685,552			2.6	%
UNITS SOLD:
Retail new vehicles sold		32,515			33,077			(1.7	)%		92,416			93,878			(1.6	)%
Retail used vehicles sold		17,242			16,942			1.8			50,310			50,410			(0.2	)
Wholesale used vehicles sold		11,363			12,991			(12.5	)		32,740			37,483			(12.7	)
Total used		28,605			29,933			(4.4	)%		83,050			87,893			(5.5	)%
GROSS PROFIT PER UNIT SOLD:
New vehicle retail sales	$	2,062		$	2,041			1.0	%	$	2,130		$	2,053			3.8	%
Used vehicle retail sales		2,110			2,020			4.5			2,127			1,983			7.3
Used vehicle wholesale sales		(146	)		(105	)		(39.0	)		(45	)		(42	)		(7.1	)
Total used		1,214			1,098			10.6			1,271			1,119			13.6
Finance and insurance (per retail unit)		965			961			0.4			984			965			2.0
OTHER:
SG&A expenses	$	178,866		$	172,649			3.6	%	$	536,877		$	533,791			0.6	%
SG&A as % revenues		11.9	%		11.5	%					12.3	%		12.1	%
SG&A as % gross profit		75.7	%		73.9	%					76.3	%		77.9	%
Operating margin		3.5	%		3.8	%					3.5	%		3.1	%
Floorplan interest	$	(9,397	)	$	(8,644	)		8.7	%	$	(33,487	)	$	(26,519	)		26.3	%
Floorplan assistance		9,799			9,294			5.4			27,363			26,553			3.1
Net floorplan (expense) income	$	402		$	650			(38.2	)%	$	(6,124	)	$	34			(18,111.8	)%

⁽¹⁾ Same store amounts include the results for the identical months in each period presented in the comparison, commencing with the first month we owned the dealership and, in the case of dispositions, ending with the last month we owned it. Same store results also include the activities of the corporate office, but exclude the results of our two New Orleans dealerships that were closed as a result of Hurricane Katrina in August of 2005.