Group 1 Automotive 8K Results of Operations and Financial Condition | GPI 2 May 06


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


AT GROUP 1:	President and CEO	Earl J. Hesterberg	(713) 647-5700
	Sr. Vice President and CFO	John C. Rickel	(713) 647-5700
	Manager, Investor Relations	Kim Paper Canning	(713) 647-5700

AT Fleishman-Hillard:	Investors/Media	Russell A. Johnson	(713) 513-9515

FOR IMMEDIATE RELEASE
TUESDAY, MAY 2, 2006

GROUP 1 AUTOMOTIVE REPORTS 55 PERCENT RISE IN FIRST-QUARTER EARNINGS

Significant Reduction in SG&A as a Percent of Gross Profit; Full-Year Guidance Raised

HOUSTON, May 2, 2006 — Group 1 Automotive, Inc. (NYSE: GPI),a Fortune 500 automotive retailer, today reported that first-quarter net income increased 54.9 percent to $22.3 million, on revenues of $1.42 billion. Diluted earnings per share grew 51.7 percent to $0.91. This compares with income before cumulative effect of a change in accounting principle of $14.4 million, or $0.60 per diluted share, in the first quarter of 2005.

First-quarter revenues were up 1.5 percent from year-ago levels, with increases in all reporting areas except wholesale used vehicles. Wholesale used vehicle revenues decreased 16.1 percent, as the company wholesaled 14.4 percent fewer vehicles; however, wholesale profit increased to $92 per unit from $9 per unit in the prior-year period. Concurrently, retail used vehicle revenues increased 1.7 percent.

Overall, the company’s gross margin improved 60 basis points to 16.7 percent, reflecting improvements across the board, including a 100 basis-point increase in total used vehicle gross margin.

On a same-store basis, new vehicle revenues increased 1.6 percent and used vehicle retail revenues were 1.9 percent higher, on 0.7 percent and 4.6 percent lower unit sales, respectively. Parts and service and finance and insurance revenues rose 2.9 percent and 5.2 percent, respectively. Gross margin improved 70 basis points to 16.8 percent.

The company also achieved a 500 basis-point reduction in total selling, general and administrative expenses to 76.2 percent of gross profit, primarily attributable to reductions in its field management structure and increased operating efficiency.

Operating margin improved 110 basis points from prior-year levels to 3.7 percent, and pretax margin improved 90 basis points to 2.5 percent.

Floorplan interest expense expanded 36.7 percent to $11.8 million, reflecting a continued upward trend in interest rates. Partially offsetting the higher rates was a reduction in new vehicle inventory from year-ago levels of 69 days’ supply to 62 days’ supply, resulting in an $88.4 million reduction in average floorplan borrowings. Other interest expense also declined $1.1 million, or 22.2 percent, reflecting a decrease of $86.8 million in borrowings outstanding in the period. The long-term debt-to-equity ratio improved to 19 percent since year end and continues to reflect a strong balance sheet.

Group 1 Automotive, Inc.

“We are extremely pleased with our first-quarter results,” said Earl J. Hesterberg, Group 1’s president and chief executive officer. “Our consolidation and expense reduction initiatives, as well as our focus on the used vehicle business, are beginning to deliver the significant improvements that we anticipated when we implemented our strategic initiatives late last year. I am very pleased with the speed at which we are moving and believe it is a direct reflection of the strength of the operating team we have in place.”

Share Repurchase
During the first quarter, Group 1 did not repurchase any shares of its common stock pursuant to its previously-announced, board-authorized $42 million share repurchase program.

Acquisition Update
Year to date, Group 1 has acquired three franchises with $130 million in estimated annual revenues toward its full-year goal of $300 million.

Management’s Outlook
Group 1 revised its 2006 full-year earnings guidance range upward to $3.40 to $3.70 per diluted share. This increased guidance is based on the company’s strong first-quarter performance, as well as the following assumptions:

	•		Industry seasonally adjusted annual sales rate of 16.8 to 17 million vehicles.

	•		A 50 basis-point increase in interest rates over the remainder of the year.

	•		An estimated average of 24.5 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. The company’s previous guidance, announced Feb. 23, was $3.15 to $3.45 per diluted share.

About Group 1 Automotive, Inc.
Group 1 owns 95 automotive dealerships comprised of 140 franchises, 32 brands and 30 collision service centers in California, Colorado, Florida, Georgia, Louisiana, Massachusetts, 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

Group 1 Automotive, Inc.

“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

Group 1 Automotive, Inc.
Consolidated Statements of Operations

(Unaudited)

(In thousands, except per share amounts)


	Three Months Ended March 31,
	2006			2005			% Change
REVENUES:
New vehicle retail sales	$	860,128		$	833,945			3.1	%
Used vehicle retail sales		265,920			261,545			1.7
Used vehicle wholesale sales		80,693			96,194			(16.1	)
Parts and service		162,867			159,460			2.1
Finance and insurance		47,958			45,583			5.2

Total revenues		1,417,566			1,396,727			1.5	%

COST OF SALES:
New vehicle retail sales		795,614			774,833			2.7	%
Used vehicle retail sales		230,880			228,169			1.2
Used vehicle wholesale sales		79,714			96,076			(17.0	)
Parts and service		74,533			73,159			1.9

Total cost of sales		1,180,741			1,172,237			0.7	%

GROSS PROFIT		236,825			224,490			5.5	%

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES		180,477			182,290			(1.0	)%

DEPRECIATION AND AMORTIZATION EXPENSE		4,563			5,623			(18.9	)%


INCOME FROM OPERATIONS		51,785			36,577			41.6	%

OTHER INCOME (EXPENSE):
Floorplan interest expense		(11,846	)		(8,665	)		36.7	%
Other interest expense, net		(3,989	)		(5,124	)		(22.2	)
Other income (expense), net		26			(3	)		(966.7	)


INCOME BEFORE INCOME TAXES		35,976			22,785			57.9	%

PROVISION FOR INCOME TAXES		13,665			8,385			63.0	%


INCOME BEFORE CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING PRINCIPLE		22,311			14,400			54.9	%

CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING PRINCIPLE, NET OF TAX BENEFIT OF $10,231		—			(16,038	)		—


NET INCOME (LOSS)	$	22,311		$	(1,638	)		(1,462.1	)%


DILUTED EARNINGS (LOSS) PER SHARE:
Income before cumulative effect of a change in accounting principle	$	0.91		$	0.60			51.7	%
Cumulative effect of a change in accounting principle		—			(0.67	)		—

Net income (loss)	$	0.91		$	(0.07	)		(1,400.0	)%

Weighted average diluted shares outstanding		24,453			23,886			2.4	%

Group 1 Automotive, Inc.
Consolidated Balance Sheets

(Dollars in thousands)


	March 31,			December 31,
	2006			2005			% Change
	(Unaudited)
ASSETS:

CURRENT ASSETS:
Cash and cash equivalents	$	35,232		$	37,695			(6.5	)%
Contracts in transit and vehicle receivables, net		157,584			187,769			(16.1	)
Accounts and notes receivable, net		74,803			81,463			(8.2	)
Inventories		845,367			756,838			11.7
Deferred income taxes		18,053			18,780			(3.9	)
Prepaid expenses and other current assets		21,614			23,283			(7.2	)

Total current assets		1,152,653			1,105,828			4.2
PROPERTY AND EQUIPMENT, net		170,136			161,317			5.5
GOODWILL		386,452			372,844			3.6
INTANGIBLE FRANCHISE RIGHTS		176,892			164,210			7.7
OTHER ASSETS		34,094			29,419			15.9

Total assets	$	1,920,227		$	1,833,618			4.7	%


LIABILITIES AND STOCKHOLDERS’ EQUITY:

CURRENT LIABILITIES:
Floorplan notes payable — credit facility	$	454,187		$	407,396			11.5	%
Floorplan notes payable — manufacturer affiliates		334,692			316,189			5.9
Current maturities of long-term debt		788			786			0.3
Accounts payable		116,964			124,857			(6.3	)
Accrued expenses		105,678			119,404			(11.5	)

Total current liabilities		1,012,309			968,632			4.5
LONG-TERM DEBT, net of current maturities		158,000			158,074			—
DEFERRED INCOME TAXES		31,888			28,862			10.5
OTHER LIABILITIES		25,517			25,356			0.6

Total liabilities before deferred revenues		1,227,714			1,180,924			4.0

DEFERRED REVENUES		24,433			25,901			(5.7	)
STOCKHOLDERS’ EQUITY:
Common stock		248			246			0.8
Additional paid-in capital		274,082			276,904			(1.0	)
Retained earnings		392,282			373,162			5.1
Accumulated other comprehensive income (loss)		1,468			(706	)		(307.9	)
Deferred stock-based compensation		—			(5,413	)		(100.0	)
Treasury stock		—			(17,400	)		(100.0	)

Total stockholders’ equity		668,080			626,793			6.6

Total liabilities and stockholders’ equity	$	1,920,227		$	1,833,618			4.7	%


BALANCE SHEET DATA:
Working capital	$	140,344		$	137,196			2.3	%
Current ratio		1.14			1.14			—
Long-term debt to capitalization		19	%		20	%
Inventory days supply:⁽¹⁾
New vehicle		62			56			10.7	%
Used vehicle		28			28			—


⁽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
		March 31,
		2006			2005
NEW VEHICLE UNIT SALES GEOGRAPHIC MIX:
	Geographic
Region	Market
Northeast	Massachusetts		13.3	%		12.9	%
	New Hampshire		3.5			—
	New Jersey		2.8			2.9
	New York		2.5			2.4

			22.1			18.2
Southeast	Florida		5.3			6.0
	Georgia		3.8			4.6
	Louisiana		6.2			5.5

			15.3			16.1
South Central	Oklahoma		9.7			11.2
	Central Texas		11.5			12.0
	Southeast Texas		16.8			14.9

			38.0			38.1
West Central	Colorado		0.3			1.1
	New Mexico		2.1			2.6
	West Texas		5.9			5.7

			8.3			9.4
California	California		16.3			18.2

			100.0	%		100.0	%

NEW VEHICLE UNIT SALES BRAND MIX:
Toyota/Scion/Lexus			33.5	%		28.4	%
Ford			17.1			18.4
DaimlerChrysler			14.1			14.6
Nissan/Infiniti			10.5			12.4
Honda/Acura			9.4			9.2
GM			8.0			10.1
Other			7.4			6.9

			100.0	%		100.0	%

NEW VEHICLE UNIT OTHER MIX:
Import			49.4	%		47.1	%
Domestic			33.6			37.4
Luxury			17.0			15.5

			100.0	%		100.0	%
Car			47.4	%		45.6	%
Truck			52.6			54.4

			100.0	%		100.0	%

Group 1 Automotive, Inc.
Additional Information — Consolidated

(Unaudited)

(Dollars in thousands, except per unit amounts)


	Three Months Ended March 31,
	2006			2005			% Change
REVENUES:
New vehicle retail sales	$	860,128		$	833,945			3.1	%
Used vehicle retail sales		265,920			261,545			1.7
Used vehicle wholesale sales		80,693			96,194			(16.1	)

Total used		346,613			357,739			(3.1	)
Parts and service		162,867			159,460			2.1
Finance and insurance		47,958			45,583			5.2

Total	$	1,417,566		$	1,396,727			1.5	%

GROSS MARGIN:
New vehicle retail sales		7.5	%		7.1	%
Used vehicle retail sales		13.2			12.8
Used vehicle wholesale sales		1.2			0.1

Total used		10.4			9.4
Parts and service		54.2			54.1
Finance and insurance		100.0			100.0

Total		16.7	%		16.1	%

GROSS PROFIT:
New vehicle retail sales	$	64,514		$	59,112			9.1	%
Used vehicle retail sales		35,040			33,376			5.0
Used vehicle wholesale sales		979			118			(729.7	)

Total used		36,019			33,494			7.5
Parts and service		88,334			86,301			2.4
Finance and insurance		47,958			45,583			5.2

Total	$	236,825		$	224,490			5.5	%

UNITS SOLD:
Retail new vehicles sold		28,969			28,833			0.5	%
Retail used vehicles sold		16,263			17,242			(5.7	)
Wholesale used vehicles sold		10,655			12,448			(14.4	)

Total used		26,918			29,690			(9.3	)%

GROSS PROFIT PER UNIT SOLD:
New vehicle retail sales	$	2,227		$	2,050			8.6	%
Used vehicle retail sales		2,155			1,936			11.3
Used vehicle wholesale sales		92			9			(922.2	)
Total used		1,338			1,128			18.6
Finance and insurance (per retail unit)		1,060			989			7.2

OTHER:
Adjusted used gross margin⁽¹⁾		13.5	%		12.8	%
Adjusted used gross profit per retail unit⁽²⁾	$	2,215		$	1,943			14.0	%
SG&A expenses	$	180,477		$	182,290			(1.0	)%
SG&A as % revenues		12.7	%		13.1	%
SG&A as % gross profit		76.2	%		81.2	%
Operating margin		3.7	%		2.6	%
Pretax income margin		2.5	%		1.6	%

Floorplan interest	$	(11,846	)	$	(8,665	)		36.7	%
Floorplan assistance		8,471			8,179			3.6

Net floorplan expense	$	(3,375	)	$	(486	)		594.4	%

⁽¹⁾		Adjusted used gross margin equals total used vehicle gross profit, which includes net wholesale profit or loss, divided by used vehicle retail sales revenues. The profit or loss on wholesale sales is included in this number, as these transactions facilitate retail vehicle sales.

⁽²⁾		Adjusted used gross profit per retail unit equals total used vehicle gross profit, which includes net wholesale profit or loss, divided by retail used vehicle unit sales. The profit or loss on wholesale sales is included in this number, as these transactions facilitate retail vehicle sales.

Group 1 Automotive, Inc.
Additional Information — Same Store⁽¹⁾

(Unaudited)

(Dollars in thousands, except per unit amounts)


	Three Months Ended March 31,
	2006			2005			% Change
REVENUES:
New vehicle retail sales	$	828,251		$	814,904			1.6	%
Used vehicle retail sales		258,550			253,631			1.9
Used vehicle wholesale sales		77,528			93,206			(16.8	)

Total used		336,078			346,837			(3.1	)
Parts and service		159,660			155,227			2.9
Finance and insurance		46,787			44,456			5.2

Total	$	1,370,776		$	1,361,424			0.7	%

GROSS MARGIN:
New vehicle retail sales		7.5	%		7.1	%
Used vehicle retail sales		13.3			12.7
Used vehicle wholesale sales		1.2			0.2

Total used		10.5			9.3
Parts and service		54.1			54.1
Finance and insurance		100.0			100.0

Total		16.8	%		16.1	%

GROSS PROFIT:
New vehicle retail sales	$	62,276		$	58,151			7.1	%
Used vehicle retail sales		34,303			32,206			6.5
Used vehicle wholesale sales		959			221			(333.9	)

Total used		35,262			32,427			8.7
Parts and service		86,397			84,045			2.8
Finance and insurance		46,787			44,456			5.2

Total	$	230,722		$	219,079			5.3	%

UNITS SOLD:
Retail new vehicles sold		27,900			28,092			(0.7	)%
Retail used vehicles sold		15,927			16,691			(4.6	)
Wholesale used vehicles sold		10,249			11,968			(14.4	)

Total used		26,176			28,659			(8.7	)%

GROSS PROFIT PER UNIT SOLD:
New vehicle retail sales	$	2,232		$	2,070			7.8	%
Used vehicle retail sales		2,154			1,930			11.6
Used vehicle wholesale sales		94			18			(422.2	)
Total used		1,347			1,131			19.1
Finance and insurance (per retail unit)		1,068			993			7.6

OTHER:
Adjusted used gross margin⁽²⁾		13.6	%		12.8	%
Adjusted used gross profit per retail unit⁽³⁾	$	2,214		$	1,943			13.9	%
SG&A expenses	$	175,593		$	176,298			(0.4	)%
SG&A as % revenues		12.8	%		12.9	%
SG&A as % gross profit		76.1	%		80.5	%
Operating margin		3.7	%		2.7	%

Floorplan interest	$	(11,495	)	$	(8,296	)		38.6	%
Floorplan assistance		8,217			7,954			3.3

Net floorplan expense	$	(3,278	)	$	(342	)		858.5	%

⁽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.

⁽²⁾		Adjusted used gross margin equals total used vehicle gross profit, which includes net wholesale profit or loss, divided by used vehicle retail sales revenues. The profit or loss on wholesale sales is included in this number, as these transactions facilitate retail vehicle sales.

⁽³⁾		Adjusted used gross profit per retail unit equals total used vehicle gross profit, which includes net wholesale profit or loss, divided by retail used vehicle unit sales. The profit or loss on wholesale sales is included in this number, as these transactions facilitate retail vehicle sales.

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