Group 1 Automotive(US:GPI)2021-07-31 22:06Financial Data and Key Metrics Changes - Group 1 generated adjusted net income of $190 million, equating to adjusted earnings per share of $10.31, an increase of 173% year-over-year and 264% compared to Q2 2019 [9][10] - Adjusted SG&A as a percentage of gross profit was 55.9% in the U.S., 63.4% in the U.K., and 68.8% in Brazil, showing significant cost control improvements [14] Business Line Data and Key Metrics Changes - U.S. same-store new and used sales increased by 11% and 12% respectively compared to Q2 2019 [15] - Aftersales gross profit in the U.S. increased by 17% compared to Q2 2019, indicating strong recovery in aftersales business [18] - In Brazil, despite a nearly 50% decline in retail units sold versus Q2 2019, margins grew across all lines of business, achieving the lowest SG&A as a percentage of gross profit in the region's history [25] Market Data and Key Metrics Changes - U.K. retail sales saw a 31% sequential increase from Q1 2021, driven by pent-up demand from Brexit and the pandemic [13] - Aftersales revenues in the U.K. increased sequentially throughout the quarter, with June seeing an 11% same-store increase over June 2019 [12] Company Strategy and Development Direction - The company is focused on external growth through acquisitions, having recently acquired 9 franchises in the U.K. expected to contribute approximately $300 million in annual revenues [30] - The company is prioritizing digital retailing through its Acceleride platform, which sold a record 5,600 vehicles in Q2, more than double the prior year [20] Management's Comments on Operating Environment and Future Outlook - Management noted strong consumer demand for vehicles and expects this trend to continue into the third quarter and beyond, assuming no material changes in demand [11] - There are concerns about the ongoing inventory challenges due to supply chain issues, with expectations that new vehicle inventories will remain tight for the foreseeable future [52][53] Other Important Information - The company reported total cash liquidity of $525 million and an additional $255 million in borrowing capacity, indicating a strong financial position [26] - The quarterly floorplan interest expense decreased by 13% year-over-year, reflecting improved financial management [29] Q&A Session Summary Question: Impact of Ford's order-to-build model on inventory - Management expressed that a leaner distribution system would reduce inventory carrying costs and land requirements, which would be beneficial for the dealer group [32][33] Question: Differences in F&I per unit between U.S. and U.K. - Management acknowledged legal and market differences but indicated potential for improvement in the U.K. market [36][37] Question: Sustainability of SG&A savings - Management indicated that SG&A savings are expected to be sticky, with no significant changes anticipated in Q3 performance [39] Question: Future acquisitions and capital allocation - Management stated that while M&A remains a priority, share buybacks could be considered if acquisition opportunities do not meet financial return hurdles [61] Question: Inventory supply and sustainability of momentum - Management confirmed that new car inventories remain lean, while used car inventories are in better shape due to new sourcing practices [65] Question: Agency model implications in the U.K. - Management discussed potential agency model discussions with OEMs, noting that it could lead to a demand-pull system beneficial for retailers [69] Question: Pent-up demand in parts and service - Management sees significant pent-up demand and is transitioning back to a 4-day work week to expand capacity [49] Question: Feedback on F-150 Lightning - Management reported high customer interest in the F-150 Lightning across their Ford stores [81] Question: Impact of potential corporate tax rate increase - Management estimated a blended tax rate could rise to around 27% if the corporate tax rate increases [83]