Group 1 sees record revenue in third quarter
Group 1 Automotive, the nation’s third-largest dealership group, reported record revenue last quarter amid an uptick in new vehicle sales, bucking a nationwide slowdown.
The Houston company Thursday reported third-quarter net income of $38 million on revenue of $3.1 billion. Earnings during the period ended Sept. 30 rose 3.2 percent year over year, while revenue was up 7.9 percent. Samestore sales in the U.S. grew 9.7 percent year over year.
The company, which sold a record 318,516 vehicles last year, reported net income of $179.6 million on $11.6 billion in revenue in 2018.
Chief Executive Earl Hesterberg said profit growth in used vehicle sales and in parts and service “drove one of the best quarters in our company’s history.” Used vehicle revenue was up 9.8 percent to $869.7 million, while parts and service revenue was up 8.2 percent to $383.5 million.
New vehicle revenue was up 7.3 percent to $1.65 billion as Group 1 dealers sold more new vehicles year over year for the first time this fiscal year. Group 1 dealers sold more than 44,000 new vehicles, up 2.4 percent year over year. New vehicle sales had plunged 8 percent and 5.6 percent during the first and second quarters, respectively.
Car sales in the Houston area fell in July, August and September — by 5 percent, 16.7 percent and 2.6 percent respectively — according to the TexAuto Facts report from InfoNation, a Sugar Landbased provider of automobile data. New car sales nationwide have been stagnant this year as rising prices have forced some buyers into the used car market.
However, the introduction of new models, particularly BMW’s 3 and 7 series luxury sedans, as well as new Ram and Chevrolet pickups, helped excite consumers and drive sales for Group 1, said Daryl Kenningham, Group 1’s president of U.S. operations. Financing deals and lower interest rates also helped draw buyers, he added.
“We had double-digit increases in parts of Texas and the East Coast,” Kenningham said. “We had some strong success in North Texas, West Texas, San Antonio and Austin. Houston has been steady.”
Group 1’s third-quarter performance was dampened by Tropical Storm Imelda, which flooded between 10,000 and 15,000 cars in southeast Texas, including about 1,000 new and used vehicles at six Group 1 dealerships in the Beaumont area. Imelda ultimately caused $9 million in damage to the company.
Beaumont is “not a massive market for us,” said John Rickel, Group 1’s chief financial officer. “I don’t think it had a very meaningful impact in the way of revenue or lost sales in the quarter.”
Group 1, which last November began testing online sales of new and used vehicles, has now expanded its online sales platform to nearly all its 117 U.S. dealerships. About 1,800 customers used Group 1’s AcceleRide platform to buy a vehicle during the third quarter.
Although online sales represent a small portion of total sales, Kenningham said he expected digital transactions to grow.
“More and more customers want to buy online,” he said. “If customers want to do the transaction online, we want to accommodate them.”
Group 1 opened one new dealership — a four-story Jaguar-Land Rover store in London — as well as a free-standing collision center in Atlanta during the third quarter. The company closed a Volkswagen franchise in Texas during the quarter.
So far this year, Group 1 has acquired 13 dealership franchises, which are expected to generate $340 million in annual revenue, and closed 12 franchises, which generated about $240 million in annual revenue.
Kenningham, in a Thursday morning conference call with Wall Street analysts, said Group 1 is still interested in growing through acquisitions.
“There are no shortages of potential acquisitions in either the U.S. or the U.K. market, but we have to value these things based on future profits, not past,” Kenningham said. “We’re being very careful in how we invest money in that external growth, but that is still our preference to deploy our capital in that way.”
Group 1 owns and operates 184 dealerships, 240 franchises and 49 collision centers in the U.S., the U.K. and Brazil.