Group 1 Automotive, Inc. (NYSE:GPI)

CAPS Rating: 3 out of 5

The Company is an operator in the automotive retail industry, which through its operating subsidiaries, markets and sells a range of automotive products and services.


Player Avatar NetscribeRetail (89.06) Submitted: 5/22/2007 9:14:48 AM : Underperform Start Price: $37.44 GPI Score: -92.96

The important figures for auto sales are out with total vehicle sales for January down by 4.7% and a dip in daily selling rate by 8.5%. Despite this weakness Group 1 Automotive were able to improve their first-quarter total revenues by 7.4%, thanks to its recent dealership acquisition. However, on a same-store basis revenues declined by 2.3% on account of lower volumes growth in New Orleans market.

Gross margin eroded by 50 bps as a result of 60 bps declines in both new vehicle and parts and service margins. New vehicle margins were impacted by continuing weakness in the company’s domestic stores, with Ford F-Series sales down 25% and lower Chrysler margins reflecting a decrease in manufacturer dealer incentives and rebates realized. Group 1’s margins were also negatively impacted by continued weakness in the California market.

A significant reduction in domestic inventory levels to 69 days’ supply from 99 days supply’ has ensured improvement in New vehicle inventory days’ supply by 6 days to 57 days. As a result of these inventory reductions, weighted average floorplan borrowings declined $28.7 million, partially offsetting a 73 bps increase in the weighted average interest rate.

It is expected that total industry-wide sales of new vehicles throughout 2007 will be lower than 2006 and remain highly competitive. Group 1 has already lowered its 2007 full-year guidance to $3.75-$4.05 per diluted share from $4.00-$4.25. The uncertain automotive retailer industry indicates clear signals to investors to wait before investing in Group 1 Automotive.

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