Group 1 Automotive (NYSE:GPI) Q3 2026 Earnings Call

0:00 Good morning, ladies and gentlemen, and welcome to Group 1 Automotive's third quarter of 2026 Financial Results Conference call. Please be advised that this call is being recorded. I would now like to turn the call over to Mr. Pete DeLongchamps, Group 1 Senior Vice President, Manufacturing Relations, Financial Services, and Corporate Development. Please go ahead, Mr. DeLongchamps.

0:22 Thank you, Joe, and good morning, everyone, and welcome to today's call. The earnings release we issued this morning and a related slide presentation that include reconciliations related to the adjusted results we will refer to on this call for comparison purposes have been posted to Group 1's website. Before we begin, I'd like to make some brief remarks about forward-looking statements and the use of non-GAAP financial measures. Except for historical information mentioned during the conference call, statements made by management of Group 1 are forward-looking statements that are made pursuant to the safe harbor visions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve both known and unknown risks and uncertainties which may cause the company's actual results in future periods to differ materially from forecasted results.

1:10 Those risks include, but are not limited to, risks associated with pricing, volume, inventory supply, conditions of markets, successful integration of acquisitions, Adverse Developments in the Global Economy and Resulting Impacts on Demand for New and Used Vehicles and Related Services, the Timing and Proceeds of Planned Dispositions, and Trade Policy, Tariffs, and Manufacturing Relationships. Those and other risks are described in the company's filings with the Securities and Exchange Commission. Participating with me on today's call, Daryl Kenningham, our President and Chief Executive Officer, and Daniel McHenry, CEO, UK Operations and Chief Financial Officer. I'll now hand the call over to Daryl.

2:10 Thank you, Pete. Good morning, everyone. There's plenty of narrative these days around headwinds in our sector and in the broader economy. Affordability is certainly an issue. Negative equity, higher interest rates, are all getting plenty of airtime. Most of that we can't control at all. What we can control is how well we execute. Compared to the second quarter in the U.S., Group 1 improved our year-over-year performance in new and used unit sales, new and used PRU, and SG&A leverage. Also, as industry new units declined from the second to the third quarter, Our new vehicle sales increased. So we were pleased with our execution as we transitioned from Q2 to Q3.

3:00 Turning to after sales. In Q3, Group 1 set an all-time record in customer pay revenue and RO count in the U.S. Our same-store RO count was up over 4%. We also grew customer pay revenue 3.2%, lapping an 8% quarter last year. and we increased gross profit nearly 2%. We achieved that growth in several ways. As we discussed last quarter, new vehicle customers who purchased vehicles in the and keep those customers in Group 1 dealerships, we focused first on affordability.

3:52 We launched our 1776 oil change campaign in June and it drove over 36,000 customers into our shops. Also, given that the average vehicle in a Group 1 service drive has over 67,000 miles on it, some customers are facing expensive repair bills. So we emphasized our available financing on large repair bills. As a result, we saw 12,200 customers apply for financing in the quarter, a 7% increase year-over-year. As an additional retention measure, OneCare, our discounted maintenance plan at Group 1, beyond Houston and are now selling it across our U.S. footprint. Our teams have sold nearly 62,000 OneCare plans this year, and we expect to finish the year around 100,000, supporting repeat visits for factory recommended maintenance in the years ahead.

4:50 We also continue our focus on adding capacity to our shops without additional capital investment. Since 2019, Group 1 has done a great job hiring entertaining technicians. We've increased our

5:14 Several things can affect tech productivity. One of them is service advisor effectiveness.

5:35 Increase the effectiveness of our newer technicians. Through these efforts, We saw a 7.2% increase in tech productivity in the third quarter. We believe there's an unlimited amount of after sales business available to us. We're committed to aggressively pursuing every avenue to capture that business in Group 1 workshops. We have more work to do to stay competitive and engage our customers in after sales, but we will be relentless in our efforts. In SG&A, the cost reduction actions we took earlier this year have held. We further leveraged compensation in the third quarter, even in a falling gross profit environment, and we intend to stay focused on SG&A leverage in this environment.

6:20 Our used vehicle unit volumes improved sequentially, and our same-store PRU improved year over year. To address customers' affordability concerns, we were able to lower our transaction price $300 over the second quarter and reduce our inventory mix of $40,000 vehicles. and in an effort to retain more vehicles for retail, we lessened our reliance on wholesale channels in the third quarter. Our US used vehicle same store sales were down 10% in a quarter on increased PRU. That's an improvement compared to our 14% decline in the second quarter, but we still have work to do in this area. Now turning to F&I. Virtual F&I is now in 70 stores across the US.

7:06 Our customers love it. They see shorter wait times and our NPS scores are well over our target. In our surveys, when customers are asked about their preference for a virtual experience in the future, they give us a rating of 9.5 out of 10. Virtual F&I is also driving our overall compensation costs lower. F&I comp as a percentage of gross profit is down 100 basis points year over year. We've also begun private labeling F&I products under the Group 1 brand name, which dovetails with our rebranding initiative. Our Group 1 rebranding initiative is showing great progress. In rebranded markets, Group 1 brand awareness now equals the brand awareness of our legacy store names with our existing customers. We're also encouraged by positive sales results.

7:57 Our rebranded markets are outperforming

8:07 Our professional image, personalized more efficiently, and offer programs such as OneCare, our 1776 oil change, and private label F&I products consistently across all of our stores. Also, and very important in these days of large language model searches, a single brand name is benefited by things such as reputation scores across our footprint. Given that Group 1 Group One's Reputation.com score is a... Now turning to our acquisition of the Hennessy Automotive Companies.

8:53 We closed on this transaction last week. We're grateful to the Hennessy family for 62 years of stewardship and are proud to welcome their team to the Group One family. Hennessy, is a well-run business that strengthens our position in the Atlanta market. We now have 15 stores representing outstanding brands in the Atlanta metro, generating nearly $3 billion in annual revenue. The acquisition adds 10 dealerships and approximately $1.7 billion in annualized revenue. Approximately 75% of the portfolio is luxury, serving customers who are generally less affected by affordability pressures.

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