Group 1 Automotive, Inc. Q4 FY2025 earnings call

• In 2025, Group 1 achieved record revenues and gross profits across major business lines, with parts and service and F&I showing growth.
• In the U.S., acquired outstanding brands in growth markets and disposed of underperforming dealerships, repurchased over 10% of shares.
• In the UK, faced challenging macroeconomic environment, reduced headcount, continued restructuring initiatives including JLR brand exit, completed systems integration, consolidated customer contact centers, and saw positive impact of U.S. operating practices in aftersales.
• Utilized AI and productivity tools in various areas like sales, F&I, aftersales, and marketing to drive productivity and efficiency.

In 2025, Group 1 Automotive, Inc. achieved record revenues across all major business lines. For the U.S. operations: Fourth-quarter new vehicle unit sales declined slightly but average selling prices increased; used vehicle operations performed well with revenues up ~41% on an as-reported and same-store basis though GPUs declined 8% same-store due to higher used inventory costs; F&I GPUs grew nearly 3%; aftersales gross profit benefited from collision optimization with customer pay and warranty revenues and gross profits increasing significantly. For the UK operations: Same-store revenues grew almost across every business line; new vehicle same-store volumes declined 8.2% and local currency GPUs moderated; used vehicle same-store revenues up over 9% but GPUs declined almost 19%; aftersales and F&I delivered year-over-year growth in revenue and gross profit.

• Bullish on used car opportunity in 2026, expecting sustainable volumes with disciplined acquisition.
• Targets for SG&A: In the U.S., aiming for mid to high 60% of gross profit on an annualized basis; in the UK, targeting SG&A percentage around 80% in non-plate change quarters and lower in plate change quarters.
• Preference to keep leverage below three times and continue to be aggressive in acquisitions and buybacks when appropriate.

• Risks associated with pricing, volume, inventory supply, conditions of markets, successful integration of acquisitions, and adverse developments in the global economy and resulting impacts on demand for new and used vehicles and related services.

Q: Could you give us a sense of what the impairments were tied to this quarter?

A: The impairments related virtually totally to the U.S. business, principal brand was Audi, and there was an impairment in the Maryland stroke DC market.

Q: As we go into 2026, around SG&A, any specific productivity type actions in the U.S. using AI?

A: Using AI in every part of the business, like in customer interface, back office, sales operations with lead management, CRM control, parts and service, marketing with predictive analytics.

Q: On the UK restructuring plan, what inning is it in and how long?

A: In the earlier innings, more work to do, and costs taken out throughout 2025 should benefit in 2026.

Q: Dynamics between broader economy headwinds versus increased penetration from Chinese OEMs in UK?

A: Chinese OEMs' Q4 share leveled off at under 12%, well-positioned in heavy luxury which Chinese aren't in much, continuing to watch and make moves to offset impact.

Q: Magnitude of restructuring in UK going forward?

A: Not anything like $28 million this quarter or 2026 as significant work already done.

Q: Post-restructuring trends for used GPUs and SG&A as % of GP in UK and U.S.?

A: U.S. used GPUs higher than pre-COVID but lower than a year ago, UK aims for better used GPU performance; SG&A in U.S. mid to high 60% annualized, UK targeted around 80% in non-plate change quarters.

Q: Need to do a lot of divestitures every year or 2025 was outlier?

A: 2025 was more of an outlier, some divestitures in U.S. and UK ongoing but not as active long-term.

Q: Capital allocation preference in 2026?

A: Preference to keep leverage below three times, aggressive in acquisitions and buybacks but only for accretive deals.

Q: Thoughts on 2026 GPU, lapping EV tax credit, easier vs harder part of year?

A: EV impact small for Group 1, margins on EVs better than a year ago; focus on what can be controlled, opportunities to grow in U.S. in 2026.

Q: Lease returns in 2026, impact on business?

A: Uptick in lease returns a good source of premium used cars, hopeful tax returns and refunds buoy used car business, focus on disciplined sourcing using technology.

Q: Used vehicle market in U.S., volumes and sustainability?

A: Bullish on used car opportunity, volumes sustainable with disciplined acquisition using AI, focusing on service to sales and auction buying.

Q: New car GPUs, factors and outlook?

A: Softening in luxury in 4Q, but expecting moderation as Mercedes and BMW inventory improves, mass market GPUs holding up well.