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Group 1 Exceed 2Q Expectations, Lowers Forecast

July 29, 2008

Gains in Group 1 Automotive Inc.'s F&I and service and parts operations helped the auto retailer post a quarterly profit Tuesday, which exceeded the expectations of analysts amid a weak market for new cars.

The industry wide slump in auto sales did lead to a 29 percent drop in net, but in terms of sales the No. 4 auto retail chain posted increases of 4.8 and 0.6 percent in parts and service and F&I, respectively.

"The challenges of the new vehicle retail market became even more severe in the second quarter, but our performance in the other areas of our business - used vehicles, parts and service, and finance and insurance - substantially tempered the financial impact of reduced new vehicle sales," said Earl J. Hesterberg, Group 1's president and chief executive officer. "The strategic initiatives we launched two years ago, that were focused on the higher-margin used vehicle, parts and service, and finance and insurance businesses, are delivering the desired results and providing meaningful benefits during this period of weaker new vehicle sales."

The company's net income fell to 17.2 million, or 76 cents per share, in the second quarter, down from $24.2 million a year earlier. Earnings from continuing operations excluding one-time charges were 84 cents per share.

Reuters said analysts on average expected the retail chain to report earnings of 70 cents per share, and quoted a Goldman Sachs analyst saying the results indicated Group 1 was outperforming the industry overall.

Same-store revenue fell 7.1 percent to $1.5 million, which was hurt by reflected a 9.9 percent decrease in new-vehicle revenues and a 5.8 percent decline in total used-vehicle revenues. Same-store gross margin improved 60 basis points to 15.9 percent, helped out by gain in F&I and service and parts revenues.

Despite the better than expected results, the company cut its forecast for industry wide U.S. new-vehicle sales by 1 million to a range of 14 million to 14.5 million vehicles in 2008.

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