Group 1 Automotive, Inc., a Fortune 500 company and operator in the automotive retailing industry, on July 26 reported its first billion-dollar quarter, with gains in revenues, net income and earnings per share for the second quarter and first six months of 2001. Successful execution of the company's operating and investment strategies combined to produce the record results for both periods, according to company officials.

Highlights

-- Q2 revenues up 8 percent; net income rises 18 percent

-- Q2 diluted EPS $0.68, a 26 percent increase

-- Six-month revenues increase 8 percent; diluted EPS up 24 percent to $1.15

-- Cash flow per share $0.88 for Q2, $1.57 for six months

"I am pleased to announce a record second-quarter performance at a time when North American new vehicle sales slowed from the pace of 2000," said B.B. Hollingsworth Jr., Group 1's chairman, president and chief executive officer.

"The last three quarters have given us the opportunity to validate our business model by demonstrating our ability to generate satisfactory returns in a less robust new vehicle market," Hollingsworth said. "During a challenging period for many companies, we responded by producing earnings per share growth that exceeded expectations. We have now delivered 15 periods of double-digit quarterly earnings per share growth on a year-over-year basis since going public."

Revenues Increase in All Categories

For the second quarter ended June 30, 2001, revenues grew 8 percent to more than $1.0 billion from $930.1 million for the same period last year. New-vehicle revenues grew 6 percent on a unit sales increase of 1 percent. Used-vehicle revenues and unit sales both rose 9 percent. Parts and service and other dealership revenues grew 18 percent and 22 percent, respectively.

Net income increased 18 percent to $14.1 million from $11.9 million, while diluted earnings per share grew 26 percent to $0.68 from $0.54 a year ago. Diluted cash flow per share, defined as net income plus depreciation and amortization, increased 22 percent to $0.88 from $0.72 in the 2000 period.

Gross margin for the quarter increased to 15.3 percent compared with 14.6 percent during the year-ago period. This was due to a shift in the company's merchandising mix as used-vehicle, parts and service, and other dealership revenues grew more rapidly than new-vehicle sales, which carry the lowest margin.

Income from operations rose to $34.3 million from $32.6 million, a 5 percent increase. Operating margin was 3.4 percent compared with 3.5 percent during the year-ago period. Floorplan interest expense declined to 0.8 percent of revenues from 1.0 percent of revenues for the same period last year, as interest rates fell and the company's inventory levels were on target for the quarter.

"Growth across our entire revenue base produced our first billion-dollar quarter," Hollingsworth said. "We continue to demonstrate our strength as a specialty retailer and the importance of having diverse revenue streams." Hollingsworth noted that from a brand standpoint, Toyota, Lexus and Ford were among the strongest performers.

Record Performance for Six Months

For the first six months of 2001, revenues reached $1.9 billion, an 8 percent increase from $1.8 billion for the same period last year. New-vehicle revenues grew 6 percent on flat unit sales. Used-vehicle revenues expanded 9 percent and unit sales were up 11 percent. Parts and service and other dealership revenues grew 17 percent and 23 percent, respectively.

Diluted earnings per share increased 24 percent to $1.15 on net income of $23.4 million, compared with $0.93 per diluted share on net income of $20.9 million, for the first six months of 2000. Diluted cash flow per share increased 23 percent to $1.57 from $1.28.

Year-to-date gross margin for 2001 increased to 15.3 percent compared with 14.6 percent in the 2000 period. The shift in merchandising mix that impacted gross margin in the second quarter had a similar effect on the six-month period. Income from operations rose 8 percent to $62.8 million from $58.4 million, and the operating margin was 3.2 percent compared with 3.3 percent last year.

2001 Outlook Raised

"Used-vehicle, parts and service, and other dealership revenues, all of which produce higher margins than new-vehicle revenues, have been outstanding," Hollingsworth said. "At the same time, interest expense has been positively impacted by a more favorable interest rate environment. We expect these trends to continue for at least the remainder of the year."

Hollingsworth said Group 1 now expects full-year 2001 to show 15 percent to 20 percent growth in earnings per share to $2.15 to $2.25 on 5 percent to 10 percent higher revenues, and expects further growth in both revenues and earnings per share in 2002.

Group 1 said it will continue to seek strategic tuck-in acquisitions in markets currently served, with a target of adding dealerships with aggregate revenues of approximately $200 million during 2001. The company noted that it expects the acquisition pace to accelerate significantly in 2002, with platform acquisitions once again being a priority.

Second-Quarter Conference Call

Group 1 held a conference call to discuss second-quarter results and management's outlook for 2001 at 10:00 a.m. EDT on Thursday, July 26, 2001. The call will be available for replay over the Internet via www.vcall.com or www.ccbn.com. Links will also be available on Group 1's website, www.group1auto.com.

About Group 1

Group 1, a Fortune 500 company, is an operator in the automotive retailing industry.

The company has annual revenues of more than $3.8 billion, and owns 59 dealerships comprised of 101 franchises, 30 different brands, and 22 collision service centers located in Texas, Oklahoma, Florida, New Mexico, Colorado, Georgia, Louisiana and Massachusetts.

Through its dealerships and Internet sites, the company sells new and used cars and light trucks, arranges related financing, vehicle service and insurance contracts, provides maintenance and repair services and sells replacement parts.