CEO: Group 1 Automotive expects to close stores
Group 1 Automotive, Inc. (NYSE:GPI) CEO Earl Hesterberg said the auto retailer will close underperforming stores going forward. The firm plans to incur between $10 million and $15 million in closing and related costs during 2008. Hesterberg made the comments during a morning conference call.
Along with negatively impacting sales, the CEO said the auto industry’s slowdown has hurt the firm’s inventory levels. New vehicle inventory grew to 71 days’ supply from 63 days a year earlier.
“We need to reduce our truck inventory in the second quarter,” Hesterberg said.
The Houston-based company announced before Tuesday’s opening that its first-quarter net income slipped to $16.4 million, or $0.73 per share, compared with $17.5 million, or $0.72 per share, a year earlier. Wall Street analysts anticipated earnings of $0.68 per share.
Quarterly revenue increased slightly to $1.53 billion, compared with $1.52 billion a year earlier. The revenue results also beat Wall Street’s expectation of $1.48 billion.
Same-store revenue declined 3.8% and new vehicle revenue slumped 7%. Cost of sales during the three months ended March 31 was flat at $1.28 billion versus $1.28 billion a year ago. Gross profit rose to $252.1 million, compared with $247.2 million a year earlier.
The firm saw a continued shift in customer interest to cars from trucks, the CEO said. Cars accounted for 55% of sales during the quarter. As a result, more truck-dependent brands such as Chevrolet, Dodge and Ford (NYSE:F) saw a decline in sales, Hesterberg said. The resale value of trucks declined during the quarter, which made truck trade-ins difficult, he said.
“Acceleration of this shift negatively impacted our inventory levels,” Hesterberg said.
Due to the credit environment, Hesterberg said there has been a tightening of lending terms, which has made getting financing for customers more difficult. Group 1 Automotive has been able to procure financing for customers, but in some cases, Hesterberg said the credit environment has hurt profit margins.
In an early Tuesday press release, Group 1 reaffirmed its 2008 earnings guidance of $2.95 to $3.25 per share. Wall Street analysts anticipated earnings of $3.19 per share.
“We are not changing our outlook or guidance for the balance of 2008 at this time,” Hesterberg said. “Although we executed reasonably well in the first quarter, new vehicle sales continue to weaken and key economic barometers such as consumer confidence continue to deteriorate.”
In Tuesday afternoon trading, GPI shares are up 1.99%, or $0.53, at $27.10.
