Group 1 Earnings: Buybacks Boost EPS and Firm Looks Well Positioned To Succeed in 2023

We see nothing in Group 1′s GPI first-quarter results to merit changing our fair value estimate. Adjusted diluted EPS from continuing operations grew 1.1% year over year to $10.93, which beat the Refinitiv consensus of $9.87. We calculate EPS would have fallen 15.5% excluding share repurchases done since the prior year’s quarter. For the 18 months ended March 31, management has reduced the number of outstanding shares by 23.1% at an average price of $178.91 per share, which we like as it is below our fair value estimate and below where the stock trades on April 26. The first quarter saw 1.3% of the beginning 2023 share count repurchased for $34.7 million and remaining authorization is $128.5 million. The board also increased the annualized dividend rate by 20% in February to $1.80 per share. With $672 million in liquidity we see the company well set up to grow via acquisitions while also continuing to return cash to shareholders. The company said some sellers of potential acquisition targets are having unrealistic expectations, so aggressive repurchases are, in our view, likely to remain a key part of capital allocation this year. In March, however, Group 1 acquired the fifth-largest Chevrolet store in Florida, which is expected to add $150 million in annual revenue.

Same-store revenue rose 3.9% and was up 6% excluding foreign exchange, while total revenue grew 7.4% thanks to strong double-digit growth in new-vehicle and service revenue. Service also had an all-time record quarterly sales and gross profit as deferred maintenance from the pandemic continues to now be done. Management talked about further service gains possible if it can increase its service customer retention above the current 68% level (based on a vehicle having two service visits across 15 months) and hire more technicians. The latter is an ongoing problem for the industry, but Group 1 has had success increasing its head count by offering a flexible work schedule.