Group 1 Automotive Q3 2026 Earnings Call - Record After-Sales and Strategic Portfolio Shift via Hennessy Acquisition

Operator: Morning, ladies and gentlemen, and welcome to Group 1 Automotive’s third quarter of 2026 financial results conference call. Please be advised that this call is being recorded. I would now like to turn the call over to Mr. Pete DeLongchamps, Group 1 Senior Vice President, Manufacturer Relations, Financial Services, and Corporate Development. Please go ahead, Mr. DeLongchamps.

Pete DeLongchamps, Senior Vice President, Manufacturer Relations, Financial Services, and Corporate Development, Group 1 Automotive: Thank you, Joe, and good morning, everyone, and welcome to today’s call. The earnings release we issued this morning and a related slide presentation that include reconciliations related to the adjusted results we will refer to on this call for comparison purposes have been posted to Group 1’s website. Before we begin, I’d like to make some brief remarks about forward-looking statements and the use of non-GAAP financial measures. Except for historical information mentioned during the conference call, statements made by management of Group 1 are forward-looking statements that are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve both known and unknown risks and uncertainties, which may cause the company’s actual results in future periods to differ materially from forecasted results.

Those risks include, but are not limited to, risks associated with pricing, volume, inventory supply, conditions of markets, successful integration of acquisitions, adverse developments in the global economy and resulting impacts on demand for new and used vehicles and related services, the timing and proceeds of planned dispositions and trade policy, tariffs, and manufacturer relationships. Those and other risks are described in the company’s filings with the Securities and Exchange Commission. Participating with me on today’s call, Daryl Kenningham, our President and Chief Executive Officer, and Daniel McHenry, CEO, U.K. Operations and Chief Financial Officer. I’ll now hand the call over to Daryl.

Daryl Kenningham, President and Chief Executive Officer, Group 1 Automotive: Thank you, Pete. Good morning, everyone. There’s plenty of narrative these days around headwinds in our sector and in the broader economy. Affordability is certainly an issue. Negative equity, higher interest rates, cost of ownership, finance terms, geopolitical issues, and declining SAR are all getting plenty of airtime. Most of that we can’t control at all. What we can control is how well we execute. Compared to the second quarter in the U.S., Group 1 improved our year-over-year performance in new and used unit sales, new and used PRU, and SG&A leverage. Also, as industry new units declined from the second to the third quarter, our new vehicle sales increased. So we were pleased with our execution as we transitioned from Q2 to Q3. Turning to after-sales. In Q3, Group 1 set an all-time record in customer pay revenue and RO count in the U.S.

Our same-store RO count was up over 4%. We also grew customer pay revenue 3.2%, lapping an 8% quarter last year, and we increased gross profit nearly 2%. We achieved that growth in several ways. As we discussed last quarter, new vehicle customers who purchased vehicles and keep those customers in Group 1 dealerships, we focused first on affordability. We launched our $17.76 oil change campaign in June, and it drove over 36,000 customers into our shops. Also, given that the average vehicle in a Group 1 service drive has over 67,000 miles on it, some customers are facing expensive repair bills. So we emphasized our available financing on large repair bills. As a result, we saw 12,200 customers apply for financing in the quarter, a 7% increase year over year.

As an additional retention measure, OneCare, our discounted maintenance plan at Group 1, beyond Houston and are now selling it across our U.S. footprint. Our teams have sold nearly 62,000 OneCare plans this year, and we expect to finish the year around 100,000, supporting repeat visits for factory-recommended maintenance in the years ahead. We also continue our focus on adding capacity to our shops without additional capital investment. Since 2019, Group 1 has done a great job hiring and retaining technicians. We’ve increased our Several things can affect tech productivity. One of them is service advisor effectiveness. increase the effectiveness of our newer technicians. Through these efforts, we saw a 7.2% increase in tech productivity in the third quarter. We believe there’s an unlimited amount of after-sales business available to us. We’re committed to aggressively pursuing every avenue to capture that business in Group 1 workshops.

We have more work to do to stay competitive and engage our customers in after sales, but we will be relentless in our efforts. In SG&A, the cost reduction actions we took earlier this year have held. We further leveraged compensation in the third quarter, even in a falling gross profit environment, and we intend to stay focused on SG&A leverage in this environment. Our used vehicle unit volumes improved sequentially and our same-store PRU improved year over year. To address customers with affordability concerns, we were able to lower our transaction price $300 over the second quarter and reduce our inventory mix of $40,000 vehicles. In an effort to retain more vehicles for retail, we lessened our reliance on wholesale channels in the third quarter. Our U.S. used vehicle same-store sales were down 10% in the quarter on increased PRU.

That’s an improvement compared to our 14% decline in the second quarter, but we still have work to do in this area. Now turning to F&I. Virtual F&I is now in 70 stores across the U.S. Our customers love it. They see shorter wait times and our NPS scores are well over our target. In our surveys, when customers are asked about their preference for a virtual experience in the future, they give us a rating of 9.5 out of 10. Virtual F&I is also driving our overall compensation costs lower. F&I comp as a percentage of gross profit is down 100 basis points year over year. We’ve also begun private labeling F&I products under the Group 1 brand name, which dovetails with our rebranding initiative. Our Group 1 rebranding initiative is showing great progress.

In rebranded markets, Group 1 brand awareness now equals the brand awareness of our legacy store names with our existing customers. We are also encouraged by positive sales results. Our rebranded markets are outperforming our professional image, size more efficiently, and offer programs such as OneCare, our $17.76 oil change, and private label F&I products consistently across all of our stores. Also, and very important in these days of large language model searches, a single brand name is benefited by things such as reputation scores across our footprint. Given that Group 1’s Reputation.com score is approximately now turning to our acquisition of the Hennessy Automotive companies. We closed on this transaction last week. We are grateful to the Hennessy family for 62 years of stewardship and are proud to welcome their team to the Group 1 family. Hennessy is a well-run business that strengthens our position in the Atlanta market.

We now have 15 stores representing outstanding brands in the Atlanta Metro, generating nearly $3 billion in annual revenue. The acquisition adds 10 dealerships and approximately $1.7 billion in annualized revenue. Approximately 75% of the portfolio is luxury, serving customers who are generally less affected by affordability pressures.

Operator: Pardon me, folks. It seems we have lost connection to the speaker line. Please stand by while we reconnect them. Thank you for your patience. Pardon me, folks. This is the operator speaking. We are still trying to connect the speakers back to the call. Thank you for your patience. You will hear music in the meantime. Pardon me, ladies and gentlemen. This is the operator speaking. We have reconnected the speaker line into the call, and we will begin from the top. Speakers, please go ahead.

Daryl Kenningham, President and Chief Executive Officer, Group 1 Automotive: Good morning again. This is Daryl Kenningham. There is plenty of narrative these days around headwinds in our sector and in the broader economy. Affordability is certainly an issue. Negative equity, higher interest rates, cost of ownership, finance terms, geopolitical issues, a declining SAR are all getting plenty of airtime. We cannot control any of that. We can control how well we execute. Compared to the second quarter in the U.S., Group 1 improved our year-over-year performance in new and used unit sales, new and used PRU, and SG&A leverage. Also, as industry new units declined from Q2 to Q3, our new vehicle sales increased. So we were pleased with our execution as we transitioned into the third quarter. Now, turning to after-sales. In the third quarter, Group 1 set an all-time record in customer pay revenue and RO count in the U.S.

RO count was up over 4% on a same-store basis. We also grew customer pay revenue 3.2%, lapping an 8% quarter last year, and increased gross profit nearly 2%. We achieved that growth in a number of ways. As we discussed last quarter, new vehicle customers who purchased vehicles in the trough SAR years of 2020 to 2022 are now returning to the market as after-sales customers. There are fewer of them, their factory warranties are expiring, they have huge affordability pressures, and they are defecting to the aftermarket. To recapture and keep those customers in Group 1 Automotive dealerships, we focused first on affordability. We launched the $17.76 oil change campaign in June, and it drove over 36,000 customers into our shops. Also, given that the average vehicle in a Group 1 Automotive service drive has over 67,000 miles on it, some customers are facing expensive repair bills.

We emphasized our available financing on large repair bills. As a result, we saw 12,200 customers apply for financing in the quarter, a 7% increase year-over-year. As an additional retention measure, we expanded OneCare, our discounted maintenance plan at Group 1 Automotive, beyond Houston and are now selling it across our U.S. footprint. Our team sold nearly 62,000 OneCare plans so far this year, and we expect to finish the year around 100,000, supporting repeat visits for recommended factory maintenance in the years ahead. We also continued our focus on adding capacity to our shops without additional capital investment. Since 2019, Group 1 Automotive has done a great job hiring and retaining technicians, increasing our same-store technician headcount by 23% in that time. Earlier this year, to improve our throughput, we put more focus on technician productivity. Several things can affect tech productivity.

One of them is service advisor effectiveness. High service advisor turnover leads to low technician productivity. We put programs in place to reduce our advisor turnover, and were successful in lowering it by 6% year-over-year. We also implemented an updated technician mentoring program to increase the effectiveness of our newer technicians. Through these efforts, we saw a 7.2% increase in tech productivity in the third quarter. We believe there’s an unlimited amount of after-sales business available to us, and we’re committed to aggressively pursuing every avenue to capture that business in Group 1 Automotive workshops. We have more work to do to stay competitive and engage our customers in after sales, and we will be relentless in our efforts. Turning to SG&A. The cost reductions we implemented earlier this year have held. We further leveraged compensation in the third quarter, even in a falling gross environment.

We intend to stay focused on SG&A and leverage in this environment. Our used vehicle volumes improved sequentially, and our same-store PRU improved year-over-year. To address customers’ affordability concerns, we were able to lower our transaction price $300 compared to the second quarter, and we reduced our inventory mix of $40,000-plus vehicles. In an effort to retain more vehicles for retail, we lessened our reliance on the wholesale channels in the third quarter. Our U.S. used vehicle same-store sales were down 10% on increased PRU. That’s an improvement compared to our performance in the second quarter, but we still have work to do in this area. Now turning to F&I. Virtual F&I is now in 70 stores across the U.S. Our customers love it. They see shorter wait times, and our NPS scores are well above our targets.

In our surveys, when customers are asked about their preference for a virtual experience in the future, 9.5 out of 10 of those customers say they prefer it. Virtual F&I is also driving our overall compensation costs lower. F&I comp as a percentage of gross profit is down 100 basis points year-over-year. We’ve also begun private labeling F&I products under the Group 1 name, which dovetails with the rebranding initiative. Our Group 1 rebranding initiative is showing great progress. In rebranded markets, Group 1 brand awareness now equals the brand awareness of our legacy store names with our existing customers. We are also encouraged by our positive sales results. Our rebranded markets are outperforming our non-branded markets in year-over-year new vehicle sales performance.

A unified brand allows Group 1 to present a more professional image, advertise more efficiently, and offer programs such as 1Care, our $17.76 oil change, and private label F&I products consistently across our stores. Also, and very important in these days of large language model searches, a single brand name is benefited by things such as reputation scores across our entire footprint. Given that Group 1’s Reputation.com score is approximately 100 points above the automotive retail average, this is another advantage of a singular brand name in today’s AI-driven search world. Now turning to our acquisition of the Hennessy Automotive companies. We closed on this transaction last week. We’re grateful to the Hennessy family for 62 years of stewardship and are proud to welcome their team to the Group 1 family. Hennessy is a well-run business that strengthens our position in the Atlanta market.

We now have 15 stores representing outstanding brands in the Atlanta Metro, generating nearly $3 billion in annual revenue. The acquisition adds 10 dealerships and approximately $1.7 billion in annualized revenue. Approximately 75% of the portfolio is luxury, serving customers who are generally less affected by affordability pressures. These dealerships generate EBITDA margins of approximately 7% and add substantial after-sales capacity, including 500 service bays and 280 technicians. The Hennessy acquisition alone increased our service bay count by over 10% in the U.S. Additionally, the Atlanta market is extremely attractive. It is the sixth-largest MSA in America and is the fastest-growing market in the Southeast. Average household income in Hennessy’s market is nearly double the U.S.

In the Atlanta metro, Group 1 now owns three Land Rover, two Lexus, two Porsche, one Mercedes-Benz, two Toyota, two Ford, two Honda, one Lincoln, and one Cadillac store, with an average rooftop revenue of $170 million annually. The Hennessy acquisition is a strong strategic fit for Group 1. It reinforces our focus on investing in high-revenue, premium brand dealerships with attractive margins and SG&A leverage in growing markets where we have an established presence. We’ve also made very good progress disposing of stores that no longer fit our strategy. I will now turn the call over to Daniel McHenry, who will provide more specifics on those dispositions, their timing, and an overview of our financial performance. Daniel?

Daniel McHenry, CEO, U.K. Operations and Chief Financial Officer, Group 1 Automotive: Thank you, and good morning, everyone. In the third quarter of 2026, Group 1 Automotive reported revenues of $5.4 billion, gross profit of $855 million, adjusted net income of $112 million, and adjusted diluted EPS of $9.36 from continuing operations. Most operating metrics I will speak to same-store growth rates. Consolidation growth rates are lower than same-store growth rates, reflecting dispositions as part of our portfolio optimization. Starting with our U.S. operations. New vehicle sales declined 4.6% on a same-store basis. New vehicle GPUs decreased sequentially from $3,260 to $3,084, largely reflecting timing of model year changeovers. In used vehicles, gross profit per unit remained stable year over year despite acquisition cost pressure and sourcing competition, but declined sequentially, reflecting model year changeover timing as well. After-sales continued to provide stability to our earnings, as Darryl mentioned.

We are executing initiatives to drive RO count growth and believe our customer pay performance in the quarter was relatively strong in the current environment. Same-store customer pay revenue increased approximately 3%, with over 4% growth in repair order count. Same-store warranty was flat, which is solid against a warranty comp that was up 16% from the previous comparable period. We continue to optimize our collision footprint by reallocating capacity towards traditional service work, where we see stronger long-term returns, while also closing centers that do not meet return thresholds. This resulted in a 14% and a 12% decline in same-store collision revenues and gross profit, respectively. Additionally, aftersales gross profit was negatively impacted by lower internal reconditioning work associated with the declines in used units. Shifting to cost. The cost-saving actions implemented earlier this year continue to benefit our expense base.

While adjusted SG&A as a percent of gross increased sequentially to 67.7%, our variable cost structure allows us to quickly react to macro changes, and we expect additional SG&A leverage from the Hennessy acquisition and associated dispositions, which I will touch on later. Turning to the U.K. In my first full quarter leading the U.K. business, I continue to be encouraged by signs of progress. The U.K. is progressing against its strategic plan, and we saw same-store increases in new vehicle sales, new and used vehicle PRU, and parts and service. We have refocused the team on growth initiatives to regain our sales momentum and drive our aftersales business. Despite a difficult macro environment, new vehicle sales increased 8% on a same-store basis, driven by a strong September plate change month. Importantly, same-store gross profit per unit was up 4% year over year on a local currency basis.

For used vehicles, we focused on reducing inventory prior to the September plate change month, and as a result, same-store gross profit per unit was up 14% year over year on a local currency basis, while same-store volumes declined just 5%. We remain focused on balancing volume and profitability as market conditions evolve. Aftersales continued to build momentum with same-store revenue and gross profit year over year up 7% and 4%, respectively, on a local currency basis. F&I PRU held flat year over year on a local currency basis in a challenging macro environment. Aftersales and F&I remain central to the strategy of improving earnings quality in the U.K., and we continue to leverage proven operating practices from our U.S. operations to improve longer-term performance, and we are pleased with the aftersales results in the quarter.

On expenses, adjusted SG&A as a percent of gross profit on a year-to-date basis was 80.8%. We remain focused on cost control and operating efficiency, and we expect to drive further SG&A leverage as we grow gross profit. We continue to develop relationships with Chinese automakers. In addition to our existing Leapmotor franchise, we now have two Geely franchises open and a third expected to open by year-end. We have also agreed with Chinese automaker Chery to open an Omoda & Jaecoo franchise later this year. While Chinese brands are a small part of the business, we remain open to additional opportunities with Chinese OEM partners. Turning to an update on the Hennessy acquisition, dispositions, and capital allocation. We closed the Hennessy acquisition in early in Q4. Hennessy adds approximately $1.7 billion in revenue and 22,000 units with an adjusted EBITDA margin of 7%.

We have also made significant progress on our disposition plans to fund half of the acquisition and optimize our portfolio. We are expecting $360 million of proceeds from closed or under definitive agreement sales to date and are on track to raise approximately $625 million to $675 million in total around the middle of 2027. Our planned dispositions are expected to total approximately $1.1 billion to $1.2 billion of revenue and 22,000 units. Group 1’s adjusted EBITDA margin is currently approximately 4%. Taken together, Hennessy and the planned dispositions materially improve the earnings profile and quality of our portfolio. On a pro forma basis, we expect these actions to increase our adjusted EBITDA margin by approximately 30 basis points and reduce SG&A as a percent of gross profit by approximately 100 basis points. Turning to our balance sheet and liquidity.

As of September 30th, our liquidity of $2.5 billion was composed of accessible cash of $1 billion and $1.4 billion available to borrow on our acquisition line. Our rent-adjusted leverage ratio, as defined by our U.S. syndicated credit facility, was 3.3 times at the end of September. On a pro forma basis reflecting the Hennessy acquisition and our October disclosed dispositions, it would’ve been approximately four times. We plan to return to our target of around three times by mid to late 2027, and we expect to resume share repurchases as we get closer to that target. While we believe in a balanced capital allocation strategy, our immediate priority is to reduce our leverage. Cash flow generation to date 2026 yielded $350 million of adjusted operating cash flow and $219 million of free cash flow after backing out $131 million of CapEx.

For CapEx, we expect to benefit from portfolio actions with the Hennessy acquisition and disposition plan, which results in lower capital expenditure requirements. This capital was deployed in the same period through a combination of acquisitions, share repurchases, and dividends, including the acquisition of $340 million in revenues through September 30th, $72.4 million repurchasing 205,190 shares at an average price of $353.08, and $20 million in dividends to our shareholders. During the third quarter 2026, we elected to hold cash ahead of the Hennessy acquisition while preserving flexibility to optimize leverage. We currently have $306 million remaining on our board-authorized common share repurchase program. I will now turn the call over to the operator to begin the question and answer session. Operator.

Operator: We will now begin the question and answer session. To ask a question, you may press star then one on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw a question, please press star then two. We ask that you please limit yourself to one question and one follow-up. At this time, we will pause just momentarily to assemble our roster. Our first question here will come from Glenn Chin with Seaport Research Partners. Please go ahead.

Glenn Chin, Analyst, Seaport Research Partners: Oh, wow. Thank you. Thank you team, and thank you for all the detail around the dispositions. Can you just confirm for me, I just want to make sure I am not double counting nor missing anything, but by mid-2027, can you just confirm that collectively that will have, or you will have expected to dispose of almost $2 billion in revenue? Is that the right neighborhood?

Daniel McHenry, CEO, U.K. Operations and Chief Financial Officer, Group 1 Automotive: Glenn, this is Daniel. The expectation of total revenue that we will dispose of by mid-2027 is $1.1 billion to $1.2 billion in revenues. Expected proceeds for that $1.1 billion in revenues is somewhere between $625 million to $675 million.

Glenn Chin, Analyst, Seaport Research Partners: But does that not include, Daniel, all the dispositions you have made to date, for example? That is on top of that, correct?

Daniel McHenry, CEO, U.K. Operations and Chief Financial Officer, Group 1 Automotive: That’s-

Daryl Kenningham, President and Chief Executive Officer, Group 1 Automotive: Inclusive

Daniel McHenry, CEO, U.K. Operations and Chief Financial Officer, Group 1 Automotive: inclusive of the dispositions that we’ve made through Q3.

Daryl Kenningham, President and Chief Executive Officer, Group 1 Automotive: We’ve done about half that number. We’ve got about half those proceeds with the dispositions we’ve done to date, Glenn. About $350 million.

Glenn Chin, Analyst, Seaport Research Partners: Okay. All right, so really all in by mid-2027, you will have expected to have disposed of that 1.1-ish?

Daniel McHenry, CEO, U.K. Operations and Chief Financial Officer, Group 1 Automotive: 1.1 to 1.2 billion in revenues. That is correct.

Glenn Chin, Analyst, Seaport Research Partners: Okay. That’s not what I had understood previously, but that’s fine. Thank you again for the detail. Daryl, you mentioned private label F&I products. Can you just elaborate on that, what type of products you’re offering and what it involves? I’m assuming you’re not taking on any risk.

Pete DeLongchamps, Senior Vice President, Manufacturer Relations, Financial Services, and Corporate Development, Group 1 Automotive: No. Glenn, this is Pete DeLong. No, we’re not taking on any risk, but what we think is important as part of the rebranding effort is that we look at things like maintenance and the OneCare products that we can label under Group 1, but that’ll be underwritten by third-party administrators.

Glenn Chin, Analyst, Seaport Research Partners: Okay. Very good. All right. That’s it for me. I’ll get back in the queue. Thank you.

Operator: Our next question will come from Rajat Gupta with JPMorgan. Please go ahead.

Rajat Gupta, Analyst, JPMorgan: Great. Thanks for taking the questions. Just wanted to start with parts and services. We have had two quarters now of declining same-store profit growth in the U.S. I know, Daryl, you mentioned there are obviously areas in the market you cannot control. I am curious, when do you think revenue or profit starts to recover in the service business? Should we start to see that in the fourth quarter? Is there a timeline that you can provide when you can get back to growth or the original mid-single digit framework that you had provided? Just curious to get your thoughts there, and have a quick follow-up.

Daryl Kenningham, President and Chief Executive Officer, Group 1 Automotive: Rajat, I think part of it is warranties flat. We are not seeing any of that. Also, as our used car business continues to recover, that will help us with our internal after-sales business. We keep driving customer pay and 4% year-over-year growth. We want to collect customers, which we did well. I expect we will continue to do that and put that emphasis and focus, and then when we get a little more tailwind, I think that is just additive to it. When you look at the trough SAR years and those customers, we hope to be coming out of that and start to build UIO again here, probably over the next 12 months. Because 10 million units of SAR came out of the industry, which those customers are now not in our service departments. The ones that are there are defecting.

As we get back into the 2023, 2024 customers, where there was 15, 16 million unit SAR years, that customer base and aftersales will start to build again. I would expect we will start to see that again within the next 12 months or so.

Rajat Gupta, Analyst, JPMorgan: Got it. It seems like the price per RO is declining as well. Can you confirm that, Matt? Is there like, even if the UIO does recover at some point, do you expect pricing pressure to persist? I do not know, from just labor rates perspective, just warranty rate perspective, just curious to get your thoughts there. How you think about that.

Daryl Kenningham, President and Chief Executive Officer, Group 1 Automotive: Our hours per RO in the U.S. didn’t change at all year-over-year. I don’t think our hours per RO didn’t change at all.

Rajat Gupta, Analyst, JPMorgan: Understood. Do you expect any pricing pressure going forward, particularly on labor rates, given some of the increases you’ve seen over the last several years?

Daryl Kenningham, President and Chief Executive Officer, Group 1 Automotive: Well, I don’t think there’s room to price. I agree with you there. There’s no room to price. I think you got to stay competitive. We’re going to stay on our affordability messaging. The good thing is an average car that comes into our service drives has almost 68,000 miles on it. You can sell a lot of work on a 68,000-mile car. Just that as an example of this. Our $17.76 oil change, we generated 36,000 customers out of that. But the average RO on those $17.76 oil changes was $180. So, we’re not doing it just to sell cheap oil changes. So our focus is to try to bring in the customers and then sell what’s appropriate. And we feel like we achieved that in the quarter based on where the market was.

Daniel McHenry, CEO, U.K. Operations and Chief Financial Officer, Group 1 Automotive: Rajat, just as a follow-up to your question, it’s Daniel here. The number of CP ROs increased 4.2% in the quarter. The number of hours per RO decreased by 1.4% of the time for RO. And the dollars per RO increased by 0.5%. So that was the makeup of the 3.5% in customer pay.

Rajat Gupta, Analyst, JPMorgan: Okay. Understood. Just wanted to ask on SG&A. You’ve talked about getting the benefit of the cost action from recent quarters. I am curious, given just some of the choppiness in the overall macro, some of the UIO challenges in parts and service, are there any incremental cost actions that you might look to take in the near to medium term to offset some of that? Thanks.

Daniel McHenry, CEO, U.K. Operations and Chief Financial Officer, Group 1 Automotive: Rajat, it is Daniel again. One thing we are always focused on cost at Group 1. We continue to evaluate any cost actions that we can take as a company. Should as and when the market change, we will continue to be laser-focused on cost actions.

Operator: Our next question will come from Mike Ward with Citigroup. Please go ahead.

Mike Ward, Analyst, Citigroup: Thanks very much. Good morning, everyone.

Daryl Kenningham, President and Chief Executive Officer, Group 1 Automotive: Good morning, Mike.

Mike Ward, Analyst, Citigroup: First off, I want to give a shout-out to whoever put together the slide deck. Incredible detail and very well done. Thank you. Turning to the slide deck, on page 27, you have a pretty good rundown on the acquisition and dispositions. I am just checking my math because it looks like you are getting better prices for the sales than what you paid for the acquisitions. It sounds like what, Daniel, what you outlined on the margin front, that on a net-net basis, it is incrementally positive to the margin and earnings front. Is that correct?

Daryl Kenningham, President and Chief Executive Officer, Group 1 Automotive: Well, I think your assumption is not wrong, Mike. We have been pleased with what we have been able to get for the dispositions. You are exactly right. We will see accretion in margins with Hennessy and with the disposal of these lower SG&A levered stores.

Mike Ward, Analyst, Citigroup: Okay. At about half the cost, is that about half the acquisition cost of Hennessy will be offset with some of these dispositions? Okay.

Daryl Kenningham, President and Chief Executive Officer, Group 1 Automotive: Yes.

Mike Ward, Analyst, Citigroup: Secondly, in the U.K., you’ve made some great progress. I’m just curious, Daniel, what’s your target? Can you get back to the 2023, 2024 type performance levels? Is that where you’re looking?

Daniel McHenry, CEO, U.K. Operations and Chief Financial Officer, Group 1 Automotive: Mike, great question. One of the things that I’ve been focused on, I would say over the last 3, 4 months, since being there is really trying to grow the business. I think that we had spent time taking cost out of that business and really being focused on cost, sometimes at the expense of growing the business. Over the last 4 months, I think what we’ve seen from the point of view of new vehicle same-store sales growing by 8%. We are not terribly exposed to Chinese OEMs. When you brand adjust that, I think 8% has been a really good result for new vehicle growth. I think parts and service revenue growth at 7%, against the market that has similar challenges to the U.S. at the moment in terms of the macro headwinds.

Costs are still a little too high. We’re going to continue to focus on that and on getting the costs down to that kind of 80% number that we said for SG&A as a percent of gross. We’re just over that at 80.8% year to date. I do think that there has been significant progress made over the last 6 months.

Operator: Our next question will come from Alex Perry with Bank of America. Please go ahead.

Alex Perry, Analyst, Bank of America: Hi. Thanks for taking our questions here. First, I just wanted to see if we could get a bit more of an update on how the remarketing effort is progressing. Any sort of impact to any major KPIs in the quarter and any stats you can share as you move further past the remarketing, what you’re seeing in key metrics, and then how much more is there left to do there? Thanks.

Daryl Kenningham, President and Chief Executive Officer, Group 1 Automotive: Are you referring to our rebranding?

Alex Perry, Analyst, Bank of America: Yes. Sorry. The rebranding.

Daryl Kenningham, President and Chief Executive Officer, Group 1 Automotive: Well, what we’re seeing is we measure our customer awareness and consideration, and the awareness on the Group 1 brand is now equal to what our legacy brands were among our existing customers. We’re also seeing in the markets that have been rebranded, we’re seeing our sales performance year-over-year is better, about 2 percentage points better than it is in the non-branded markets.

Alex Perry, Analyst, Bank of America: That’s really helpful. How much more is left to do on the rebranding?

Daryl Kenningham, President and Chief Executive Officer, Group 1 Automotive: About a third of the stores. We’re focused on doing it well, not necessarily We’ll do it fast, but we’re doing it well. One of the things that we’re really focused on right now is large language model searches. Those are like a third of automotive searches right now are being done through AI bots. That takes different marketing. It takes setting up your websites very differently. Each different chatbot, whether it’s Gemini or Claude or ChatGPT, rely on different criteria than say Google used to. We are really putting a lot of focus and energy around how to optimize for those AI bot searches.

One of the comments I made earlier was one of the things that’s really important in those searches is if you have one brand name, your good reputation in other stores of that same brand name can affect your stores where somebody’s searching. So if Group 1 Ford customers are searching, our reputation at Group 1 Toyota can help that Group 1 Ford search. Our reputation scores are 100 points higher than the industry average. So that’s a good thing, and that plays into this. Rebranding is not something that happens in isolation. The way customers are shopping is changing quite rapidly, and we’re focused on that as well.

Daniel McHenry, CEO, U.K. Operations and Chief Financial Officer, Group 1 Automotive: Alex, just one stat that I would like just to push out there. Last quarter, there was significant discussion around the Texas market in particular, and that we were having a more difficult time in Texas than some of our other regions. This quarter, we really closed that gap in new vehicles. New vehicle sales in Texas was only down 1.6% in the quarter, which was seen as significantly less than it was down in the prior quarter.

Operator: Our next question will come from Bret Jordan with Jefferies. Please go ahead.

Bret Jordan, Analyst, Jefferies: Hey, good morning, guys. When you think about the parts and service business, I think you mentioned the risk of losing customers to the aftermarket. Are you bringing same SKU service prices down to compete, or are you bringing them in with a discounted oil change as a doorbuster as opposed to broad pricing?

Daryl Kenningham, President and Chief Executive Officer, Group 1 Automotive: We price our maintenance items on the aftermarket, Brett. We have been doing that for several years at Group 1. So when we compete against the oil change and the brake repair places, we price on them as a matter of practice at Group 1 shops. So we don’t feel like we need to take any wholesale reductions in pricing to achieve that. We do think affordability is a bigger issue for customers these days, which is why we launched the $17.76, and we’re just trying to demonstrate there’s value in doing business with us, and we can compete with the aftermarket. At least based on the results we saw from that, we were really pleased with it.

Bret Jordan, Analyst, Jefferies: I guess, a question sort of big picture on brand mix and profitability. Obviously, a lot of headlines around VW, and they’re your largest brand in the U.K., but obviously the other side of the coin is great profitability around Toyota, Lexus, your largest in the U.S. Are you seeing any either changes or big delta in brand profitability, be it pros or cons?

Daryl Kenningham, President and Chief Executive Officer, Group 1 Automotive: Well, I’ll let Daniel speak to the U.K. I’m thrilled we got more luxury in the U.S., and I’m thrilled we’re heavy Toyota Lexus in the U.S. Let me just leave it at that. You do see some separation between some brands that are struggling on profits, and I’m happy with our brand mix, and I think that’s helping us.

Daniel McHenry, CEO, U.K. Operations and Chief Financial Officer, Group 1 Automotive: Regarding the U.K., we actually did pretty well in Volkswagen last quarter. Our Volkswagen sales were up over 20% in the quarter, and margin didn’t really suffer in the quarter. You saw that actually we had both a sequential and a year-on-year increase in new vehicle margin on average. So Brett, against what you might expect, I was pretty pleased with our Volkswagen results.

Operator: Our next question will come from Jeff Lick with Stephens. Please go ahead.

Jeff Lick, Analyst, Stephens: Good morning. Thanks for taking my questions. Daniel, great job in the U.K. Those results are looking good. I guess the first question maybe just dovetails on what Glenn was talking about. The $1.1 billion-$1.2 billion, Daniel, does that include the California divestitures you did in Q1?

Daniel McHenry, CEO, U.K. Operations and Chief Financial Officer, Group 1 Automotive: That does not include the California divestitures that we did in Q1. That is the divestitures that we would have announced, Brett, at the start of the Hennessy acquisition. So divestitures done through Q3 and into Q4.

Jeff Lick, Analyst, Stephens: Well, Brett is pretty smart, so I will not take offense that you called me Brett. Anyway, yeah.

Daniel McHenry, CEO, U.K. Operations and Chief Financial Officer, Group 1 Automotive: Sorry. Sorry, Jeff.

Jeff Lick, Analyst, Stephens: I know. So you have 450 either signed or done subsequent to 3Q ending. I guess, how much more of them is left if you take that 550? Is that basically you need about 660 to get to your 1.2?

Daniel McHenry, CEO, U.K. Operations and Chief Financial Officer, Group 1 Automotive: Yeah, Jeff, I’d say we’re about halfway through in terms

Jeff Lick, Analyst, Stephens: Okay

Daniel McHenry, CEO, U.K. Operations and Chief Financial Officer, Group 1 Automotive: of deals that are at either APA stage or already closed.

Operator: Our next question will come from Joe Spak with UBS. Please go ahead.

Joe Spak, Analyst, UBS: Thanks, everyone. I’m glad to see the pro forma impact on EBITDA margin as junior grows from the Hennessy and dispositions. Was wondering if you could help us dimensionalize what the portfolio might look like on some other aspects, like new vehicle GPU or P&S margins. Then just also to follow up on the dispositions, is there an opportunity to do even more than you’ve laid out to help fund this or maybe bring down leverage a little bit quicker? Just wanted to get your sense on the market there.

Daniel McHenry, CEO, U.K. Operations and Chief Financial Officer, Group 1 Automotive: Daniel here. I will take the first part of the question, and Darryl will take the second part regarding the dispositions. Regarding pro forma, you would expect GPUs to go up for the company as a whole, on the basis that the dispositions that we are making generally are poor performing stores, sometimes with less profitable brands in terms of GPU. You know what we are adding in on top, the Land Rover is one of our highest GPUs, as is Porsche. By pure math, you would expect the GPUs to go up in terms of profit per unit. After-sales, it tends to be our margin does not really diverge much in terms of brands, so I would expect it to be a similar margins as we grow our parts and service business.

As Darryl talked about in the call, with 500 service bays added to Hennessy and approximately 40% of those bays unutilized, as we continue to utilize those bays, you would expect revenues to go up. But for modeling purposes, I would model the same margin. Darryl will pick up on the disposition question.

Daryl Kenningham, President and Chief Executive Officer, Group 1 Automotive: The short answer is yes, there is opportunity to dispose of more. We look at it two ways. We look at it, strategically, does this store fit with us anymore? That is an important part of this. Also, can disposing of something help us lower our leverage? That is another point. But I think the strategic piece is the more critical part on those additional stores that you are referring to.

Joe Spak, Analyst, UBS: Okay. Thank you for that. Affordability, obviously a big topic in the industry, you mentioned it. Was wondering if you could just remind us, how big is your CPO business, and is that something you can lean more into, as consumers are looking for affordable options that could also maybe help used GPU? Because I am assuming those are more profitable vehicles.

Daryl Kenningham, President and Chief Executive Officer, Group 1 Automotive: Yeah. I’m sorry. Go ahead, Pete.

Pete DeLongchamps, Senior Vice President, Manufacturer Relations, Financial Services, and Corporate Development, Group 1 Automotive: That’s okay. Pete DeLongchamps: I would tell you that 28% of our business is CPO, and actually on a gross profit basis, they’re less profitable because it takes higher reconditioning.

Joe Spak, Analyst, UBS: Okay

Pete DeLongchamps, Senior Vice President, Manufacturer Relations, Financial Services, and Corporate Development, Group 1 Automotive: So it’s a balance of front-end gross profit versus long-term retention. We’re focused on it. It’s always been around the 28%-30% penetration rate. But we’re pleased with where we are with CPO.

Operator: Our next question will come from Mike Albanese with StoneX. Please go ahead.

Mike Albanese, Analyst, StoneX: Hi, good morning, guys. Thanks for taking my question. Just, I guess a quick clarifying question on the private label financing, and you had mentioned that it dovetails with the rebranding initiatives. If you could just

kind of explain that. I guess elaborate a little further, and then where are you seeing the lift? Is this mainly on the front end with conversion or penetration, or is this mainly an after-sales tool for the higher-priced services? Thanks.

Pete DeLongchamps, Senior Vice President, Manufacturer Relations, Financial Services, and Corporate Development, Group 1 Automotive: It is mainly an after-sales tool, and it is really not that complicated. What we have just done is taken the maintenance that we are already offering and white labeling Group 1 on top of it so that we can further the rebrand. But for instance, if we are selling a Ford warranty on a new car, we are not rebranding that. But it is about the maintenance piece of it, where we want people to be thinking about and going back to Group 1.

Mike Albanese, Analyst, StoneX: Okay, got it. What was the extent of this rollout so at this point?

Daryl Kenningham, President and Chief Executive Officer, Group 1 Automotive: Well, we’ve rolled out the prepaid maintenance OneCare across our footprint

Mike Albanese, Analyst, StoneX: Well, that, yeah.

Daryl Kenningham, President and Chief Executive Officer, Group 1 Automotive: in the U.S. And then we did talk a little bit about using financing in our after-sales operation, and we saw some success with a little higher take rate on that in the quarter, which we think helps on the affordability piece for after-sales customers.

Mike Albanese, Analyst, StoneX: Got it. I guess the crux of, I guess, really what I’m trying to get at is, I look at the customer pay performance, RO performance. How much of an incremental driver was this on the quarter, or it’s still too much in its infancy to play a role in the broader numbers?

Daryl Kenningham, President and Chief Executive Officer, Group 1 Automotive: I think you need intense focus on affordability and capturing customers, and that is what we are trying to do. Because those customers coming out of warranty, there are fewer of them, and they are defecting at a higher rate. A lot of that is affordability driven. We will continue to focus on that, until we see the market change. For the past few years, there has been the ability to price, but there is no ability to do that anymore.

Operator: Our next question will come from Daniela Haigian with Morgan Stanley. Please go ahead.

Daniela Haigian, Analyst, Morgan Stanley: Great. Thanks for taking the question. I think double-clicking on that affordability piece, I want to ask about the used vehicle side. U.S. same-store volumes were down year-on-year, but PRUs were up. How are you thinking about the mix? I know, Pete, you talked about this a little bit with certified pre-owned, but anything else on sourcing or optimizing profitability versus share as you go into 4Q and 2027?

Pete DeLongchamps, Senior Vice President, Manufacturer Relations, Financial Services, and Corporate Development, Group 1 Automotive: Sure. Clearly affordability is an issue, so we are really focused on trying to drop the acquisition cost and the overall sale price of the pre-owned. Sourcing remains challenging. I was very pleased to see that we are only 10% auction because as you know, those are usually the highest priced and lowest gross profit units that we merchandise. We were pleased with the progress we are making on acquisition cost and sourcing. 80%-plus was through trades or purchases. Only 10%, I said, was auction. I think sequentially, we made really great progress, but clearly we are not pleased with the overall volumes, and that is a top priority in the company.

Daniela Haigian, Analyst, Morgan Stanley: Great. Thank you. Just thinking about outlook into the fourth quarter and 2027, the timing of some of these benefits from the Hennessy acquisition and other improvements you are making to the business, such as rebranding. When should we start to see that flow through into SG&A, into parts and service, et cetera?

Daryl Kenningham, President and Chief Executive Officer, Group 1 Automotive: Well, the Hennessy stores run well today. We see opportunities for improvement, which I expect we will see over the first half of next year out of Hennessy. Some of the other levers that we discussed, you will see those, I think, on a regular basis in Q4 and into end of the first quarter of next year.

Operator: Our next question will come from John Babcock with Barclays. Please go ahead.

John Babcock, Analyst, Barclays: Hey, guys. Thanks for taking my questions. For first one, it seems like at least there are initial signs that rates may be rising more sustainably here. I just want to, because you have a decent bit of variable rate debt, how are you thinking about your capital structure? Are you still comfortable with that 3 times target, or does it maybe make sense to get further below that if rates do rise more? Also, if you could just generally talk about your plans with the capital structure overall, that would be helpful.

Daniel McHenry, CEO, U.K. Operations and Chief Financial Officer, Group 1 Automotive: Capital structure overall, clearly we did our bond deal in Q3. I would say I was pleased with the rate that we came out there. It significantly pushes our debt out into the future with those two tranches of $625 million each. The 4% bonds are going to come due 2028. We will start to deal with those shortly I would say. Clearly that rate is still a great rate to have out there. We will get those paid off with the liquidity that we have in our balance sheet today, and we have about $1 billion in terms of liquidity today. 3 times really is our target of leverage. I think if we get down to 3 times, we would like to get back to buying our stock back.

You can see that the stock today is super attractive in terms of its price both for investors and for Group 1. As soon as we can get down to that 3 times leverage, that is where we will be more focused.

John Babcock, Analyst, Barclays: Okay, thanks. My other question is really just, I was wondering if you could talk about comparing how the consumer generally, how they are reacting both in your new and used vehicle businesses and also just parts and service now relative to how they had been back last quarter. Just want to get some sense as to whether there has been any notable weakening or if there is anything else to call out there.

Daryl Kenningham, President and Chief Executive Officer, Group 1 Automotive: I think in the quarter it is too early to tell. I have not seen a discernible difference between where we were and where we are. We do know affordability is an issue, and pricing in any place is difficult or impossible, and that is kind of how we are trying to manage the business.

Operator: Our next question will come from David Whiston with Morningstar. Please go ahead.

David Whiston, Analyst, Morningstar: Thanks. Good morning. I was just curious on the change with the Jaguar terminations in the U.K., what changed there to have you guys change your mind?

Daniel McHenry, CEO, U.K. Operations and Chief Financial Officer, Group 1 Automotive: It is Daniel here. Whenever I look at our Jaguar, Land Rover Jaguar portfolio that we had in the U.K., I would have said it was a tale of two halves. The stores that we had in the north of England, they really struggled. Generally, the stores that we had in the south of England did quite well, particularly around size London. We had some discussions with Jaguar Land Rover around the dispositions there, were keen for us to remain as a partner. Some of the new models that are coming to that brand it made it more accretive for us to keep those stores and sell those stores.

David Whiston, Analyst, Morningstar: You are disposing of the northern ones?

Daniel McHenry, CEO, U.K. Operations and Chief Financial Officer, Group 1 Automotive: We already have disposed of the northern stores, and we have already had the proceeds for those northern stores, which is about GBP 50 million.

Operator: That concludes our question and answer session. I would now like to turn the call back over to Daryl Kenningham for any closing remarks.

Daryl Kenningham, President and Chief Executive Officer, Group 1 Automotive: In summary, we remain committed to our strategic initiatives, local focus, operating excellence, differentiated aftersales, and disciplined capital management. Thank you for your time today. We look forward to discussing our fourth quarter results in January.