Earnings call transcript: Group 1 Automotive’s Q2 2025 results show record revenue

Group 1 Automotive (GPI) reported record-breaking quarterly revenues of $5.7 billion for Q2 2025, with a notable gross profit of $936 million. The company continues to see growth across its U.S. operations, particularly in parts and service revenues. According to InvestingPro data, the company’s trailing twelve-month revenue reached $21.97 billion, with an impressive EBITDA of $1.11 billion. Despite market challenges, Group 1 Automotive’s stock saw a positive movement, with a 3.9% increase in regular trading, closing at $423.89.

Key Takeaways

• Record quarterly revenues of $5.7 billion and gross profit of $936 million.
• U.S. operations experienced revenue growth across all business lines.
• Parts and service revenues increased by 11.7%.
• Stock price rose by 3.9% in regular trading.

Company Performance

Group 1 Automotive demonstrated strong performance in Q2 2025, achieving record revenues and gross profit. The company’s U.S. operations were a significant contributor to this success, with all business lines seeing revenue growth. The parts and service segment was particularly strong, showing an 11.7% increase. With a P/E ratio of 12.22 and market capitalization of $5.58 billion, the company appears fairly valued according to InvestingPro’s Fair Value analysis. This performance comes amid a challenging automotive retail market, characterized by higher interest rates and vehicle unaffordability.

Financial Highlights

• Revenue: $5.7 billion, a record for the quarter.
• Gross profit: $936 million, achieving new heights.
• Adjusted net income: $149.6 million.
• Adjusted diluted EPS: $11.52.

Market Reaction

Group 1 Automotive’s stock responded positively to the earnings report, with a 3.9% increase in regular trading, closing at $423.89. This movement reflects investor confidence in the company’s ability to navigate market challenges and continue delivering strong financial results.

Outlook & Guidance

Looking ahead, Group 1 Automotive remains cautiously optimistic. The company is focusing on potential changes in OEM vehicle pricing and trim levels, aiming to lower transaction costs and increase productivity. Analyst targets range from $401 to $535, reflecting mixed sentiment about the company’s future. The management anticipates potential larger acquisition opportunities in the coming years, which could further strengthen its market position. As an InvestingPro tip reveals, GPI has maintained dividend payments for 16 consecutive years, demonstrating consistent shareholder returns.

Executive Commentary

CEO Daryl Kenningham emphasized the importance of scale and productivity, stating, "Those retailers who can drive scale, productivity, and lower cost per transaction will be the winners." He also highlighted the company’s investments in technology to enhance customer experience and productivity.

Risks and Challenges

• Vehicle unaffordability and higher interest rates could impact sales.
• Potential tariff impacts may affect the automotive market.
• BEV mandates in the UK could alter corporate fleet sales.
• Changes in the lease return market expected in 2026.
• Competition from online used car retailers remains a challenge.

Group 1 Automotive’s Q2 2025 earnings reflect its resilience and strategic focus on growth and innovation, positioning the company well to tackle future market dynamics. For deeper insights into GPI’s financial health, valuation metrics, and additional ProTips, explore the comprehensive Pro Research Report available exclusively on InvestingPro, covering over 1,400 US stocks with expert analysis and actionable intelligence.

Full transcript - Group 1 Automotive Inc (GPI) Q2 2025:

Nick, Conference Call Operator, Group 1 Automotive: Good morning, ladies and gentlemen. Welcome to the Group 1 Automotive Second Quarter 2025 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 Automotive’s Senior Vice President, Manufacturer Relations and Financial Services. Please go ahead, Mr. DeLongchamps.

Daniel McHenry, Senior Vice President and Chief Financial Officer, Group 1 Automotive: Thank you, Nick.

Pete DeLongchamps, Senior Vice President, Manufacturer Relations and Financial Services, Group 1 Automotive: 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 at Group 1 Automotive’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 Automotive 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 market, successful integration of acquisitions, and adverse developments in the global economy and resulting impacts on demand for new and used vehicles and related services. Those and other risks are described in the Company’s filings with the Securities and Exchange Commission. In addition, certain non-GAAP financial measures as defined under SEC rules may be discussed on this call as required by applicable SEC rules. The Company provides reconciliations of any such non-GAAP financial measures to the most directly comparable GAAP measures on its website. Participating with me on today’s call, Daryl Kenningham, our President and Chief Executive Officer, and Daniel McHenry, our Senior Vice President and Chief Financial Officer. I’d now like to hand the call over to Daryl.

Daryl Kenningham, President and Chief Executive Officer, Group 1 Automotive: Good morning everyone. Our U.S. performance was excellent in the second quarter and our U.K. team is navigating the integration of operations while growing our business in a challenging U.K. market backdrop. Our adjusted net income from continuing operations improved 12.4% in the quarter and EPS improved 17.5% on the same basis. Starting with our U.S. business, new car sales were up 6% on a same-store basis, outpacing the industry. Our PRUs held up versus the second quarter of 2024 and they were up $211 sequentially. Our inventories were flat versus the quarter and down nearly 15% compared to the end of 2024, and day supply is healthy at 48 days. Our used car volumes were up nearly 4% year over year and gross profits were up $29.

Our F&I performance in the quarter was very solid as well, up $90 per unit, and our aftersales business is an area we continue to invest in and believe still has a great deal of opportunity. In the quarter, our aftersales gross profit was up 14.3%, customer pay revenue was up 13.6%, and warranty up 31.9%. While we certainly benefited from an easier comp versus the June 2024 CDK, eventually our aftersales business was strong throughout the quarter. Our May quarter-to-date performance saw CP revenues up 10.2% and warranty up 28.7%, and we saw an 8% increase in same-store RO count for the quarter. We continue to believe that the potential of the aftersales business warrants additional investment and we’ve continued forward on this front.

Our flexible scheduling, all-day Saturday focus, improving and technician productivity give us significant physical capacity to increase aftersales business in our existing dealerships, and by the end of 2025, 90% of all Group 1 technicians in the U.S. will work in an air-conditioned shop. It’s a boost to productivity, employee retention, and technician safety. We’re also evaluating our collision footprint and repurposing capacity as that segment of the industry continues to decline. Lastly, we increased our technician headcount by 6% in the U.S. on a same-store basis and we’ve continued our branding efforts in the U.S. A number of our dealerships will be rebranded with a Group 1 name. This project, when combined with our integrated marketing and customer data efforts, will open opportunities across our footprint.

It’s important to note that we continue to believe that the retail automotive business is a local business and that’s where we’ll put our emphasis. We’ve learned a great deal about this rebranding from our UK business, where all of our dealerships are already branded with the Group 1 name. There remains movement in the new administration’s policies and uncertainty for U.S. trade partners, automotive retailers, OEMs, and consumers, and we continue to see demand across all lines of service and are focused on remaining operationally agile. However, we are being somewhat cautious moving forward. Expectations remain that new and used vehicle GPUs could elevate a bit as inventories tighten from imposed tariffs. We have deferred certain capital expenditure projects and have reevaluated some discretionary spending. We also have contingency plans in place should we see a marked change in the competitive environment.

That being said, we are taking advantage of our strengths during this time by refocusing our efforts on improving productivity. We recognize our consumers are under pressure from car prices and other costs which have outpaced wage growth and higher interest, virtually double the rates we saw just a few years back, and I’ll speak more on these efforts shortly. Now shifting to our UK business, the UK business was managed well compared to the broader market, which continues to face macroeconomic challenges such as weak economic growth and inflation levels exceeding the Bank of England expectations. We recognize that our customers in the UK share many of the same adverse economic impacts as our U.S. customers. There’s also a drag on gross profits due to the BEV mandates in the UK. However, the UK government did announce subsidies of up to £3,750 on BEV vehicles.

This is a great first step in terms of our costs in the UK without the benefit of a plate change. In the second quarter, our SGA percentage of gross rose to 84.3%. We also absorbed some new government-required costs for insurance and wages, and we continue to work on our cost structure in the UK, and Daniel McHenry will have more to discuss on this topic. We’re seeing the benefits of continued progress on our process alignment in the UK and cost reductions. We performed well in used vehicle volumes, and we also added 8% more technicians, driving a customer pay increase of nearly 8% in our UK business. Our F&I Pru in the UK was up 27% in the quarter this quarter. We also marked a major milestone with the opening of our new UK headquarters in Milton Keynes.

Centrally located with strong transport links and proximity to key OEM partners like Mercedes-Benz and the Volkswagen Group. The site reflects our deep commitment to the UK market, our employees, and our manufacturer partners. I’m incredibly proud of the work our UK team has done, and we’re confident Group 1 UK is well positioned for long-term growth as a leading force in the UK motor trade. Now shifting to capital allocation, we acquired three dealerships in the quarter, further strengthening our partnership with Mercedes-Benz, Lexus, and Acura. These dealerships expand existing footprints in Austin, Texas, and Fort Myers, Florida, adding more scale in these proven markets consistent with our cluster strategy. We’re consistently balancing acquisitions and dispositions with repurchasing our shares.

In the first half of 2025, we bought back 3% of the company for $167.3 million, and we will continue to optimize our portfolios in the US and the UK. Since the beginning of 2023, we’ve bought assets generating $5.4 billion in annual revenue and disposed of assets generating $1.3 billion in revenue. We will continue to be acquisitive, but we are also being very disciplined in valuing acquisitions, engaging only in deals that we feel provide long-term value for Group 1 shareholders. Let me close with a word about the future. Our belief is that in the future those retailers who can drive scale, productivity, and lower cost per transaction will be the winners. Our customers can no longer simply absorb higher pricing, and in turn that will create margin pressure.

We’re committed to lowering our transaction costs through productivity gains by increasing our use of technology, first-party data, and process improvements throughout our enterprise. We’re making investments in technology to improve our customer experience and drive industry-leading productivity. We believe artificial intelligence has the capability to improve our business, including elevating the customer experience within the sales and service processes, utilizing robotics to automate operational functions, transaction processing, and analysis. With AI we can connect with and interact with our customers anytime they want to do business. We’re testing some very exciting things which will help us elevate the customer experience at Group 1. Now I’d like to turn the call over to our CFO, Daniel McHenry, for an operating and financial overview.

Daniel McHenry, Senior Vice President and Chief Financial Officer, Group 1 Automotive: Thank you, Daryl, and good morning, everyone. In the second quarter of 2025, Group 1 Automotive reported quarterly record revenues of $5.7 billion, quarterly record gross profit of $936 million, adjusted net income of $149.6 million, and quarterly adjusted diluted earnings per share from continuing operations of $11.52. Starting with our U.S. operations, revenue growth on an as reported and same-store basis occurred across all lines of business over the comparable prior year quarter. Notably, parts and service revenues reached a quarterly high, increasing 11.7% and 12.8% on an as reported and same-store basis, respectively. Over the prior year comparable quarter, F&I revenues reached a quarterly high of $199 million. We experienced higher new vehicle units sold on an as reported and same-store basis of 4.6% and 6%, respectively, over the comparable prior year quarter.

This reflects the resiliency of demand and our operational execution and the value generated from the ability to drive incremental volume through our dealership acquisitions. At the same time volumes increased, we saw prices increase by 1.5% and 1% on a reported and same-store basis, coupled with a slight decline in GPUs of 0.3% and 0.9%, respectively. The higher volume more than offset the lower GPUs and contributed to as reported and same-store gross profit increases of 4.3% and 5%, respectively, versus the prior year comparable period. Used vehicle revenues were the third highest quarter on record, and volume in the second quarter was 11 vehicles shy of the quarterly record, growing 2.7% and 3.9% on an as reported and same-store basis versus the prior year comparable period, respectively. GPUs were also up, increasing $25 and $29 on an as reported and same-store basis.

Our process discipline and use of technology with pricing of used vehicles help create this gross profit growth while driving volume against higher prices versus the prior year comparable period. Our second quarter F&I GPUs of $2,465 was just $3 off the quarterly record high and is up $104 and $90 on an as reported and same-store basis versus the prior year comparable period, respectively. Our performance by our F&I professionals has been outstanding to maintain GPU discipline and drive product penetration. Shifting gears to aftersales, aftersales revenues had double-digit increases of 11.7% and 12.8% on an as reported and same-store basis, respectively. These revenue increases, coupled by slight margin increases, generated growth in gross profit of 13.1% and 14.3% on a reported and same-store basis, respectively. Same-store customer pay and warranty revenues comprised 72.2% of same-store aftersales revenues for the second quarter versus 69.1% for the prior comparable quarter.

Customer paid dollars per RO increased 7.4% over the prior year, reflecting the aging U.S. car park and increasing prices, partly due to higher prices from tariffs. Warranty work is up for Toyota, BMW, and Honda. Warranty work continues to increase due to the number of new vehicles sold in recent years requiring warranty service and an increase in the warranty recall campaigns by manufacturers. Recent examples include the Tundra and GM engine recalls. Ford recently announced a recall of up to 850,000 vehicles. Wrapping up the U.S., let’s shift to SG&A. U.S. adjusted SG&A as a percent of gross profit decreased by 265 basis points sequentially to 64.2%. We are seeing the benefits of our refocusing efforts on operational efficiency and resource management to bring these metrics in line with recent historical levels.

Turning to the UK, acquisition activity led to a 96.9% and 109.6% increase year over year in revenues and gross profit, respectively. We are pleased with double-digit growth in gross profit on a same-store basis, with used vehicles, parts and service, and F&I growing 16%, 12%, and 28.7%, respectively. Same-store retail used vehicle units sold increased over 8% year over year while GPUs remained relatively flat. Same-store wholesale losses per unit improved to $414 from $842 compared to the prior year quarter. Aftersales is continuing on a positive growth path with a 2.4% increase in same-store revenues on a constant currency basis and almost 6% increase in same-store gross profit on a constant currency basis over the prior year quarter. Same-store adjusted SG&A as a percent of gross profit increased 216 basis points versus the prior year quarter.

However, on a year-to-date basis, adjusted SG&A as a percent of gross profit was 78.6%, an increase of only 70 basis points. Reported adjusted SG&A as a percent of gross profit was 84.3%. However, on a year-to-date basis, adjusted SG&A as a percent of gross profit was 81%, near the 80% expectation we believe achievable. Effective April 2025, the UK government increased the National Minimum Wage for employees and National Insurance for employers. This increase resulted in approximately $4 million of additional costs in the second quarter. Our 1.9% in additional SG&A as a % of gross profit. To date we have removed approximately 800 headcount from the UK business, lowering our overall costs and reducing the exposure to these government imposed increases.

We will continue to focus on cost control and business process efficiency as we execute our business integration activities in order to offset some of these increases in employee compensation. We incurred $7.6 million of restructuring costs in quarter two 2025 in relation to our ongoing UK restructuring plan. Turning to our balance sheet and liquidity, our strong balance sheet, cash flow generation, and leverage position will continue to support a flexible capital allocation approach. As of June 30, our liquidity of $1.1 billion was comprised of accessible cash of $374 million and $739 million available to borrow on our acquisition line. Our rent adjusted leverage ratio as defined by our U.S. syndicated credit facility was 2.72 times at the end of June.

Cash flow generation through the second quarter of 2025 yielded $350 million of adjusted operating cash flow and $267 million of free cash flow after backing out $83 million of capital expenditure. This capital was deployed in the quarter through a combination of acquisitions, share repurchases, and dividends including the acquisition of $330 million in revenues, $45 million repurchasing approximately 115,000 shares at an average price of $387.39, and $6.5 million in dividends to our shareholder. As of June 30, approximately 60% of our $5.2 billion in floor plan and other debt was fixed, resulting in an annual EPS impact of about $1.31 for every 100 basis points increase in secured overnight funding rate. For detail regarding our financial condition, please refer to the schedules of additional information in our news release as well as our investor presentation posted on our website.

I will now turn the call over to the operator to begin the Q&A section.

Nick, Conference Call Operator, Group 1 Automotive: 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 any keys. To withdraw your 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 momentarily to assemble our roster, and your first question today will come from Rajat Gupta with JPMorgan. Please go ahead.

Rajat Gupta, Analyst, JPMorgan: Great. Thanks for taking the questions and good results. I had one question on the new car. GPU’s pretty strong pickup sequentially here in the quarter. Could you give us a sense of how those GPUs progressed through the course of the quarter? Maybe like how was April, May, June, before averaging out to the $3,665 that you.

Jeffrey Francis Lick, Analyst, Stephens Inc: Reported for the quarter.

Rajat Gupta, Analyst, JPMorgan: I have a quick follow up next.

Daryl Kenningham, President and Chief Executive Officer, Group 1 Automotive: We can get to a little more detail on that after. They were fairly strong all quarter. We didn’t see a spike due to necessarily any change in inventories or any change in manufacturer incentives support or anything like that. They stayed fairly strong through the quarter.

Rajat Gupta, Analyst, JPMorgan: Understood. I just had a couple clarifications on the UK. It looks like you took up your cost out target there from £22 million to £27 million for the full year, just comparing the two slide decks. Is that primarily to offset some of the government-imposed gross increases, or are there other changes you’re making just in light of the weak macro backdrop there? I just add one more quick follow-up on the UK.

Daniel McHenry, Senior Vice President and Chief Financial Officer, Group 1 Automotive: Rajat, it’s Daniel here. We expanded, I guess, some of our headcount reduction. The headcount reduction now today is looking circa 800 people. That’s higher than we initially projected. A couple of reasons for that is that we have decided to close a couple of additional stores that are very close to other stores of the same brand that we have.

Daryl Kenningham, President and Chief Executive Officer, Group 1 Automotive: Got it, got it.

Rajat Gupta, Analyst, JPMorgan: Okay, go ahead.

Daryl Kenningham, President and Chief Executive Officer, Group 1 Automotive: Roger, this is Daryl. I just confirmed on the new car PRU in the U.S. there wasn’t any spike between the months. It was fairly even. April was actually pretty good, but May and June held up very well. Pretty flat through the quarter.

Rajat Gupta, Analyst, JPMorgan: Understood, thanks for clarifying that quickly. Just lastly, on the parts and service business in the UK, pretty strong constant currency growth there, 6%. Given the productivity improvements you’re starting to see at Inchcape, any color you can give us as to the expected run rate here on that into the second half, maybe early next year? Is this a sustainable number? Could it accelerate further? Any color there would be helpful. Thank you.

Daryl Kenningham, President and Chief Executive Officer, Group 1 Automotive: We believe there’s more room to run in the quarter. We added 8% more technicians to our technician base. The increase that we saw in aftersales, there was actually a decline in warranty in the quarter in the UK that was more than offset by a higher increase in CP of 8%. We do have opportunity to increase our customer count, Rajat. A lot of that increase that we saw was per RO dollars. What we are focused on is trying to drive more car count, especially since we have 8% more technicians to be able to accommodate it.

Nick, Conference Call Operator, Group 1 Automotive: Your next question today will come from Daniela Haigian with Morgan Stanley. Please go ahead.

Daniela Haigian, Analyst, Morgan Stanley: Hi, good morning. Parts and service tends to be a ballast for Group 1 Automotive. You see continued strength, customer pay margins up, technician headcount up. Thinking out the next one to three years or so, what are the key puts and takes to think about the top line? You have on one hand vehicle unaffordability weighing on SAR, which can increase mileage, create demand for reconditioning, but it also may limit the origination of newer cars that tend to have that stickiness on the service side. What are the critical vintages to look out for and how can Group 1 Automotive navigate that period of turbulence?

Daryl Kenningham, President and Chief Executive Officer, Group 1 Automotive: A key to growth in the next three years in aftersales, Daniela, in the U.S. specifically, is us reaching deeper into the owner base in terms of people who have owned their cars longer. We have to be able to increase our share of that market, so call it four plus years of ownership. We need to be able to reach into that market deeper, penetrate it deeper, increase our penetration there, increase our spend there. Ways to do that are we’re looking at making sure our labor rates are attractive to that customer segment. It’s a sensitive customer segment on pricing, so we have to make sure that we’re attractive. We have to make sure that we’re not overpriced for what they’re looking for. Also, the restructuring of our marketing at Group 1 Automotive to where we’re now using first-party data.

We know more about those customers than we ever have, and our focus and I think success moving into the years ahead is going to be how do we reach out to those customers who’ve owned their cars longer than three years. That’s what we’re putting a lot of focus on right now.

Daniel McHenry, Senior Vice President and Chief Financial Officer, Group 1 Automotive: Daniel here, just to add to what Daryl says, the average car coming into our store, a 2022 vehicle versus a 2019 vehicle, which is the average age, average model age of a car within our store, it’s over a third higher the average RO value that we get from that vehicle. It’s vitally important that we keep those within our ecosystem.

Daniela Haigian, Analyst, Morgan Stanley: Got it. Makes sense. Second question is around the used business, a large online only retailer, growing volumes 50% year over year in the market. They’re pushing for 3 million used cars sold annually in the next five to 10 years. I know it’s an incredibly fragmented market. How do you view the competition from the likes of these online pure play retailers? Is there greater opportunity to grow and consolidate in the used business?

Daryl Kenningham, President and Chief Executive Officer, Group 1 Automotive: There’s probably opportunity to consolidate, yes. Agreed. We try to learn from those online retailers. They’re great competitors, especially in the shopping process, and those are things that we pay attention to and try to learn from. We feel like at least today we still have tremendous opportunity to grow our used business inside our footprint of our stores today, especially as used car sales become more digital, and they’re as digital as any part of our business today. We feel like we can still grow inside of our footprint. We have grown. If you were to look at our used to new ratio five years ago, it was much less than it is today, and we’ve improved our used car performance, but there’s still room to run. I think you’re right. I think those digital retailers are proving that.

Nick, Conference Call Operator, Group 1 Automotive: Your next question today will come from Federico Merendi with BofA Securities. Please go ahead.

Federico Merendi, Analyst, BofA Securities: Good morning, guys. We have heard that OEMs for model year 2026 may take some of the features that in prior model years were basically standard and put them as optional. There would be a higher price to get the same features of last year’s vehicle. What have you seen on your order sheet so far?

Daryl Kenningham, President and Chief Executive Officer, Group 1 Automotive: Federico, this is Daryl Kenningham. You know they’re just announcing 2026 contenting in some and pricing, and some are still waiting to see what happens with the tariffs. I mean, the Japan announcement this week, and there’s still not enough specifics around it. I don’t think for the OEMs to make pricing decisions, but we, and then Europe is supposed to be finalized very soon. What we believe will happen, and I think this will absolutely happen, is you will see OEMs play with trim levels, contact repricing, price walks between grades, things like that, to optimize margins and reduce the impact of the tariffs. What you stated in your question, I think is absolutely true, and I think that will happen. Standard equipment may become optional in the future in order to keep the base car more competitively priced.

Federico Merendi, Analyst, BofA Securities: Thank you, Daryl. My follow up would be on parts and service. You did a great job to increase your headcount. I was wondering, for every 1% of incremental headcount, what’s the translation into earnings or like gross profit for every technician that you add to your headcount, basically?

Daryl Kenningham, President and Chief Executive Officer, Group 1 Automotive: We can get you some more detail around it, but generally at Group 1 Automotive, how we look at a technician, you know, they’re worth about $15,000 in gross profit per month, average across our brands. Some brands it’s more, some brands it’s less. When we can put a technician in a stall and have them work for a month, that’s like another $15,000 in gross profit. That’s how we kind of look at our cost. We look at the cost of not having a technician rather than the cost of what it costs to acquire a technician. Daniel can give you some more depth on that later today, if you like.

Nick, Conference Call Operator, Group 1 Automotive: Your next question today will come from Michael Ward with Citi Research. Please go ahead.

Daryl Kenningham, President and Chief Executive Officer, Group 1 Automotive: Thanks very much. Good morning, everyone. How do the BEV mandates in the UK affect your gross? What happens there? A lot of the BEV volume, Mike, is going into corporate fleets. If you were to look at the retail mix of the BEV mix and just the straight retail consumer, it’s like 10% or 11% of the mix. If you look at it in the corporate fleets, it’s much higher than that and it blends out at like 26% today. When we sell cars to the corporate fleets, we still make positive margin on it, but it’s less than what we make at retail. As long as there’s all that, it’s kind of like in the US when they’re putting a lot of BEVs in rental car service right now, similar. It’s just corporate fleets there and it drives the margin down as a result.

You made a few more acquisitions in Q2. What is the environment like out there? Are there big lumpy acquisitions out there? I mean the Herb Chambers one that Asbury took was a big chunk. Are there any big acquisition opportunities out there, do you think? Or is it any more tuck-ins that we’re seeing? I think as a general statement, I think there will be in the next few years there will be larger ones. Up to right now the year has been fairly quiet because of the uncertainty. It feels like in the last couple of weeks there’s a little more activity. We’re starting to see some more inbound here, literally in the last few days. We’ll see if that is a blip or a harbinger of getting more active. We’ll see. Not sure yet.

Nick, Conference Call Operator, Group 1 Automotive: Your next question today will come from Jeffrey Francis Lick with Stephens Inc. Please go ahead.

Jeffrey Francis Lick, Analyst, Stephens Inc: Good morning, guys. Congrats on a great quarter again. I was just kind of curious this quarter, you know, the metrics were a little more variable. If you tried to predict all these, if you look at new gross, new units, service and parts, used, I’m just kind of curious as to which one surprised you the most. As we look into Q3 and Q4, which ones are sustainable and predictive for our models, and which ones might tail off?

Daryl Kenningham, President and Chief Executive Officer, Group 1 Automotive: I wouldn’t. We were really pleased with the aftersales performance in both markets. I think I cannot tell you that we would expect to maintain, what was it, 13% customer pay growth on an ongoing basis. Generally, we plan for mid single digits, maybe high mid single digits on that. I wouldn’t lean on the current aftersales growth like it is. When you look at the warranty numbers, you know they won’t be 31% in the quarters ahead. I don’t think, might be great if they are, but I wouldn’t plan on it. I think there’s resilience in the, and I’ll ask Pete to comment on this, especially on used cars and F&I. On the new car side, I think there’s resilience in the new car margin, Jeff.

It just, it’s held up now for a year and doesn’t seem to be weakening, and the day supply in total anyway is still reasonable, and the OEMs seem to be managing that well. Pete may have some comments on F&I and used cars.

Daniel McHenry, Senior Vice President and Chief Financial Officer, Group 1 Automotive: In terms of Jeff, I think that.

Pete DeLongchamps, Senior Vice President, Manufacturer Relations and Financial Services, Group 1 Automotive: I wouldn’t say that we were surprised. We’ve got our processes in place, the team is in place, and I think we’ve executed on the strategy that we laid out to you over the last few years. The demand is still there for used. Acquisition is very difficult. We ended the quarter with a 31-day supply, so we were consistent there. I think if you look at the F&I, whether it’s the revenue that we’re getting from the finance piece of the business along with our increased margins or increased percentages on product, it turned out to be a great quarter for us. I think there’s still demand out there for used and facilitation of finance and insurance.

Daniel McHenry, Senior Vice President and Chief Financial Officer, Group 1 Automotive: Daniel, the only thing I would add around SG&A UK in particular, there wasn’t a plate change month this quarter. I’d expect SG&A as a % of gross to come down slightly in quarter three versus quarter two just because of that additional growth.

Jeffrey Francis Lick, Analyst, Stephens Inc: Just a quick follow up, the lease return issue, obviously this year down below $1 million, it looks like they’re down 30% to 40% year over year. That should flip depending on what the buyout turn-in rate is next year. It’s going to be up. That should be a good source of traffic. I don’t think really focused on 2026 that much given what’s going on in 2025. If you could just speak to how you guys think lease turn-in issue, how that plays out and what effect it has in 2026, I think.

Daniel McHenry, Senior Vice President and Chief Financial Officer, Group 1 Automotive: It’s going to be very. Jeff, this is Pete. It’s difficult to forecast that because you.

Pete DeLongchamps, Senior Vice President, Manufacturer Relations and Financial Services, Group 1 Automotive: Don’t know what the equity situation is going to look like next year. It could be very good on especially the ICE vehicles. I think the wild card on that is what the BEV lease returns look like. With the situation with acquisition and availability, we are taking as many off lease vehicles as possible, and I think that will continue through next year depending on pricing.

Nick, Conference Call Operator, Group 1 Automotive: Your next question today will come from David Whiston with Morningstar. Please go ahead.

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

Daniel McHenry, Senior Vice President and Chief Financial Officer, Group 1 Automotive: Good morning. I was just curious on the divestiture of those two UK Mercedes-Benz stores. Is that more of a geographic reason, a factory reason, or are you not?

Pete DeLongchamps, Senior Vice President, Manufacturer Relations and Financial Services, Group 1 Automotive: Happy with Mercedes-Benz prospects in the UK going forward?

Daryl Kenningham, President and Chief Executive Officer, Group 1 Automotive: We’re very happy with Mercedes-Benz in the UK. We’re the largest Mercedes retailer in the UK and we’re happy about that. We have a terrific relationship with the OEM. In those two cases, those stores were closer to other stores that we owned, and just in partnership with the OEM, we closed those, consolidated them into another point. No dissatisfaction whatsoever from us for Mercedes-Benz or their agency model. Daniel may have something.

Daniel McHenry, Senior Vice President and Chief Financial Officer, Group 1 Automotive: Yeah, you know, the one store in particular was only seven miles away from another one of our stores, and we’re actually going to redevelop that store into a larger store in the coming future. We see some cost benefit from that, and we don’t expect to lose any of our customer base. Okay.

Pete DeLongchamps, Senior Vice President, Manufacturer Relations and Financial Services, Group 1 Automotive: Is your Toyota inventory abnormally too low given any reluctance by them to export vehicles from Japan right now?

Daryl Kenningham, President and Chief Executive Officer, Group 1 Automotive: It is low and basically what we have is Tacomas and Tundras. Would we like a little more? Yeah, we probably would. We are okay with tight supply at Toyota, that’s for sure.

Nick, Conference Call Operator, Group 1 Automotive: Your next question today will come from Ron Jewsikow with Guggenheim. Please go ahead.

Speaker 0: Good morning team. Nice quarter and thanks for taking my questions on the UK SG&A piece. Daniel, I think you mentioned $4 million of higher costs related to required national insurance contribution changes. Was there anything else noteworthy this quarter? I know you’ve kind of had this ongoing integration effort post Inchcape and cost savings underway, but dollars were up more than that $4 million sequentially despite lower gross profits.

Daniel McHenry, Senior Vice President and Chief Financial Officer, Group 1 Automotive: You know, when I look at the dollars, I think some of it is January and February is generally a lower cost base. It’s kind of more even in quarter two. The expectation always was that we would be slightly above 80% SG&A as a % of gross on the basis. On an annualized basis, we expected it to be closer to 80%, but there’s nothing really unusual in there apart from the increases in national insurance and national minimum wage.

Speaker 0: Okay, no, that’s super helpful. On parts and service slack, just kind of if warranty slows, I understand there are probably structural tailwinds for warranty going forward, but in the event warranty work slows, just trying to stress test our model. Are you confident there’s kind of enough built up demand from customer pay to offset if there is a slowdown in warranty work, or how should we think about the two? I’m just not sure if you’re wall to wall in your service departments right now or how to think about that.

Daryl Kenningham, President and Chief Executive Officer, Group 1 Automotive: I don’t think we can cover 31% increase in warranty with CP, but we think there’s still room to improve CP. As we look back on prior quarters where warranty was lower, we were able to deliver CP growth there as well. I can’t tell you it’d be dollar for dollar, but we certainly think there’s room there, and we generally feel like capacity is the key to driving aftersales growth.

Nick, Conference Call Operator, Group 1 Automotive: Your next question today will come from Bret Jordan with Jefferies. Please go ahead.

Pete DeLongchamps, Senior Vice President, Manufacturer Relations and Financial Services, Group 1 Automotive: Hey, good morning, guys. On GPU, I guess you saw a $29 lift in comp. Does that, was that pulled forward or was there demand surge around Liberation Day, or do you see GPU sort of able to stable or expand from here?

Daniel McHenry, Senior Vice President and Chief Financial Officer, Group 1 Automotive: I think, Bret, if you take a look at our trend, it’s been pretty.

Pete DeLongchamps, Senior Vice President, Manufacturer Relations and Financial Services, Group 1 Automotive: Consistent on the used, and I would expect that to continue. In the used business, it’s all about the acquisition. Our team’s done a spectacular job navigating whether it’s trades, auction purchases, or outside purchases. I think from a gross profit standpoint, it’s been pretty consistent over the last year.

Daniel McHenry, Senior Vice President and Chief Financial Officer, Group 1 Automotive: Okay, and then I guess parts and service.

Pete DeLongchamps, Senior Vice President, Manufacturer Relations and Financial Services, Group 1 Automotive: Can you sort of carve out how much was the benefit of CDK? Obviously, late in the quarter last year there was very little parts and service.

Daniel McHenry, Senior Vice President and Chief Financial Officer, Group 1 Automotive: For us as a company, I think whenever we made our earnings call last year, we said that the effect of the CDK for parts and service specifically was about $12 million.

Daniela Haigian, Analyst, Morgan Stanley: In.

Daniel McHenry, Senior Vice President and Chief Financial Officer, Group 1 Automotive: In terms of our pre-tax income, I would run that kind of estimate, Bret.

Nick, Conference Call Operator, Group 1 Automotive: Thank you. The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect your lines and have a great day.

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