Group 1 Automotive Q3 Revenue Falls 7% as Hennessy Reshapes Portfolio

Group 1 Automotive (GPI) reported lower third-quarter revenue and adjusted earnings as weaker vehicle sales outweighed modest same-store growth in parts and service. The dealership group also detailed a major portfolio reshaping centered on its post-quarter acquisition of Hennessy Automobile and a disposition program intended to reduce leverage and lift margins.

Consolidated revenue fell 7% year over year to $5.40 billion in the third quarter of 2026. New-vehicle retail revenue declined 5% to $2.67 billion, while used-vehicle retail revenue dropped 9% to $1.69 billion. Finance and insurance revenue decreased 10% to $216 million, and parts and service revenue fell 5% to $701 million.

On a same-store basis, total revenue declined 3% to $5.28 billion. Same-store new-vehicle revenue was down 1%, used-vehicle revenue decreased 6% and finance and insurance revenue fell 9%. Parts and service was the only major category to grow, rising 2% to $687 million.

Adjusted diluted earnings per share declined to $9.36 from $10.45 a year earlier. As-reported earnings per share from continuing operations rose to $8.59 from $1.02, with the prior-year result affected by substantial asset impairment and accelerated depreciation charges. The company’s adjusted figures exclude items including acquisition costs, transaction gains and losses, impairments, legal expenses and catastrophic events.

Vehicle sales remain under pressure

Group 1’s U.S. same-store new-vehicle retail unit sales fell 5% from a year earlier, compared with a 2% decline in the broader U.S. new-vehicle retail market cited in the presentation. U.S. same-store used-vehicle retail unit sales decreased 10%, while the overall used market declined 2%.

The company said it advanced priorities identified in the second quarter, including improving used-vehicle sourcing, adapting its aftersales approach, executing its rebranding and aligning costs with the operating environment.

Within U.S. same-store parts and service, customer-pay revenue increased 3% and gross profit rose 2%. Warranty revenue was flat while warranty gross profit increased 3%. Collision revenue and gross profit declined 14% and 12%, respectively, and gross profit from internal reconditioning fell 9%, reflecting weaker retail vehicle activity.

Finance and insurance gross profit per retail unit at U.S. same stores decreased 3.5% year over year. For the first nine months of 2026, adjusted U.S. finance and insurance gross profit per retail unit was $2,468, including an adjustment for a non-recurring cumulative item.

Parts and service and finance and insurance remain disproportionately important to profitability. In the third quarter, the two businesses generated 17% of revenue but accounted for 71% of gross profit, according to the presentation.

Hennessy acquisition shifts the portfolio toward higher margins

Group 1 closed its Hennessy Automobile acquisition on October 19, after the quarter ended. The acquired operations represent approximately 22,000 annual vehicle sales, $1.7 billion in annualized revenue and an adjusted EBITDA margin of about 7%. The transaction creates a 15-store cluster in the Atlanta area with a revenue mix weighted toward luxury brands and real estate appraised at approximately $210 million as of April 2026.

The company also identified potential aftersales expansion at Hennessy, which has about 500 service bays and 280 technicians. Management said the existing capacity could absorb additional parts and service volume over the next several years with minimal capital expenditure.

At the same time, Group 1 plans to dispose of operations representing roughly 22,000 annual units and $1.1 billion to $1.2 billion in annualized revenue. Those businesses generated an adjusted EBITDA margin of about 4% for the first nine months of 2026. The planned dispositions are expected around mid-2027.

Group 1 estimates that the Hennessy acquisition and planned disposals will increase its adjusted EBITDA margin by about 30 basis points and improve selling, general and administrative expenses as a percentage of gross profit by approximately 100 basis points.

Since the quarter ended, the company has completed U.S. dispositions generating about $235 million in proceeds. Transactions under definitive agreement are expected to provide another $125 million, bringing anticipated proceeds to approximately $360 million. As of October 28, operations with about $540 million in annualized revenue had either been sold or were subject to definitive agreements.

Leverage rises after acquisition financing

Group 1 ended September with $2.48 billion in liquidity, up from $684 million at the end of the second quarter. The increase primarily reflected proceeds from a $1.25 billion senior notes issuance held at quarter-end to finance the Hennessy acquisition.

Rent-adjusted leverage was 3.3 times at September 30. On a pro forma basis for Hennessy and dispositions completed in October, the ratio would be approximately 4 times. The company expects planned asset sales and free cash flow generation to bring leverage to about 3 times, with a targeted return to the leverage range for resuming share repurchases in mid-to-late 2027.

Adjusted operating cash flow for the first nine months of 2026 was $350 million, down from $500 million a year earlier. Adjusted free cash flow declined to $219 million from $350 million after $131 million of capital expenditures.

Execution of the disposition program, integration of Hennessy and cash generation will be central to the deleveraging plan. The presentation also showed continued pressure on vehicle volumes, particularly in used vehicles, along with weakness in collision and internal reconditioning activity.