Group 1 Automotive, Inc. (GPI) Q3 2026 Earnings Report, Transcript and Summary

Morning, ladies and gentlemen, and welcome to Group 1 Automotive's Third Quarter of 26 Financial Results Conference Call. Please be advised that this call is being recorded. I would now like to turn the call over to Mr. Peter C. DeLongchamps. Group 1 senior vice president, Manufacturer Relations, Financial Services, and Corporate Development. Please go ahead, Mr. DeLongchamps.

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 would like to make some brief remarks about forward 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 2000. 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. 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 Adam Kenningham, our President and Chief Executive Officer, and Daniel James McHenry, our CEO of UK Operations and chief financial officer. I will now hand the call over to Daryl.

Thank you, Peter. Good morning, everyone. 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, declining SAAR are all getting plenty of airtime. Most of that we cannot control at all. What we can control is how well we execute. Compared to the second quarter in The US, 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. 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 US. 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 in the trough SAAR years of 2020 to 2022. To recapture and keep those customers in Group 1 dealerships, we focused first on affordability. We launched our 1.78 thousand oil change campaign in June, and it drove over 36 thousand customers into our shop. Also, given that the average vehicle in a group 1 service drive has 67 thousand miles on it, some customers are facing expensive repair bills. So we emphasize our available financing on large repair bills. As a result, we saw 12.2 thousand 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 beyond Houston and are now selling it across our US footprint. Our teams have sold nearly 62 thousand OneCare plans this year, and we expect to finish the year around 100 thousand. 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 have increased our Several things can affect tech productivity. 1 of them is service adviser effectiveness, 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 is an unlimited amount of aftersales business available to us. We are 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 we reduced our inventory mix of $40 thousand-plus vehicles. And 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 is 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 US. 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 have 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 nonbranded 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 OneCare, our 1.78 thousand 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 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 Hennessey Automotive Companies. We closed on this transaction last week. We are grateful to the Hennessey family for 62 years of stewardship and are proud to welcome their team to the Group 1 family. Hennessey 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. Pardon me, folks.

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Good morning again. This is Daryl Adam Kenningham. there is plenty of narrative these days around headwinds in our sector and the broader economy. Affordability is certainly an issue. Negative equity, higher interest rates, cost of ownership, finance terms, geopolitical issues, a declining SAAR are all getting plenty of airtime. We cannot control any of that. What we can control is how well we execute. Compared to the second quarter in The US, 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 from Q2 to Q3. Now turning to aftersales. In the third quarter, Group 1 set an all time record in customer pay revenue and RO count in the US. 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 SAAR 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 dealerships, we focus first on affordability. We launched the 1.78 thousand oil change campaign in June. And it drove over 36 thousand customers into our shops. Also, given that the average vehicle in a group 1 service drive has over 67 thousand miles on it, some customers are facing expensive repair bills. So we emphasize our available financing on large repair bills. As a result, we saw 12.2 thousand 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, beyond Houston and are now selling it across our US footprint. Our team sold nearly 62 thousand OneCare plans so far this year and we expect to finish the year around 100 thousand. 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 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. 1 of them is service adviser effectiveness. High service adviser turnover leads to low technician productivity. So we put programs in place to reduce our adviser turnover and we are 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 7.2% increase in tech productivity in the third quarter. We believe there is an unlimited amount of aftersales business available to us. And we are 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. 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 profit environment. We intend to stay focused on SG&A 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 thousand-plus vehicles. And 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 is 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 US. 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 have 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 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 OneCare, our 1.78 thousand 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 Hennessey Automotive Companies. We closed on this transaction last week. We are grateful to the Hennessey family for 62 years of stewardship and are proud to welcome their team to the Group 1 family. Hennessey 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 Hennessey acquisition alone increased our service bay count by over 10% in the U.K. 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 Hennessey's market is nearly double the US. And in the Atlanta Metro, Group 1 now owns 3 Land Rover, 2 Lexus, 2 Porsche, 1 Mercedes Benz, 2 Toyota, 2 Ford, 2 Honda, 1 Lincoln, and 1 Cadillac store. With an average rooftop revenue of $170 million annually. The Hennessey 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 have also made very good progress disposing of stores that no longer fit our strategy. I will now turn the call over to Daniel James McHenry, who will provide more specifics on those dispositions, their timing, and an overview of our financial performance. Daniel?

Thank you, and good morning, everyone. In the third quarter, 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. For 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 US operations. New vehicle sales declined 4.6% on the same store basis. New vehicle GPUs decreased sequentially from 3.26 thousand to $3.08 thousand. 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 change over timing as well. Aftersales continued to provide stability to our earnings, as Daryl mentioned, We are executing initiatives to drive RO count growth and believe our customer per 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 6% 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 Hennessey acquisition and associated dispositions. Which I will touch on later. Turning to The UK. In my first full quarter leading The UK business, I continue to be encouraged by signs of progress. The UK 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 after sales 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%, 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. After-sales and F&I remain central to the strategy of improving earnings quality in The UK. And we continue to leverage proven operating practices from our US 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 2 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 our 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 Hennessey acquisition early in Q4. Hennessy adds approximately $1.7 billion in revenue and 22 thousand 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 close are under definitive agreement sales to date. And are on track to raise approximately $625 million to $675 million in total around the middle of 27. Our planned dispositions are expected to total approximately $1.1 billion to $1.2 billion of revenue, and 22 thousand units. Group 1's adjusted EBITDA margin is currently approximately 4%. Taken together, Hennessey and the planned dispositions materially improved the earnings profile and quality of our Board portfolio. On a pro form a basis, we expect these actions to increase our adjusted EBITDA margin by approximately 30 basis points and reduced SG&A as a percent of gross profit by approximately 100 basis points. Turning to our balance sheet and liquidity. As of September 30, we had liquidity of $2.5 billion, composed of $1 billion of accessible cash and $1.4 billion of availability 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 form a basis, reflecting the Hennessey acquisition and our October-disclosed dispositions, it would have been approximately 4 times. We plan to return to our target of around 3 times by mid to late 27, and we expect to resume share repurchase 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 today, 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 Hennessey 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 30. $72.4 million repurchased 205 thousand shares at an average price of $353.08. And $20 million in dividends to our shareholders. During the third quarter 26, we elected to hold cash ahead of the Hennessey 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?

We will now begin the question and answer session. To ask a question, you may press star then 1 on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. And to withdraw a question, please press star, then 2. We ask that you please limit yourself to 1 question and 1 follow-up. At this time, we will pause just momentarily to assemble our roster. And our first question here will come from Glenn Chin with Seaport Research Partners. Please go ahead.

Well, thank you. Thank you, team, and thank you for all the detail around the dispositions. Can you just confirm for me I just wanna make sure I am not double counting nor missing anything. But by mid 27, 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?

Glenn, this is Daniel. The expectation of total revenue that we will dispose of by mid 27 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.

But does that not include Daniel, all the dispositions you have made today, for example? that is on top of that Correct?

that is most of the dispositions that we have made through quarter 3. We have done about half that number. We have raised about half those proceeds with the dispositions we have done to date. Glenn. About $350 million. So.

Okay. Alright. So really all in by mid 20 you will have expected to have disposed of that 1.1 ish? $1.1 to $1.2 billion in revenues.

That is correct.

Okay. that is not what I had understood but that is fine. Thank you again for the detail. Darrell, you mentioned private label F&I products. Can you just elaborate on that? What type of products you are offering? And it involves? I mean, I am assuming you are not taking on any risk?

No. Glenn, this is Peter C. DeLongchamps. No. We are not taking on any risk, what we think is important as part of the rebranding effort is that we look at things like maintenance and the, the OneCare products that we can label under group 1, but that will be underwritten by third party administrators.

Okay. Very good. Alright. that is it for me. I will get back in the queue. Thank you.

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

Great. Thanks for taking the questions. Just wanted to start with parts and services. You know, we have had, like, 2 quarters now of declining same store profit growth in the US. I know, Daryl, you mentioned there are obviously years in the market you cannot control. But. So I am curious, like, when do you think you know, revenue or profit starts to recover in the service business? You know, 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 you know, framework that you had provided? Just curious to get your thoughts there and have a quick follow-up.

Rajat, I think, part of it is warranty's flat. So we are not seeing any of that. Also, our as our used car business continues to recover, that will help with our internal after sales business. And then we keep driving customer pay and 4% year over year growth. We want to collect customers which we did well. And 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. So when you look at the when you look at the troughs our years and those customers, we hope to be coming out of that and start to build UIO again. You are probably over the next 12 months. Because 10 million units of SAAR came out of the industry, which those customers are now not in our service departments And then the ones that are there are defecting. So as we get back into the 2023, 2024 customers where there was 15 million, 16 million unit SAAR years, that customer base and after sales will start to build again. So I would expect we will start to see that again within the next 12 months or so.

Got it. And it seems like the price per RO is declining as well. You know, can you confirm that? And is there like. Even if the UIO does recover at some point, you know, do you expect pricing pressure to persist? You know, I do not know from, just labor rate perspective, just warranty rate perspective. Just curious to get your thoughts there.

Our hours per RO in The US did not change at all year over year. So I do not think our hours per RO changed at all. Understood. But do you expect any pricing pressure going forward, you know, particularly around labor rates given some of the increases you have seen over the last several years? Yes. I do not think there is room to price. I agree with you there. there is no room to price. I think you got to stay competitive. We are going to stay on affordability messaging. You know, the good thing is an average car that comes into our store. Our service drives has almost 68 thousand miles on it. You can sell a lot of work. On a 68 thousand mile car. Just as an example of this, our 1.78 thousand oil change we generated 36 thousand customers out of that. But the average RO on those on those 1.78 thousand oil changes was $180. So, you know, we are not doing it just to sell cheap oil changes. So our focus is to try to bring in the customers and then sell what is appropriate and we feel like we achieved that in the quarter based on what. Where the market was.

Rajat, just as a follow-up to your question.

it is Daniel here. The number of CP ROs increased 4.2% in the quarter. The number of hours per RO decreased by 1.4%. And, you know, the dollars per RO increased by point 5%. So that was the makeup of the 3.2% in customer Revenue pay.

Understood. And just, just wanted to ask on SG&A. You know, you have talked about, implementing. I mean, I mean, getting the benefit of the cost actions from recent quarters. I am curious given just some of the choppiness in the overall macro, you know, of the UIO challenges and parts and service, are there any incremental cost actions, you know, that you might look to take in the near to medium term? To offset some of that. Thanks.

Rajat, it is Daniel again. 1 thing we are always focused on cost at Group 1. We continue to evaluate any cost that we can take as a company. And, should, as and when the macro change, we will continue to be laser focused on cost actions.

And our next question will come from Mike Ward with Citigroup. Please go ahead.

Thanks very much. Good morning, everyone. Good morning. First off, I want to give a shout out to whoever put together the slide deck. Incredible detail and very well done. So thank you. Turning to the slide deck, on Page 27, you have a pretty good rundown of the acquisition and disposition And I am just checking my math because it looks like you are getting better prices for the sales.

What you paid for the acquisitions. And it sounds like Daniel, what you outlined on the margin front that on a net basis, it is incrementally positive. To the margin and earnings front. Is that correct?

Well, I think your assumption is not wrong. Mike, we have been pleased with what we have been able to get for the dispositions and, yes, you are exactly right. We will see accretion in margins with Hennessey and with the disposal of these lower SG&A leverage stores.

Okay. And so in about half the cost is that about half the acquisition cost of Hennessey? Will offset with some of these dispositions?

Okay. Yes.

Secondly, in the UK, you have made some great progress. And I am just curious, Daniel, what is your target Can you get back to the 2023, 2024 type performance levels Is that where you are looking? Mike, great question.

Of the things that I have been focused on, I would say, over the last you know, 3, 4 months since being there is really trying to grow the business. You know, I think that, you know, we have spent taking cost out of that business. And really being focused on cost. Sometimes at the expense of growing the business. Over the last you know, 4 months, I think what we have seen from the point of view of, you know, new vehicle same store sales going by 8%, and you know, we are not terribly exposed to Chinese OEMs. And 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%, you know, against the market that you know, has similar challenges to The US at the moment in terms of the macro headwinds. Costs are still a little too high, and we are going to continue to focus on that and on getting the cost down to that kind of 80%. Number that we said for SG&A as a gross. We are just over that at 80.8% year-to-date. But I do think that there has been significant progress made over the last 6 months.

And our next question will come from Alexander Perry with Bank of America. Please go ahead.

Hi, thanks for taking our questions here. I guess, first, I just wanted to see if we could get, you know, a bit more of an update on how the remarketing effort is progressing I guess, any sort of impact to any major KPIs in the quarter? And any stats you can share as sort of you move further past the remarketing, what you are seeing in key metrics and then, you know, how much more is there left to do there? Thanks.

Are you are you referring to a rebranding? Yes. The rebranding.

Well, what we are seeing is we measure our customer awareness and consideration, and we are. The awareness on the group 1 brand is now equal to what our legacy brands were among our existing customers. We are also seeing in the markets that have been rebranded, we are seeing our sales performance year over year is better. About 2 percentage points better than it is in the non branded markets. that is really helpful. And then has it how much more is left to do on the rebranding?

About a third of the stores. And we are, you know, we are focused on doing it well. And not necessarily. I mean, we will do it fast, but we are doing it well. You know, 1 1 of the things that we are 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. And that takes different marketing. It takes setting up your websites very differently. Each different chatbot, whether it is Gemini or Quad or ChatGPT rely on different criteria than, say, Google used to. And so we are really putting a lot of focus and energy around how to optimize for those AI bot searches. And 1 of the comments I made earlier was you know, 1 1 of the things that is really important in those searches is if you have 1 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. And our reputation scores are 100 points higher than the industry average. So that is a good thing and that plays into this. Re branding is not something that happens in isolation. The way customers are shopping is changing quite rapidly, and we are we are focused on that as well.

Alexander, just 1 stat that I would like just to push out there. Last quarter, there was, you know, significant discussion around the tech 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, was seen as significantly less than it was down in the prior quarter.

And our next question will come from Bret Jordan with Jefferies. Please go ahead.

Hey. Good morning, guys. When you think about the parts and service business, and I think you sort of mentioned the risk of losing customers to the aftermarket. Are you bringing sort of same SKU service prices down to compete or are you sort of bringing them in with a discounted oil change as a door buster as opposed to broad pricing?

We price our maintenance items on the aftermarket, Bret. We have been doing that for several years at Group 1. So when we compete against the you know, the oil change and the brake repair places and we price on them as a matter of practice. At group 1 shops. So we do not feel like we need to take any wholesale reductions in pricing. To achieve that. And we do think affordability is a bigger issue for customers these days, which is why we launched the 1.78 thousand and we are just trying to demonstrate there is 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.

And then I guess question sort of big picture on brand mix and profitability. Obviously, a lot of headlines around VW and they are your largest brand in The UK. But, obviously, the other side of the coin is great profitability around Toyota Lexus. Your largest in the US. Are you seeing any sort of either changes or big delta in brand profitability pros or cons?

Well, you know, I will let Daniel speak to The UK. I am thrilled we have got more luxury in The US, and I am thrilled we are heavy Toyota Lexus in the US. Let me just leave it at that. I do see some separation between some brands that are struggling on profits. And I am happy with our brand mix, and I think that is helping us.

Regarding the UK, we actually did pretty well in Volkswagen last quarter. Volkswagen sales were up over 20%, in the quarter, and margin did not really suffer, in the quarter. You know, you saw that actually we had both a sequential and a year on year increase in new vehicle margin on average So, Bret, you know, against what you might expect, I was pretty pleased with our Volkswagen results.

And our next question will come from Jeffrey Lick with Stephens. Please go ahead.

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 to $1.2 billion, Daniel, does that include the California divestiture? Divestitures you did in Q1?

That does not include the California divestitures that we did in Q1. that is the divestitures that we would have announced, Brad, at the start of the Hennessy acquisition. So divestitures done through Q3 and into Q4.

Well, Bret's pretty smart, so I will not take offense that you were called me Bret. But, anyway Terry. Terry, Jeffrey. No. I know. I know. I know. But. So you have got 450 signed either signed or done in subsequent to 3 q ending. I guess, how much more of it is left if you take that 360 is that basically you have about 265 to get to your 1.2?

Yeah, Jeffrey. I would say we are about halfway through terms of deals that are at either APA stage or already closed?

And our next question will come from Joe Stack with UBS. Please go ahead.

Everyone. I am glad to see the pro form a impact on EBITDA margin and SG&A leverage from the Hennessey 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 and S margins. And then just also on to follow-up on the dispositions, is there an opportunity to do even more than you have laid out to help fund this and or maybe bring down leverage a little bit quicker? Just wanted to get your sense on the market there.

it is Daniel here. I will take the first part of the question, and Daryl will take second part regarding the dispositions. Regarding pro form a, you would expect GPUs to go up for the company as a whole on the basis that you know, the dispositions that we are making generally are per performing stores, sometimes with, less profitable brands in terms of GPU. You know what we are adding in on top You know, the Land Rover is 1 of our highest GPUs as is Porsche. So by pure math, you would expect the GPUs to go up in terms of profit per unit. You know, aftersales, you know, it tends to be our margin does not really diverge much in terms of brands. So I would it to be a similar margin as we grow our parts and service business. Now as Daryl talked about in the call, you know, with 500 service bays added to Hennessy and, you know, 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.

And Daryl will pick up on the disposition question. Yeah, there is the short answer is yes, there is opportunity to dispose of more. And we look at it 2 ways. We look at it know, strategically, does this store fit with us anymore? that is an important part of this. And, also, you know, it is, can it can Disposing of something help us lower our leverage? Yeah. that is that is another point. But I think the strategic piece is the more critical part on those additional stores that you are referring to.

Okay. Thank you for that. And just, affordability, obviously, a big topic in the industry. You mentioned it. Was wondering if you could just remind us, like, 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 use GPU because I am assuming those are more profitable vehicles.

Yeah. I am sorry. Go ahead, please. Okay. So we speak to you, DeLongchamps. I would tell you 28% of our business is CPO. And, actually, on a gross profit basis, they are less profitable because it takes higher reconditioning. So it is a balance. Of, you know, front end gross profit versus long term retention. So we are we are focused on it and it is it is always been around the 28% to 30% penetration rate. But we are pleased with where we are with CPO.

And our next question will come from Mike Albanese with Stonix. Please go ahead.

Hi, good morning, guys. Thanks for taking my question. Just I guess, quick clarifying question on the private label finance. And you had mentioned that it dovetails with the rebranding initiatives. If you could just kind of explain that, I guess, a little bit further? And then, you know, where are you seeing the lift? Is this 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.

it is mainly an after sales tool, and it is it is really not that complicated. You know, we. 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 know, for instance, if we are selling a Ford warranty, on a new car, we are not rebranding that. But what. it is about the maintenance piece of it. We want people to be thinking about going back to group 1. Okay. Got it. And what was the extent of this rollout at this point? Well, we have rolled out the prepaid maintenance. OneCare across our footprint. In the US. 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.

Got it. And so I guess the crux of. I guess, really what I am trying to get at is, you know, I look at the customer pay performance, RO performance, you know, how much of an incremental driver was this in the quarter? it is still too much in its infancy to play a role in the broader numbers?

I think you need intense focus on affordability and capturing customers. that is what we are trying to do. Because those customers coming out of warranty there is fewer of them and they are defecting at a higher rate And a lot of that is affordability driven. So and we will we will continue to focus on that. Until we see the market change. For the past few years, there is been the ability to price, but there is no ability to do that anymore.

And our next question will come from Daniel Hagan with Morgan Stanley. Please go ahead.

Great. Thanks for taking the question. I think double clicking on that affordability piece, I want to ask about the used vehicle side. US same store volumes were down year on year, but then PRUs were up. So how are you thinking about the mix? I know PE talked about this a little bit with certified pre owned, but anything else on sourcing or know, optimizing profitability versus share as you go into 2027?

Sure. So, you know, clearly, affordability is an issue. So we are really focused on trying to drop the acquisition cost, and the overall sale price of the 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 the usually the highest priced and lowest gross profit units that we that we merchandise. But We were pleased with the progress we are making on acquisition cost and sourcing. You know, 80 plus percent was through trades or purchases. Only 10% I said was auction. So I think sequentially we made really great progress, but clearly, we are not we are not pleased with the overall volumes, and that is a top priority in the company.

Great. And then just thinking about outlook into the fourth quarter and 2027, the timing of some of these benefits from the Hennessey 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, etcetera?

Well, you know, the Hennessy stores run well today. We see opportunities for improvement, which I expect we will see over the first half of next year. At Hennessey. Some of the other levers that we discussed you will see those, I think, on a regular basis in Q4 and into the first quarter of next year.

And our next question will come from John Babcock with Barclays. Please go ahead.

First 1, it seems like at least there are initial signs that rates maybe rising more sustainably here. I just want to know 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.

You know, capital structure overall, you know, clearly, we did our bond deal. In quarter 3. You know, I would say I was pleased with the rate that we came out there. And, you know, it is increases our debt out into the future with those 2 tranches of $625 million each. The 4% bonds are gonna come due 2028. We will start to deal with those, shortly, I would say. But, clearly, that rate is still you know, a great rate to have out there. But 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. You know, 3x really is our target of leverage. I think if we get down to 3x, we would like to get back to buying our stock back. You know, you can see that the stock today is super attractive. In terms of its price, both for and for Group 1. So as soon as we can get down to that 3 times leverage, that. that is where we will be more focused.

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

I think in the quarter, it is too early to tell. And I think it is. 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 kinda how we are trying to manage the business.

And our next question will come from David Whiston with Morningstar. Please go ahead.

Thanks. Good morning. I was just curious on the change with the Jaguar terminations in The UK. What changed there to have you guys change your mind?

it is Daniel here. You know, whenever I look at our Jaguar. Land Rover Jaguar portfolio that we had in the UK, I would have said it was a tale of 2 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. And, you know, we had some discussions with Jaguar Land Rover around the dispositions there. They were keen for us to remain as a partner. And, you know, 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. You are disposing of the northern ones? We already have disposed of the northern stores, and we have already had the proceeds for those Northern stores, which is about £50 million And that concludes our question and answer session.

I would now like to turn the call back over to Daryl Adam Kenningham for any closing remarks. In summary, we remain committed to our strategic initiatives, local focus, operating excellence, differentiated after-sales, and disciplined capital management. Thank you for your time today. We look forward to discussing our fourth quarter results in January.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines.