Group 1 Looks Well Positioned to Keep Growing via Acquisitions and Organically

Group 1's restructurings during the financial crisis, such as new dealer and customer systems, have paid off. A common operating metric in the dealer sector is selling, general, and administrative expenses as a percentage of gross profit; Group 1's ratio improved to 60.3% including rent expense in 2021 compared with 77.9% in 2007, and management expects it to remain below 70%. The company in 2018 began transforming itself with its Val-U-Line used-vehicle strategy and scheduling accommodations for service technicians, which are improving employee retention and increasing technician head count. Val-U-Line comes from Group 1 wisely, in our opinion, wanting to retail more used vehicles rather than send them off to auction, because the former is more profitable. Val-U-Line only sells high-mileage used vehicles, and the brand is not a stand-alone used-vehicle store like three other public dealers are doing. The AcceleRide omnichannel platform should keep the firm competitive with new entrants to the online used-vehicle market such as Carvana but is also for new vehicles, service, and buying vehicles from consumers. We think digital will enable much better SG&A leverage than the company has had in the past and increase used-vehicle sales.