Group 1 Earnings: U.K. Problems Hurt Fourth Quarter, but We Think They Can Be Quickly Fixed

Group 1’s stock fell more than 6% during Jan. 31 trading after the company reported fourth-quarter adjusted diluted earnings per share that missed the LSEG consensus. We are not changing our fair value estimate but will reassess all modeling inputs when we roll our model forward for the 10-K filing. Adjusted EPS fell 12.6% year over year to $9.50, well below the $10.44 consensus. Revenue was not a problem, other than falling used-vehicle sales in the U.S.; total same-store sales grew 5.2% excluding foreign currency impact. However, the U.K. segment suffered problems in the quarter, with gross profit falling 3.4% and adjusted overhead costs as a percentage of gross profit increasing by 10.4 percentage points to 85.1%, versus the overall company figure of 66.5%.