Group 1 Plans More Buybacks and Acquisitions

Group 1's restructurings and investment in technology for used-vehicle procurement 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 64.2% including rent expense in 2023 compared with 77.9% in 2007, and management expects it to remain below 70% thanks to permanently reducing headcount by 7% during the pandemic. 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 headcount. 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. 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 over time.