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Group 1 (GPI) Buys 2 Toyota Stores, Expands Operation in US

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Group 1 Automotive (GPI - Free Report) recently announced the acquisition of two Toyota (TM - Free Report) dealerships located in Hyannis and Orleans on Cape Cod.  Notably, these dealerships are projected to add approximately $120 million in annualized revenues.

The buyout helps Group 1 to expand its footprint in the Massachusetts market in New England. Moreover, the purchase brings Group 1's total Toyota dealerships in the United States to 15. Also, the addition increases the company’s dealership count in New England to 10, which includes brands like Audi, BMW, Lexus, Subaru, and Toyota.

The company is very optimistic about expanding its scale in New England with these two additional stores and thus strengthening its long-standing partnership with Toyota.

Group 1’s shares have soared 435.8% in the past year, outperforming the industry’s rally of 336.4%.  


Notably, shares of the company attained a fresh 52-week high on Mar 12, hitting a peak of $175.04.

Texas-based Group 1 is one of the leading automotive retailers in the world. Group 1’s acquisitions of dealerships and franchises to expand and optimize its product portfolio are aiding the company in boosting its top line.
 
Notably, Group 1 currently operates 184 automotive dealerships, 237 franchises, and 49 collision centers in the United States, the U.K. and Brazil, offering 31 brands of automobiles.

The company sells new and used cars and light trucks, provides related vehicle financing; sells service contracts, offers repair services and sells vehicle parts via its dealerships.

The company recently declared a cash dividend of 31 cents per share for the fourth quarter of 2020. The dividend, which represents an increase of 3.3% from the third quarter of 2020, was paid on Mar 15, to shareholders of record as of Mar 1, 2021.

Group 1’s digital efforts, which are focused on online customer scheduling-appointment system, are also enhancing customer experience. The AcceleRide platform, its online retailing initiative, active at all of the firm’s U.S. dealerships is likely to aid the company’s long-term prospects.

In the wake of the coronavirus pandemic, Group 1 initiated a series of cost savings throughout the enterprise, including substantial staffing adjustments and reducing of marketing costs to help mitigate business disruptions. The focus on cost discipline is likely to offer some respite to the company amid the coronavirus-induced uncertainties.

Headwinds Ahead

While Group 1 is riding on a number of positives, the company is bogged down by certain macroeconomic headwinds that are keeping investors on the sidelines.

Challenging macroeconomic conditions are weighing on the auto retailer’s prospects. With the rising number of coronavirus infections and a second wave of the pandemic hitting the economy, the company expects its sales and earnings to feel the heat. Concerningly, Group 1 registered consolidated revenues of $2,990.2 million in the fourth quarter of 2020, down 3.8% year over year.

Moreover, Group 1 competes with publicly and privately-owned dealerships, along with Internet-based vehicle brokers. Some of its competitors are larger, and have greater financial and marketing resources, making the competition intense for Group 1.

Also, Group 1’s high leverage, as represented by a total debt-to-capital ratio of 0.48 compared to its industry's 0.36, reduces its financial flexibility to tap growth opportunities. Additionally, Group 1 is exposed to unfavorable foreign currency translations. In 2020, forex translations impacted the total revenues to the tune of $53.8 million.

Group 1, peers of which include AutoNation (AN - Free Report) and Penske Automotive Group (PAG - Free Report) , currently carries a Zacks Rank of 3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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