Group 1 Automotive, Inc.

Good morning, ladies and gentlemen. Welcome to Group 1 Automotive's second quarter 2026 financial results conference call. Please be advised that this call is being recorded. At this time, I'd like to turn the floor over to Mr. Pete DeLongchamps, Group 1's Senior Vice President, Manufacturer Relations, Financial Services, and Corporate Development. Please go ahead, Mr. DeLongchamps.

Thank you, Jamie, and good morning, everyone, and welcome to today's call. The earnings release we issued this morning and a related slide presentation that includes reconciliations related to the adjusted results we'll refer to on this call for comparison purposes have been posted to Group 1's website. Before we begin, I'd like to make some brief remarks about forward-looking 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 1995. 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, and adverse developments in the global economy and resulting impacts on demand for new and used vehicles and related services. Those and other risks are described in the company's filings with the Securities and Exchange Commission. In addition, certain non-GAAP financial measures, as defined under SEC rules, may be discussed on this call. As required by applicable SEC rules, the company provides reconciliations of any such non-GAAP financial measures to the most directly comparable GAAP measures on its website. Participating with me on today's call, Daryl Kenningham, our President and Chief Executive Officer, and Daniel McHenry, CEO of the UK Operations and Chief Financial Officer. I'd now like to hand the call over to Daryl.

Thank you, Pete. Good morning. We try to focus on controlling what we can control. In today's environment, the Group 1 business model, built around our proven cluster strategy, leading after-sales operations, and disciplined capital allocation, remains strong. And we continue to believe that this model will deliver long-term. Today, I'm going to focus my remarks on near-term actions we've taken to build on our strong foundation and unlock value for our shareholders. including the exciting Hennessey Automobile transaction we announced earlier today. Our second quarter results were impacted by a variety of factors. Persistent affordability challenges for the automotive consumer, challenges sourcing used vehicles, and short-term disruption from our largely completed corporate rebranding efforts combined to lower our new and used vehicle volumes. While this drop in volumes was disappointing, we're encouraged by steady GPU performance in both new and used vehicles. Starting with used vehicles, we began the quarter with 26-day supply, and in some markets, we never really recovered from that low-day supply. An easy solution would have been to restock by purchasing auction units. However, in our minds, that's not a great outcome given the potential gross profit impact that can have. We prioritized PRU and were able to hold margins year over year, even though average transaction prices were up $1,400 on average. And in three-year-old cars, one of our largest volume segments, ATPs were up much more than that. To improve our execution, we're making concentrated efforts to improve our sourcing of less expensive vehicles, being more aggressive with bids, Improving our appraisal practices and putting more emphasis on trade closing rates. Our focus remains on organic sourcing. Although it's more difficult these days due to higher negative equity levels, we feel that we have opportunity to improve. Turning to after sales. The US after sales business, which remains central to our long-term strategy, is undergoing a transitory shift. Consumers who brought Vehicles during the low industry volume period of 2020 to 2022 are now coming in for service today at a time when many have reached the end of their factory warranties, which is generally a high defection point. Because of those lower SAR volumes in those years, there are fewer of those high value, high RO value customers in the market. They have more provider options and they have more increased affordability pressures. To ensure we maintain our after-sales momentum in this changing market, we're adjusting our approach. We've done a great job at Group 1 adding technicians over the years, including in the second quarter. Now we're going to put additional focus on upgrading our service advisor skills. We need to ensure our advisors are equipped to drive sales of the services our technicians perform, getting more out of this additional technician capacity that we've developed. To capture those 4-7 year customers, we will also put more affordability messaging into our service marketing. As an example, in June, we launched a $17.76 oil change, which drove our best traffic of the quarter, with strong conversion and good margins. We also have data that confirms we recaptured some at-risk customers that were going to the aftermarket. We were able to execute this successful promotion because of our investments in our proprietary customer data platform, which allowed us to understand what offering would resonate with our customers and who we should target. To put more focus on retention in a high-defection environment, we are rolling out OneCare, our discounted maintenance plan, to all Group 1 US stores. This will keep our best customers coming back to us for their factory-recommended maintenance. Additionally, we're also targeting used car customers whose service retention is typically lower than that of new car customers. We feel these steps will allow us to maximize our customer pay business in what is certainly a changing market. A final note on after sales. We were pleased with our 4% same-store sales customer pay growth, which lapped a 14% growth quarter last year, and it was 10% before the CDK impact. Over half of our CP growth this quarter was attributable to increased customer count. Also in the second quarter of 2025, same-store U.S. warranty revenue grew approximately 32%, driven by Tundra and GM engine recalls. And this elevated warranty traffic also generated a surge of non-warranty repair and replacement work through our service lanes. Setting aside last year's one-time recall benefit, the underlying performance of the after-sales business remains resilient and reinforces our confidence in the trajectory from here.