Unless Group 1 Automotive (NYSE:GPI) wants to keep setting new 52-week lows, it had better figure out a way to turn the corner. The company has a chance to get investors revved up when it announces its second-quarter results tomorrow. Will Group 1 succeed or stall?

What analysts say:

  • Buy, sell, or waffle? Ten analysts currently keep pace with Group 1, giving it seven buy ratings and three holds.
  • Revenue. On average, analysts expect sales to increase 5% to $1.6 billion.
  • Earnings. Profits are expected to inch up 2% to $0.98 per share.

What management says:
 Last quarter, management seemed to have trouble finding its direction. While it proclaimed confidence, pointing to strong sales in the latter months of the first quarter and repurchasing shares, management couldn't ignore the company's falling earnings, margins, and comps, lowering full-year estimates as a result.

What management does:
Up until last quarter, margins were running fairly smoothly. At first glance, they made pretty good gains from the end of 2005 through 2006. The concern, however, is that the run is over, which a closer look seems to indicate. After strong gains from the end of 2005 to the beginning of 2006, margins have been flat.

3/31/06

6/30/06

9/30/06

12/31/06

3/31/07

  Gross Margin

15.8%

15.9%

15.9%

15.9%

15.8%

  Op. Margin

3.2%

3.3%

3.3%

3.5%

3.3%

  Net Margin

1.3%

1.4%

1.5%

1.5%

1.3%
All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ended in the named months.

One Fool says:
From what I can see, it looks like a long and challenging stretch of road ahead for Group 1 Automotive. The good news -- if you can really call it that -- is that Group 1 doesn't appear to be in a group of one. Its struggles aren't necessarily indicative of a problem inherent with the company as others appear to be facing similar challenges.

As the downfall of the housing market continues, the auto industry will continue to feel the impact. Just last week, AutoNation (NYSE:AN) reported its woes, which it blamed on housing. However, the fact that Group 1 generates a much smaller portion of its business from some of the hardest hit areas, including California and Florida, which should help it avoid the damage somewhat more easily. I also like the product mix Group 1 offers -- approximately 70% of its sales come via import and luxury models.

Group 1 will certainly struggle along with the rest of the industry. However, the above factors should enable it to get back on track before too long. Tomorrow's earnings announcement should provide some guidance on just how far the company will have to travel that dangerous road ahead.

For more on the difficult road ahead for auto retailers, read:

Fool contributor Mike Cianciolo welcomes feedback and doesn't own shares of any of the companies in this article.