SAH - Earnings call transcript Q4 2017

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Operator

Good morning and welcome to the Sonic Automotive Fourth Quarter 2017 Earnings Conference Call. This conference call is being recorded today, Tuesday, February 27, 2018. Presentation materials which management will be reviewing on the conference call can be accessed at the company's website at www.sonicautomotive.com by clicking on Our Company, then Investor Relations, then Webcasts & Presentations. At this time, I would like to refer to the Safe Harbor statement under the Private Securities and Litigation Reform Act of 1995.

During this conference call, management may discuss financial projections, information or expectations about the company's products or market or otherwise make statements about the future. and could a differ cause the made. forward-looking and of materially are statements that uncertainties actual statements subject number to risk from Such results to with are the These Commission. detailed and and Exchange uncertainties company's risk filings the Securities in to I Mr. would introduce now like and Scott Smith, of CEO Co-Founder Automotive. Sonic Mr. you may conference. your Smith, begin

Bryan Scott Smith

and Welcome and I'm company's the Scott everyone. Automotive's Co-Founder. quarter to Officer you Thank morning, of fourth Smith, Chief Sonic good XXXX call. Executive earnings

Byrd, our me CG our brief Heath earlier over Joining some Officer. comments provide on questions. Vice Vice has Executive released are the Saffer, everyone morning. the read call Accounting and for Jeff Smith, David CFO; and President today call Chief I Operations; then our trust I'll the this documents Dyke, Chairman; of our turn

were other top-line the share From contributed growth we $XX.X adjustments gross of and future pre-owned front-end operations an able quarter. increased valuations growth of continuing Please annual periods. quarter, was we diluted the year a revenue we contained for tax change to benefit growth categories non-GAAP nice and the profit on overall good share prior-year operations in to the during XX.X% the earnings combination adjusted release basis from operating rate vehicle to except in annual an and periods was For associated generated our see experienced XX.X% the perspective, across and vehicles adjusted to Pre-owned X.X% continuing the also all prior-year a very X.X% GAAP continuing a points share GAAP and experienced increases categories. of Gross pleased increase profit and adjusted sacrificed diluted tax basis. across before related of and to contributed in discussion also of the fourth SG&A quarter. $X.XX income the see an to comparative of by diluted income $X.XX challenged of drive used results in this quarter items from in all for compared increase revenue these the XX% F&I. XXXX on to basis in The top-line XXXX taxes quarter. for profit We XX%. per quarterly corporate in declining adjusted the XXXX million where per operations. also revenue per to achieve XX.X% fourth of a which declined for $X.XX the basis. Nonetheless, $X.XX diluted from basis for adjusted quarter, to These XXX in Results the gross performance quarter diluted per gross for share a on on from the pre-tax amount were fourth share quarter

significant $X.XX dividend shareholders XX% the XXXX. to increased to we returned repurchases per the our our anticipate business. properties end to return very XX% the drive continue to Combined continued quarterly share of of of came share of to $XX.X demonstrating at dividends, We to This returned shareholders. to of approximately end $XX our per we'll be the our owning XX% to of strategy to by a commitment X close. $XX.XX. invested we we approximately of execute million to In an as and milestone level of shares price control continue in our near also XXXX, our XXXX return own dealership milestone further We properties XX% share, shareholders. properties million our longstanding we with a average to We where roughly in we million towards the XXXX. XXXX, this capital. capital our to Subsequent repurchase represents conduct our that year We capital

quarter growth A Antonio be concentrated our end the as XXXX our two is Texas the continues expected business. at the XXXX. stores Our the pre-owned fourth quarter These footprint in the to market and Charlotte is to EchoPark of San of located Antonio stores third opened increasing EchoPark two are first XXXX the We first open in by market. the strategy store stores market. in our in store and San end first Houston of

new Our component outlook fixed for of XXXX the pre-owned the environment in and business. with operations anticipates vehicle a stable opportunities

million to this point, related XX.XX call expected $X.XX project from to We diluted expect share consolidated share. the per would our open We like from earnings to diluted ranging loss for and operations range $X.XX This SAAR questions. $X.XX units. per includes continuing to your to per XXXX diluted we and our between pre-owned business million At $X.XX between an XX share. the be

Operator

Your comes Please from with Stephens. first Nelson ahead. question Rick go

Rick Nelson

to Stephens. you, more you Thanks. some in that the specifically were margin what follow-up the and stores? color car Good got morning. the some That's speak erosion, if Question for and pre-owned I've GPUs used could on

Jeff Dyke

It's Hey, Jeff Rick. Dyke.

pre-owned So when some et we mix coming Manheim market cetera. our October, what November in experienced brand on cars off December came in segment, the to lease, and adjustments it was going

the we that that, down cause further of which caused We pricing pushed a erosion. saw in January our well, but that. as Given margin that's

have market's And nothing And last we'll moves and you're couple adjust the the margin experienced going move Our we'll going as If in that years. system adjust. to vehicles. we've going marketplace, it new reductions. automatically. shifts over If to on that all up, automatically lower, us. some to does prices of see our the we That's

of good guided a pricing what we So and human that's caused do, shape, we're sitting but top in it to our watching a did. what result, And as that's that pretty that's it, But system's the doesn't what we mean that have inventory-wise. don't that. on

Rick Nelson

EchoPark the to don't that GPU the you today with for Thanks it the past. in that Okay. if I I could reported Jeff. you see think materials specifically, speak what...

Heath R. Byrd

F&I and gross. includes Rick. It's front is the $X,XXX Heath. Yeah, This which

Rick Nelson

GPU? the And can you the you. Got F&I from separate

Jeff Dyke

this Rick, is Jeff Dyke.

Depending what's going just number. that on in, forward combined of as have aggressive markets we're there. and see business on end we on that front you'll So the the the nature the we us reporting the move

us of front than see and be very in there growth lighter a the growth to And been You'll our if and end had provide gross just somewhere we successful has range, back end. the the in it a But a I you combined revenue quarter. little always QX. goal that see with $X,XXX number you think and there,

$XXX,XXX. As after-tax flows range. store cash a $X.X matter flows announce I'm level range that the were proud pre-owned in We over of the had the the pre-tax profitable. and actually segment million from at cash little in we million level, made We $X.X a to store fact,

we're around really that up our We're quarter for vehicle sets So a yet in in or was very segment best premium excited XXXX. year. through sales expecting XX,XXX our and great it us

Rick Nelson

And how many stores EchoPark in are embedded guidance? that

Jeff Dyke

Antonio. today You've in is open Colorado, San got the are in that six which stores two current

You will add more Antonio. one in San

Dallas, You another in will two add and Houston the in Carolinas. another more in

Rick Nelson

finally is ask Okay. us? Got Texas, quarter could in that market if And saw specifically continuing this those see Houston what you behind you. and benefits or the about any you I of do

Jeff Dyke

about I the you're talking no. and hurricane assume

weeks' we worth that normalized. had great to We then sales of this. and a all think ended. I six The hurricane four the did sales,

fourth in the got inventory. end overloaded that our of all but towards the market out the quarter. we straightened a We've margins that certainly now, with so, role And played

Rick Nelson

OSOE On roll where that and are I'm out? I one And OSOE, more. got you – with sorry, the

Jeff Dyke

couple can Yeah. stores, location, Honda Sure. technology Charlotte place. five Audi out our our Pensacola rolled and all in which of you We a update a Birmingham stores We've obviously of California there. in the in where stores, is is

not strategize rolling but markets out Experience, get more for with as EchoPark It's I markets focus One that to that the Sonic-One out. XXXX. we've in profitability quickly same at exact mean you're slowly That we're And begin the and Sonic you, Rick, results seeing to we're there's EchoPark and for One the But we're we're the upside our as It's just EchoPark lot the stores. the we rolled will a and year on are. more identified side. experience lot more that tell so lot surely this doesn't is volume technology primary or finding a get a to whether pre-owned we working can the to

And We Experience add QX. not did single in One primary a our where store Sonic-One been. that's focus has so

Rick Nelson

Got you. All right. luck. good Thanks a lot and

Jeff Dyke

Thank you.

Operator

Murphy of Please Bank comes with go America. next Your from John ahead. question

Aileen Smith

morning, Smith guys. is on Good Aileen This for John.

even you've reach as period stores of is few reach franchise some market, consistent where profitability First EchoPark anything question, just past or Colorado that And seen over there dealers stores of them? up a as and stores? has the your there your exceed core in would mature on similar years rough the following or timeline been these you've stores on Rick's, or the GPUs prevent level opened to these the

Jeff Dyke

questions different there. of couple a It's

at In we're the than buying EchoPark. PUR, cars more terms of frontend of half our

have PUR going we you're naturally, a mature. frontend that business amount of not trade on is The Sonic the So, just side. for cars than lower as the

way and I you hear over combined and look a to over We're frontend you'll pricing. to this to back us and on – going say – segment number. got again our pre-owned So, hyper expect is we've would and at over front the get be aggressive our

is number front whether in terms So, on shouldn't that great margins most we're range you're $X,XXX or We really, the matter to backend. in where the we're comfortable the are the make most combined going get on the over the gross. going that getting it And of it all somewhere and you're margin back, number to the swing and place. think we the is it with volume getting

both Don't of about our that's and guys the focus margin. got I to kind there. focus frontend them see we've Don't seeing numbers margins gross been And and as that what fourth So, how quarter. margin. in Focus the we've on think the of we've think the especially Street getting, in in and on in that everybody in got to you backend been EchoPark you'll the train combined. a we result, total on performance

Aileen Smith

And to the you're preference and transitioning EchoPark either different? Understood. for existing AutoMatch dealers from or the stores a as that acquiring EchoPark, you do Are businesses, the building returns substantially over integration assessing ground of you're over between have Florida out the That's helpful. up? very transitioning

Jeff Dyke

would a EchoPark, that. we a just dealer buy we If do we're accomplish opportunity what to trying matches with then their to It culture depends. pre-owned find that

so And time see to up. over us build from the stores going you're ground

great see there buy The to our pre-owned our that our the bigger. new And pre-owned than segment's on an there like going going too are there we a that would acquisition just great acquisition be that look dealers car dealers expectations to our segment. new pre-owned on are segment. side, to that. ignore just our side upside the bigger for for out It's make great pre-owned car of us And significantly is out that match culture. lot are You're are

you XXXX. And results to if to so see brand. right That's we there is continue great look stores out the And the are profitable and we ramping even particular by up us think target on such biggest, aggressive look CarMax, to cash just The in with And that you a us We're off more with in start. category. we'd now. schedule the kind come and said even be. show where at so harder of upside far, more there's up comes with much very excited and just these where we get they see and all in a why look in. are EchoPark at you'll publics, about We're more faster flow starting as are XXXX

And as what hear forward. you'll more we move out Automotive Sonic EchoPark is focus so on of

Bryan Scott Smith

Scott. Yeah. This is

to little history had are that And one, pretty look years of they where if of a And this them. pre-owned amounts bit market smart billion, much us. market got like they've over much barriers money. I don't at more billion the and the we They're $XX market you I there is, substantial number a think of they than it's the entry for a one business. why were $XX billion, We car to have they like so time. aspire like $XX larger new of of we they cap. And at CarMax, a started, I feel reasons lost the ahead when be

model. have and predictable, got technology. the can we've a sustainable develop knowledge, because have stores We the We repeatable we these

be As and they seen cash and the go in project EchoPark Sonic the we've franchise flows continue would road our than improving, down we'd are business. volumes up, ultimately mature the larger to that substantially Automotive

Aileen Smith

And Great. last if one question may. I

could committed on tax a perspective, your remain likelihood this you get little look very reform? traditional invested capital OSOE. potentially reform of may end As think especially windfall and dealers, you aggressive attractive about the of and should as free under more increase you returns a more But activity EchoPark to tax obviously, cash from bit from acquisition the

Bryan Scott Smith

is better multiples deal business. when We're in acquisitions we is and going in are our it but buying there when acquiring stock our Yeah. out buying to like pre-owned relative a significantly dealerships, trading developing what's franchise opportunistic out to those stock at or price the than look franchise business, me. And better looks our where

so the So we're there straight-out on you'll see think points and are out But through through lot to expanding a now. a franchise than We've of the points focused and that a lot that acquisition. are right luxury open we shiny there, side more EchoPark couple of open I deals bright got objects develop of are available. continuing grow staying

Aileen Smith

end. That's Great. you. it Thank my helpful. from very That's

Bryan Scott Smith

Thank you.

Operator

question ahead. Please from next with Your Langan Colin go comes UBS.

Colin Langan

taking question. Oh, my for thanks

the to strong. but you target there mean see that any unit, of F&I? we in it quite upside that numbers think per be about terms it mentioned, F&I On slides I seemed should

Jeff Dyke

now. is quarters on PUR we upside, I the catch growth. told JM&A the well XXXX. number to – a bit little the ago, the introduction And end we that upper of as side in few I this $X,XXX, can team that the range of continue At of rest behind Dyke. the think a been with think Colin, the public for forward. the $X,XXX we're our going up. on of day, $X,XXX mean over move terms sort we've a as doing to into mid frontrunners now, to some you pace Jeff X,XXXs The of I see number. grow And we're Hopefully, of

from So place. execution, us the in But F&I perspective. it's for the lots a matter training, of of upside processes getting right an

Bryan Scott Smith

been is little bit it look people that quality tend Scott we backs rate Smith. refinancing good a rather people the aim charge you and the I our reserve a if want primarily because early. and we're and that think a group notice of that products And be Colin, rates different lower, believe that's sell at higher statistically among product provide will than each to we that for out if F&I lowest products I our throw are And if has in lower, this not the charge if in that would publics available buy. to provide you to

and So can Jeff (XX:XX:XX) we in what that tweak really be wanting vehicles, our their market about. to I if are think offer is numbers those consumers successful to purchase talking with get we'd

Colin Langan

Got it. from color your from guidance. little your what in maybe a end you in Any of came what shy update? low at And came thinking were last the you on

Heath R. Byrd

fourth the was strong I as exceptional quarter. At mean, the was an I think as it be. don't thought end we going the of SAAR we to had day,

was the pre-owned cost of us inventory buck into our November December. little of that and A was getting quarter. bit a bang new in So in That there. pushing for not bunch third of Texas bit us and a the the that little money slowdown and

things. just so the And combination those of

Bryan Scott Smith

manufacturer you I the strong incentives, fourth come quarter. until when And think look they at didn't on

pushing So the with year. we the lot these a rope a brands first were of half of there in

very I and score So really fourth on came quarter strong allowed to us deep. think in they

Jeff Dyke

know, is in than structure. our you of to more our profit XX% as And, Colin, add I'll it, portfolio, BMW

really an the off, suffered that incentive with structure unbelievable September we just got then October, going with quarter them. so December then have, and and they particular And took we in November and had XX but in their really August, and in that stores they

I'm of Germany new from new – their continues. ever They've it's back just world from setup, got that hopefully the launch product at career their product a been. is my and in their conference, from perspective bunch best So my

And about so, and excited real the it's going. we're where brand

Colin Langan

it I abnormally also decline guided I noticed I mean in the And year? year-over-year, be why CapEx? was down expanding is EchoPark. still you're CapEx but high mean this to

Jeff Dyke

$XX can whole not facilities million return stores store EchoPark build getting So again. between build difference a out return to the and the on new the building just a significant million, without at is Jeff that we're $XX Dyke, for a go store. an we're manufacturer-driven and We million, this brand That's cheaper, going lot building and longer investment because $XX any EchoPark. of EchoPark

just is So opportunity, bigger Scott is as again you're in barrier it We're this pre-owned of be facilities moving do. from not towards either. like business we're just because up to there's And into the in earlier, said to warrants the caught we It's game going investments side the lower. the to much these build just not And more a unless make seeing shift we've investment going a to profits. of material not that Sonic bigger entry, that we're to going and market, more building a been those get asked can the past. bullied that lot Automotive situation just the

now we outlet and an have as with we that as we're pursuing quickly So outlet EchoPark. can

Heath R. Byrd

you spend And, and compared business as same to is in our the franchise is $XX to going look but side little pre-owned if breakdown planned XXXX year-over-year, our less CapEx XXXX. of Colin, million the about be the bit XXXX actually higher, relatively a at

Colin Langan

Thank right. for All taking my you it. Got much very question.

Jeff Dyke

sir. Yes,

Operator

with Hodakovsky Your next Please question comes go KeyBanc. from Irina ahead.

Irina Hodakovsky

Good everyone. morning, Yeah.

Heath R. Byrd

Good morning.

Bryan Scott Smith

morning. Good

Irina Hodakovsky

same-store you to But Gentlemen, profit vehicle mentioned gross a used slightly segment. unit also believe inventory. some for was down. down. there same-store push basis, was per a quick was the need used volume On question the you a I on then

outlook? growth volume versus I'm can we of gross about guide outlook. in profit the if you just terms us same-store unit per So, think should wondering How

Jeff Dyke

percentage primarily kind we pre-owned. mix our is with had fourth of The didn't making corrections you new, Yeah. that that have just the first for was nearly-new, are up questions. have on year-over-year obviously that December That Toyota, quarter. our December side, in and between of we'd pressure pre-owned growth. Dyke. lot do that of quarter. business, the particular is a breakdown so so Irina, hot, which just in and for we in that Jeff certified of put as a the all a (XX:XX:XX) we're with car total Honda, fantastic. had BMW, driving new made and This flat the really new of car to the traditional mix in we've our And Those quarter, too came thanks amount been the Had

fourth in quarter, maybe first year years volume, think or this year first I that maybe backwards the in the time quarter the last XX was, maybe the first was I so. and pre-owned think we've the been

bit and growth So, shortfall corrected, from a should expect to XXXX. there, a little patterns that got perspective its of Sonic we've a return to normal strategic you and pre-owned for

Irina Hodakovsky

Understood. Thank you.

Operator

ahead. go comes Jordan question next Please with Your from Bret Jefferies.

Bret Jordan

Hi. guys. Good morning,

Bryan Scott Smith

morning. Good

Jeff Dyke

Good morning.

Bret Jordan

question that guess transaction, follow of side? are the somebody I service seeing in used growth guess I AutoNation up, you'd the service on I pay initiative, EchoPark I think customer this or every And doing look would to you think you to I captive the the of finance at is about with finance? either of guess in differentiated to is a finance channel? service you adding business, sort Or quarter, taking any who if with but ask economics or benchmarking about at a think CarMax obviously obviously run captive sort a yourself something the there

Jeff Dyke

problem we've capacity. up Dyke. it's so that had many recon that been we've Jeff is of is taking our The This Brett. Yeah, all cars, selling

this there CP purchase have begin business. and see to in you're more side can centers the get. so us So going actually where service we It's Service-only make that Colorado It's centers, to move going that there. to Denver, for EchoPark to of quarter focus on a we're us –

the you'll a opportunity retail with Maybe, to for road? you look the divide of on built model that a Service of our an have sustained down but for if not We And So there. have along didn't there was that. model. portion but finance-wise We'll EchoPark see some large the the go the sort business. model, we'll the need centers, build financing and be that conquer did built at to model piece by we – of CarMax bank. a our Is that also centers

really business that you benefit goes. see can very, open an the EchoPark how and opportunity And mantra, that that to and operations cash And from more as our level expect get that's expect to as pricing, not quarter the flow. this can to a of that the of are success. begin Service. us we inventory added what's very that It Denver success There's having an and we're down so place goes the which happen. profitability as of follow more we've we piece at the through got to is know good see the in excited then how If do store you XXXX. in that we management also on EchoPark that because to and drive we and road. positive focused we're lot that pricing to things where just expand fixed the things driving legs the from we our real go are The body brand we marketplace in EchoPark our continue just the the the a shop positioned guest to There's underneath happened and those about for we us on, EchoPark, we're center we'll we with fourth for with experience that it for move and way expect are retail we into starting in the planned but market, and what

Bret Jordan

accretion maybe might strategy, being to runway I'm get about units. still EPS to we of trying when the that mass that few sort you about that? I XX just from EchoPark think thinking? a something talked back you're quarters think Is critical a

Jeff Dyke

hear quite didn't I question. again? that Say the

Bret Jordan

level from the EPS XX get being about this trying Yeah. critical A strategy. for a to were think and mass feeling trajectory units to few of accretion quarters back, EchoPark a was talking you I sort I

we You're $X.XX in be Are in thinking EPS basis is expense an maybe on $X.XX talking about profitable XXXX. large as enough to to this XXXX?

Jeff Dyke

know And marketplace, yeah, But goal. bigger Yes, that we've fewer stores. we have driving more we're less as stores kind this point. at of That don't stores original we volume. that's to I building matured, get We're to the was That's are. our expense. XX in –

so, two And begin the that need certainly to obviously. I'm standing going an not move feet call XXXX own is intention our through be it to as But without on we out to able its seeing for EchoPark of Sonic Automotive XXXX.

Bret Jordan

Okay, great. Thank you.

Operator

comes Jordan Fargo. question next with from Wells Grant Please go Your ahead.

Grant Jordan

my Hey. for taking Thanks questions.

couple have you CapEx Just on give M&A details less. you said million One, some fairly guidance year? for I wanted you give guys maybe think had a of follow-ups. if a in us then clarify, more that. back could to you QX, this just done did deal $XX And I sizable

Bryan Scott Smith

Do, you want to answer?

Heath R. Byrd

into Yeah, strategy. our Pre-owned acquisition we approximately fits perfectly did XXXX, do in million in EchoPark dealership revenue. an $XXX of QX

give On for the did with they've us second our you guidance? And four So XX can last of months. guidance for XXXX. CapEx see deck, page been the question, the

Grant Jordan

like the on feel are there did you size? And that QX like you do Okay. front, in one of then more M&A the opportunities

Jeff Dyke

business the pre-owned is business see. and now, EchoPark that well. and for group to a out our as sale because particular job and a here like important is earlier, really, in buy for all of that's there it Right I culture, pre-owned our hire really so us speak. this if buy doing well previous to we go culture they really this Grant, and Jeff question very said a try Hey. dealer an because fit into rather there's and so train molded there there's But converging a don't in culture and that fits that's great they've Dyke. Dallas fit opportunity They're lot We'll the we'd specific. than it was model

so if pick fits road if up an pre-owned that. And would consider culture, opportunity to then a absolutely there's sure, our it the dealer we and down

Grant Jordan

going more the commented the it can a that specifics of on is – operations? of like type you us culture what And or you you're Okay. type comments give customer on, towards

Jeff Dyke

fitting the pricing. Experience, in No, It's terms operate, market, to just we we the culture, how we One way that's go believe how talk Sonic-One just just internally. way of our same we that

things this that of – All those pre-owned dealer traditional culture. that things past, talked fit a in we just are about the won't

Grant Jordan

Got it.

much. Thank you Okay. very

Operator

to That today. closing is remarks. Mr. Smith, for all Back you, the questions for

Bryan Scott Smith

like look Well, right. forward I'd a speaking joining great we to for us thank you call. next and day. everyone to All today to the Have on

Operator

This conference call. concludes today's

now may You disconnect.

Sonic Automotive (SAH) 27 Feb 182017 Q4 Earnings call transcript