SAH - Earnings call transcript Q1 2018

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Operator

Good morning, and welcome to the Sonic Automotive First Quarter 2018 Earnings Conference Call. This conference call is being recorded today, Thursday, April 26, 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 risks from Such results to with are the These Commission. detailed and and Exchange uncertainties company’s risks filings the Securities in to I Mr. would introduce now like and Scott Smith, of CEO Co-Founder Automotive. Sonic Mr. you begin conference. Smith, your

Scott Smith

welcome Sonic Smith, and CEO the First Good XXXX Quarter you. Thank to Earnings morning, company’s Co-Founder. and Automotive’s Call. Scott I’m

Heath Chief Byrd, David are CFO; Joining turn me comments, questions. Strategic our for Vice our Officer; Chairman the and over Mr. of provide Dyke, today Jeff Smith, and President Operations. our Executive and call then Vice some call on Executive the I’ll brief

quarter, pleased were expectations. with in the line internal of We’re with the which our results

with Our $XXX.X operations a Growth maintain side increase record-breaking was revenue billion very in generating million GPU XX.X%. vehicle outstanding, environment. Fixed with have were and in $X.X on continued and to able growth, in profit. competitive line results We gross new to of performed F&I other segment, the drive in generating an EchoPark over in selling of less made record million quarter We $XXX.X the well, and of than X,XXX first amount our units. up one gross in more any XX,XXX quarter, those of pre-owned on the XXXX. sold represented vehicles by quarter, pre-owned day of also brand, ops top

now inventory aggressively This of to we pre-owned number supply. is behind pre-owned of affected during dispose had achieve days decision hand the made quarter, reduce GPU the the and we us. which negatively During quarter, vehicles we a believe decision on the of to lower

the and vehicles GPU. be the days more the was dropped end Days quarters nearly remaining supply with consistent the days, to our expect quarter. at of XX four historical pre-owned for We

locations of questions. for open we’d growth We’ll pre-owned At this business. at continues call additional be footprint the up our your to the point, like concentrated open strategy to least new later increasing three year. EchoPark on Our this

Operator

Our with Instructions] of first Rick Nelson [Operator the from line Stephens. question comes

Rick Nelson

look add to Thanks, year, if back financials, good like add this morning. that is? lost you I’d $X.XX what I with this ago follow on $X.XX address a and back year compensation-related expense, EchoPark. at could you the If up EchoPark

Scott Smith

I question, sure not Rick. caught I’m your

Heath Byrd

answer is I burnout XXXX. that portion the back the compensation. of on the quarter can add we an a acquisition Dallas in That of did third in

Scott Smith

But ramped in that stores terms obviously, original more opening in the that EchoPark stores then profitability expense And more the And we’re that. so we we’ll of up see the as of move are expectations our have performance, goes along our towards there’s nicely. – with year. end

Rick Nelson

Got you.

guide, to prior $X.XX? year had the still comfortable full that? $X.XX incorporated of So loss with a you Are think, I

Scott Smith

We are.

Rick Nelson

Okay, good.

the on chain? of franchise curious I’m the is relative side, performing to the rest how Texas, So that

Jeff Dyke

Jeff Rick, Yes. Dyke. Hey

Texas helping better, But much you’ve stores they’re way so And getting it’s year. were this calls brand moving prices months as oil all the yes, February, the the and So of up. BMW got we’ve tougher was led are as is there, Obviously, January actually. March all and us. a spectacular improving. throughout heard for BMW lot

it’s a being nice online back profit mix. strong market portion fantastic our market Houston a to just the So coming the and particular, in and month of and, have

Rick Nelson

strength in that And carrying is as March, that into April is well?

Scott Smith

yes, a, type performance margin in obviously, We April of us so good was January is that’s very the behind had carrying Hopefully, true. But Yes, forward. all. April.

decent as a having well. April We’re

April for and – in well. So same the as Houston month the comments of

Rick Nelson

that’s erosion, you margin do think car And behind used you?

Scott Smith

supply. of supply comfortable were we the had. high some a running – valuations with just the there’s Look, XXX%. that level used days the too between We the drop QX, just cars off-lease – coming days just in the and weren’t in we

running is just sweet good. spot. supply to We’ll XX,XXX to typically five, our X,XXX you if That’s XX-day Margins franchise stabilized, the years. do pre-owned online. cars six, That’s last shown XX- segment, that. the we about March now. continue the cars in So volumes look have and sold what at about seven We have Franchise over

We’re having a behind month so another from great pre-owned in perspective, us. April that’s yes,

Rick Nelson

impacting that Okay. see And you if How the about could finally, ask I your XQ. do in markets you hailstorms of some occurred in that results?

Scott Smith

damage. on store, saw don’t see And way Yes. in store through was our an in it The the it. $XXX,XXX being I We’ve we’ll quarter. got hit. Mercedes it damage, our about last got work Dallas, night, that I one in impact

Rick Nelson

that and good for luck. thanks Great,

Scott Smith

Thanks very much, Rick.

Operator

of line the America. from of Bank comes question next John Murphy with Your

Aileen Smith

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

trade-in excess demand vehicles expected? on as How some that characterize from was structural you to how replacement following natural not noted might into vehicle say disasters that and more vehicles much pulling necessarily related retail? come off-lease nature would the have the would through of First inventory release. you much markets maybe meet major with to our in the of And you question used return press in

Scott Smith

that the certainly from March put real that. market and price pressure it’s to and it through got do But a had about the pricing and half. aggressive of year. and and and the continue the excess just those It’s not thing flood right rest And to so perspective, in loaded We the January. our we’ve and from yielding from into was all for we’re April then those half the margin. made It’s to benefits valuation, adjustments to entered their of will the we on off-lease. made do the I perspective work inventory everybody with and saw up needed also mean, as we Houston way be adjustments through

the for right us. move Just

Aileen Smith

term will half it going and nature, very is for? of was more temporary and something So it’s in say the forward fair half short need and monitored other be to about to adjusted that

Scott Smith

I’m Actually, not worried. temporary so in I half, at adjustments all it caused nature. I don’t the the think I price that all – other think was what is mean,

in is Like I fantastic up inventory’s our see in days doesn’t March Our volume’s It changing. up the nicely nicely and XX-day XX-, get good, range. supply And and margins just that. better franchise than anything in don’t great, shape. any earlier, in said April, we’re are

Aileen Smith

helpful. Great. And That’s second question. very

the of in would shortages your service group of reported peer on we’ve be One parts away repeatedly at what’s parts Are pressure and the things the supportive, labor and the now? your labor technicians. Meaning, than service service the turning you theoretically should higher be related markets all much being is the to business given from heard and parts business growth constraints?

Scott Smith

Yes.

technicians. agree, that’s So and short we’re great a totally we statement

brick-and-mortar service that opportunities We’re need well, and as well. we we’ve short as bays so got

for them to things doing lot of schools, opportunities we’re on different different technicians parochial and a of it’s opportunity hire us, as big so bring in. to and train we focus And types

working investments business actually B through there. training and our and We’re that we level into C EchoPark on technicians up making our can franchise some franchise move

an opportunity I yes, certainly it’s mean, us. for So

The been we this focus allow gaps hopefully, customer overcome other There’s that been And warranty. our lot a big big stop shop more problem pressure that’s given warranty measurably by so and is in the which to putting pay. on some to us year work cuts But mix. us customer for warranty of business handle that a much into just up it’s pay. hours, eating brand

Aileen Smith

Great, is a question, final which understood. more term. longer And

of next overexposed looks cadence new industry some it you’re launching years. the be in fairly the like outperform fairly products, to the base, would environment? relative they rest vehicle aggressively crossovers, will expect BMW your With the you seeing interest You’re type to and of over this on particularly that from and new few business, your that to product customer

Scott Smith

thank Yes, question. you for that

Heath Byrd

softball, That was a yes.

Scott Smith

for that couple the fighting last years. been We’ve of

Germany meetings big to. meeting. perspective, be going fantastic. company. product Just are I’ve Automotive are because it’s industry, ever unbelievable the been to Sonic our from From The and from launch returned time U.S. was one-third manufacturer the the and variants that’s profit BMW for in from best of one help over of The a it’s in that the my coming my

So coming and the they’re they’re with. that leadership, what products doing about we’re very Bravo. excited that

Aileen Smith

questions. helpful. for Thanks very that’s the it Great, for That’s me.

Scott Smith

You bet.

Operator

line Jordan of Bret question [Operator Instructions] [Jefferies]. our from And next is the

Mark Jordan

X,XXX on if about looked What it the Thanks at are was like asked. my and QX last kind or fiscal had out a target well-above in XXXX, quarter, of But kind going in Mark My year cut strong second the looking And – What metrics that? was It forward. was there, of I with QX? is I call. longer-term market? but a that for a the Bret. Texas pickup this of mentioned of thinking This think, driving drove it for a F&I X,XXX. already so know we don’t for Jordan taking to opportunities X,XXX line in kind I

Scott Smith

year that driving Jim Associates. had the execution mean, announced relationship I all. training last at we new year our the relationship, that. the is not Moran No, – beginning is playbook, at of with a & That and this we

better are pre-owned really XX% margins side. side. doing on in EchoPark’s F&I on is pre-owned now good. the are the high. range really, penetration our And We’re really warranty really much a the It’s job

performance. performance with making in a And So that The and expect a to all making training, it’s team our playbook behind we our getting difference big to difference. big JM&A improve. continue relationship the F&I our is

Mark Jordan

about Do have Okay, store? from San for that? early great. then performance the EchoPark how any And reads Antonio we

Scott Smith

just our very months for store a and stores finished month yet, in ramp-up best going here And it’s excited, of we our in fourth to ramp-up Best and the for really good us. But both that been do. that’s yet and launch are. start open excited third yet us. We we we’re we’re about a summer where middle March. have And very full third marketplace, last fastest in their the

Mark Jordan

have I that EchoPark. then, any on opening mentioned quarter And Do you locations up in think Great. service Denver well? comments also as last

Scott Smith

since They’ve got been operating two. April do. We’ve XX. We

full in quarter service very we’re we market but said in terms guys data order doing through to sets the so early XX,XXX earlier, real you Denver And and of for it’s quarter, us. going. XXXX yes, posted can XX keep to But any inventory excited a do in the come and yet, about this numbers volume. big, their I and the next over They’re some much shops us of sales had – that. sell which for Our customers stores we’re year, other then get also, we’ll – very cars great We some are really cars results up well. tell big better so X,XXX bigger too in centers, the like when than expecting

where the like. about what excited are very and we’re with So EchoPark we future looks

Mark Jordan

Okay, about look When opportunities one at looks there last the I out of great. might lot acquisitions be forward. market, like going M&A a it question, And thinking there.

taking a pre-owned an on So for for also in with EchoPark fit at maybe are we of eye stores? look well? we might focused are growing more that some franchise kind Or stores

Scott Smith

possible. now Yes, this where We I there as that our interested got is want and But years is were opportunities. out completely phase. Scott. market opportunities in if EchoPark on road markets We primary of would I there and those on at that be we’re we entering focus quickly we – point. of we’re as I XX% the is our say say that be several in Heath growing thought looking ago EchoPark. inflection because don’t said would feel we focus that like right that to exist, out would that currently an the I think,

some it of lot the at substantially sustainable. we’ve point got barriers that entry will model in that in the think to EchoPark our be feel cracked business. and and We’re in now. future, And the people, we for traction how models the processes, that not-too-distant repeatable There’s the us. seeing We’ve time, in a installed technology, than we’ve pricing that EchoPark predictable, our good code got we make and larger no to franchise the positive

just and of Now getting in matter and them up the them it’s markets a building running.

Jeff Dyke

control. The Jeff car in amount gotten, from requirements. that franchise would other what manufacturers’ our of have out is invest per perspective, has dictates add only I facilities is perspective, This dealerships new money buying thing Dyke. you from of And our the to is a that

technologies while are there, that brands from so to things and absurd different bring and obscene investments processes the to want and make we just not the And facilities. our great in going we’re out

terms in and down franchises us a It’s got that might to return, we them. we just be to buy may buy reasonable and slow will that what we’re managing so T. exactly of a when And

Scott Smith

some expectations we right of car model evaluate is This these what their broken point company and my the of going new these And model doesn’t of got It to cost until new now slow makes opinion, our Scott. Jeff devaluing model, investment opportunities, When manufacturers car franchises. these of completely really have as out in great think there something’s in I work because my this certainly, now expectations, a on right that’s, mind, the in budge. weigh the Yes. the the lower facilities. down. expectations. doesn’t And CEO manufacturer pencil, is – the to manufacturers M&A’s and the of this

Mark Jordan

Okay, taking much great. today. for Thank you questions my very

Scott Smith

You bet.

Operator

[Operator at time. turn no this like Instructions] And would questions Smith. And to have over to in back we queue further Scott I

Scott Smith

Great. thank a to into great Well, to and again next quarter. like for we’d we’ll our everyone tuning talk one. Have call, you

Operator

This conclude today’s does Thank call. you for conference your participation.

disconnect. now may You

Sonic Automotive (SAH) 27 Apr 182018 Q1 Earnings call transcript