SAH - Earnings call transcript Q3 2018

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Operator

Good morning, and welcome to the Sonic Automotive Third Quarter 2018 Earnings Conference Call. This conference call is being recorded today, Thursday, October 25, 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 Litigation Reform Act of 1995.

During this conference call, management may discuss financial projections, information or expectations about the company's product 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 Automotive's David Smith, Executive Chief Sonic Officer. Mr. Smith, begin sir. your you may conference,

David Bruton Smith

our the we to pleased Jeff Thank Smith, faced And CEO. fairly questions. a the welcome effects third Heath in call on during is continuing quarter XXXX, continuing XXXX President, operations of which Sonic $X.XX and CFO, with on from our today the Good and adjusted Harvey will year quarter, the share In share turn operations you. GAAP quarterly brief and We basis. earnings the I our from of quarter an on to rebound Dyke company's and Hurricane joining Automotive's performance third comments for morning results. prior the were provide per call. David Byrd. $X.XX reported me I'm tough over diluted call some basis per due comps the diluted then

per XX,XXX a gross million. record during $XXX.X EchoPark highlights retailing F&I gross quarter units Some up unit units, F&I Sonic $XX.X Record third $X,XXX, the retail respectively. profit third million of of unit profit and had of XXX% third quarter. retail quarter. were revenue of sales X,XXX $X.X Overall, record and after third for stores the billion gross pre-owned quarter quarter quarter

very made are the new Texas changes this opened and quarter's discussed during stores growth quarter. results. Our year, well, generating The in continued we in as earlier gross the last our EchoPark market which and call, profit Denver outstanding revenue are performing at stores, the

Houston, the opening Texas, our our of in opened in EchoPark next During fourth the quarter. to best location North later our we're EchoPark we location first week of huge And Charlotte, ever. we'll Carolina, October, and first market off the in open

to franchise quarter. the looking Rover of On year, expect Atlanta the open before our fourth in South a are the Land end robust we we side, forward to open point and

addition, a December will in XXXX. quarterly up to per stockholders approved XX, for payable of $X.XX like XX, on share cash would of on point, January open be this our call The to Sonic's In dividend record XXXX. payable Board Directors of questions. the we dividend At

Operator

The first Murphy from come question will Bank John of with America.

Unknown Speaker

is (X:XX) Good for here This morning, guys. John. on

Jeff Dyke

morning. Good

Unknown Speaker

good vehicle a from really morning. question even First new on year-over-year basis margins, slightly. On improved – quarter and last

talk mean business? that actions you improved of So specific environment you there? guys did any to the about can performance pricing take I part of is address the better drivers is getting the or the

Jeff Dyke

Jeff to programs and is sales the significantly. we margin any that. at of continue just Accords Honda on better pushing advantage our bit Honda strong our action for discounting sales a up managing not Dyke. particular. to did prices of much Honda, then And desk our longer amount margins took Yeah, particular, an We a were job This on the at bet. improved our little in BMW Honda margins You issue. that is be the BMW's Honda, took while In and we so lot desk a

can holding we the margin as better of believe that's We'd did team yesterday our we so, in And meetings we that forward. hold really margin, and the level and big that factor. job board a reviewed move good or

Unknown Speaker

versus from So about in last Is is BMW that it? from right overall quarter and mostly Honda in pressures the of think it's way improvement pricing. the to

Jeff Dyke

of They our perspective. about a portion XX% our of volume. are big right. new Yeah, that's They're from such sales a overall car

so goes BMW, and goes Automotive. So, Honda Sonic so

big that difference. for really And a we made focus on a put quarter it big so the and

Unknown Speaker

from switch more Okay. over on dynamics. to on affordable or rising just increasingly vehicles? to you consumer a more rates any that sense. interest choosing demand used it people questions And impact rates Makes guys total of see affordability then Do rising the and is high-level more

Jeff Dyke

take You to this? want

David Bruton Smith

some it Yeah, Obviously, well, we impacts I'll our tell floorplan you. products interests variable other and that have.

three more expect we'll be budgeting increases XXXX which We in for.

But think way. that. really impacts demand it So low that any I a it's are the rates that negative consumer driving not still enough in

Unknown Speaker

your then performed And you EchoPark, how Okay. talk about quarter? stores can maybe on this

Jeff Dyke

a had was $X.X can. I about $X is around profitability It it to Yeah, Jeff even. store-level million Dyke. $X takes This million. great to The break we quarter. million

in that the we number get so didn't fourth quarter. And quite to

in yet. a We start. but store in to period. that first best That off here to of going units quarter. which of even of on October store is month, be It in XXX the second Xth is XXth just three-week be And the beast. Charlotte big to or probably shot the on We opened we're we going second first December, to over our be store the happen a that store. expect in do then a opening It's opened at retail its breaking our Houston a month has going our best and to is it'll profitable and a

well. market doing doing market great. doing We Dallas high the out expect store. is are volume Denver well. And of the real Overall, stores is our The

is and We continue excited wonderful that team to progress. our about progress, make

Unknown Speaker

presentations, color. might That's you terms of outlook, I the EPS missed for guys very to you expect your still in Thank your have helpful. Great. $X And then just but question. XXXX? in $X.XX it for last

David Bruton Smith

Yeah, there's guidance. no in change our

Unknown Speaker

Okay. that losses, correct? And includes the EchoPark

David Bruton Smith

the includes past? I'm sorry, it

Jeff Dyke

Yes, it does.

David Bruton Smith

Includes what?

Jeff Dyke

loss. EchoPark The

David Bruton Smith

ma'am. Yes, Yes. yes. Oh,

Unknown Speaker

Okay.

me. Thank That's Okay. from it you.

David Bruton Smith

Thank you.

Unknown Speaker

Thank you.

Operator

next UBS. Colin The with from Langan will question come

Colin Langan

for my question. great. Thanks taking Oh,

David Bruton Smith

Colin. Hey,

Colin Langan

CEO different on things Why the think the should going you now? Any company do Just hey. have you color Any on? transition Any be, do transition? view strategic the color David, move how – will forward? on view a

David Bruton Smith

David is this Yeah, Thanks. Smith.

we've think already and that our plan relayed and strategy we're as with just our on the moving we're forward execute to Street. to mostly I the on going planned focus,

plan. that's So, our

Colin Langan

forward? change no basically So strategy in the moving

David Bruton Smith

critical, the always as growing No. growing business, It's EchoPark. again, it's core

We allocation We're facilities. bit little that focus going both so a really you're see sense and going a you're and more away capital us, some hammering just facilities to see from manufacturer more down little facilities your on so delevering some bit, and in make are less only allocation for the doing going to putting and capital delevering. toward

Colin Langan

your Okay. a Any strategy? lot There thoughts a doing start-ups are are on online lot. that of

to you investments You how online. you what can going mean, mean, buy a I with that? I there? car are making are compete

Jeff Dyke

quarter. with Yeah, our that, sure. our will CarCash do vehicle app. we trade to and launch launch later online. either allow will is Digital the entire appraise We'll through retail allow transaction we'll Dyke. consumer We'll Along to consumer appraising the this vehicle This in or One-Stop first center. That the the Jeff be quarter the an

for we'll New start. app. with and only the we'll we'll ones EchoPark. make haven't store be any begin or through we to do to That of that We'll then at will that figured Sonic have out Once launching the that work think that process testing, we seamless in geofence there, and forward one out to We'll transaction that's offers we goes in that there along party roll online, online I look that a in done, Braunfels issues the non-third out our offer locations. that bugs that a appraisal that. to

Colin Langan

the said plans break you'd to store I think what just even And That's and just you on are store? same lastly, EchoPark, clarify initial QX. it. for QX, Got then the

Jeff Dyke

No, whole enterprise. the no, that's

Colin Langan

Whole And enterprise. many? how

Jeff Dyke

exciting for by Yeah, eight the it's be the year. real will us. There stores end of

Colin Langan

the stop is year And you're plans next at to that, or eight? going for

Jeff Dyke

ourselves No, in no, the markets selected we time. We market, have want out not but of announced ahead terms next that the appropriate get to and announce have we next do far that yet. of we'll the don't too at few

Colin Langan

outlook change wouldn't breakeven QX, that the QX? But

Jeff Dyke

Once more deal it question now, you open to announcing we to get open to two, will if We've stores, we it and not be of the we velocity moving and chewing move forward stores, four-year was broken can for open do. the us. model bunch as as just stores something profitable. forward outlook We it ourselves many get out profitable a just we the we a opening gave a that can And That's We're like. increasing get versus or how and forward, look we we wanted markets We that profitability. that to We've it'll even, more done to up as puzzle to big willing to continue and now, forward. hit that as just be we then forward. and so adds open are figured open that profitability. now that stores the are stores going stores within how quarter we we move even move fast of

Colin Langan

right. Thanks taking for it. All question. my Got

Operator

with Sinkevicius Armintas question The come from next will Stanley. Morgan

Armintas Sinkevicius

Thank question. morning. taking for Good my you

Jeff Dyke

Hi, Armintas.

Armintas Sinkevicius

any coming Hey. feedback, in. cetera. models talk getting the as of strong quarter initial new about but far stores, the BMW are Obviously a as models expecting Maybe to just customer initial sort et fourth feedback those could you that here,

Jeff Dyke

filling and it's competes launched, them, the vehicle. orders The think and X so the we're order I've are Series going X a really totally I Class. in March. coming a sat a short-term The rebuilt Series for and to up. a banks I've well Series, the we'll totally hit Series, that's car that fantastic. We'll receiving Obviously, going a that's that Yeah, new car which wait well. on XX, is in wonderful fantastic. Series the that with XX, very but taking car now look, start Also, sale to be also sale. but for S X excited cars those that stop cannot just to It's there's X as those a start, great unbelievable. already the I we're be is stop about X That vehicle reviewed car, ground. The

coming the cars biggest it to breadbasket. fantastic. have that's job, done big, great BMW them a right that when a and ground overall, of in So, and and forward The products our sold. the big They brand profitability. our our is we to look are on getting are volume getting chunk comes

Armintas Sinkevicius

of Harvey up, midst I you the year, last then in in market but seeing versus And comps or some tough what that sequential in that Great. of Hurricane on Houston, basis? know are a there's coming maybe sort

Jeff Dyke

really and Sonic, is and and are year-over-year started December really November brand you of robust. look, we're months expecting November, our September tailing a we tough so, at and in to us of look because guys two terms mix, just so this, quarter. October market the December comp. month know be a And year, huge and fourth Yeah, for off last our so good mix for it

EchoPark Our October decent. good good. numbers fantastic. month. It's is a doing all It's well. feeling is not look extremely

good looking quarter. for really fourth a So we're

Armintas Sinkevicius

the taking for you Thank Great. questions.

Jeff Dyke

bet. You

Operator

come The Stephens. from question with next will Rick Nelson

Rick Nelson

morning. you. Thank Good

Jeff Dyke

Hey, Rick.

David Bruton Smith

Rick. morning, Good

Rick Nelson

they fully roll now Are an the the like you seeing you're strategies. Denver what on would, stores? as in stores that driver you I'd update, if into host select and

Jeff Dyke

stores Yeah, the the driver in pricing select loading all terms elements convert the into And in cars strategy, Colorado XXX Springs. inventory, Well EchoPark just to will head. fully tracking stores over Rick, off month's I in select The XXX are in to so of EchoPark the is profitability top stores, driver January. store, of rolling. the Thornton and XXX, in now my it is we're XXX EchoPark this and Denver think, of fantastic. Centennial the and down

the The we're market's a excited. in to strategy pacing Charlotte The with cars store, opened period. very we're one, XXX all day really from do three-week which So rolling.

best full month we'd first add approximately in bar and whole none. launch, you be month, the if XXX So our our that's cars

a And culture working Houston. is in rolling, we converted. fantastic. have the launch great. We're and to Everything's all We're so expect huge

in a like X,XXX new Just you to a store's in in we're were when cars for month except Dallas, store saw Dallas now. we and X,XXX that now

Rick Nelson

in the Are like attachment penetration you you that seeing high Dallas? do in Denver stores

Jeff Dyke

warranty? In terms of

Rick Nelson

F&I, yeah.

Jeff Dyke

Yeah, upper in XXs. higher. higher. it's It's It's actually the

even EchoPark we're So job in Dallas store. doing the the we're a original doing better in stores than

Rick Nelson

breakeven, the quarter. last quarter the as recall, in And about think had I I fourth talked breakeven you

Jeff Dyke

That's correct.

Rick Nelson

then, you're talking And about next first year. of quarter

Jeff Dyke

third the profit me, second from was generated store-level and once able the in got It million we about which million fourth or the the million million in the from in quarter. carrying we takes Rick, We $X stores lot me up Yeah, quarter, cost head for store in quarter. get is first give which quarter, Charlotte count $X.X a the quarter, excuse the cover It the about $X.X third carrying just be second $X.X up of in store But was that overhead. open. done, those to $X to and and million future will cost that's for us opened. Houston or to

was I real said more so profitable open once It all open can sometime have Houston, no we drain. forward. the And then, we longer have EchoPark's stores it it's line. just So first, we how second bottom many earlier, important them. full in quarter, stores there, moving can adding we past a and before to got we'll to in like started rolling fast and profitability forward, opening profitability, to that us, coverage It's how

Rick Nelson

color to I in guess second. that $X.XX more looked the compared on like, I'd widened, like loss EPS some $X.XX quarter the third the it in because

Jeff Dyke

did. It

the days' that They is without worth things have much we Dallas XX hired traffic sales at go of store to cover too that about any XX through so walk-in training of associates we One productivity. that. the

role start of in that. we to producing change November, adding will cost that's and played They'll help a So, all and get out as that'll that November. structure. so That in October into that

David Bruton Smith

buyers. And the

Jeff Dyke

we volume. a month. run up have buying EchoPark with XX-day keep online, X,XXX XX-day about We're supply that also to total. XX-day We're cars of the a buyers the pipeline, so on increasing with number We

the for we So us of of as couple of and all quarters. to over that's forward that of of this, look move adding all got for paying we've of sort have buyers next the off number right but we begin to into all

Rick Nelson

you. are still you And looking... Got

David Bruton Smith

And, this David is Rick, Smith.

Rick Nelson

Sure.

David Bruton Smith

a think is ground is And that proven to we've we that have another Dallas, I greenfield example, up. in to build thing important the don't from field mention for

very So EchoPark and converted an new we existing into dealership took the old it Dallas. quickly

a ground like to year start So new we've up, to build not locations. from it's something or got wait the

Rick Nelson

you. Got

good and lot, Okay. Thanks luck. a

Jeff Dyke

Rick. Thank you,

Operator

question The come Jordan from will with Jefferies. Bret next

Mark Jordan

This Mark Jordan morning. for on Bret. is Good

Jeff Dyke

Hey, Mark.

David Bruton Smith

Good morning.

Mark Jordan

Hello.

the we continue trends jumping favorable service, parts just see to in customer into looks and So it like some here pay.

volume to bays maybe I else related with think some in replacing is there? is warranty trends some of customer the that driving the what pay, the but

Jeff Dyke

they technology this of service job a and operating the teams some We third We're our in centers of lot got regional They're and them did spent a with we've really working that. good fixed things, focused. year on off focused quarter. of

have we We That's over We do in X% right expect chunk from been expect of that our continue, going to stuff the with there, bays We on warranty quarter. continue. a that manufacturers. had the back a and it up pay. big that's really good customer all to

We another in expect fourth in the to quarter have one fixed.

Mark Jordan

in be to it And should lap next kind then warranty of year it of volume? – start Will that when is QX? drop-off so we QX or

Jeff Dyke

and that is Your recalled, we crystal else as good million I think, think go the again. as looking stopping, ball because that minute into guess mine we something cars, everything's just happens. here BMW X.X

a the heck, launched, So it. and XX on there's stop sale

just ebb flow of expect the we and move business, it forward. I it's ongoing and an part as to So

can't who I So knows? tell you.

Mark Jordan

quickly quarter. into range, how I is up it kind year? Okay. really maybe the relationship to and JM&A and next Great. $X,XXX end of there do this jumping with F&I, of like higher And looks helping then $X,XXX reported per off paying of we unit, around $X,XXX getting drive the your Thinking target F&I here end about think

Jeff Dyke

we the It ago were said, get $X,XXX, run be there. wow, see. we there $X,XXX, too stores $X,XXX helping copy are wasn't to and We'll EchoPark it north a we certainly $X,XXX? because at to nice wouldn't of And long

good long up JM&A, us. I They've and just on next them a wish that's better year $X,XXX performance. certainly part really job had $X,XXX comes of I in done in time in thinking. part ago. it's see. We'll latter them our our So, tout certainly is numbers. with showing or for you is enough. us, the number do just relationship cannot fantastic the with probably that first a mixed I job that see. Whether the the that into mean, we They But been a for

Mark Jordan

you Great. forward much Okay. quarter. look Thank very and next to

Jeff Dyke

Sounds great, Mark. Thank you.

Operator

back At questions. David are I'd conference to any Smith no to time, there further closing like this the Mr. remarks. turn over for

David Bruton Smith

everyone. rest Have you, Thank your week. great a of

Operator

call. and Ladies today's conference in you gentlemen, for participating thank

disconnect. now may You

Sonic Automotive (SAH) 25 Oct 182018 Q3 Earnings call transcript