SAH - Earnings call transcript Q2 2022

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Operator

Good morning, and welcome to the Sonic Automotive Second Quarter 2022 Earnings Conference Call. This conference call is being recorded today, Thursday, July 28, 2022. Presentation materials, which accompany management's discussion on the conference call can be accessed at the company's website at ir.sonicautomotive.com. 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

today. discuss Please filed Exchange In Commission. current measures your David as and to report would the with company's the and non-GAAP I on non-GAAP defined addition, Mr. certain earlier Officer to financial X-K the Smith, the like by Securities introduce Commission begin Chief management may Smith, Securities in of Form may refer Automotive. conference. Exchange now Sonic reconciliation you tables Mr. Executive

David Smith

morning, Thank to and welcome Automotive earnings you good the call. so much, everyone, second and Sonic quarter XXXX

I'm David CEO. company's said, the Smith, she As

President, Retail the Dyke; want President our Steve Automotive of we Chief Vice thank achieve Joining sincerely outstanding or $X.X quarter guests, per call Jeff to XXXX, quarter performance. Wieland. communities million $X.XX partners On team, Mr. Byrd; all-time Keen; the our our Tim Officer, up quarterly Relations, of Digital Mr. Sonic behalf billion, entire Investor is today our financial year-over-year diluted during our briefly leadership second another To Mr. recap, Heath on of Chief Mr. Operating income EchoPark X% Mr. $XX.X CFO, helping of for generated teammates, Danny we serve our of share. net and and me record our us Wittman; manufacturer revenues Officer, and

customer is million to historically approach and Sonic position a network or quarter, and short-term in and Despite demand, maintaining higher a on business results macroeconomic potential diluted that Beginning and This our Dealerships business. charge, our lead growing we are of and rising interest second being the reported quarter growth rates, our Excluding adaptable balance steady our high our balancing net focused plans. ongoing growth team inflation of a headwinds. Franchised and of prepare also disruptions, sheet times. and our and profitability strong achieving parts in liquidity share. for GPU additional digital adjusted service despite recognize are throughout consumer both bolster identifying during conditions, growth of conditions, -- onetime prudent per economic with at range new position, continued continued in-store management our importance These such about the experienced $X.X and macroeconomic $XX.X and in to has volume deliver income levels our of execute results. very indicative expansion, first measures $X.XX and another such the vehicle our supply targets persistent not chain we To segment cost million concern we time

mix, $X,XXX F&I Second segment, revenues in few was a segment strategic decrease structurally the optimize vehicle to gross taken remained the year-over-year, due we primarily production lower unit supply to XX% percentage franchised was XX% a to XX% pre-pandemic profit unit production up gross a a profit. sequential over new segment adjusted to have gross franchised all-time retail up of was year-over-year. vehicle revenues Franchised volume dealerships sales than of XXX per profit levels to see by despite decrease due $X in on but of SG&A $XXX.X same-store our Offsetting of was XX% to gross we result profit Similar retail than in retail up million, an X% were profit better per years XX% volumes due down up SAAR increase Dealerships F&I brands. which up levels our and from from actions higher ongoing sales weighted million, industry new quarters, demand to quarter levels. On decline X% our was X% luxury and Parts to by in year-over-year, lower was basis, year-over-year first a due as lower new vehicles. down $X,XXX, to towards and XX% increase than XX.X%, and lower was inventory record points the the basis as partially the driven gross import decrease With profit, same-store new contributed normal warranty gross $XXX.X days offset were industry though, have unit in improving vehicle inventory year. XX% pay X% increase miles income limited basis, to supply dealerships XX% X%, volume, recover EBITDA XXXX customer Same-store was due billion, last adjusted new past while and vehicle brand lower a gross same-store Segment continue chain the consumer volume strong service domestic This a a just same-store structure. vehicle X%. vehicle XX% which unit cost prior retail profit continue and for of disruptions the quarter. down as two constraints.

XX quarter. June of days supply of our end the vehicle at first our days, the day franchised up new from As dealerships supply at just XX, was XX

strong and as is pricing vehicles car remain for of stable expansion evidenced GPU. production continued new by improving While new new somewhat, demand vehicle

segment down end days Our of days supply, Franchised quarter. had from XX at used Dealerships approximately the inventory XX first the vehicle

outlook. the our be pricing to and current recent inventory, in of We macroeconomic continue wholesale market in disciplined used in face the volume managing pricing and declines

revenues year. quarter. XX% Turning the prior the XX,XXX was quarterly sales retail $XXX.X quarter now the EchoPark from year-over-year, all-time units, XX% volume record million, to XX% up down for up from We of but EchoPark. reported first

quarter the in exiting and line. on inventory was million to showed quarter. the segment As call, compared sourcing as we effect began of shifts the strategic guided April benefit the But of EchoPark monthly mix bottom loss our second flat earnings first $XX.X improvement quarter to

continued Raleigh and of Louis, new expansion opening including three coverage remain nationwide hub of XX% results, U.S. quarter, on EchoPark, population of pace these locations St. we and the Beyond the reach by the XXXX. by and XX% to during EchoPark year locations end this second two retail operating in

with Beyond our platform new rollout to continues completed proprietary new our footprint our the we platform The fiscal XXX% positive of in traffic results e-commerce echopark.com. in of to June, nationwide at customer and produce buyers e-commerce and in for conversion quarter sales. consumer representing XX% feedback our out-of-market increase XX% website during of second of rate accounting volume retail XX% the our a our

to EchoPark success expansion action a us our the vehicle include confident inventory EchoPark's which in consumer historical affordability eventually we forward, intend which sourcing, combined GPU we increased date, sources, reverts we our inventory to Going the in of continue acquired targeted to sales current sources. and this to in quarter, benefiting and enables we With segments, sourcing e-commerce vehicles to XX% losses we In manner. very year. second platform, are reach us has offering of quarter, profitability. into non-auction EchoPark's to our source the new used XX% long-term an market mix of to July the X-plus-year-old and of more non-auction from And second in In to front-end prospects expansion our in better improvement going come our remain strategic rate from EchoPark half we of have taken the third the vehicles, interim, improves additional allows expect non-auction volume. norms. expand deliberate improvement to customer the drive once seeing With in

point. at expense to taken addition, our we have levels structure remain We EchoPark's volume current with and near-term in adjust steps growth long-term EchoPark our headcount confident better align In to prospects. and

have current Once previously financial on we market has and future have will the then provide beyond XXXX. vehicle the at we model made adjustments EchoPark, conditions us strategic the to projected adjust updated growth effects However, gained more and revenue back caused used targets market push our an EchoPark of and guidance. stated our clarity we

Lastly, we determined evaluated and we that conditions with formal alternatives time, for Together align process our not the objectives market EchoPark. timing creation of and announced on business. our current the our EchoPark at previously for are value review has advisers, Board with concluding range a carefully do this

continue EchoPark, maximize will shareholder conditions arise. expansion potential to long-term We for consider on market opportunities will and we plans they periodically as our continue to value execute monitor to and

available turning balance sheet. our including deposits plan to $XXX in ended floor in and Now liquidity, million We cash million the quarter with hand. $XXX second on

to cash through return generation Our capital share sales our Sonic shareholders and consistently financial repurchases. flow all to contributed balanced solid have to dividend strong enabling position, and strategy quarterly its performance, allocation capital

financial To that the bought of a X% Sonic's $XXX In quarter dividend pleased total to outstanding we despite quarter, macro to repurchase million our During today, quarterly on approximately stock approved price stockholders Board announced have shares consistent we all we of authorization. of of of company's back share performance a by share Directors an remaining cash $X.XX solid approximately purchase increased the headwinds. XX, for XX, the on closing, Further, Directors of at company's record December to million, XX, XXXX. of $XXX report shares authorization of of per X.X October that $XX.X results in Year-to-date, million. XXXX, and our million period aggregate I'm repurchased payable that September XXXX. Board demonstrated end, second second another

of and stockholders. for we opening our our Sonic any This confident in we strategic look and continue teammates course, model business following deliver guests, and have. to value may and so to adapt towards will the flexibility ahead, strength longer-term By concludes EchoPark growth growth, greater you capitalizing in we ability Moving goals. short long-term answering our our to the forward continue our we increase for profitability execute our you. term, this Thank to questions on and revenue plans remarks, are build on

Operator

comes with Instructions] ahead. go first [Operator of question line Stephens. Daniel from the Our Please Imbro

Daniel Imbro

for questions. Thanks taking morning. good the Hi,

Jeff Dyke

morning. Good

Daniel Imbro

the EchoPark start really what's to unit. on want I going on in side the and

business? parse of it And the this kind that to exceeds to maybe softness much within I how Are weakness supply. demand there? is out supply able that a your trying is figure there? a is think lack of to in of Just affordability out demand unit you softening trying challenge. of still you of to Do unit much to the makes think see it backdrop? due drivers how due sense, But

Jeff Dyke

the pulled Dyke. just they're couldn't very we buy I to business Yes. demand X- there. X-year-old back XXX%, This Jeff mean vehicles, get. to we is hard because just is the

as refer that I bring you four the results would see to inventory. that. it from us We're we that and vehicles said quarter, first retooled doing the we now take great to And and in can some XX. in or months X-plus-year-old five so announced Slide starting to the

to look, we're continuing we XX% into improve as in our that year and in sold the least market, we at the you of be of if If That's are range markets now at should Houston that cars those vehicles X-plus And quarters we old $XXX,XXX in quarter. market losing did you money to breakeven in just Denver make Denver move previous June third we look Dallas did July, July. the 'XX. in going in over

All of inventory. the moves made the with this we've is that from

So $XXX the there, monthly the getting a preowned payment not for X-year is to and a but for is there right $XX,XXX, you're $XX,XXX. X- demand now demand at you're what car selling that's

X-year-old-plus payment is And into be. where that historically get the which range, to so to cars, down the needs we're back to retooling it able $XXX monthly

up to payment. keep amount continue buying are able little our consumers there. lower been at car a So And a penetration to higher warranty we've

It not inventory, really off at than and previous and low percentage in availability bigger through concerned we're the as trades The years. we about So number demand. just a street much all was of of inventory more procuring the now before. the are concerns a were our preowned

We'll our see bolster number and into that Now quarter, bottom is as great. XX%, is we the continue third which line. that growth and over fourth move to we

bottom get is than then than expect better to QX was and QX. in and going it line Our to we in QX, better QX QX be

forward. moving year, and EBITDA we the next or to profitability be breakeven As second expect back first, we quarters third of into to to is move

Heath Byrd

Yes. like dramatic it's to think to on XX, profitability. you Slide is impact I would just I look at Heath. add, And this that the that, if note has change that important pretty made

Houston transition. million we're And June losing were that was first locations transitioned XXX,XXX. we the losing $X.X at they X-plus they're market And same you thing mentioned, the the see Jeff As the we can other as to seeing from market XXXX, vehicles.

So I the a forward. big agree on with profitability Jeff's to impact going of EchoPark have the

David Smith

Yes. is And Daniel, this David.

remember, One guest the is experience. of to things too, our

world-class Our EchoPark team, delivering experience. is just our team the guest

that retooling car from note to seen think And as X-plus well. people we year as to first this you remember middle wanting a guests would important the of out from demand X- to to that to able the the that is those May, in And to call. old increase we've transition one be I process. out in the started quarter's EchoPark, X-month do of -- told from coming inventory a we So the it's we there that drastically buy first

few a cars got done. Dallas got we'll done, we've months. we've to the got start so Denver Houston X-plus the markets. And And other more We've adding done,

street that that You're retooling get all buy X- way we'll can processes in of inventory comes and and we at model. to type either kinds to back, advertising X-year-old traditional and And and market technicians auction the ride to a category. things, reconditioning more until of have this pricing we off the

Daniel Imbro

that, sounds much is sourced without being, street probably the higher, now. the the follow-up to a volume. a sale you car do is of it's to to harder consumers that them it's portion equity, lot a right they of that a big the And easier a normalize really thought it. on profitability I have in guess, car equity as sustainable? like of values buy color. Really, it And back consumer it buy But think is How vehicle to and off helpful out positive the and a non-auction to negative when attaching car

to the that guys you from and of when the years, ultra-cohort into consumer. buy that how but obviously next also it's curious this harder about impacting So a future year feeding trend think profitability

David Smith

street be And three sourcing Yes. from or back -- drop you're Today, Yes, range. you're to weeks $XX,XXX drop those both you're if to the the but begin see in traditional X- category. we're you're and $XX,XXX point. bring right and to Well, in vehicles, buying what lanes now, to an going price model, auction we'll it paying X-year-old begin and that price when back the down car will -- we're that and valuation back auction to off happens, to EchoPark cars was to we're price the and seeing vehicles perspective used volume the in it, then those to auction. wonderful the at from in at looking four at $XX,XXX, into obviously ago,

that in the because to $XXX So consumer, I is get issue back down it right monthly makes below for wonderful down deal tenor a as the now a is that big monthly the and category. back high And in the for $XX,XXX, looking dropping. payments what that are expect for for. your into pre-owned big everybody payment we're That's the too

Danny Wieland

This And add one Daniel, to point. is Danny. more

you're of less end potential to lessees of they at you than starts historically not the neighborhood be been pricing leases which the XX% somewhere equity, has in to that think the their down, out of the today. when date, is come and to for negative that leases of XX%, could are piece as I are buying term see it's other and use the have you position a going happening, in to where

one So as back today. the coming and in that would side, to benefit both four that well inventory on to of we're missing of kind sourcing franchise the brands BMW Honda auction out organic a the lot, our particularly years as

David Smith

revenue. to off and total coming quarter, and up was two used less compromise these of terms We our coming back right than consumer. terms than the were different cars, of our XX%, in off-lease year-over-year. BMW typically, those Yes, used those not car supply we look April back of from on see lease. than are the that's used at X,XXX and Honda cars XX% to two brands of where side causing And performance our of were XXX% cars It's everybody coming you have more company else's. it difference they overall XX% XX% back. those car And Today, buy that's combined, all now second the it's to us of franchise brands being cars if just in brands, up, the X,XXX you in about off

Daniel Imbro

any last and talking coming this used maybe prices Are down. me, lenders for And are Are just customers but environment given sheet seeing in any your balance are you I Got for take change guys it. pricing tighten at high or to will get financing point risk, you you seeing this normalizing. in know change? ability just any partners financing cycle? one the about so in

Heath Byrd

Heath. this Daniel, is

lot. we and a that, that seen haven't We get asked

crack and on But as may is it that. if a that correlates little in You that advancing actually that that's that we well. bit the chance of hit haven't lenders, difficult we so recession, obviously some any our subprime. above see keep that with seen from macro that, tightening the we far a see There something data we too

Daniel Imbro

for Thanks good luck. color the And this all morning.

Heath Byrd

Thank you.

Operator

comes Thank Gupta Rajat go with Instructions] you, Imbro. [Operator Mr. question of from JPMorgan. Our ahead. next Please the line

Rajat Gupta

taking David, family you Thanks questions. Great. to and just condolences on for my well. the wanted to as your pass And

David Smith

you Thank much. so nice. That's

Rajat Gupta

Just the EchoPark question on Daniel's on first question. up following

the that in getting were gotten mentioned those on You better better losses exit had XQ. rate

I if that actions around Just term? you you're in to near the can could us have to on with profitability ultimately just expect EchoPark higher taking mix, turn GPUs EBITDA based provide on trajectory the any and curious a the visibility of business When we follow-up. cost? the And

Jeff Dyke

Yes.

bet, Jeff Dyke You here.

was first almost and So of happens the we the exactly mirror kind second going as of what terms first in in the EBITDA, quarter to identical. quarter, told you quarter that's

changes we we quarter two be from in than -- to again from EBIT improve is those in return, in second quarter change inventories started months. continue car inventory a instead start 'XX, if or the the to going process buying for X-year-old year, less monthly of of you, first couple we the range plentiful, the a overall to we'll that used of next and valuation nothing that's an would it price and that consumers profitability, And come did if quarters, into the in start breakeven fully first this We'll on fourth least the them two would quarter third in -- profitability the more say, of payment, in $XX,XXX, the EBITDA that. somewhere $XX,XXX has to consumer money kind But in off-lease retooled be tell sooner. selling availability X-to that at pre-owned. quarter going kind lose point second in cars XXX the ballpark, perspective. And that faster. then improve next -- As be out, in basis on if will quarter three if we of cars going from to cars, point down and retool would from $XX,XXX, this perspective third I'd of guess become to not the my the a an May, range XXX price to don't stay the we're I back for price get lot I first

going and what's couple breakeven. quarters at of year, wait nothing of least happen of to with pre-owned back if kind it's see to inventory. a to first So see But changes on pricing next

Heath Byrd

still would we of our fully just this Rajat, XX% add Heath. to is by are committed hitting goal XXXX. And coverage I that

So as going the to have in turns. the market we're infrastructure place

to the trajectory going the we will forward. that is to of -- will as it's think And turns. really infrastructure retooling note returning there speed I define and market going be that important be market the us so the But

do $X don't new our we seeing look to of XX% down coverage three model, have, June if pretax. And differences month, have July, two, you from transition $X at but this backed to even the XXXX. to we're million in markets on million not and month EchoPark We sequential just by that to

David Smith

way And would And It's major comes That's inventory -- that long be but it doesn't year plan. vehicles, big is won't we is think through abandoned Yes. X-month as to just while right a to work our now our part back, the of it mean we inventory program this I X-year won't inventory still percentage that add the going sell the a X-plus as not adding time. we the temporary. mix of X- term. be

be I earlier, in market remember, is market, this our we month $XXX,XXX the to retooled make It's it's just in Denver X was range. which losing to Dallas that $XXX,XXX we said a also XXX,XXX of month our we losing this to In as important $XXX,XXX that the month July. going was $XXX,XXX to also month, think retooled it loss. to going

months, and even and where the then XX about much take in $X to two million, a EBITDA of $X.X massive what in way from long to million, $X.X a all earlier better Houston to first there. a few and low than more talked retool. to million, doesn't going So we've improvements, is loss quarters. continuing It's the he maybe improve Page It then up you've to get $XXX,XXX gone seen just continue

Heath Byrd

And Rajat, this is Heath.

I We've think it's been one the beauty of decades. on important. this doing side of the having diversification. the That's for franchise

can And gone have that in EchoPark this and the we and to processes place. X-plus that knowledge go over so we be capability we the and the need easily

Rajat Gupta

brand to your there gears more parts growth it services, but or peers flag shifting the same-store the what dynamics, anything was strong, to reported perhaps slightly Is and drivers? regional have on below a just and lower unpack just could because a the units. new and go what bit help of your expectations year? weaker used the of us that remainder out if for reconditioning Maybe Maybe you

Heath Byrd

Penske think because same. XX% That the fixed really overall in about internals Yes. operations. in were are gross, down. doing, which the because the bit about little about being of our what hurting runs I all that. that's volume think is up then that being typically We're and our they're of in given so what of mean, The brand the And And car XX%, fixed volume we're data, off. we're or line a I and numbers used actually, XX% peers I that pipe, we're other with mix doing if a you look for customer have there. role plays at excited XX%

it our service starting so opcode a by somewhat. Warranty is in little And offsetting to roll we share we're very focused and growing that's But market business, gaining market through move bit. and in on particularly BMW that to in continue us to pay share, brand. the are I few next next year. for as expect dividends we And into quarters the our that

about on excited little fixed. plays we very I where compare are brand just mix we're And think versus competitors, brand of to there bit you So a a the when our mix. the role

David Smith

-- you And David. is Yes. can this

can imagine, used with our As our fixed existing the help being the cars discussion customers as of mentioned, you will more keep of to diversification then really operations, expensive, and Heath it cause their will helps. having business vehicle

Rajat Gupta

Got a it. lot. That's helpful color. Thanks

Operator

the There time. like at questions I Smith closing remarks. for conference would back waiting pass additional are any this to David to no

David Smith

Thank have everyone. your day. a you and appreciate much. time, We very Thank you, great

Operator

XXXX That enjoy second earnings you call. conference the concludes Sonic of I quarter your Automotive all hope the rest day.

now may lines. disconnect your You

Sonic Automotive (SAH) 28 Jul 222022 Q2 Earnings call transcript