- Earnings call transcript Q3 2022

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Operator

Good morning and welcome to the Sonic Automotive Third Quarter 2022 Earnings Conference Call. This conference call is being recorded today, Thursday, October 27, 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, such statements are forward-looking and subject to a number of risks and uncertainties that could cause actual results to differ materially from the statements made. are Exchange the Commission. uncertainties the findings and and Securities risks detailed company's in with These

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

David Smith

you everyone, XXXX Sonic Thank very welcome much call. morning, and quarter and third good Automotive's to earnings

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

teammates, Chief Digital Vice President Joining billion, amazing gross Steve profit, all is another Dyke; Wieland. including of President, me per our CFO, Jeff revenues, Retail Wittman; today's to Tim and Relations, XX% Investor thanking Mr. our revenues I'd include partners call quarter by customers, record quarterly Keen; our Sonic Officer, like Officer, financial third our income, up $X.X record third helping our and from Operating of begin Mr. vendor our record-breaking Mr. Chief Mr. share. of Danny period Mr. earnings net on Automotive which EchoPark of results our Heath Byrd; performance, achieve is manufacturer, and Highlights year-over-year. sincerely quarter for

million, quarter This up share. or Sonic also net per million year-over-year. $XXX $XX record quarter posted of $X.XX XX% of third us profit income to record drove gross achieve third diluted

in new pricing, to vehicles, new service business. for consistent demand quarter, our third continued and we vehicle the strong parts During and sustained growth consumer see

strong supply limited volume lower to new new vehicle year-over-year a constraints pre-order and see also bank. vehicle vehicle and we chain a sustained continued due on to we experienced GPU While sales basis inventory, ongoing

to rising industry high consistent interest macroeconomic ongoing car prices trends vehicle year-over-year, of a near-record chain overall affordability and ongoing since used around our I'm business say quarter-end, stability and happy used concerns a heightened interest to inflation, as with supply have result constraints. in volume that rising despite reflecting see rates, rate global continued and was environment. Our concerns headwinds we

reported as earlier diversified and stockholders. as unwavering strength commitment our Our fundamental partners, creating of for manufacturer financial our demonstrate automotive today our the well results to long-term value model, guests, teams

While prospects and we growth we our remain vacuum. operating not a optimistic long-term we that realize in trajectory, about are

this the economic As time I adverse mentioned call, on navigate Sonic through earnings cycles. last first is not had to our has

aware is long-term of are the obstacles operations challenges current facing related to while strategic our environment Our well for the view maintaining for a all economic team business. industry and near-term daily we overall is adjust to and monitoring any our

position, be balance our such sheet in remain strong essential As adamant maintaining today's we we to world. in consider which

commitment our as plans, with strong current to a EchoPark with measured Our are of cost cash priority both macroeconomic light generating a strong well uncertain expansion take in maintain flows, Franchised team strategic and balance position we long-term to we to remains with as end, continuing Dealerships, our our focused on of very managing To profitability, our this maintaining growth outlook. as structure. approach high our proactively to levels liquidity

now Turning to Dealerships our Franchised results. segment

adjusted sales X% XX% volume XX%, which of were was the up constraints. million, Franchised quarterly unit $XXX the and quarter used was Franchised to million, down unit unit be as X% up segment retail sales warranty X% up up segment lower profit unit volume impacted pay Same-store per to by and F&I $X,XXX. on was X% lower continued vehicle down while vehicle year was vehicle to with up EBITDA XX% Third $XXX was year, profit gross year. new by retail Dealerships same-store gross was prior prior during the record was per X%. retail XX% all-time were per from sales ongoing same-store prior profit the gross year-over-year profit On X% a gross even retail billion, profit unit X% retail F&I X%. Dealership year-over-year, volume period. gross an income was XX% from Same-store Parts new up production demand, volumes quarter vehicle persistent same-store by from vehicle revenues prior revenues Segment customer year-over-year from gross vehicle same-store $X,XXX, XXXX gross sales service up and $X,XXX. down year-over-year up up year. used while $X.X Despite gross unit profit basis, XX% increased profit profit was despite same-store Same-store

drive As new XX, segment GPU. inventory which quarter. vehicle while of to our at September approximately XX improve supply vehicle days Franchised the strong for Dealerships continues new to from slowly, unchanged Production of vehicles strong, new remain continues second demand

XX again had vehicle Dealerships from Our approximately unchanged quarter. supply segment second days the used Franchised inventory, of

macroeconomic used our vehicle volume, to ongoing inventory pricing, pricing. and outlook, vehicle wholesale declines in inventory, new Given be in constraints, disciplined continue current we market recent and managing our

turn let's to EchoPark. Now

quarter, for strategic focus we the up year XX% quarter in in as of to third here, the XXXX, down EchoPark second gross the XX% volume EchoPark And second mix represented a year-over-year. non-auction adjustments our XX% in $XX the which executing reported include XX,XXX of the quarter million, record the the sales vehicle the year. from of EchoPark of For $XXX from XX% to prior grew on of used X% units, quarter to our in third down quarter XX% vehicles Digging Despite of XXXX. inventory. million, five-plus-year-old sales revenues profit sourcing third reported EchoPark we was sales we continue retail from for five-plus-year-old X% in little vehicles retail was third deeper up this, quarter quarter. unit volume prior

improvement and million loss compared $XX.X quarter, segment and EchoPark $XX.X a loss the quarter reported in from $XX.X September, quarter. and of shifts in reported quarter, second period. an quarter an adjusted million used million days the mix that EchoPark XX we of $XX.X the year year a vehicles. mentioned sequential EchoPark the earlier. million prior quarter, our of ago expected million in from in loss of in demonstrates from inventory $XX.X to I we improvement second EBITDA the loss As the segment second of sourcing strategic the of million the benefits third third $XX.X supply of approximately the had end At This in

we fourth quarter. us excluding just For EchoPark branded into days locations new opened third well during head XX the as the supply was the days locations quarter, though, positioning

hub near of to third a now reaches population, network, Sacramento, delivery U.S. on the center Including continued expand over our Tulsa, distribution openings of it's XX% during way and strategically opening new - to we location During our EchoPark XXXX. U.S. Oklahoma, in population EchoPark including quarter, new retail new California. the XX% vehicle quarter, brand opening the by

In continued also of echopark.com. digital continued platform, addition the nationwide new to expand with we've at success traffic XXX% rolled past e-commerce our our to growing geographically, June which of footprint out successfully to EchoPark's this was

Further, guests of volume, to continued out-of-market purchase sales the enhanced for unit of through of new our quarter. compared was volume X% retail XX% XX% utilize sold buyers omnichannel quarter, EchoPark the the For e-commerce second our accounted during omnichannel experience third to representing e-commerce sales online platform as with quarter in XX% our sales. EchoPark's end-to-end

better quarter continue continue we to in this current once to In long-term prospects, interim, used monitor structure course. align the take returns performance to segment's remain conditions XXXX. target EchoPark's to the return EBITDA in in vehicle second our We environment and and to a with breakeven due growth steps adjust the to of confident EchoPark market the at normalized

of of the seeing profitability. past enabling improve We reach us and more of actions from this segments, remainder the include offering to year. further losses inventory expanding source to see see EchoPark will improved our consumer which already began during benefits are to to the five-plus-year-old vehicles the expect and non-auction to benefits additional improvement affordability, in quarter customer sources, We vehicles, these

adjustments these guidance. updated Once and of have still the we We will early vehicle the model and further EchoPark, strategic we conditions have at an are visibility initiatives. market effects we of future on the in EchoPark used provide stages made

update repurchased million. end X.X we the million we the quarter third back representing of approximately share million. bought shares, $XXX.X of our on $XXX shares X.X of during Year-to-date, an of approximately million for repurchase shares the activity, approximately company's As as XX% stock for outstanding XXXX

share As over Directors results current the repurchase authorization Sonic's Board increased cap. with this XX% total million. company's by in activity, authorization, market this remaining Sonic's our recent share $XXX into in million of $XXX repurchase repurchase in account Taking previously a reported, representing of July of

with end $XXX XXXX quarter ended Now decrease on floor million including hand. our mentioned. balance We in turning deposits share just sheet. I of cash driven the in liquidity the second liquidity and in to available from repurchase by the activity primarily plan million The was $XXX

report Additionally, all record I'm to to pleased December cash XX, stockholders of has on Directors January our to $X.XX Board payable per our share that XX, dividend increase today approved quarterly XXXX to on XXXX. of

continues and share performance, in of results allow capital and record quarterly macroeconomic spite another Sonic Our capital through quarter cash reflect dividend concerns. allocation return our financial strategy to repurchases. quarter summary, sales to balanced to flow of shareholders strong generation, its third In performance growing

We and our goals Thank This Sonic continue confident necessary answering Franchised will questions so may maintain increase further the look we and strong forward strategic profitability, generating reach growth to our sheet to any balance of long-term in growth, our very Dealerships can opening benefiting still remain forward, model. strength while concludes our look our for in our EchoPark short these stockholders. delivering you have. for longer-term from continue our to steps value our to diversified taking revenue both goals, the plans the you Looking term forward business to business, remarks, advance and we much. we reaching and

Operator

Thank you.

[Operator now John, session. We open. Murphy will Our with Q&A from your Lynch. is the Merrill line America now John of question first Instructions] Bank begin comes

John Murphy

happen you bit is the heavier and import get and luxury back catching inventory but the what curious a dealer like most to guys, question than you're we to normal groups, there here, means? what import you much morning, a when up guys first just Good that what normal I'm trying hearing of understand in domestics on think - not, mix luxury it's felt going a be little and have just kind I'm to faster brands, restocking and grocers might and maybe because

Jeff Dyke

not there, that Jeff brands it's The are day X, growing. and Dyke. the we we'd is X, for getting days brands particular, our supplies are quickly John, future. X continue Hi, Line Yes, obviously supply expect High in particular, day but BMW, in certainly, total better, Honda growing as as the in in it's like, import to really the low foreseeable Mercedes,

I first think better to continue through the move and it's second going get to as we quarter.

XX but a future. a day manufacturers going drive days as piece XX us and year continue puzzle crossed, their days, for great that's days busting chips it I inventory the of the and gets down, we'll front-end that's think us, on big at fingers are to if the we that's an a and foreseeable getting that going I weigh because from EchoPark butts, look to days into industry and don't still but to have doing today, we're sitting perspective. next they XX to for supply they're to keep supply pricing still our think next drive we're chain we'll are issues, the hopeful job, supply, problem, But year,

John Murphy

is you, XX do damn it's means that tight grocers pretty mean, think for that still strong reasonably relative still - history, XX mean, I weigh I what to you what just bit? does to And still or - they days XX do a mean are Jeff, to grocers?

Jeff Dyke

high not lot. a I quarter, north a see Maybe high. don't Yes, it the well a $X,XXX the norm I just quarter from that's in front-end mean, next grocers copy think don't the first $X,XXX happening If I certainly I now. in grocers from we're continue we little going be certainly a is but going in pre-COVID we're to remain $X,XXX, see, then, year, this a of perspective. seeing quarter. a to compression are return to but $X,XXX in happen and this really of perspective second to $X,XXX run range, not to

John Murphy

sold it come grow in in have macro and the a you maybe curious, on in did going and EchoPark, be to maybe like supply EchoPark of go seems some to guys share just approach car really growth just XXXX, market, particularly going think resources think vehicles, heavily and the back great because to about tapping the we of might new it there challenging used curious bit to EchoPark not of you you just was the but don't where there. on cited kind flailing you what's how yet, about after just when much at terms, little it pretty few to have think market be absolute go might it's, this shrinking a after you're I around opportunity it's by be years capital throttling do? how number And might for this to that all like sound of growth mention measured a to backdrop brakes, or be there, that you competitors expansion I'm didn't going

David Smith

our we're we're future as here to some see well, when back seeing, of on, jump Dyke, track to but fruition will - get some of and have it going we in of to and to bunch on a out been locations. that in David stores as some EchoPark we're our before that to expansion, our that. disciplined and Keen have is start rolling Jeff very approach going Tim we this to We're again team working on This huge going to as the progress EchoPark we're going additional other Yes. teammates relates a mentioned, Smith,

Jeff Dyke

to auction the of at open any we the that an XX,XXX now, opened buying not price expansion 'XX. going We a We're the fourth for average at the first an quarter, see by XX,XXX right below stores third of XX% for Sacramento second just we're Yes, now XX% we're wholesale the but over quarter, problem don't we're getting from and of down to the retail of so market end great us. the quarter, in But Tulsa remainder we're in quarter, or average lanes. market. to

drive, rental to are some inventory access that's to doesn't continue for time lanes, to EchoPark, John, as that's it the the happens, because when out that going things so struggling, - is great auction are happen, really EchoPark and are have competitors thrives. expect We of us car and this companies slowing other but recession drop, prices a we down

warranties pre-COVID lanes, be range and the So these gets too that back year are still in think the somewhere we in payment it's the was everything to down maybe to average to last wrapped prices customer XXX I in the where monthly quarter, the going next buying that by close on range, XX,XXX where it we'll average payment. new - drop, middle XX,XXX and auction paid of $XXX to car in, with that's

create price is day. drop. the We're had continue The team payment and to really coming other to for is management team to see tap to the we'll the situation of the volume consumer get that the here what's back. going focusing really couple senior brakes the on back up. a EchoPark So at EchoPark quarters, pumped an positive EBIT average EBITDA we monthly just in for excited, We

Thornton Our used another in $XXX,XXX September big right made that. sold car was store. country that cars in in think profit. at of the I of month store there's doing store don't We single-point XXX out that the

over XXX do will cars October. We in

in where with And We're We'll business on that from quarter coming and back. in that EBITDA an fourth would, for seeing EchoPark it see we're third already we the track right So be. we'd we the always October. is said the said quarter. improvement

on capital never any brakes a tap of we're forward. But for here quarters, as what - times and really not will and we include the see let's year, the cautiously in So driving also our spending manage feel so in couple optimistic, one which going a thoughts the to the be quarters. back see comes certainly got we're what helping happens of we our we're that next wait, our pricing wholesale bottom EchoPark, open we've category we'll company, cars it's campaign and it's less our next exciting and probably half really our stores, to will We EchoPark. stronger on price-driven and couple properly really like percentage, will of of I sell move happens as expect just branding starting branding advertised We that but back too, but the in the plate a plus-five-year-old four-year-old smart, line. market. sort would with going

John Murphy

That's helpful, thank guys. you,

David Smith

want advertising, something - really them, proper couldn't Yes, really that to XX selling back really got cars sure that Jeff want something out. and as be industry-leading EchoPark is our guys there David, experienced growth. word-of-mouth our got our to some get north on we something call We've mentioned five-star that as hiring that continue roll guest some and Jeff and the experience of that mentioned, is we've better, that delivering guest guest training don't we we those this of stores stores we're as proud is an some to experience that advertising are processes at is sacrifice we our experience we make salespeople have they of the our of so that to

Jeff Dyke

Yes, stores and being about cars are experienced to some our good our is, of now prior a guy just XX, John, overrun, XX XX XX, another average and a COVID cars at averaging month, in we're point month. sold

day heavy about but we're an again. year. of especially been fun competitive guys we this. like that EchoPark, So with out to about environment that a stand real in we're of we've We'll lot over the next an couple for measured a smart business this be supply with set and had back and of struggling in where comparison quarters and from it's there excited starting sitting year tough perspective, to obviously, is us, The a gross hire experienced coming lot EBIT

John Murphy

you when physical that thank it. you but you have for use, can tough guys, you lots guys, XX it's I appreciate your so much, for anyway, competitors. okay, Not Yes,

Jeff Dyke

watching very did we you. Thank Yes, close. and them we're

David Smith

clarifying for that. you Thank

John Murphy

not guys. you, else somebody there. definitely Yes, Thank it you, I'll there. leave

Jeff Dyke

John. Thanks,

Operator

Thank you, John.

Our open. next your now question from with comes Joe line is Stephens. Joe, Enderlin

Joe Enderlin

thanks Hi, our for question. taking guys,

came share EchoPark thinking are capital on here M&A on brakes So continued can just or priority allocation, I - we think your repurchase in, elevated expect environment, some versus given you our you the allocation capital buyback the how on have if expectations, growth? tapping about wondering

Heath Byrd

at balanced This is a capital in always look as opening Byrd, as his Heath allocation David we mentioned comments, approach.

balanced a it's year, think Jeff I other capital the to you is more first there's capital the cadence to like and cadence of we of XX%, dividend the is in share the stay of we and as sporadically, levels, that us with repurchase, as great look not increased things we're other year, repurchase it's mentioned a so course, as come way next hard those a we EchoPark and expansion, lastly big buckets the use we have the correlated it's it's to well. it's buckets they - we opportunistically and same M&A going come million shareholders, actually predict advantage mentioned, priorities, when when share the two the that's from And priorities, will And it. very so bit, won't to really categories balanced the no predict we that show undervalued as opportunities of that repurchase, hope and one scheduled we opportunistic so comfortable by up our as both in so market, regular that along on really and where do come on compared for then other so they at up, share and little the we it is could and and the of David did still approach. at opportunities much we because the it as for spend undervalued is share when we M&A quarters take that so with It's and looked plan quarter to repurchases, next big free then liquidity are and - returning buckets. the all position to is look those to slowing is opportunities one against and that's in of just we're and maybe course, standpoint, the leverage, but of an the the up, over you our are always so those X from so and stay come in at believe

David Smith

Franchised they've have interesting it's Yes, we be this to high, well order especially David have across going our some Dealerships so this opportunities coming we're prices into extremely to see prices, they've be saying - our been be that some signs Smith, extremely interesting what towards but acquisition. still is going of - come it to that and down, to as got forward peers capital are 'XX that attractive could see will prices those seen desk, while to the allocate what in historically, got

Operator

[Operator Instructions] your Joe. Gupta Our now open. you, Thank Rajat, next is from question with Rajat comes line JPMorgan.

Rajat Gupta

the for thanks taking Great, question.

the Just million primarily or that you you loss do continuing like more breakeven get I a that, quarter, second on further Jeff, how is actions and from could expect think, we us right, higher, in to on maybe flattish, that wanted could to you it would GPUs gap from that SG&A the to to big but you detail helpful. bridge in to was EBITDA volumes the as are volumes us move bit just EchoPark mentioned follow that detail driving bridge help driver, leverage XX if up help more by the comment, any be the $XX

Jeff Dyke

got out for the perspective kind fixed the The see question. fixed - when pretty that's an we of are EchoPark at big of we had Thorton. the expenses volumes, Yes. profit from you Thanks SG&A

August, is volume do cars, little at in a cars, you X,XXX expect X,XXX and in back, at piece. little little a at better a better look we're to continue December cars, to look X,XXX that October, look below to you above it a you we going look November, We're September, you we're If above grow.

saying for order one-to-four-year at and the line order once don't for then we've XXX prices bottom and Our out the stop different breakeven car inventory the some to is said have dollars coming We've level our lot is lanes, that's the what some some having on of of we wholesale what's at different continue to us big going we'll are I predicting in market for to you laid going earlier, that this this that. just to happening, the think positive rental that car strategical exactly continued reason to there we've wholesale move out as be pass get believe it's first a We moves drop. we if happen competitors they dropping, see prices to all stores - been so quickly, year, again happen of Thornton. would the drop. as fly Like and take EBITDA, just quarter, to see we to companies and problems, into foresee but in and been the we need a

see to by that be the the of drop go that's car half monthly those in at X,XXX X,XXX, payment, month on Right at $XX,XXX then move to and now mark, great to the XX,XXX store that'll expense XX,XXX today to $XXX think end keep to dropping get volumes would little a We on maybe our us, gets last point we our below flatten had, us today, there, EchoPark we're but what's continue for of we range. that we based prices this based as back price out and breaking even set I we to expect the a happen. is pre-COVID little latter going bit car a and the year. the as we're more that Rajat, year, to going which that think loan, wholesale

So quarter, And latter that's right positive based positive first part we're of and lot you our the when walk quarter, now, see inventory excited flailing year' the very in about to really of the on part the very we of whether auction confident EBIT, just in it's strict the model things that's the a a second we've worked the end half sometimes positive calendar right is third that's model. might you we'll later in opportunity, guidelines, the first EBIT. even the third, moving going that's on miss is of in bridge, second on it's return that's and out how first how and the management at hard it, the we And we day XX great the lanes, quarter around going the to other now this EBIT. volume, second we think the but happen there, we're a to when see to back of half part quarter, of growth it's models to think going little get the the of happen. We're

David Smith

when our the talking some remind Yes, David, or this knows he's to is EchoPark all stores, across dealerships return COVID Jeff board he that prior to just to of to - so it's so our profitable something - what some stores most something of we of profitability. remember a just our franchised remind says there investors is including to that about

Jeff Dyke

It's common.

Rajat Gupta

back do into the you've to a taken couple business the stepping last company? franchise know that's productivity the expected, Maybe going kind of years, think of Got helpful what lot you So do business posts guide of actions grow franchise to than and the it, got the SG&A like GPUs see color. it, over Thanks. year maybe out recession the about playing macro is scenario first and environment, business, are in like around to terms any next not, in know grow in that you if planning growth there should next we backdrop backdrop, for SAAR and the used for see used if do the the and that context sooner car for in of what franchise cars, where how both you - SG&A in normalize new year? down the U.S.,

Jeff Dyke

Yes.

somewhere or So we budget is the our next think XXXX half to box because in get X,XXX It's budgets the new bigger. that we're ballpark, back to season, volume there. XXXX, more in car certainly year somewhere the just year from perspective front-end half. now on XXXX, in supply 'XX in to going of I have next a be first not going be We're new the building maybe car, going margins to

think the a going basis that's be in that operations business it our little something I quarter, fire. and gross there, it's will we bucks be gross XX quarter is is solid, a quarter management I our because real we mean car continue volume used will quarter but to a solid, our going on We're bit business of on grow or then if nature, strict good. PR F&I, revenue to not be but each step a fixed grow back just to just real that a the car last all-time will be had maybe lot, overall will and record and growing inventory

I'm lot looking in a perspective, total as next gross this at from it a like year year gross us dollars. So looks to

think perspective, based some we think a we million maybe look year gross this on year like our budget, end, to that had we we're did maybe then it's than SG&A. more think how will budget this and year I got going latest little in lot Heath gross in from has our a I this up bit, but $XX in a

Heath Byrd

going materially changed, to with The Jeff. the seeing warranty gross on time so look mean, up nothing the first the dollars it areas up. It's very agree [indiscernible] pick down just and to see him Yes, with gross similar we for to in as downside. I can - agree to total going side. are that in I I that different come going years well, is from picking especially We're

be from expense pandemic. will that maintaining kind achieved the of On reductions we the SG&A, the same

will could expense spend improve areas believe significant, other going future for see in add to we a in deal activity are it technology SG&A, and automations some for to I some nothing a just that uptick going spend to make do have little also and going gross grow percent to have so have probably that investments a we're and that up slight the that of big bit. impact but that overall future efficiencies, is could and but that and We help the online you that and

Rajat Gupta

the is or company? flat year, gross comments, to the for what you're total dollars, dollar franchise gross the next as the just business, referring overall And profit

Jeff Dyke

Yes, significant. was, I'm on EchoPark I just franchise that's thought the question will be gross sorry, your business. what

Rajat Gupta

Yes, SG&A maybe earnings the does than that mean what account, that next than the per yes. the that year should better that buyback, share comment does year, should - reason come you I and take the No, if with on better grow EchoPark you your the right, suggesting? is full for asked comfortably into the in you're breakeven doing because is out

Jeff Dyke

You're on we it. see it, that's how

Heath Byrd

it. see we how that's Yes,

Operator

you. Thank

in any no are back will there David pass additional I Smith, queue, the to for over CEO, conference or more As remarks. questions closing

David Smith

a thank day. Great, very for much, you you. you, Thank the joining us everyone, Have and today. great call on thank

Jeff Dyke

Thank you.

Operator

you Automotive Sonic today's participation, concludes for may you disconnect now your your XXXX This third line. Thank quarter conference call. earnings

Sonic Automotive (SAH) 30 Oct 222022 Q3 Earnings call transcript