Earnings call transcript Q1 2023

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Operator

Good morning, and welcome to the Sonic Automotive First Quarter 2023 Earnings Conference Call. This conference call is being recorded today, Thursday, April 27, 2023.

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

discuss In Commission. measures as and non-GAAP defined addition, certain financial the by management Securities may Exchange

X-K today. non-GAAP Securities and the the to the refer with tables in company's Commission filed earlier current Please reconciliation report on Form Exchange

Automotive. Chief would Smith, now introduce to begin Officer conference. you Mr. I Sonic your Mr. David may Executive of Smith, like

David Smith

Thanks first very much, Sonic and good morning, everyone. quarter Welcome to call. Automotive's XXXX earnings

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

Steve the on and Investor of Danny Chief me our Officer, our CFO, Weiland. our Byrd, Relations, call Joining Officer; President, Operating Jeff Chief Dyke; Wittman; today is our Tim VP EchoPark our Keen; Heath Retail Digital

this $X.X segment Earlier revenues of total results, reported quarter financial EchoPark first quarter morning, first million. revenues including quarter record first billion $XXX record and of

share, share. GAAP and in quarter, quarter First to was and move team's year's as forward we're very build the we of I'm $X.XX XXXX. in performance first success excited EPS our EPS adjusted last proud on $X.XX was per per

affordability industry, on and in ongoing automotive Despite and remain long-term strategic rising our delivering executing we retail the rates interest vehicle an challenges exceptional experience concerns, focused including guest plan.

to guests Our strong like relationships them continued are thank key [ph] lending our our with manufacturer to success, and our support. our I'd sincerely teammates, for partners long-term and and their

as we that remain new vehicle of GPU industry vehicle normal which the we XXXX, year-over-year we will it in new new but production levels, through vehicle GPUs progress quarter. and decline GPU Turning resulted pre-pandemic. This should now than level in to vehicle new continue higher new and was the structurally as in believe continued expected. to improvements The see first lower inventory sequentially

nearly auction. used new business, from declined companies rose the elevated face of inventory unexpectedly affordability average consumers as retail demand vehicle dealers retail over selling prices continued affecting for rental the beginning Conversely, In at the vehicle wholesale reflecting since prices X% year-to-date, year to for used auction car demand. continued X-year-old challenges X% vehicles approximately and

the at uptick our our quarter. despite vehicle of lower turn-ins Used volume and volume. offset retail concerns at to combined levels affordability potential used continue than payment lease with prices the buyer somewhat to drive first price GPUs limited we quarter, in current first the rates were dealerships during franchise level lower the expected This, maintain the vehicle for the higher to able in monthly wholesale interest average but

resume expect We as progress used prices vehicle through we XXXX. decline to their

for rate finance to interest continues that at year guidance per contract want be has unit rate, to F&I full we reiterate elevated environment an our a per F&I penetration XXXX performance above or reduced $X,XXX and strength Despite our unit.

Our dealerships or parts strong gross with an profit XX% fixed our up business operations operations year-over-year. quarterly record franchise at and fixed remained service all-time

our our We this believe fixed are XXXX. for ops has there opportunities in very the in and as area of through remaining success growth proud are progress business we team had

could half on said through on in margins at ongoing of back vehicle around demand of rising XXXX. effects concerns and fourth our the we As average uncertainty interest macroeconomic quarter February, and we the believe the consumer least consumer volatility first call rates in drive

business. seasonality of business franchise the from our with This, earnings weighted contributed to is our consistent with fourth in the luxury decline to historical quarter quarter, our which coupled first the

progress conditions XXXX. However, that changes through we retail our automotive diversified to continue believe market as our us model positions favorably adapt business to to we in

cost should to grows, vehicle company pricing of affordability at used and rental auction, inventory. supply inventory new which and As expect demand pressure car both of vehicle take it we off consumer benefit

down mentioned to Turning earlier. the I profit record in prior wholesale vehicle EchoPark $XX reported segment and increase year X% pricing million, in to up $XXX due gross results. of from quarter revenues of now X% first million, part We the

retail for per the quarter selling segment was XX% targeted unit the quarter average affordability up XX% used EchoPark XX% and remains XX,XXX quarter of units quarter first still XX% a but fourth fourth sales levels. from above X% EchoPark segment year-over-year. at volume from decreased price to up vehicle record $XX,XXX the unit

our including inventory ongoing expanding continue the vehicles optimizing inventory. X-plus inventory old We nearly mix on to by amidst year sourcing and new focus our auction inventory EchoPark and affordability for demand

and of segment quarter, represented first volume the sourcing first the EchoPark quarter. X-plus-year-old mix of sales sales retail non-auction in unit For our XX% vehicles XX% was

compared quarter a of million to was loss quarter an in and the million loss year EBITDA in $XX.X First EchoPark adjusted ago the EBITDA segment million $XX.X $XX.X period. of fourth adjusted

Motorsport acquisition. RFG loss business of quarter EBITDA part including acquired adjusted as the results vehicle First XXXX within the segment to $XX.X related EchoPark segment, million include other Northwest businesses the used

the playbooks management We implementing our and expect inventory to losses with second pricing and these associated including transition this sequentially at quarter. are improve locations, in processes the the standard process strategies of and in

of our EchoPark adjusted locations of XXXX. branded Excluding generated improvement core an EBITDA $XX.X million the an million, from $XX.X first losses, loss these of quarter

XXXX. segment first we our quarter breakeven by quarter were our EchoPark and with first internal EBITDA for projections for adjusted the maintain EchoPark results of the Our guidance line in

Furthermore, in in to earnings and consolidated the be any growth to headwinds segment minimizing EchoPark results and the tailwind face Sonic margin a may over franchise we downside profitability, revenue should believe industry-driven time. business we

the operating a great is currently integration newly The Black As is segment, February, portfolio. Hills in Harley-Davidson team of to off Sturgis to Motorcycle this up better we which Sonic than start, and diversifies make announced further excited our family into we the Powersports very Rally gearing ever. year's are about retail Sonic's created

this with there believe power and benefits our to synergies financial leveraging network, team event. Mancuso teams We Hornet sports growing the the operational are Harley-Davidson maximize of

opportunities retail sector. with develop OEM, optimistic the relationships our to in continue future increasingly adjacent the are we we this Powersports As growth about

Finally, $XXX cash combined sheet turning balance capital and ended available deposits $XXX the floor and plan fourth to in with allocation. We million quarter our on liquidity, hand. million and on including

update As share our on repurchase activity. an

During stock end quarter, the for company's million approximately of at representing the XXXX. X% shares of X.X $XX million, approximately repurchased of we outstanding first shares the

have we of a today, repurchase in current of $XXX market million XX% As Sonic's total approximately of remaining representing share cap. authorization,

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

retail backdrop. in to a at continue In and execute closing, level adaptable the while environment prepared macroeconomic automotive team high remaining to our to is changes

to long-term return-based to and strategy our balanced a with operate stockholder continue remain we business long-term allocation Further, committed returns. capital view maximize a to disciplined

look remarks, and may Thanks forward questions very to answering opening have. This any much. you concludes our we

Operator

with Thank Daniel with you. Our comes [Operator your Please Instructions] first Imbro question. Stephens. the line proceed question of from

Daniel Imbro

and thanks taking morning, I wanted everybody to EchoPark good the Thanks, for question. start on the side.

You just largely the up that the provided maybe Medical drove more comes SG&A. drove on up color here, talk focusing labor there fixed, some given Park. And maybe stepped SG&A losses on to than from leverage that's is what sequentially in-store just where can you what the anticipated. but we

quantity the selling have XX,XXX because driving your continued with that almost should quarter, what's this kind needed. increase units towards units old So up picked of been as here breakeven

getting the side cost you to what's number? changed that's to from that maybe in us help can closer us So keeping talk breakeven

Jeff Dyke

Yes, this cost It's Daniel, other are investing Dyke. in building is we in not really Houston. than generated brand Jeff the

$XX.X the of along sort lines, direct you So It's XX there. and of I lines Page incremental ad would more investor more some they're truck, along there's stores, the - in truck. spend known Northwest of in the going there is the It's on gross to deck. out truck, in million the the and other non-EchoPark part that's coming northwest of country, in Motorsport, operating particular, where

That to and be and we'll trucks product lots or quarter. sell We become hard that to selling In I weight for of big lots XX% better. losses it's we're half on other there. lots that and our trucks in about amounts has a cut the buy, put excruciatingly expect brand of words, there.

in EBITDA we our gain for excited here about saw the We is here very that. importantly year-over-year. for while, we're But EchoPark in time a more numbers the first that hit and

EchoPark $XX.X was year-over-year EBITDA And about at our was up for brand. XX% If million. you volume about the only, our look pickup that stores

profitable line So we're as EBITDA XXXX. and profitable being in of the quarter still or in maintain, first remarks, his in David opening said

I profit better said, we look by really the up. a like or So at to second it a reduction reduction gross and SG&A XX% is the move improve, really quarter. expect into we as that as driving And

and sell, get our did were what the we'll and, As of SUVs, the trucks business North and of have course, for acquisition. is availability year, Motorsports playbook of the as selling XX% West that RFG in there half we which we on we back we

as improve half move we of the the That's to year. back to going

at So that. really and spending a that's generating gross we're how incremental expense It's EchoPark. look that you got to profit

Daniel Imbro

months. you and Can you if the and years would you're I environment - get you SUVs. to pretty to the supply get trucks down number mentioned coming around that. a you the still new trucks few sales young so what in think there, few car guess next going decline lease go we're leases lapping about I in better expect thank young things a the and we're in start few better would start to in the - tight talk of But over used do ago, for off why supply should Northwest a of

the that better? through kind walk you can So of why for supply is gets expectation what

Jeff Dyke

Yes, sure.

building. inventory car is New

look take you you If across look, us, board. a just but the not it's

look on it, to the at XX-day XX-day you new from, a it's gone supply across board. supply a If car inventory, average call

buying the end over sort exactly more that We to middle it, hold of up dealers February. gone now, XX% a That's fourth were cars of seeing to continue That's are and in January and XX% inventory. auction grow. sales January, February, $XX,XXX the starting December lanes to January the expect on lanes. the price We February to no what We're and mark. in call quarter, which of from, lot auction means to happened the in the

us That XX% the In market. that to supply We're flattening slow, back having $XX,XXX in of that March, It's we instead the now means pricing back now. to is as of in the were just to is where will access grow. cars We're expect move out. which supply drop, $XX,XXX going back of we going means year inventory. indicators more from continue buy it think towards to XX% or are we to That the us up is growing, all going grow. market. is going half but to dropping to to of will give cars end XX% That's two what went we be the the second quarter, to supply and XX%, buying weeks And to at the start to of market continue stronger. be of showing $XX,XXX

Daniel Imbro

Maybe look prices mean, Got follow-up. it. to used in on it's a question, baking used guys how of then data much it. as fall, and maybe because XX%, what's have think pricing for one EchoPark, you the externally, then I prices on sourcing. Got a I used But not were more but I if fair going car are we the on proxy XX%, at

early better So hit need to can or would some XX%, supply you've at pricing given fall get you your in of hit those down you again If you've the the to given prices only are much breakeven goals projections EchoPark? fall how indices see to 'XX? guys and sourcing

Jeff Dyke

The consumer the best to going for it monthly get car. look we payment Yes. is That's price $XXX the a to in a under $XX,XXX range. to need way be at

huge wholesale up. in about And our February, up March in January cars saw we of pricing. We volume really the on days it you March. spiking in and just EchoPark to had a was do and were then first If spiked pace XX X,XXX just increase

quarters, towards we're believe the get end into as races. see XX,XXX 'XX it I of the sub-XX,XXX and at EchoPark. move going then we and as for XX,XXX we're to get second we're car going towards That year. end to off and of to to the possibly does to wholesale kind that we move the We the quarter range the of that XX,XXX pricing

so you, the that's so to for really look within can at why this together begin And we put XX page -- EchoPark. you

quarters improvement EBITDA And next the volume at Northwest doing What be stores of to Motorsports here. from you'll are a making over see an and EchoPark able perspective. that we're the couple the

Heath Byrd

month. This to -- can mentioned XX% opening as we per is get price that about to XX% is David we when comments, add, just $XXX that XX% it's see higher to from his in XX% still this to

Daniel Imbro

Heath. it, Got And it. maybe one Got on allocation. cap

at your does in into Powersport looking in Or returns in happening look on expanding in dislocation where other when I at priorities been confidence your this stock. buyback you here? the of the Given what's M&A, have given investment, fall terms guess stock, you and uses. the guys the

Heath Byrd

million -- QX. bought Yes, in we shares back X.X

priority. so to And obviously a is shareholders before segment. power slow walk We that's the going returning mentioned big that capital we're sports to

to We it We we a but So don't for do right. looking big radar. learn opportunity, on on want and business think large acquisitions any the acquisitions have plan huge don't we there. the it's

So share our QX, capital repurchase, is as in of we part a allocation. indicated valuable

dividend increased We X.X%. the

any ensuring amount some to we the of IT is be coming a may that facility capital to shareholders. We're dry kind that as And powder balancing another way have for of well significant enhancements. we're capital conditions allocating with So all as to return down also road. enough that economic our enhancements

Daniel Imbro

Thanks the luck, guys. for questions. Good all answering

Heath Byrd

Thank you.

Operator

Our Please your Bank the line of with of with Murphy proceed from comes John next question questions. America.

John Murphy

morning, Good guys. Hi.

question. Just a first

As is hold either affordability or close is walking not, a saying the or me. into you lot the too to affordability high folks walking moment. that right? get or for online have issue have actually an Are fairly able store at you And to Pricing is payments going consumers and you your whether of big month are money who just that dealership ups in the showrooms, out issue, real? of are I'm the off. you

Tim Keen

down. the doing that store, coming people we And gone still We're cars. the online shown customers the people fine are market Keen. to with waiting for surveying are into XX% come are Tim have is but interest in that of This Yes. those in just prices

the we're goes So the as of down, seeing. cost market. people sale into that's what come those And back

John Murphy

transforming mean, a And I really on used had those in into just is then follow-up. success have nearly any mean, I you there? Or car hold? success any actually new just folks there they buyers? are

Jeff Dyke

both. John. of kind mean, I transform No. them, We do

with One problem have of of we not just have mix And we we don't being they're big have, any on off-lease cars be as BMW not franchise there going those couple the are just years. there. side the And cars. for potential to is as as off-lease a

price we first it were X inventory, if in quarter. So quarter a just of the Hertz had being until gangbusters saw The the going is lot first EchoPark problem. lane. the demand rental went by is of and of just car the there. particular weeks the the that in no average in wholesale We the driven We up, retail companies, particular, in buying in cars

in really paying And problem. manufacturer cars now, our to can with and buy they're they're -- And to cars selling $X,XXX, that's them allow the car some afford to we the than more pay the not to afford to or $X,XXX in industry buying a need partners pay. right lanes. can because them work We inventory more lanes, typically,

of all for problem a us. creating that's So

an about franchise no that's certainly trading are why areas. our going starts because of nearly with ongoing becoming to is for coming cars buying lanes, returns that's X-year-old really start or off that what off off-lease a buying lanes - which auction an issue back. lease which problem those to street, And The X volume. third we drops CPO. And replacing is until the cars buying the for new car represents in and We're seeing lease coming cars stores, getting the you're in leasing the be in zero. either the we're then were the it the And that's cars that

David Smith

David. is This

and known have the recently Chrysler RF by what, And off situation, mention Mexico, we [ph] stores, were acquisition, supply right, stores, on to Dose there's, stuck to in we Silanis about trucks there. due right? is that demand trucks for hold in thousand $XX of XX-some the some profit -- with Something million also we're the truck are example, like stock

there. demand is the And so

for in, deposits soon believe profit to up we're going We they later those the have as in hundreds back year. that trucks of pick as we come

John Murphy

and of have much service be a going until to not That's benefiting sell your part down, mean service parts a tailwind longer? from understanding vehicle and of if get waiting much you're just -- still to about tailwind. to if gauge is on strong incredibly another those just there's I benefiting a how don't not parts transforming the folks or then this how used you holding on to parts new the of thinking you're them of helpful. and if service even from car I car, is a backlog that they folks layer can new able one And and how car, service know

Jeff Dyke

We've and about focused Yes, grow. incremental fantastic. ROs, got our is techs. is continue X/X you parts on team that We've just doing of fabulous job expect perspective, that numbers. the the from really And and service more just to We've see in can business bringing in and parts a got is our service we a the to from space. coming capacity, growth and just and our new

John Murphy

And that getting any this inventory fair -- This more your statement? if lot seems that going becomes much to of becomes you're more new selling structural fair supply back, expectation Is no sort more and air is of you're vehicle Jeff, like new markets. vehicles parts more services. that on a share pocket your there's comes have available, you're in and a

Jeff Dyke

real That's a Yes. fair statement.

before a from than higher have and perspective. much We a service we level internally parts are at ever executing

in for item that, share. code. by understand we're big months, and that's We big, and one huge in overall us it's been focus in performance. XX go last big have a we really focused on don't is doing difference the us op a codes and get share this taking year push it's And for out market number And service and and to op just making share to which have parts our that a

David Smith

Anecdotally, example, Audi won our we and dealership Nashville, the in second has for service. already about X weeks just opened ops on out department fixed

So it's is high. the very demand --

John Murphy

much, very guys. you Thank

David Smith

you. Thank

Operator

comes from next with Our Please proceed question JPMorgan. Gupta your line Ajay of the with questions.

Ajay Gupta

attributed questions. XQ morning. SG&A the for more big the in any and good advertising one-offs? know are And on quarter. Or through be I gross coming always SG&A franchise you XQ, helpful. number? investments was but Hi, like the fourth of that's Or impacted a like a timing but SG&A pickup the seasonality could side, have element to of question to Thanks there from on comment the year would all rest a had And the the pickup I for gross to pretty also on an trajectory of to for taking Yes. I earlier is any there if that? that the the follow-up. follow-up curious the

Heath Byrd

Sure. This is Heath.

XXX As our literally QX. fourth gross of points know, basis a you to increase percent from as SG&A XXX to can

So increase of total with mentioned, we is that back high really you're to the the if accurate impact That do you look down XX%. we're facility. and SG&A, in and still million the QX. [ph] them IT has $XX and at are the in investments David million the there. seasonality $XX -- have kind that Stellantis And there that couple you into business in of We

year. believe that full the those so actually for XX% be still up be will we're the we in will a in the We events little total franchise And enterprise it the bit that the are year. believe that to are higher. reiterating And Clarify. going for full high drove onetime mid-XXs

Danny Wieland

Stellantis of is point and that. one the clarify XXX points is side. on add The basis more -- This impact deleverage To Danny. about to franchise

the a is the big XXX and trucks heavy-duty of gross the to to RAM that's of the through that of sell increase saw again, we lack quarter, related related from can piece we that loss So fourth those.

Jeff Dyke

in stores can't trickles, just perspective. that impact -- Dave product when and huge then are perspective, And Smith like we stop from we get just Northwest, our a gross all the hopefully, We SG&A it -- an a has profit get little leases on the big up, sale. but

us back come in that to point year. will all time some at So this

Danny Wieland

Yes.

the Park a and non-Eco locations XXX at that within segment Jeff EchoPark that exclude before If impact. talking branded about you this it's still basis was points

Ajay Gupta

still you And that like EchoPark to decline given mean, the visibility you EPS on sometimes case color. great then I is value first on a have us code settling going that of like on in well, then GPOs, year with new Any the And car expect that way it's is this you you just on of -- around of GP that continued where course to year, the the the mentioned your seasonality of EchoPark past, would decline above forward? land relatedly, XX% full still any pace then through combining just That's pre-pandemic. typically visibility like XX% and whatever EPS, have indication you've some year ramp-up? as given the quarter trajectory comments,

Danny Wieland\

Yes. Yes, this is Danny.

typically, the see XX% despite the cadence, is upside which first weighted year. had kind traditionally for of we right going of of through On half impact that the Stellantis the go normalization from we improve that just this the still of in fourth year to EPS expect that with unexpected yes, we [ph] about lead we opportunity to the quarter, and first losses are franchise as off headwinds EPS go to business, talked the some But at quarter fall we the line. we see. as GPUs as EchoPark back quarter and on XX% to and through new We

fourth maybe benefit that as -- luxury improvement another piece that seasonal color the should expect through we quarter. nature the can add with And go help we penetration into our weighting year. here the and the in and Jeff, luxury you the that of lease That's

Jeff Dyke

going to it's Certainly, improve.

in what to further second we in seeing degradation in in little back that somewhere be job right to going not range. certainly certainly with good expect levels. to are would the manufacturers do to And going stick mid-Xs, thought a land margins into think it's pre-pandemic over supply not we in they're the But The line ongoing XX We're April. move of that quarter. happen going growing first quarter. ballpark. with would in in to supply, the that go going it's to as the XX-day year, growing I car to range. not think I we but New And a It's full going

up XX. closer level, prices and to franchise really used to car for and car used EchoPark the hopefully At move business. to that began that drop, our fixes going It's backroom

So little beat whatever always X on internally, of first we a what X, the X, our quarter. had our happens light in the to the in beat to comes we years. we the for been target weighted objectives again out -- in Street objectives predictable first the We're for what that's second quarter. last reason, with And be X, terms -- with quarter over seem

our And where but think we year. and beat targets hitting hit first to in our we're reiterate going targets the of always fourth be quarter or for quarter, we and the short out -- Street we're intend of is the coming the

Heath Byrd

relatively cadence talked relatively of the the is be bigger are the we the one the and kind X is the typically lightest and about same in And thing quarter fourth quarter. same, that going middle it's before, to first the then the where

Ajay Gupta

had. helpful that's really all and luck. And good That's color I Understood.

Heath Byrd

Thank you.

Operator

of Jefferies. next comes Instructions] Our your Jordan Please line question. with the proceed Bret [Operator question from with

Unidentified Analyst

start as had specific we below quarter? for our sounds brand on the This any second Patrick Bret in it's seen vehicle for incentives to been taking pretty signs the Thanks you year, questions. levels. guys guys. Have like Buckley of historical increasing Jordan. is fairly but still It new Hey,

Jeff Dyke

below vehicles below but just pockets This little It's levels. combustion is so bit, for of towards weighted historical a A Jeff. levels. little electric well bit the leasing, certain but in way than probably historical country more

Unidentified Analyst

And That's a there in cycle? were different profitability? as new the we a we taking part -- it. the of then helpful. bit at and a it there vehicles the Should we used are cadence in or a where expecting is of expect similar terms segment, look in Powersports Got of cycle

David Smith

can as seasonality in wheat big a snow is imagine, there business, that the you Yes, weather. in

profit that year it's mentioned rally during biggest of For they're strong. they that the upcoming do by of and is about part example, a Sturgis period the in X-week example, the we the of what out for Sturgis time. share that, during far amazing extremely It's and August, rally lion's the comes

Jeff Dyke

very quarter to and and I would quarter. upside. second part excited a just We're a quarters at lot playbooks. And and still we There's this. we're third but those in normal given the event. on a the for be walking arena, then new being to learning technology Black then ton slow time the about that. second of the a Yes. Sturgis look at from what's of upside big processes done. That's partners all the and work quarter of of a they're be first a that. see of technology our Hills spending why going big, But we're fourth and perspective a returned of this in our with ton tons bit There's rally spike the And providing with to same little and with businesses for

honing XX We'll executing the the or playbooks our we'll on have next more don't any here. how experience months on and this see focused so, really major it goes. our and segment, we acquisitions So spend horizon within

kind tell But the due you to return fourth third first of sort I would then and same for the levels quarter and rally in to the in quarter second second the of spike quarter. huge quarter looked quarter

Unidentified Analyst

That's helpful. Thanks, guys.

Jeff Dyke

you. Thank

Operator

to Smith further queue. no remarks. hand closing questions to I'd David like back the call for in Are the

David Smith

have appreciate the We day. on you, Thank you. and great everyone. being call, Thank Great. you a

Operator

this and does gentlemen, for conclude Ladies participation. today's teleconference. Thank your you

have day. this wonderful a at disconnect may and time, You lines your

Sonic Automotive (SAH) 27 Apr 232023 Q1 Earnings call transcript