Sonic Automotive (SAH) 28 Jul 182018 Q2 Earnings call transcript

Good morning, and welcome to the Sonic Automotive Second Quarter 2018 Earnings Conference Call. This conference is being recorded today, Friday, July 27, 2018. Presentation materials, which management will be reviewing on the conference call, can be accessed at the Company's website at www.sonicautomotive.com, by clicking on Our Company, then Investor Relations, then Webcasts & Presentations. At this time, I would like to refer to the Safe Harbor statement under the Private Securities and Litigation Reform Act of 1995.

During this conference call, management may discuss financial projections, information or expectations about the Company's products or market or otherwise make statements about the future. and could a differ cause the made. forward-looking and of materially are statements that uncertainties actual statements subject number to risks from Such results to with are the These Commission. detailed and and Exchange uncertainties Company's risks filings the Securities in introduce I would Mr. like to Smith, Sonic CEO of and Co-Founder Scott Automotive. Mr. begin your you Smith, conference.

to morning, Executive quarter Officer Co-Founder. Automotive's XXXX the earnings you. Good Sonic Smith, Chief Thank call. Company's and welcome second I'm Scott and

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

GAAP quarter $X.XX diluted from For per the diluted in on the share short from reported we unfortunately continuing of areas others. XXXX performance adjusted business with second our and and pleased basis fell basis. operations several We're $X.XX on per a an share continuing operations in

to more EchoPark the experienced building at growth in stores, up first new quarter, proud volumes is rapid are retail the of of record from respectively, and are for second quarterly the especially X,XXX as quarterly of million quarterly retail pre-owned rate. shortening stores $X,XXX, up topline retail revenue period highlights quarter record per with units, our and continue units XX.X% growth quarter we most $XXX.X sequentially open all-time during gross sales all-time profit unit revenue profit a our $X.X F&I F&I record the and all-time and stores of XXXX. $XXX.X quarter; unit Some million, XX,XXX of billion gross ramp I'm happy record and EchoPark

of million retailing revenue a XXXX year. XXX% QX basis, X,XXX XXXX. operations over compared Sequentially previous grew generated I in growth on from revenue represents During the mentioned our and same the XX% the EchoPark unit to second period revenue, quarter vehicles; this quarterly as $XXX.X EchoPark

X.X% line franchise we as increase the X.X% topline Same-store posting EchoPark during we pushing enter. revenue continue buildup F&I prior profit also grew profit to growth to Despite pre-owned with markets several our experienced in during in most X.X% an vehicle grew franchise for day fixed with this basis QX compared will we in to basis. a the XXXX growth to We to the stores XXXX. grew stores, our X.X% brands selling in same-store fully the one gross that less challenges grew transition declined quarter experienced our X.X% vehicle QX brand gross we our XXXX operations new revenue We that compared Q&A. new compared more gross unit QX related address a On of which XXXX. growth and same-store franchise areas side, can the in quarter, increasing unable this we QX profit year popular we're gross franchise on per compression at of X% but same-store

franchise growth following will continue business to grow organically. path some for in strategies on same core financial time, the we been our that Our continue will we've

South this estate real In shares Land and addition, the two later dealership our year, opportunistically one point we'll reduce open repurchase in six next in open debt. Rover months, open locations in EchoPark Atlanta

plans next year. current Looking to EchoPark of the locations additional future, open by end our the are to two

and gains excludes impairment share operations full earnings year expect storm XXXX adjusted charges, a between item current On as $X.XX diluted per XX, and to expect from $X.XX year franchises. As $X.XX earnings environment per cash by related charges compensation Directors GAAP to continuing operations performance Also a long-term dividend Board be earnings per of Sonic's year charges, of our will during welcome like questions. per record and XXXX an in on damage disposal call dividend of we lease share open full XXXX. to legal payable approved of operating stockholders up result adjusted September our be to offset from $X. The basis, XXXX. on your of At we partially share be range The and and $X.XX. adjustments between from quarterly exit the thus point, this far and continuing full payable October we would share such XX,

Nelson Rick your go question. Stephens, Instructions] [Operator with please ahead from

quarter you some but it around something provide adjusted will this or… similar it color have last this $XX about and can is compensation this an was sizeable you if with long-term add-back expense, but ongoing If be if million quarter only --

we That the acquisition will over of onetime next a was not quarter we it's because called but three out and related QX ongoing in that 'XX. is XXXX the of event related that was to third paid it years be that to that did the in acquisition and

the Scott, integrated? And how or driverselect EchoPark Jeff into early I being any know the that that's color strategy learning's, you're stores; pushing around

said with tracking we I topline then in than enterprise gone and And took combined expect we we'll year now we June, sort Scott the profit month. two maximized the Antonio, I in think just we focus has get growth locations XXX% have complete, has we the revenue all $X so we're were we and then we're on cultures. well, month in and million was like markets bunch at I profitable the really and get or cars get complete, selling the is EchoPark like it call, on something of year-over-year those year. integration we're all of earlier, it's that that's quarter, at that We The made Houston, that, over fourth profit that's on and inventory and fun. it's and quarter. the fantastic. stores We having actually it think quick all a seven it's basis And at transition of a additional lot last and pricing that be everything the opened of on better look the to a and the the we and volume and technology of San Charlotte this combine XXX the volume was look The been in mentioned if and the this profitable going in next you growth the driverselect

where with with we excited we're EchoPark. So are

model their to we've hours driverselect -- and coming out of member save Just the combining in and so and at much the business. driverselect clear, the to hundreds; He deal it's the customer our fun we've customers lot he saves transaction; who very to very customers thousands, we team us to it increase the business model be and -- EchoPark of year. of actually been able marriage not having the driverselect and phrased good been as we've and we by just [ph], of hours the end been slope of we're growing expect wonderful total said kind a look open next and two it's interestingly, Haul got thousands, stores successful EchoPark cultures to he is EchoPark that how came in now. and when a this a in of the of well, saves enjoying been And -- Steve four the what we're

the products said [ph], as purchase driverselect? you -- Scott around economics or Can

something not going that's we're to Rick, No that share.

year-to-date? that $X.XX assume for $X.XX for now EchoPark losses The to like what -- the does $X guidance

be next right. enterprise Yes, we the And that's then profitable year. to expect

early $XX some range something think that, moving I it's the million I odd in of range. are forecast forward, know, the -- million in like profitability don't million $XX

for… it in XXXX around and $XX million was It's $XX million

of $XX million a swing the end So it's give between I year-over-year take or $X year. next million now and think,

And now those are you profitable? stores said

Yes.

As a group?

Yes, yes, they at the profitable level, as a store are group.

million in all ones made make kind The this tracking matter out five and fact, July. $X,XXX,XXX -- month, just those tracking As for month last month profit right their seven was of a store than the level -- the of that better of other level was the stores profit store June on in money borderline. of $X.X money

timeline we're So because opened is very within EchoPark guided the it's at -- volume range excited say and when the are stores crazy. we that's profitable first finally and EchoPark going could we our just and

So in the produce there QX and corporate lot will a costs then…

That's correct.

profit? in And that QX criteria for

correct. That's

question. Please your Bret go with Jefferies. Jordan from ahead

could and maybe To was the some your going prepared in BMW remarks comments to more Honda what out as of get detail we and quarter? the

of are profit. mix there, Look, Accord $X our $X,XXX volume, the of cars, BMW arriving we're at hit of we sold on the we that it's are of the and Honda so that it's a has then and margins $X,XXX $XXX portfolio, store store selling haven't it's of years. to XX% all in car, of our a in that Honda dollars the largely look of million a and EPS. -- to at BMW certain us us cost incentives given anywhere about $XXX those in that's in mix lot Honda's on about about the the of from incentives it's It's the our Accord And not at and BMW's are incentives to they a size out quarter were when dollars and percentage $XXX as just our how mix less like you not it the store, $XXX when all comes it and Those XX% a incentive costs dollars coming Honda's and we an number there, of BMW month basis, a in. two a month overcome EPS car, projections missed terms BMW off and to deal of big is X,XXX products that so

a volume, So in BMW terms quarter for and we QX. And better a are result, returns margin the -- don't in of a anticipate numbers I side all on miss Honda but margin while those a and little still than coming quarter. difficult it's early in for it as July the difficult made

incentives the XX, product will I for we of as launched and lighten BMW particularly believe year and towards end that being think I is the and Honda's the move BMW so our up from to that's going our going at and big are volume this Texas line, to and product will margin and enjoy help. markets forth stores heavy so some -- new

of to us along terms in be has all two are in we So brands expect big the the other big QX else the for clicked hits. those everything two margin, brands, with better

terms factory and the to we dealer the that's growth our to most note and lack out coming is miss of that the is mix I talking but the really for dealer for there was it's dealer. getting on about factory customer incentives. Jeff are there decent retail the growth incentives have squeezed don't why margin we're but topline to when but the margin; incentives the that important factory from of think similar the There us was to the making big was we're so incentives, at

critical had mass on And you stores then so ago year a question were EchoPark, think XX were when a you or about talking I you up. thinking

Now now that that turning got profitable, is expectations? seven and number stores that you're they the outperforming fact are you've given lower just your

as made more cars. we're We our changed as we're or that we've heck adjustments -- a many the stores building lower we've lot adjustments, some is not right, the of and stores, stores so building learned, -- just

doing Our Antonio months store just a month, cars [ph] the few monthly in market range now a in XXX of we've on market Dallas over on that's XXX -- dealing the San we're now, catching up X,XXX to Denver month basis; X,XXX in been car is cars X,XXX market to there. it's the par a out in so

profitable. and don't some and profitable, more signing stores we're volume as of store and the need loudly first we many as a stores them are result So

methodically, So it's bunch bunch of going the profitably up we're profitable, to cracked exciting of eat we we're us just what are, a out this go the we're business time know not and stores and and we grow will and wisely, it going a full to control profitability, and code, for as of out gets exciting there we've in and we it. do throw systematically

a we're lot are worked lot fun a long to of us EchoPark. for fun, growing this next we've years get be to point going of time, careers going a to to some it's So these of few and were enjoy,

top of seven a profitable; big five that mean, How of five the is there some there and a it big them the the -- bottom spread big made said You five? the money fairly is month, version? of of wildly I is sounds last like between this the of the are

to the or time a comparing spread month be country or but million, could store around more, you have dealerships there I going the Yes, $XXX,XXX find car that's a you some get hard of them. and $X.X million any new making $X -- it million start find promise you're you're you to to going that to $X

go Please America. [ph] with John Bank from Murphy ahead your of question.

you about So think, pretty whether you obviously talk my wondering F&I; what do that's what was on first that quarter question it and was can driving I this is was strong sustainable? and guys

relationship at Absolutely, it's really paying really playbook executing good the we're and Look, EchoPark process really, our is our JM&A job. just fantastic, sustainable. we've were Sonic and off, Automotive between and done F&I numbers a

working is closer now Our range and in penetration mid-XX% at gaining to the speed XX%. EchoPark

team So sustainable executing, keep job. and fantastic F&I growing, a yes, is our it's we we just keep doing

upper So PVR, FI you you -- this that's a in do be of could think or think at same-store you limit higher? it kind I basis, on $XX.XX do terms quarter of the so pushed potentially think

think can We it sure. for go higher,

the but you just this up you another So some used pretty again, quarter on the gave margin business; question basis. growth on had sales GPU strong

something imbalance weakness increased maybe was or supply-demand that driving was the what of about talk maybe you function or and maybe it else? competition can So

honest the total and runs front-end look of there; day look dollars we to the XX we on you, our and job of with find a Sonic supply between don't the we GPU, at that we've getting F&I be days inventory To side. done XX good our the really straight, sweet-spot gross generate we at the car, so

dollars did that's right super I it in job be total get $X,XXX and like $X,XXX out we're to range, $X,XXX GPU kind gross that dollars think most $X,XXX we great range F&I to be car we day supply when dollars way the could the or guys of volume, gross at and this up $X,XXX we're in looking just or the I the see a that's and down. get quarter most really or at a number again generate a that could so that we we car, $X,XXX so a XX-XX maximize into And with where fluctuate and the QX. a because it's super combined and our gross that that when generating starting

a car used So question. the excited side EchoPark very from Sonic doing where really perspective; I we're so used as well, are the on well, they our business appreciate Sonic is both and

And taking business, to from that And the kind of previously if your have P&S in the see actions me shortage so, question wondering and limiting was is of are number then and the of whether segment, cited technician peers last what constraint? that? of a a key you on guys I kind factor similar you address

from in of us terms had the we're to service, comparison is strong In we prior a X%. in and quarter, Toyota Warranty customer really up pay parts what's Lexus, Honda hurting year. and that's coming and

the growing we do we're pay on shop that's of so results that technicians, what's things to is focus doing Our we're business, the and not customer base a allowing future better there get consumer. customer where as warranty of and can are and about car changes service more that about well; our make and of we in talk we help drive quarters are so will rolled dollars kind think that perform convenient we better discuss making we're the those some it there, our out, And future for as as and getting. controlling job that from add hours course adding pay our that's in we're And we'll technology take a we facilities internal up calls. excited and as that things making more driving difference. our And we used grow we're

UBS. Please ahead go Instructions] Colin [Operator from Langan question. your with

half same-store? in of there? business year or follow-up year-over-year you on again a this start the Just pick is actually the services; kind what think and breakeven the your is parts on to outlook of second up Do

that grow, in more going bag, work year down with all in driving with internal is pay, time went Toyota growing -- comping we a growth particular, -- if we've and we little our can really pay, so anyway we're in the do, having that in customer of unless because business of hopefully the going got X%, just the down, bit much over is stuff Warranty to a pre-owned manufacturers come stores, that's stores tough X% but Honda where last again. it's warranty rolling did on happens on we're that to just great the comes we're continued warranty God then internal, air customer that is quarters of nice should something customer particular the I maintain to hours warranty take plus the all that forbid, into huge paying you couple XXXX. one that and back growth just dedicating and there next so moving into and see plough in

so days bit, logic strategy you're You used? for showed there? mentioned on your of the target -- you of is number supply a days Page but at quite as this XX Just car on what a down coming used the bit supply

Absolutely.

used XX creates you're it system the just margin run up So too cars, when days fast many dollars. XX and the the you and moving day it's that just you maximize complexity, range, can't supply in through not enough cars

huge some QX wholesale see but us growth that in to in And day reduce so XX the margin that be profitability move to and expect found the that the to day made help again we in QX that first XX, margin a dollars, should maximize wholesale as QX XX and maximize get going supply first that you supply, loss in you big our range that's we we erosion quarter forward, we and loss, then and quarter in moving you're below in so saw we get supply XX, XX to we as our push us day had forward. department;

on-track business Our we're it. back about excited and really rolling car and very is used

those lack what issue I the think at And selling back? that come the of do -- there, their dealers what is you I -- and still factory are on on sort mean if Honda follow-up there of be I Honda; mean, said to actually think questions incentives big the to kind volumes is dealer incentives motivation of you just BMW of Honda, the still the -- would cars…

I the mean was the still that's really, is there -- you Accord, think not, the versus volume if QX look but Camry. that's XX% opposite for exact at XX% I really accurate. our We're not down or in it mean not overall I

So just -- eating there bring then they up and a and -- it's the in version can selling continue incentives they just it's at produce is volume, of so Accord it's no cheaper not the and way the those, Camry February/March the cheaper or and a incentives, the we're is so. to away took timeframe more away that XX%

very they continue lose You product them to Honda's and we soul in searching spend of some margin to got building we're need which move they of make long, in grow in our for facilities a and margins to do them those can order brand, a expect that make make support And line kind they're sort we'll on going us it if of moves. of the us want to the to need prices back up know, heck money to line and but of closely bit are that investments and that get hurt little may share that we ton volume you us. real this out to watch kind asking to our hurt sit not product -- to their to the not but

still how we'll think experience the I having certainly but pressures. some future, near things we're going and so with very them in we're to margin see And conversations go very

closing And Smith, there further your please. are this at time. no questions Mr. comments

talk next thank on today, the everyone us call you quarter. joining for and Well, we'll to you

Thank conclude call. today's you. conference This does

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