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Sonic Automotive Inc (SAH) Q1 2024 Earnings Call Transcript Highlights: Navigating Market ...

GuruFocus Research
·3 min read

  • Total Revenue: $3.4 billion, down 3% year-over-year.

  • GAAP EPS: $1.20 per share.

  • Adjusted EPS: $1.36 per share, up 2% year-over-year.

  • Same-Store New Vehicle Gross Profit Per Unit: Continued decline, expected in low $3,000 range by end of 2024.

  • Fully Electric Vehicle Sales Impact: Reduced new vehicle GPU by approximately $400.

  • Used Vehicle Market: Wholesale prices for 3-year-old vehicles up 2%, retail pricing down 5% sequentially.

  • Same-Store Used Retail GPU: $1,585 per unit, down 3% year-over-year.

  • Franchise Dealership F&I GPU: $2,350, down 1% year-over-year, up 1% sequentially.

  • Fixed Operations Gross Profit: Record high, up 6% year-over-year on a same-store basis.

  • EchoPark Segment Adjusted EBITDA: $7.3 million, record quarterly high.

  • EchoPark Revenues: $559 million, down 14% year-over-year.

  • EchoPark Gross Profit: $52.6 million, up 34% year-over-year.

  • EchoPark Same Market Total Gross Profit Per Unit: $3,018, up 65% year-over-year.

  • Power Sports Segment Revenue: $27.7 million.

  • Power Sports Segment Gross Profit: $7.8 million.

  • Power Sports Segment Adjusted Loss: Approximately $800,000.

  • Available Liquidity: $847 million.

  • Quarterly Cash Dividend: $0.30 per share, payable on July 15, 2024.

Release Date: April 25, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Q & A Highlights

Q: Can you provide an update on the progress of hiring the 300 technicians you mentioned and any other opportunities to optimize fixed operations? A: (Frank Jeff Dyke - President & Director, Sonic Automotive, Inc.) We've hired 35 to 40 technicians so far and expect to reach our goal of 300. Each technician generates significant gross monthly income. We're also addressing cultural aspects within our stores to improve efficiency, such as having technicians operate multiple bays. Our fixed operations business is strong, and we see continued growth opportunities.

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Q: How are you managing the shrinking inventory of 0 to 6-year-old vehicles at EchoPark, and what impact does this have on your ability to turn around the business? A: (Frank Jeff Dyke - President & Director, Sonic Automotive, Inc.) Despite fewer lease returns, we have various sources for inventory, such as rental car returns and delinquencies. We're not concerned about inventory for our 18 EchoPark stores and don't plan to open more this year. We're confident in our ability to manage inventory effectively and see a strong year ahead for EchoPark.

Q: Could you discuss the expected EBITDA cadence for EchoPark throughout the year? A: (Frank Jeff Dyke - President & Director, Sonic Automotive, Inc.) EBITDA will likely fluctuate, with Q1 typically showing the strongest margins, a dip in Q2, a strong Q3, and Q4 similar to Q2. We anticipate gradual improvements leading into 2025, with significant growth expected in 2026 as lease maturities increase.

Q: What is driving the divergence in performance between your franchise and EchoPark segments compared to some peers who are facing challenges? A: (Frank Jeff Dyke - President & Director, Sonic Automotive, Inc.) Our inventory management skills are a key differentiator. We have multiple sources for inventory and do not foresee the challenges that some peers are experiencing. We expect to grow our used car business steadily.

Q: How do you see the new vehicle GPU (Gross Profit per Unit) progressing through 2024 and into 2025? A: (Frank Jeff Dyke - President & Director, Sonic Automotive, Inc.) We expect a quarterly reduction of $200 to $250 in GPU, stabilizing around $3,000 by the end of 2024. This level should persist into 2025, reflecting a new normal for front-end margins.

Q: Are there any notable trends in new GPUs by brand or region this quarter? A: (Frank Jeff Dyke - President & Director, Sonic Automotive, Inc.) Electric vehicles (EVs) continue to drag on overall GPU, influenced by specific brands. However, our EV inventory is manageable, and manufacturers are adjusting production to stabilize the market.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

This article first appeared on GuruFocus.