SONIC AUTOMOTIVE INC Q3 FY2024 earnings call

Management Statement and Operational Highlights

• Teammates were thanked for delivering a world-class guest experience, with EchoPark ranked #1 pre-owned dealer and Sonic franchise teammates having high customer satisfaction scores.
• EchoPark segment made progress with all-time record quarterly gross profit, segment income, and adjusted EBITDA.
• Addressed operational disruptions from CDK customer lead/inventory management applications and manufacturer stop-sale orders, but the team executed at a high level.
• Third quarter GAAP EPS was $2.13 per share, adjusted EPS was $1.26 per share (38% decrease year-over-year due to new vehicle GPU normalization and CDK outage).
• Parts and Service/Fixed Operations showed growth, with a net 216 techs added towards the 300-tech goal for 2024, expected to contribute $100 million in annualized fixed ops gross profit.
• Board approved a 17% increase in quarterly cash dividend to $0.35 per share, payable on January 15, 2025.

Segment Performance

• Franchise Dealerships: Third quarter same-store new vehicle GPU was $3,049 per unit, down $540 from the second quarter. Used vehicle wholesale auction prices for three-year-old vehicles increased nearly 1% in the third quarter, while franchise dealerships' average retail used pricing decreased 1%, driving used GPU to $13.86 per unit. Same-store franchise F&I GPU was $2,339 in the third quarter, down 3% year-over-year but well above historical levels. Parts and Service/Fixed Operations had an 8% increase in same-store fixed ops gross profit in the third quarter.
• EchoPark: Q3 EchoPark revenues were $545 million, down 13% from the prior year. It reported all-time record quarterly gross profit ($55 million, up 5% year-over-year), segment income, and adjusted EBITDA. Retail unit sales volume was approximately 17,800 units, down 7% year-over-year but up 7% sequentially. Total gross profit per unit was $3,111 per unit, up $344 year-over-year. Used vehicle day supply finished the third quarter at 33 days, down from 38 days at the end of the second quarter.
• Powersports: Q3 revenues were $59.4 million, gross profit $17.7 million, segment adjusted EBITDA $5.8 million. The Powersports selling season accelerated in the third quarter, with the Sturgis rally being successful, benefiting from new processes and technology integrated into the segment.

Guidance

• Updated limited financial guidance for 2024, expecting lower franchise dealership segment earnings to be partially offset by improvements in EchoPark segment, returning EchoPark to positive adjusted EBITDA for the year.
• Affirmed guidance to exit the fourth quarter in the low $3,000 range for new vehicle GPU due to seasonal benefits of the luxury weighted portfolio.
• Anticipated continued growth in EchoPark and Powersports segments to offset franchised business margin headwinds.

Risks

• Operational disruptions related to CDK customer lead and inventory management applications.
• Manufacturer stop-sale orders in certain key brands.
• Normalization of new vehicle margins and increased vehicle production impacting financials.

Question and Answer

• Q: John Murphy asked about adjusted EPS comparability, CDK impact, and storm impact. A: Heath Byrd discussed CDK impact (~$17 million, $0.33 EPS impact), BMW impact ($2.6 million, $0.05 EPS impact), and storms had minimal impact as teams were prepared.
• Q: Rajat Gupta followed up on BMW impact, CDK unit impact, and SG&A to gross. A: David Smith and Heath Byrd discussed BMW unit impact (~500-550 units), CDK impact on new and used units, and SG&A to gross seasonality.
• Q: Jeff Lick asked about same-store new units despite CRM issues. A: David Smith and Jeff Dyke attributed it to strong teammate performance, good work with import and luxury brands.
• Q: Chris Pierce asked about EchoPark retail gross profit per unit and F&I trends. A: David Smith, Jeff Dyke, and Danny Wieland discussed EchoPark's Denver performance, inventory days supply, and F&I trends with potential upside in 2025.
• Q: Patrick Buckley asked about EchoPark expansion and F&I trends in 2025. A: Tim Keen and David Smith discussed EchoPark expansion timing (early 2026) and F&I trends with potential upside from rate cuts and product sales.