Sonic Automotive(US:SAH)2023-02-17 21:00PART I Business Overview Sonic Automotive, Inc. is a major U.S. automotive retailer across three segments, focusing on diverse revenue streams and omnichannel capabilities - Sonic Automotive, Inc. operates 111 Franchised Dealerships, 52 EchoPark stores, and 8 Powersports stores as of December 31, 2022, making it one of the largest automotive retailers in the U.S14 - The company acquired RFJ Auto Partners, Inc. in December 2021, adding 33 automotive retail locations (22 franchised, 11 EchoPark) across seven states17 - The COVID-19 pandemic continued to disrupt the global automotive supply chain in 2022, particularly semiconductor production, leading to lower new vehicle and parts inventory, increased demand, and higher pricing1819 - Business strategy includes maintaining diverse revenue streams, executing EchoPark expansion to reach 90% of the U.S. population by 2025, expanding omnichannel capabilities, and optimizing its brand portfolio, with 82.7% of new vehicle revenue from luxury and mid-line import dealerships in 2022252627282930323334 2022 Segment Revenue Contribution | Segment | % of Total Revenue (2022) | % of Total Revenue (2021) | | :----------------------- | :------------------------ | :------------------------ | | EchoPark Segment | 17.6% | 18.9% | | Powersports Segment | 0.4% | 0.0% | Franchised Dealerships Segment New Vehicle Revenue by Brand (2022) | Brand Category | Percentage of New Vehicle Revenues (2022) | | :--------------- | :---------------------------------------- | | Luxury | 60.5% | | Mid-line Import | 22.2% | | Domestic | 17.3% | | Total | 100.0% | Risk Factors The company faces various risks related to growth strategy, industry dynamics, manufacturer relationships, financing, and common stock ownership - Growth strategy risks include challenges in obtaining capital for acquisitions and EchoPark expansion, restrictions from debt instruments, and the need for manufacturer consent for acquisitions73747576 - Retail automotive industry risks encompass dependence on global supply chains, extensive governmental regulations, increasing competition, and reliance on consumer demand and manufacturer supply for specific vehicles838487899094 - Risks related to manufacturer relationships include potential termination or non-renewal of franchise agreements, control over dealership operations, and the impact of manufacturers adopting 'agency' sales models104105108 - Financial and liquidity risks involve significant indebtedness of $3.0 billion as of December 31, 2022, potential inability to meet repayment obligations, and exposure to interest rate fluctuations, including the transition from LIBOR122128136 - Risks related to common stock ownership include concentrated voting power by Class B stockholders, which may deter or influence change of control transactions, and potential conflicts of interest with officers or directors137138141142 Unresolved Staff Comments There are no unresolved staff comments from the SEC regarding the company's filings - No unresolved staff comments were reported163 Properties The company's principal executive offices are in Charlotte, North Carolina, with dealerships strategically located along major U.S. highways, many leased from affiliates and owned properties pledged as security - Principal executive offices are located at 4401 Colwick Road, Charlotte, North Carolina 28211166 - Dealerships are generally located along major U.S. or interstate highways, with location being a principal factor in acquisitions167 - Many dealership properties are leased from affiliates of Capital Automotive Real Estate Services, Inc. and other entities, while owned properties are pledged as security for credit facilities or other mortgage financing167 Legal Proceedings Information regarding legal proceedings is incorporated by reference from the "Legal Proceedings" discussion within "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" - Information on legal proceedings is discussed under the heading 'Legal Proceedings' in 'Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations'168 Mine Safety Disclosures This item is not applicable to the company's operations - Mine Safety Disclosures are not applicable168 PART II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's Class A Common Stock trades on the NYSE under 'SAH', with 24,013,107 Class A shares and 12,029,375 Class B shares outstanding as of February 9, 2023, and a $500.0 million share repurchase authorization approved in July 2022 - Class A Common Stock is traded on the New York Stock Exchange (NYSE) under the symbol 'SAH', while Class B Common Stock is not publicly traded171 - Subsequent to December 31, 2022, a cash dividend of $0.28 per share was approved for payment on April 14, 2023173 - The Board of Directors increased the share repurchase authorization by $500.0 million in July 2022, with $464.3 million remaining available as of December 31, 2022, and an additional 194,294 shares repurchased post-December 31, 2022, for approximately $9.6 million174 Common Stock Outstanding (as of Feb 9, 2023) | Class | Shares Outstanding | | :---- | :----------------- | | Class A | 24,013,107 | | Class B | 12,029,375 | Quarterly Cash Dividends Declared Per Share | Year | Dividend Per Share | | :--- | :----------------- | | 2022 | $1.03 | | 2021 | $0.46 | | 2020 | $0.40 | Share Repurchase Program Activity (Q4 2022) | Period | Shares Purchased (millions) | Average Price Paid Per Share | | :------------ | :-------------------------- | :--------------------------- | | October 2022 | — | $— | | November 2022 | — | $— | | December 2022 | 352.9 | $47.23 | | Total | 352.9 | | Reserved This item is reserved and contains no information Management's Discussion and Analysis of Financial Condition and Results of Operations This section analyzes Sonic Automotive, Inc.'s financial condition and results for 2022, covering segment performance, revenue, gross profit, expenses, impairment charges, and liquidity, highlighting overall revenue growth despite unit sales decreases and significant impairment charges - The company is one of the largest automotive retailers in the U.S., operating three reportable segments: Franchised Dealerships (111 stores, 142 franchises), EchoPark (52 stores), and Powersports (8 stores)180 Consolidated Revenue and Gross Profit Percentage of Total Revenues | Item | 2022 | 2021 | 2020 | | :------------------------------------ | :------ | :------ | :------ | | Revenues: | | | | | New vehicles | 40.9 % | 41.3 % | 43.8 % | | Used vehicles | 3