Sonic Automotive(SAH) - 2019 Q3 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Sonic Automotive reported a significant increase in diluted earnings per share from continuing operations, rising over 83% year-over-year to $0.66 per diluted share compared to $0.36 in the prior year quarter [6] - The company achieved an all-time quarterly record for F&I gross profit of $126.8 million, an increase of $28.8 million or 29.3% from the third quarter of 2018 [12] - Same store fixed operations gross increased by 7.3% during the third quarter of 2019, with SG&A to gross profit ratio improving by 350 basis points to 76.7% [13] Business Line Data and Key Metrics Changes - EchoPark's revenue for the third quarter was $312.2 million, up $126.3 million or 67.9% compared to the same quarter in 2018, driven by a 71.6% improvement in retail unit sales [8] - The core franchise stores also performed well, with a $10.3 million increase in pretax income, up 36.8% year-over-year, benefiting from higher gross profit from used vehicles and fixed operations [11] Market Data and Key Metrics Changes - EchoPark is expanding its footprint, with plans to open locations in major metro markets in California, Georgia, and Florida by the end of 2020, aiming for a nationwide presence [10] - The company is currently drawing customers from over 140 markets across the U.S. to its eight existing EchoPark locations [9] Company Strategy and Development Direction - Sonic Automotive is focusing on leveraging its proprietary technology and website to enhance customer experience and drive sales, indicating a shift towards a more technology-driven approach [9] - The company plans to ramp up its growth strategy with new EchoPark locations, emphasizing the importance of market data in site selection [10][25] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the growth potential of existing EchoPark stores, estimating they are at about 50% maturity with significant upside remaining [93] - The relationships with automakers are reportedly improving, with manufacturers increasingly valuing technology and customer experience [30][31] Other Important Information - The Board of Directors approved a quarterly cash dividend of $0.10 per share, payable on January 15, 2020 [14] - An impairment of approximately $1.1 million related to real estate was noted, which was not added back in the adjusted results [39] Q&A Session Summary Question: Inquiry about F&I performance and potential - Management indicated that warranty penetration is a significant driver of F&I performance, with potential to reach $2,000 per transaction [21][22] Question: Market selection for new EchoPark locations - The decision-making process for new markets is data-driven, focusing on areas with high potential for growth [25] Question: Relationship with automakers - Management noted that relationships with manufacturers are improving, with a focus on technology and efficiency rather than large facilities [30][31] Question: EchoPark's expense ratio and SG&A improvements - Management confirmed that SG&A is improving due to leverage from EchoPark stores compared to franchised stores [40][41] Question: Expected drag from new store openings - Management anticipates a $1 million drag before and after opening new stores, with expectations for profitability within six months for new locations [48][93] Question: Future funding for EchoPark growth - Management indicated that EchoPark will begin to support its own growth after the stores mature, with a timeline of about three to four years for self-funding [100]