Sonic Automotive(US:SAH)2023-10-26 20:49Financial Data and Key Metrics Changes - Sonic Automotive reported record total revenues of $3.6 billion for the third quarter of 2023, representing a 6% increase from the previous year [3] - Third quarter EPS was $1.92 per share, which reflects certain charges related to previously announced store closures [3][32] - Adjusted EPS was $2.02 per share, a decrease from $2.23 in the prior year, primarily due to normalizing new vehicle margins and higher floor plan interest rates [32] Business Line Data and Key Metrics Changes - The new vehicle gross profit per unit (GPU) declined sequentially to $4,678 on a same-store basis, with expectations to exit 2023 in the low to mid $4,000 range [11] - In the used vehicle segment, the wholesale auction prices for three-year-old vehicles decreased by 5% in Q3, following a 6% decline in Q2 [5] - The parts and service business saw record fixed operations gross profit, up 8% year-over-year on a same-store basis, driven by a 10% growth in customer pay business [6] - EchoPark segment revenues reached $627 million, up 6% from the prior year, with retail unit sales volume of 19,050 units, up 25% year-over-year [34] Market Data and Key Metrics Changes - The luxury weighted portfolio generally runs a lower inventory day supply, which may minimize new GPU compression relative to industry trends [12] - The used vehicle market is expected to normalize, with anticipated improvements in pricing and volumes over time [13][41] Company Strategy and Development Direction - The company is focused on driving incremental inventory acquisition and retail sales opportunities while adapting to changing market dynamics [13][19] - Management believes that the diversified business model provides earnings growth opportunities in EchoPark and powersports segments, which may offset industry-driven margin headwinds [19] - The decision to suspend operations at 50% of EchoPark locations is expected to improve near-term financial performance without sacrificing long-term strategic plans [7][14] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in achieving breakeven adjusted EBITDA for EchoPark in Q1 2024, with a disciplined approach to long-term growth plans as market conditions improve [16] - The company anticipates that the used vehicle market will recover over the next 18 to 24 months, allowing for a return to pre-COVID sales levels [24][41] - Management highlighted the importance of maintaining strong relationships with teammates, manufacturer partners, and customers for future success [32] Other Important Information - The Board of Directors approved a 3.4% increase in the quarterly cash dividend to $0.30 per share, payable on January 12, 2024 [18] - The company ended Q3 with $797 million in available liquidity, including $335 million in cash and floor plan deposits [36] Q&A Session Summary Question: What is the outlook for EchoPark's EBITDA profitability? - Management confirmed that EchoPark is expected to achieve positive EBITDA in Q1 2024 and continue improving thereafter [20] Question: Will the changes in EchoPark's footprint affect long-term growth plans? - Management indicated that larger selling hubs may be considered in the future, but any expansion will be disciplined and based on market conditions [42][43] Question: How does the company plan to navigate shortages in later model used vehicles? - Management stated that they have already started moving to higher mileage and older vehicles to address shortages and have been successful in growing volume [67] Question: What is the impact of electric vehicle servicing on the business? - Management noted that servicing electric vehicles has been more profitable, with higher gross margins compared to internal combustion engine vehicles [70] Question: How is the company managing inventory levels? - Management emphasized a disciplined approach to inventory management, maintaining a 20-day supply on the lot and 10 days in the pipeline [108]