Sonic Automotive, Inc. Announces Record Second Quarter Net Income
CHARLOTTE, N.C., July 30 Sonic Automotive, Inc. the nation's second largest automotive retailer, announced record results for the second quarter of 2002 while at the same time raising 2002 earnings per share estimates.
Operating Results Highlights
Highlights from second quarter 2002 compared to second quarter 2001:
-- Total revenue increased 22%
-- Total gross profit up 21%
-- Gross margin remains strong at 15.3%
-- Operating income increased approximately 20%
-- Net income up 40% for the quarter, up 22% adjusting prior year for
revised accounting for goodwill.
-- EPS up 29% for the quarter, up 12% adjusting prior year for revised
accounting for goodwill.
Net income for the quarter ended June 30, 2002, was $31.5 million, or $0.71 per diluted share, compared to prior year results of $22.5 million or $0.55 per diluted share. For the first half of 2002, net income was $53.6 million, or $1.23 per diluted share compared to net income of $36.0 million, or $0.87 per diluted share for the same period last year. The results for 2002 reflect the new accounting standard regarding goodwill which became effective for Sonic on January 1, 2002. On a comparable accounting basis, net income for the quarter ended June 30, 2001 was $25.9 million or $0.63 per diluted share. For the six months ended June 30, 2001, net income was $42.6 million or $1.03 per diluted share on a comparable basis.
In commenting on the quarter, Mr. O. Bruton Smith, the Company's Chairman and Chief Executive Officer stated, "Our Company is pleased to announce yet another record quarter and continued earnings growth in a challenging economic environment. We were able to beat the consensus earnings estimates for the quarter even after considering the higher weighted average share count resulting from option exercises, option dilution and the shares we issued in the recent Massey acquisition."
"We are now forecasting industry new vehicle sales in the second half of 2002 at an approximate 16 million unit annual run rate. Based on this new vehicle industry sales forecast, we are raising our earnings per share target from a range of $2.52 to $2.57 to a range of $2.56 to $2.60 for the full year, and from $0.67 to $0.69 to a range of $0.69 to $0.71 for the third quarter. Based on industry vehicle sales -- both new and used -- consistent with 2002 levels, we are targeting earnings per share for 2003 to be from $2.95 to $3.05."
Same Store Sales
On a same store basis, total revenues declined 2.6% for the quarter. New vehicle same store sales were down 1.8% for the quarter and used vehicle same store sales were down 8.9%. New vehicle sales for the automobile industry as a whole were down 1.9% for the quarter. Same store parts, service and collision repair sales increased 1.1% for the quarter and 2.1% year to date. Same store finance and insurance sales declined 11.7% for the quarter.
B. Scott Smith, the Company's President and Chief Operating Officer stated, "Despite challenging conditions in Northern California, Dallas and Houston, our relative same store performance in new vehicle sales improved. We are now adding resources and shifting focus to improve our same store sales performance in used vehicles."
Acquisition Activity Contributes to Earnings Growth
The average contribution margin for the recently acquired Massey dealerships was 4.8% for the quarter. These margins are higher than the Company's average, and are expected to go higher once these high margin, luxury brand dealerships are fully integrated. Fixed absorption for these dealerships was 91%, demonstrating the strength of the Cadillac brand in service and parts performance.
"Overall performance of the former Massey dealerships is ahead of forecast, supported by the successful launch of the Cadillac CTS and other enhancements to Cadillac's product offering. We're particularly pleased with the strong margin performance of the former Massey dealerships during this period of transition. We are now shifting more of our emphasis to vehicle sales in these dealerships to capture the full benefit of Cadillac's outstanding new product offering," stated Jeffrey C. Rachor, the Company's Executive Vice President of Retail Operations.
The previously announced acquisitions of Crest Honda, the final dealership related to the Massey acquisition, Acura 101 and the Parra Autoplex (including Chevrolet, Mitsubishi and Chrysler-Jeep dealerships) have been completed. With the closing of these acquisitions, all of Sonic's previously announced acquisitions have been completed. The Company has also opened newly awarded BMW Mini franchises in Atlanta, GA; Greenville, SC; and Nashville, TN. In addition, the Company also opened new Hummer franchises in Nashville, TN and Lansing, MI.
Mr. Bruton Smith stated, "Our acquisition pipeline continues to be active and we have many attractive acquisition opportunities. We expect to announce additional acquisitions representing at least $200 million in annual revenues before the end of the year. With integration of our recently completed acquisitions proceeding well, we are more aggressively pursuing additional acquisitions."
At June 30, 2002, the Company's debt to total capital ratio was approximately 50%, in line with the Company's stated goal. The amount available under the Company's revolving credit facility was approximately $280 million at June 30, 2002. The Company has sufficient available capital, including projected cash flow from operations, to acquire approximately $2 billion in additional annual dealerships revenues over the next twelve months.
Share Repurchase Plans
Sonic's Board of Directors previously authorized the expenditure of up to $100 million to repurchase outstanding shares of its Class A common stock or redeem securities convertible into its Class A common stock. As of June 30, 2002, the Company had approximately $24.8 million available for stock repurchases pursuant to the Board's previous authorization.
The Company intends to repurchase shares to fully redeploy proceeds of $7 million from recent employee stock option exercises. In addition, the Company intends to repurchase shares when the Company's shares are consistently trading at or below multiples of earnings of private market acquisitions. However, these repurchases are not expected to cause Sonic to deviate from its stated goals for management of its balance sheet.
Brand and Geographic Diversity
The Company's top ten brands for the quarter based on new vehicle revenues were Ford (17.5%), Honda (12.6%), Cadillac (11.9%), BMW (10.4%), Toyota (10.3%), Chevrolet (10.1%), Chrysler (6.8%), Lexus (4.4%), Nissan (2.8%), Mercedes (2.8%) and Volvo (2.6%).
The Company's top markets for the quarter based on total revenues were San Francisco (10.8%), Houston (10.7%), Los Angeles (10.7%), Charlotte (8.4%), Dallas (7.9%), San Jose (4.6%), Columbus (3.8%), Tampa (3.5%), Tulsa (3.5%) and Atlanta (3.2%).
MANAGEMENT WILL BE HOLDING A CONFERENCE CALL ON TUESDAY, JULY 30, 2002 AT 11:00 A.M. EASTERN TIME. TO PARTICIPATE, PLEASE DIAL 888-318-6429, SECURITY CODE: SONIC -- OR YOU CAN ACCESS THE CALL AT WWW.STREETFUSION.COM OR WWW.SONICAUTOMOTIVE.COM.
About Sonic Automotive, Inc.
Sonic Automotive, Inc., a Fortune 300 Company, is the second largest automotive retailer in the United States operating 187 franchises and 43 collision repair centers. Sonic can be reached on the Web at http://www.sonicautomotive.com.
Included herein are forward-looking statements, including statements with respect to anticipated acquisition activity and growth in profit, profit margins and earnings per share, as well as industry vehicle sales levels. There are many factors that affect management's views about future events and trends of the Company's business. These factors involve risk and uncertainties that could cause actual results or trends to differ materially from management's view, including without limitation, economic conditions, risks associated with acquisitions and the risk factors described in the Company's Amended Registration Statement on Form S-3/A filed with the Securities and Exchange Commission on July 23, 2002. The Company does not undertake any obligation to update forward-looking information.
- Sonic Automotive, Inc.
- Results of Operations (unaudited)
- (in thousands, except per share and unit data amounts)
Three Months Ended Six Months Ended
06/30/2001 06/30/2002 06/30/2001 06/30/2002
New units 34,868 33,963 67,029 75,222
Used units 19,089 21,589 38,359 40,127
Total units retailed 53,957 55,552 105,388 115,349
Wholesale units 14,833 16,401 30,485 35,901
Average price per unit:
New vehicles 26,521 33,505 26,223 27,408
Used vehicles 14,852 15,597 14,605 15,165
Wholesale vehicles 6,594 8,563 6,847 6,856
Revenues
New vehicles $924,745 $1,137,915 $1,757,695 $2,061,662
Used vehicles 283,511 336,729 560,215 608,520
Wholesale vehicles 97,807 140,443 208,726 246,132
Total vehicles 1,306,063 1,615,087 2,526,636 2,916,314
Parts, service, and
collision repair 184,131 239,318 363,370 442,665
Finance & insurance and
other 48,737 53,023 88,107 99,310
Total Revenues 1,538,931 1,907,428 2,978,113 3,458,289
Total Gross Profit 238,201 293,102 455,444 536,879
SG&A expenses 176,814 225,317 345,007 417,270
Depreciation 1,952 2,204 3,555 4,175
Goodwill amortization 4,591 - 8,934 -
Operating Income 54,844 65,581 97,948 115,434
Interest expense, floor
plan 9,910 6,543 21,399 11,849
Interest expense, other 8,418 9,661 18,261 17,934
Other income 16 127 75 227
Income from Continuing
Operations Before Taxes 36,532 49,504 58,363 85,878
Income taxes 14,234 18,892 22,735 32,701
Net Income from Continuing
Operations 22,298 30,612 35,628 53,177
Discontinued Operations:
Income on Operations
from Discontinued
Dealerships 303 1,294 581 530
Income Tax Expense (115) (418) (240) (139)
Gain from Discontinued
Operations 188 876 341 391
Net Income $22,486 $31,488 $35,969 $53,568
Diluted:
Weighted average common
shares outstanding 41,061,678 44,536,985 41,266,013 43,555,154
Net Income per share
from continuing
operations $0.54 $0.69 $0.86 $1.22
Gain per share on
discontinued operations $0.00 $0.02 $0.01 $0.01
Net Income per share $0.55 $0.71 $0.87 $1.23
Gross Margin Data:
New vehicles retail 7.8% 7.8% 7.9% 7.7%
Used vehicles retail 11.5% 11.7% 11.6% 11.8%
Total vehicles retail 8.7% 8.7% 8.8% 8.6%
Parts, service and
collision repair 46.6% 47.9% 45.9% 47.4%
Finance and insurance 100.0% 100.0% 100.0% 100.0%
Overall gross margin 15.5% 15.4% 15.3% 15.5%
SG&A Expenses:
Personnel $107,864 $138,073 $211,178 $256,320
Advertising 12,323 18,663 24,295 32,697
Facility rent 15,031 18,422 30,192 33,132
Other 41,596 50,159 79,342 95,121
Other Data:
Net operating cash flow $28,834 $38,438 $48,437 $63,136
Interest (non-floorplan)
coverage ratio 6.1x 6.4x 4.9x 6.0x
EBITDA 51,493 61,369 89,113 107,987
LTM Average debt to
EBITDA ratio 2.8x 2.6x
Balance Sheets:
As Of
12/31/2001 06/30/2002
ASSETS (unaudited)
Current Assets:
Cash and cash equivalents $0 $6,790
Receivables, net 262,911 284,759
Inventories 664,258 874,765
Other current assets 29,127 74,606
Total current assets 956,296 1,240,920
Property and Equipment, Net 98,972 100,720
Goodwill and Other Intangible
Assets, Net 738,103 885,019
Other Assets 12,555 14,112
TOTAL ASSETS $1,805,926 $2,240,771
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Notes payable - floor plan $587,914 $772,568
Trade accounts payable 44,802 54,330
Accrued interest 9,676 13,445
Other accrued liabilities 92,275 138,937
Current maturities of long-term
debt 2,586 2,374
Total current liabilities 737,253 981,654
LONG-TERM DEBT 511,877 595,062
OTHER LONG-TERM LIABILITIES 5,836 12,784
PAYABLE TO COMPANY'S CHAIRMAN 5,500 5,500
DEFERRED INCOME TAXES 28,199 27,176
STOCKHOLDERS' EQUITY
Class A convertible preferred
stock - -
Class A common stock 348 372
Class B common stock 121 121
Paid-in capital 343,256 394,610
Accumulated Other Comprehensive
Income - (1,564)
Retained Earnings 232,893 286,461
Treasury stock, at cost (59,357) (61,405)
Total stockholders' equity 517,261 618,595
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $1,805,926 $2,240,771