Sonic Auto Dealer Group Announce First Quarter Results
CHARLOTTE, N.C., April 29 -- Sonic Automotive, Inc. today announced results for the first quarter of 2003. Sonic reported first quarter net income from continuing operations of $17.8 million, or $0.43 per diluted share. This result compares to 2002 first quarter net income from continuing operations of $23.2 million, or $0.55 per diluted share.
During the first quarter, the Emerging Issues Task Force issued guidance on accounting for incentives or rebates received by resellers from vendors, which was effective January 1, 2003. This guidance affected the Company's accounting for floorplan and advertising assistance received from manufacturers. As a result, the Company recorded a $5.6 million, or $0.14 per share, after tax charge as a cumulative effect of accounting change.
Net income for the quarter ended March 31, 2003 was $11.7 million, or $0.28 per diluted share, compared to prior year results of $22.1 million, or $0.52 per diluted share.
In commenting on the quarter, Mr. O. Bruton Smith, the Company's Chairman and Chief Executive Officer stated, "The first quarter of 2003 was challenging for our Company with adverse weather conditions in several of our major markets and excessive new vehicle inventory at the beginning of the quarter. We have taken aggressive actions to reduce personnel, inventory carrying costs and other expenses. Our performance improved dramatically over the course of the quarter and we are well positioned for the second quarter of 2003. We are targeting earnings per diluted share of $2.45 to $2.70 (excluding the cumulative effect of the change in accounting principle mentioned above) for calendar year 2003. This estimate is based on an expected level of new vehicle industry sales of 16.0 million units and does not include the effect of any unannounced acquisitions or additional share repurchases. We have reduced our estimate for the year based on first quarter results and broadened the range of possible results due to uncertainty about ongoing general economic conditions, used car demand and other factors."
Same Store Sales
On a same store basis, total revenues decreased 6.2% for the quarter compared to the same period last year. New vehicle same store sales were down 4.9%, in line with automotive industry retail sales trends despite our exposure to several under-performing markets in Texas and elsewhere. Used vehicle same store sales were down 12.6% for the quarter. Same store parts and service sales declined 0.9% for the quarter although same store service sales increased 2.6%. Same store parts and service gross profits were up 1.9% for the quarter reflecting continued gross margin expansion and changes in product mix.
Jeffrey C. Rachor, the Company's Chief Operating Officer stated, "We are beginning to see signs of improvement in used car sales and profitability. Compared to the fourth quarter of 2002, our gross margin on used cars increased from 10.8% to 11.6%. Losses on wholesale sales of used cars declined from $2.9 million in the fourth quarter of 2002 to $1.1 million in the first quarter of 2003. Our efforts to emphasize manufacturers' sponsored certified pre-owned programs led to sales increases in certified pre-owned vehicles of 34.5% compared to the first quarter of 2002. We are working to expand the available sources of used car financing for consumers and have recently added four new used car consumer financing sources to our preferred lender group."
Acquisition and Disposition Activity
Year to date in 2003, Sonic has closed on previously announced dealership acquisitions representing approximately $123.0 million in combined annual revenues. The Company has entered into agreements to purchase two dealerships with combined revenues of approximately $70 million annually. Completion of these transactions is subject to normal closing conditions and manufacturers' approval. The acquisitions are expected to close in the second quarter of 2003. The dealerships to be acquired are Calabasas Volvo, located in the Los Angeles, California metropolitan market and Falore Chrysler/Jeep, located in Colma, California.
The acquisition of Calabasas Volvo will increase Sonic's exposure to this strengthening brand and add to the diversification of the Company's Los Angeles platform. After completion of this acquisition, our Los Angeles platform will have 17 dealerships with approximately $900 million in annual revenues.
Falore Chrysler/Jeep will be combined with Sonic's existing Serramonte Dodge dealership as part of Chrysler Corporation's Project Alpha. After completion of facility enhancements, the combined Chrysler/Jeep/Dodge operation will be fully competitive in the marketplace. The Company intends to complete several more Project Alpha combinations in 2003 and is committed to assisting Chrysler Corporation in their efforts to improve distribution. These transactions are examples of how Sonic's capital can assist the automobile manufacturers in effecting their market representation plans.
The Company continues to pursue acquisition opportunities and expects to announce agreements to acquire dealerships representing at least $500 million in annual revenues during 2003. At March 31, 2003, the Company had approximately $151.9 million available under the Company's revolving credit facility. Year to date, the Company has disposed of two dealerships representing $50.0 million in annual revenues. These disposals generated $5.2 million in cash flow.
Security Repurchase Plans
Sonic's Board of Directors has authorized the expenditure of up to $145 million to repurchase outstanding shares of its Class A common stock or redeem securities convertible into its Class A common stock. As of March 31, 2003, the Company had approximately $30.1 million of the authorization remaining. The Company has repurchased 567,000 shares of its Class A common stock year to date in 2003. No repurchases of convertible or senior subordinated bonds have taken place in 2003.
Brand and Geographic Diversity
The Company's top ten brands for the quarter based on new vehicle revenues were Honda (15.9%), Ford (14.5%), Cadillac (12.2%), Toyota (11.0%), BMW (9.8%), Chevrolet (9.7%), Lexus (4.2%), Chrysler (4.0%), Volvo (3.2%), Mercedes (3.0%) and Nissan (2.5%).
The Company's top markets for the quarter based on total revenues were San Francisco (10.9%), Los Angeles (10.7%), Houston (9.6%), Dallas (9.6%), Charlotte (6.2%), Tampa (6.2%), San Jose (4.9%), Oklahoma (4.6%), Atlanta (3.8%) and Columbus (3.0%).
About Sonic Automotive, Inc.
Sonic Automotive, Inc., a Fortune 300 Company, is one of the largest automotive retailers in the United States operating 187 franchises and 47 collision repair centers. Sonic can be reached on the Web at www.sonicautomotive.com.
Sonic Automotive, Inc.
Results of Operations (unaudited)
(in thousands, except per share and unit data amounts)
Three Months Ended
03/31/2002 03/31/2003
Revenues
New vehicles $883,192 $1,004,153
Used vehicles 248,447 281,196
Wholesale vehicles 96,886 103,244
Total vehicles 1,228,525 1,388,593
Parts, service, and collision repair 193,845 236,066
Finance & insurance and other 43,552 48,571
Total revenues 1,465,922 1,673,230
Total gross profit 232,129 265,244
SG&A expenses 179,829 218,990
Depreciation 1,872 2,435
Operating income 50,428 43,819
Interest expense, floor plan 4,977 6,010
Interest expense, other 8,016 9,692
Other income 85 85
Income from continuing operations
before taxes 37,520 28,202
Income taxes 14,307 10,405
Net income from continuing operations 23,213 17,797
Discontinued operations:
Loss on operations from
discontinued dealerships (1,911) (908)
Income tax benefit 777 415
Net loss from discontinued operations (1,134) (493)
Income before cumulative effect of
change in accounting principle 22,079 17,304
Cumulative effect of change in
accounting principle, net of tax
benefit of $3,325 -- (5,619)
Net income $22,079 $11,685
Diluted:
Weighted average common shares
outstanding 42,563 41,757
Net Income per share from
continuing operations $0.55 $0.43
Loss per share from discontinued
operations ($0.03) ($0.01)
Cumulative effect of change in
accounting principle $0.00 ($0.14)
Net Income per share $0.52 $0.28
Gross Margin Data:
New vehicles retail 7.8% 7.1%
Used vehicles retail 11.9% 11.6%
Total vehicles retail 8.7% 8.1%
Parts, service and collision repair 46.7% 48.0%
Finance and insurance 100.0% 100.0%
Overall gross margin 15.8% 15.9%
SG&A Expenses:
Personnel $111,550 $131,803
Advertising 13,268 15,028
Facility rent 14,249 18,403
Other 40,762 53,756
Unit Data:
New units 32,378 35,703
Used units 16,679 18,361
Total units retailed 49,057 54,064
Wholesale units 14,344 13,766
Average price per unit:
New vehicles 27,278 28,125
Used vehicles 14,896 15,315
Wholesale vehicles 6,754 7,500
Other Data:
Net cash provided by operating activities $39,998 $27,076
Floorplan assistance (continuing operations) $6,990 $8,073
Balance Sheets:
As Of
12/31/2002 03/31/2003
ASSETS
Current Assets:
Cash and cash equivalents $10,576 $16,568
Receivables, net 297,859 268,426
Inventories 929,450 918,207
Other current assets 63,742 100,586
Total current assets 1,301,627 1,303,787
Property and Equipment, Net 121,936 113,156
Goodwill, Net 875,894 883,501
Other Intangibles, Net 61,800 65,400
Other Assets 14,051 16,030
TOTAL ASSETS $2,375,308 $2,381,874
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Notes payable - floor plan $850,162 $837,510
Trade accounts payable 58,560 51,908
Accrued interest 13,306 10,310
Other accrued liabilities 113,592 119,376
Current maturities of long-term
debt 2,764 2,764
Total current liabilities 1,038,384 1,021,868
LONG-TERM DEBT 637,545 654,791
OTHER LONG-TERM LIABILITIES 16,085 17,497
PAYABLE TO COMPANY'S CHAIRMAN 5,500 5,500
DEFERRED INCOME TAXES 40,616 40,566
STOCKHOLDERS' EQUITY
Class A convertible preferred stock -- --
Class A common stock 371 371
Class B common stock 121 121
Paid-in capital 396,813 397,623
Accumulated other comprehensive
loss (6,447) (6,525)
Retained earnings 339,457 351,142
Treasury stock, at cost (93,137) (101,080)
Total stockholders' equity 637,178 641,652
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $2,375,308 $2,381,874
Balance Sheet Data:
Current Ratio 1.25 1.28
Debt to Total Capital 50.3% 50.8%
LTM Return on Stockholders'
Equity 17.9% 15.5%
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