Sonic Automotive, Inc. Announces Third Quarter Results
CHARLOTTE, N.C., Oct. 28, 2003 -- Sonic Automotive, Inc. today announced results for the third quarter of 2003.
Net income for the quarter ended September 30, 2003 was $17.5 million, or $0.41 per diluted share, compared to prior year results of $31.6 million, or $0.73 per diluted share. For the nine months ended September 30, 2003, net income was $57.7 million, or $1.37 per diluted share, compared to net income of $85.2 million, or $1.96 per diluted share, for the same period last year. Net income for the nine months ended September 30, 2003 includes a $5.6 million, or $0.14 per diluted share, after tax charge recorded in the first quarter as a cumulative effect of accounting change related to the Emerging Issues Task Force guidance on accounting for incentives and rebates.
During the third quarter of 2003, the Company issued $200 million of 8 5/8% senior subordinated notes due 2013. The proceeds of the offering were used to retire all outstanding 11% senior subordinated notes due in 2008. These transactions required a charge for the call premium, write-off of debt issuance cost and discount, and incremental interest costs for the 30-day call period on the 11% notes. The following schedule presents the effect of these items in both periods (dollars, except per share amounts, in millions):
Third Quarter 2003 Third Quarter 2002
Net Income EPS Net Income EPS
(Loss) gain on
early retirement
of debt $(8.9) $(0.21) $0.9 $0.02
Interest cost during
30-day call period on
early retirement of
debt $(0.7) $(0.02)
In commenting on the quarter, Mr. O. Bruton Smith, the Company's Chairman and Chief Executive Officer, stated, "The third quarter did not continue our trend of improvement in profitability over the course of this year. The same store performance in our import and luxury branded dealerships outpaced the industry. However, our domestic branded dealerships, particularly Ford and Chrysler/Jeep/Dodge, sharply under performed resulting in lower overall results. We have developed action plans to address these dealerships and are moving aggressively to improve performance. Our forecasted earnings per diluted share is $2.20 to $2.25 (excluding the effects of the cumulative effect of change in accounting principle and the retirement of debt discussed above) for calendar year 2003. Additionally, we are forecasting earnings per diluted share of $2.65 to $2.85 for calendar year 2004. Our 2004 estimate does not include the effect of any unannounced acquisitions or additional share repurchases."
Same Store Sales
On a same store basis, total revenues were up 1.2% for the quarter. New vehicle same store sales increased 2.9% for the quarter and used vehicle same store sales were down 3.0%. Same store parts, service and collision repair sales increased 3.6% for the quarter. Finance and insurance same store sales were down 3.7%. The same store parts, service and collision repair gross margin rate increased to 48.1% from 47.5% last year and contributed to a 4.8% growth in fixed operations gross profit. The overall same store gross margin rate declined to 14.8% from 15.3% last year due primarily to lower gross margin rates on new vehicles and a higher mix of new vehicle sales.
Jeffrey C. Rachor, the Company's Chief Operating Officer, stated, "Our import and luxury branded dealerships continued to perform well as reflected by an 11% overall same store sales increase in the quarter. Our company-wide parts, service and collision repair business grew in both same store sales and gross margin rate. Our used vehicle product line was stable with decreased wholesale losses offsetting lower retail same store sales to generate flat combined gross profit on a same store basis. In addition our emphasis on certified pre-owned programs resulted in a 67% increase in CPO unit sales for the quarter versus last year. However, our incremental investment in advertising and sales compensation failed to grow market share and improve performance in our domestic dealerships during the quarter. The combination of the increased investment and weak operating performance in the domestic dealerships caused our selling, general and administrative expenses as a percentage of gross profit to increase to 79.6% for the quarter. We have implemented targeted programs for these under-performing dealerships to address overall management, inventory mix, advertising strategy and sales compensation. We are confident that this targeted approach will improve performance."
Acquisition and Disposition Activity
During the third quarter, Sonic announced agreements to purchase 18 dealerships. During the quarter, we closed on seven of those acquisitions representing over $161 million in annual revenues. We expect one more of those acquisitions to close during the balance of this year.
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. During the third quarter, the Company repurchased 221,600 shares for $5.8 million and at September 30, 2003 had approximately $20 million of the authorization remaining.
Brand and Geographic Diversity
The Company's top ten brands for the quarter based on new vehicle revenues were Honda (14.5%), Toyota (13.3%), Ford (13.2%), Chevrolet (10.8%), Cadillac (10.3%), BMW (8.3%), Lexus (4.4%), Chrysler (4.3%), Volvo (4.0%) and Nissan (3.3%).
The Company's top markets for the quarter based on total revenues were Los Angeles (10.9%), San Francisco (10.6%), Houston (9.8%), Dallas (9.3%), Charlotte (6.4%), San Jose (6.0%), Tampa (5.2%), Oklahoma (4.6%), Denver (3.5%) and Columbus (3.2%).
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About Sonic Automotive, Inc.
Sonic Automotive, Inc., a Fortune 300 Company, is one of the largest automotive retailers in the United States operating 192 franchises and 42 collision repair centers. Sonic can be reached on the Web at www.sonicautomotive.com.
Included herein are forward-looking statements, including statements with respect to anticipated acquisition activity and earnings per share. 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 Current Report on Form 8-K dated October 2, 2003. 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 Nine Months Ended
09/30/2002 09/30/2003 09/30/2002 09/30/2003
Revenues
New vehicles $1,194,168 $1,275,077 $3,194,716 $3,495,399
Used vehicles 316,285 320,365 884,467 920,488
Wholesale vehicles 126,592 125,389 359,494 339,371
Total vehicles 1,637,045 1,720,831 4,438,677 4,755,258
Parts, service, and
collision repair 242,012 260,478 670,947 750,423
Finance & insurance and
other 56,595 56,778 151,533 160,952
Total revenues 1,935,652 2,038,087 5,261,157 5,666,633
Total gross profit 294,857 302,355 815,700 864,720
SG&A expenses 225,162 240,654 625,453 694,798
Depreciation 2,454 3,209 6,478 8,439
Operating income 67,241 58,492 183,769 161,483
Interest expense, floor
plan 5,798 5,103 17,050 17,100
Interest expense, other 10,524 10,455 28,136 30,066
Other income (expense) 1,302 (13,936) 1,537 (13,857)
Income from continuing
operations before taxes 52,221 28,998 140,120 100,460
Income taxes 20,290 10,466 53,778 36,490
Net income from continuing
operations 31,931 18,532 86,342 63,970
Discontinued operations:
Loss on operations from
discontinued
dealerships (536) (1,641) (2,027) (1,016)
Income tax benefit 195 650 843 408
Loss from discontinued
operations (341) (991) (1,184) (608)
Income before cumulative
effect of change in
accounting principle 31,590 17,541 85,158 63,362
Cumulative effect of
change in accounting
principle, net of tax
benefit of $3,325 -- -- -- (5,619)
Net income $31,590 $17,541 $85,158 $57,743
Diluted:
Weighted average common
shares outstanding 43,334 43,022 43,479 42,288
Net Income per share
from continuing
operations $0.74 $0.43 $1.99 $1.51
Loss per share from
discontinued operations ($0.01) ($0.02) ($0.03) ($0.01)
Cumulative effect of
change in accounting
principle $0.00 $0.00 $0.00 ($0.13)
Net Income per share $0.73 $0.41 $1.96 $1.37
Gross Margin Data:
New vehicles retail 7.6% 6.8% 7.8% 7.0%
Used vehicles retail 11.3% 11.1% 11.6% 11.2%
Total vehicles retail 8.4% 7.6% 8.6% 7.9%
Parts, service and collision repair 47.5% 48.1% 47.4% 48.2%
Finance and insurance 100.0% 100.0% 100.0% 100.0%
Overall gross margin 15.2% 14.8% 15.5% 15.3%
SG&A Expenses:
Personnel 137,382 143,139 386,491 417,042
Advertising 17,823 20,771 50,872 56,141
Facility rent 17,200 19,551 48,780 56,601
Other 52,757 57,193 139,310 165,014
Unit Data:
New units 42,838 45,070 115,625 123,481
Used units 19,981 20,734 56,924 59,452
Total units retailed 62,819 65,804 172,549 182,933
Wholesale units 17,028 17,785 48,634 47,297
Average price per unit:
New vehicles 27,876 28,291 27,630 28,307
Used vehicles 15,829 15,451 15,538 15,483
Wholesale vehicles 7,434 7,050 7,392 7,175
Other Data:
Net cash provided by
operating activities $60,579 $6,728 $116,660 $86,168
Floorplan assistance
(continuing operations) $10,289 $10,530 $27,231 $29,131
Balance Sheets:
As Of
12/31/2002 09/30/2003
ASSETS
Current Assets:
Cash and cash equivalents $10,576 $34,951
Receivables, net 297,859 306,655
Inventories 929,450 872,366
Other current assets 63,742 53,250
Total current assets 1,301,627 1,267,222
Property and Equipment, Net 121,936 155,302
Goodwill, Net 875,894 906,777
Other Intangibles, Net 61,800 77,040
Other Assets 14,051 18,861
TOTAL ASSETS $2,375,308 $2,425,202
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Notes payable - floor plan $850,162 $787,095
Trade accounts payable 58,560 62,358
Accrued interest 13,306 8,440
Other accrued liabilities 113,592 156,545
Current maturities of long-term debt 2,764 2,764
Total current liabilities 1,038,384 1,017,202
LONG-TERM DEBT 637,545 662,620
OTHER LONG-TERM LIABILITIES 16,085 15,973
PAYABLE TO COMPANY'S CHAIRMAN 5,500 4,500
DEFERRED INCOME TAXES 40,616 41,077
STOCKHOLDERS' EQUITY
Class A convertible preferred stock -- --
Class A common stock 371 379
Class B common stock 121 121
Paid-in capital 396,813 406,907
Accumulated other comprehensive loss (6,447) (5,727)
Retained earnings 339,457 393,101
Treasury stock, at cost (93,137) (110,951)
Total stockholders' equity 637,178 683,830
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $2,375,308 $2,425,202
Balance Sheet Data:
Current Ratio 1.25 1.25
Debt to Total Capital 50.3% 49.5%
LTM Return on Stockholders' Equity 17.9% 12.1%
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