Sonic Automotive Announces Fourth Quarter and Year End Results
CHARLOTTE, N.C., Feb. 24, 2004 -- Sonic Automotive, Inc. announced results today for the fourth quarter and full year ended December 31, 2003.
Income from continuing operations for the quarter ended December 31, 2003 was $19.3 million, or $0.45 per diluted share, compared to prior year results of $25.6 million, or $0.61 per diluted share. Net income for the quarter ended December 31, 2003 was $13.8 million, or $0.32 per diluted share, compared to prior year results of $21.4 million, or $0.51 per diluted share. Net income for the quarter included a loss from discontinued operations of $5.5 million, or $0.13 per diluted share, compared to $4.2 million, or $0.10 per diluted share, in the same quarter last year.
Income from continuing operations for the year ended December 31, 2003 was $87.8 million, or $2.07 per diluted share, compared to $109.9 million, or $2.55 per diluted share, in 2002. Net income for the year ended December 31, 2003 was $71.6 million, or $1.69 per diluted share, compared to $106.6 million, or $2.47 per diluted share, in 2002. Net income for the year included an after-tax loss from discontinued operations of $10.7 million, or $0.25 per diluted share, compared to $3.3 million, or $0.08 per diluted share in 2002. Net income for the year also includes an after-tax charge of $5.6 million, or $0.13 per diluted share, as a cumulative effect of accounting change as a result of the first quarter adoption of new guidance on accounting for incentives and rebates.
Income from continuing operations of $2.07 per diluted share for 2003 includes charges for the early retirement of debt and self-insurance reserve adjustments. As discussed during the third quarter, we recorded charges of $15.0 million, or $0.23 per diluted share related to the refinancing of our 11% Senior Subordinated Notes. During the fourth quarter of 2003, we recorded a charge of $2.7 million, or $0.04 per diluted share, related to prior year self-insurance reserves on a general liability insurance program going back to 1999. Net income from continuing operations for the year ended December 31, 2002 included gains on the early retirement of debt of $3.1 million or $0.04 per diluted share.
Earnings Targets
O. Bruton Smith, the Company's Chairman and Chief Executive Officer stated, "Although our performance in import brands continued to outperform the industry, our overall performance has not achieved acceptable levels. In order to return to our historically high standard of performance, we have made a number of fundamental changes to our overall strategy. We have reevaluated our acquisition growth pace and are reducing our long-term acquisition growth targets to a maximum of 10% of annual revenues. This represents a substantial reduction from our historical acquisition growth pace. For 2004, we intend to complete only those acquisitions which were negotiated in 2003, allowing our management team to intensely focus on executing our operating initiatives in existing dealerships. In addition, we have accelerated business improvement initiatives to reduce sales-related compensation and advertising expense and strengthen field management."
"We are affirming our earnings target for calendar year 2004 at $2.65 to $2.80 from continuing operations. This estimate reflects an expected level of new vehicle industry sales of approximately 16.5 million units, acquisitions that have been announced and the positive effects on interest costs from financing activities completed in 2003."
Income from continuing operations in 2004 should increase from $2.07 in 2003 due to the absence of the $0.27 in charges from the refinancing and insurance items discussed above. Acquisitions in 2004 and interest cost savings from the 2003 refinancing are expected to add approximately $0.18 and $0.12 per diluted share, respectively. The balance of earnings growth will come from improvement in core operations.
Discontinued Operations
We have reviewed our portfolio of dealerships and have identified certain under-performing stores for divestiture in 2004. Losses from discontinued operations increased to $10.7 million, or $0.25 per diluted share, for the year in 2003 from $3.3 million, or $0.08 per diluted share, in 2002 which reflects the continuing under performance of dealerships included in discontinued operations. Losses from discontinued operations in the fourth quarter of 2003 also included $2.5 million, or $0.04 per share, in losses on disposal of real estate related to dealerships and impairment of franchise right intangible assets. At December 31, 2003, we have 15 dealerships classified as held for sale. The sale of these dealerships will accelerate the overall turnaround of our dealership operations and allow us to focus attention on those stores with the highest potential return on investment. The disposition of these dealerships should also generate at least $20 million in cash flow.
Operations
Our high-margin parts, service and collision repair business continues to show strong improvement as 2003 quarterly operating profits increased $5.6 million, or 13.6% compared to 2002. Our same store fixed absorption, or the amount of total dealership fixed costs that are covered by the net profit of our service, parts and collision repair operations, continued to increase to 81.0% in 2003 from 78.2% in 2002. This performance demonstrates the benefits of our strong brand portfolio, continued investments in service capacity and outstanding customer satisfaction levels along with the positive impact that the sale of certified pre-owned used vehicles has on our ongoing parts and service business.
Jeffrey C. Rachor, the Company's Chief Operating Officer stated, "We have strengthened our field management structure through the replacement of 27 general managers. In addition, 4 of our 12 regions have new regional managers. These changes, along with the discontinued dealerships discussed above, provide us with the appropriate management personnel to implement our operating initiatives in the remaining stores."
"Key components of our initiatives are sales compensation and advertising expense control. We have begun to implement standard compensation plans to consistently manage sales compensation expense. The rollout of these plans should be completed by the third quarter of 2004. We have implemented a revised advertising control process that has more effectively allocated advertising funds toward higher return dealerships and reduced the overall advertising expenditures. We anticipate that the combination of these business improvement initiatives will positively impact operating performance as the year progresses."
Same Store Sales
On a same store basis, total revenues in the quarter increased 2.0% from the same quarter last year. Same store new vehicle revenue increased 3.6% for the quarter while same store retail and wholesale used vehicle revenues declined 2.9% for the quarter. For the full year 2003, the Company increased market share in its respective local markets, growing its customer base to support profitable service and parts operations. Finance and insurance revenues decreased 5.4% on a same store basis for the quarter. Same store revenues in our service, parts and collision repair business increased 4.1% in the quarter while the related same store gross profit dollars increased 5.0% despite having one less service day than in the same quarter last year.
The same store gross margin percentage for the quarter decreased to 15.2% from 15.7% in the same quarter last year. The decline was the result of a higher mix of new vehicle revenues and lower margins of 7.2% on new and 10.1% on used retail vehicles. Our same store new vehicle gross margin of 7.2% in the fourth quarter of 2003 represents an increase of 40 bps from the third quarter. The decline in the overall gross margin in the fourth quarter of 2003 was partially offset by a 40 bps margin increase to 48.3% on service, parts and collision repair.
Acquisitions and Dispositions
During the fourth quarter of 2003, the Company closed on two previously announced acquisitions with annual revenues of approximately $130 million. On February 1, 2004, the Company completed two previously announced acquisitions including Crown Lexus in California, which represents the Company's fourth Lexus franchise and fifth Lexus dealership. The only additional acquisitions expected to be completed in 2004 are the previously announced Houston-based dealerships with anticipated closings during the second quarter. These acquisitions have annual revenues of approximately $710 million and are predominantly import and luxury dealerships. These are brands in which the Company has a proven track record of successful integration and execution.
Financial Position
At December 31, 2003, the Company had approximately $191 million available under its revolving credit facility and cash of $82 million. In addition, the Company's debt-to-total-capital ratio was 46.8%, net of cash, at December 31, 2003.
Mr. Smith reiterated, "Our reduced acquisition pace will enable maintenance of our dividend and share repurchase programs while, at the same time, reducing our overall leverage. We are revising our debt-to-total- capital target to 45% by the end of 2004 from our historical target of 50%. We are revising our long-term target for debt-to-total capital to 40%."
About Sonic Automotive, Inc.
Sonic Automotive, Inc. is one of the largest automotive retailers in the United States operating 190 franchises and 40 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 Twelve Months Ended
12/31/2002 12/31/2003 12/31/2002 12/31/2003
Income Statements:
Revenues
New vehicles $973,871 $1,072,901 $3,908,454 $4,345,715
Used vehicles 264,567 256,225 1,089,248 1,119,805
Wholesale vehicles 93,420 108,272 429,578 427,463
Total vehicles 1,331,858 1,437,398 5,427,280 5,892,983
Parts, service and
collision repair 218,636 240,214 844,681 946,023
Finance & insurance and
other 43,839 43,491 185,294 195,209
Total revenues 1,594,333 1,721,103 6,457,255 7,034,215
Total gross profit 251,655 261,138 1,009,535 1,073,691
SG&A expenses 196,525 215,113 768,856 855,361
Depreciation 1,835 3,801 7,813 11,612
Operating income 53,295 42,224 232,866 206,718
Interest expense, floor
plan 6,031 5,470 20,999 21,037
Interest expense, other 9,708 7,729 37,873 37,796
Other income (expense) 1,731 10 3,326 (13,840)
Income from continuing
operations before taxes 39,287 29,035 177,320 134,045
Income taxes 13,649 9,720 67,427 46,210
Net income from continuing
operations 25,638 19,315 109,893 87,835
Discontinued operations:
Loss from operations and
the sale of discontinued
dealerships (5,462) (8,657) (5,401) (14,223)
Income tax benefit 1,229 3,159 2,072 3,567
Loss from discontinued
operations (4,233) (5,498) (3,329) (10,656)
Income before cumulative
effect of change in
accounting principle 21,405 13,817 106,564 77,179
Cumulative effect of change
in accounting principle,
net of tax benefit
of $3,325 - - - (5,619)
Net income $21,405 $13,817 $106,564 $71,560
Diluted:
Weighted average common
shares outstanding 42,199 42,814 43,158 42,421
Net Income per share from
continuing operations $0.61 $0.45 $2.55 $2.07
Loss per share from
discontinued operations ($0.10) ($0.13) ($0.08) ($0.25)
Cumulative effect of
change in accounting
principle $0.00 $0.00 $0.00 ($0.13)
Net Income per share $0.51 $0.32 $2.47 $1.69
Gross Margin Data:
New vehicles retail 7.9% 7.2% 7.8% 7.1%
Used vehicles retail 10.6% 10.2% 11.3% 10.9%
Total vehicles retail 8.5% 7.8% 8.6% 7.8%
Parts, service and
collision repair 48.1% 48.6% 47.6% 48.3%
Finance and insurance 100.0% 100.0% 100.0% 100.0%
Overall gross margin 15.8% 15.2% 15.6% 15.3%
SG&A Expenses:
Personnel 117,676 124,054 474,086 511,503
Advertising 13,558 18,352 59,398 69,516
Facility rent 16,011 19,195 59,815 70,342
Other 49,280 53,512 175,557 204,000
Unit Data:
New units 33,547 35,545 139,054 150,918
Used units 16,183 16,032 68,709 71,189
Total units retailed 49,730 51,577 207,763 222,107
Wholesale units 13,001 13,979 58,016 57,857
Average price per unit:
New vehicles 29,030 30,184 28,107 28,795
Used vehicles 16,348 15,982 15,853 15,730
Wholesale vehicles 7,186 7,745 7,404 7,388
Other Data:
Net cash provided by
operating activities $22,223 $51,780 $138,883 $137,948
Floorplan assistance
realized (continuing
operations) $9,802 $9,172 $34,377 $36,269
Balance Sheets:
As Of
12/31/2002 12/31/2003
ASSETS
Current Assets:
Cash and cash equivalents $10,576 $82,082
Receivables, net 297,859 306,498
Inventories 929,450 1,046,909
Assets held for sale 53,786 88,990
Other current assets 9,956 29,718
Total current assets 1,301,627 1,554,197
Property and Equipment, Net 121,936 125,356
Goodwill, Net 875,894 909,091
Other Intangibles, Net 61,800 75,230
Other Assets 14,051 22,355
TOTAL ASSETS $2,375,308 $2,686,229
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Notes payable - floor plan $850,162 $996,370
Trade accounts payable 58,560 63,577
Accrued interest 13,306 13,851
Other accrued liabilities 112,919 121,744
Current maturities of long-term
debt 2,764 1,387
Total current liabilities 1,037,711 1,196,929
LONG-TERM DEBT 637,545 694,898
OTHER LONG-TERM LIABILITIES 16,758 19,136
PAYABLE TO COMPANY'S CHAIRMAN 5,500 -
DEFERRED INCOME TAXES 40,616 76,933
STOCKHOLDERS' EQUITY
Class A convertible preferred
stock - -
Class A common stock 371 384
Class B common stock 121 121
Paid-in capital 396,813 416,892
Accumulated other comprehensive
loss (6,447) (4,419)
Retained earnings 339,457 402,799
Treasury stock, at cost (93,137) (117,444)
Total stockholders' equity 637,178 698,333
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $2,375,308 $2,686,229
Balance Sheet Data:
Current Ratio 1.25 1.30
Debt to Total Capital 50.3% 49.9%
LTM Return on Stockholders'
Equity 17.9% 10.7%