Sonic Automotive, Inc. Announces First Quarter Income from Continuing Operations of $0.53 Per Share
CHARLOTTE, N.C., April 27 -- Sonic Automotive, Inc. today announced results for the first quarter of 2004. Sonic reported first quarter income from continuing operations of $22.4 million, or $0.53 per diluted share, compared to $19.1 million, or $0.46 per diluted share, in 2003.
Net income for the quarter ended March 31, 2004 was $22.2 million, or $0.52 per diluted share, compared to the prior year of $11.7 million, or $0.28 per diluted share. Net income for the quarter ended March 31, 2003 included a $5.6 million, or $0.14 per diluted share, after tax charge as a cumulative effect of accounting change related to the Emerging Issues Task Force guidance on accounting for incentives and rebates.
In commenting on the quarter, Mr. O. Bruton Smith, the Company's Chairman and Chief Executive Officer stated, "The results reflect initial benefits from the execution of previously announced operating initiatives in our dealerships. We have completed the majority of planned actions to strengthen field management which should create value as the year progresses. The shift to centralized control over advertising expense has been completed and has generated immediate benefits. The implementation of standard field compensation plans has begun and will continue throughout the year. We are pleased with our first quarter results but fully realize that continued improvement is dependent on consistent execution of our primary strategies of reducing SG&A expenses, maintaining gross margins and completion of pending acquisitions. Because of this, we remain comfortable with our previously announced earnings target of $2.65 to $2.80 per diluted share from continuing operations for calendar year 2004."
Same Store Sales
On a same store basis, total revenues increased 2.4% for the quarter. New vehicle same store sales were up 2.4% with gross margins of 7.4%, consistent with the prior year. Total retail and wholesale used vehicle same store sales increased 2.6% for the quarter while the gross margin rate declined 20 bps. Same store parts, service and collision sales increased 4.8% with the gross margin rate increasing 30 bps to 48.3%. Same store finance and insurance revenues declined 10.5% for the quarter.
Jeffrey C. Rachor, the Company's Chief Operating Officer, stated, "The expense reduction efforts previously announced produced benefits in the first quarter. We saw advertising expense on a same store basis decline $2.1 million, or 90 bps as a percent of gross profit, compared to the prior year. Sales compensation, our largest operating expense category, declined $3.2 million, or 150 bps as a percent of gross profit. Most importantly, we achieved our SG&A expense target for the quarter of 80% of gross profit."
Mr. Rachor continued, "Our previously announced SG&A expense targets for 2004 remain unchanged at 77% of gross profit in the second and third quarters and 78% in the fourth quarter. We also believe that our reduced acquisition pace will continue to help our corporate and regional management focus on the execution of our operating initiatives."
Acquisition and Disposition Activity
During the first quarter, Sonic closed on the previously announced acquisition of Crown Lexus. On April 16, the Company completed the acquisition of eight franchises in Houston, Texas including Porsche, Audi, Volvo, Jaguar, Volkswagen and Land Rover brands. It is anticipated that the balance of the previously announced Houston acquisition will be completed in July. Mr. Smith reiterated, "We expect our 2004 acquisition program to be complete upon the closing of these pending acquisitions and continue to target long-term acquisition growth of a maximum of 10% of annual revenues."
The Company sold two dealerships included in discontinued operations during the quarter and signed contracts to sell three other dealerships.
Financial Position
At March 31, 2004, the Company had approximately $235 million available under its revolving credit facility and cash of $39.5 million. The Company's debt-to-total-capital ratio was 48.0%, net of cash, at March 31, 2004. The Company remains committed to its previously announced targeted debt-to-total- capital ratio of 45% by the end of 2004 and 40% over the longer term.
Brand and Geographic Diversity
The Company's top brands for the quarter based on new vehicle revenues were Honda (13.1%), Cadillac (12.9%), Toyota (12.1%), BMW (10.3%), Chevrolet (10.3%), Ford (10.2%), Lexus (6.1%), Volvo (3.9%), Mercedes (3.4%) and Chrysler (3.2%).
The Company's top markets for the quarter based on total revenues were Los Angeles (10.2%), Houston (9.8%), Dallas (9.3%), San Francisco (8.5%), San Jose (7.4%), Tampa (5.9%), Charlotte (4.8%), Michigan (4.1%), Atlanta (4.1%) and Oklahoma (4.0%).
About Sonic Automotive, Inc.
Sonic Automotive, Inc., a Fortune 300 Company, is one of the largest automotive retailers in the United States operating 194 franchises and 39 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
3/31/2003 3/31/2004
Income Statements:
Revenues
New vehicles $931,330 $1,008,352
Used vehicles 276,527 290,191
Wholesale vehicles 98,631 114,458
Total vehicles 1,306,488 1,413,001
Parts, service and collision repair 223,304 246,897
Finance & insurance and other 46,183 43,895
Total revenues 1,575,975 1,703,793
Total gross profit 251,397 267,613
SG&A expenses 203,938 214,079
Depreciation 2,274 3,720
Operating income 45,185 49,814
Interest expense, floor plan 5,522 5,955
Interest expense, other 9,525 8,335
Other income 72 27
Income from continuing operations
before taxes 30,210 35,551
Income taxes 11,148 13,171
Income from continuing operations 19,062 22,380
Discontinued operations:
Loss from operations and the sale
of discontinued dealerships (2,915) (375)
Income tax benefit 1,158 180
Loss from discontinued operations (1,757) (195)
Income before cumulative effect of
change in accounting principle 17,305 22,185
Cumulative effect of change in
accounting principle, net of tax
benefit of $3,325 (5,620) -
Net income $11,685 $22,185
Diluted:
Weighted average common shares
outstanding 41,757 42,599
Income per share from continuing
operations $0.46 $0.53
Loss per share from discontinued
operations (0.04) (0.01)
Cumulative effect of change in
accounting principle (0.14) -
Net Income per share $0.28 $0.52
Gross Margin Data:
New vehicles retail 7.4% 7.3%
Used vehicles retail 10.8% 10.7%
Total vehicles retail 8.2% 8.0%
Parts, service and collision repair 48.0% 48.6%
Finance and insurance 100.0% 100.0%
Overall gross margin 16.0% 15.7%
SG&A Expenses:
Personnel 123,338 128,208
Advertising 15,331 13,580
Facility rent 16,623 19,781
Other 48,646 52,510
Unit Data:
New units 33,644 34,782
Used units 16,938 17,378
Total units retailed 50,582 52,160
Wholesale units 12,838 13,433
Average price per unit:
New vehicles 27,682 28,991
Used vehicles 16,326 16,699
Wholesale vehicles 7,683 8,521
Other Data:
Net cash provided by (used in)
operating activities $26,503 $(2,234)
Floorplan assistance realized
(continuing operations) $7,577 $8,984
Balance Sheets:
As Of
12/31/2003 3/31/2004
ASSETS
Current Assets:
Cash and cash equivalents $82,082 $39,475
Receivables, net 306,498 310,613
Inventories 1,046,909 1,096,550
Assets held for sale 88,990 83,941
Other current assets 29,718 35,949
Total current assets 1,554,197 1,566,528
Property and Equipment, Net 125,356 133,003
Goodwill, Net 909,091 932,801
Other Intangibles, Net 75,230 77,087
Other Assets 22,355 31,227
TOTAL ASSETS $2,686,229 $2,740,646
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Notes payable - floor plan $996,370 $1,021,752
Trade accounts payable 63,577 64,635
Accrued interest 13,851 9,569
Other accrued liabilities 121,744 133,072
Current maturities of long-term debt 1,387 1,123
Total current liabilities 1,196,929 1,230,151
LONG-TERM DEBT 694,898 698,656
OTHER LONG-TERM LIABILITIES 19,136 20,025
DEFERRED INCOME TAXES 76,933 76,882
STOCKHOLDERS' EQUITY
Class A convertible preferred stock -- --
Class A common stock 384 386
Class B common stock 121 121
Paid-in capital 416,892 419,975
Accumulated other comprehensive loss (4,419) (4,499)
Retained earnings 402,799 420,864
Treasury stock, at cost (117,444) (121,915)
Total stockholders' equity 698,333 714,932
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $2,686,229 $2,740,646
Balance Sheet Data:
Current Ratio 1.30 1.27
Debt to Total Capital 49.9% 49.5%
LTM Return on Stockholders' Equity 10.7% 12.0%
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