Sonic Automotive, Inc. Reports Sequential Growth in Second Quarter Earnings
Continued Profit Improvement Driven by Rising Used Vehicle Volume, Parts and Service Margin Growth and Ongoing Cost Reductions
CHARLOTTE, N.C., July 28 -- Sonic Automotive, Inc. , the nation's third-largest automotive retailer, today reported that 2009 second quarter adjusted earnings from continuing operations were $9.0 million, or $0.19 per diluted share. These adjusted results include charges related to the Company's May 7, 2009 debt restructuring and non-cash impairment charges related to the General Motors' bankruptcy as shown in the attached reconciliation table. The Company is still finalizing certain aspects of the accounting for its May 7, 2009 debt restructuring which it does not currently believe will have a material impact on reported results.
Profit Growth - Sequential profits up substantially
B. Scott Smith, the Company's President, said, "Our results this quarter continue to demonstrate the effectiveness of the operational strategies we have been steadily implementing. Although industry new vehicle sales volume was at approximately the same level as first quarter, our sequential profits, after eliminating the restructuring items, were up substantially."
Mr. Smith noted that the improvement was accomplished despite higher non-cash interest charges as a result of the Company's recent debt restructuring. "While our SG&A expenses continue to decline both in absolute dollars and as a percentage of gross profit, our performance reflects much more than cost reductions. Our regional and dealership teams are actively focused on capturing incremental revenue despite a challenging economic environment."
"The improving trends we're seeing in almost every segment of our business underscore the fact that our business is not wholly dependent on new vehicle sales volume. All these factors point to the future profit potential in our business model once the new vehicle sales environment rebounds."
New Vehicles - Local market share continues to outperform the industry
Commenting on the Company's new car sales, Mr. Smith noted, "We have been consistently implementing our sales strategy playbook, which includes comprehensive changes to advertising strategies, customer interaction and eCommerce initiatives. For the second consecutive quarter, our dealerships are taking market share and setting new vehicle share records in each of their local markets. This is being accomplished at the same time we are making significant reductions in our advertising spend. Our best practices are resulting in a more efficient ad spend and improved sales penetration."
Used Vehicles - Dealerships continue to set used vehicle volume records
Overall used vehicle unit volume for the second quarter of 2009 was up 13% compared to the second quarter of 2008. Sequentially, used vehicle unit volume was up 20%. Jeff Dyke, the Company's EVP of Operations, stated, "Our dealerships continue to set used vehicle volume records. We saw similar results in the first quarter compared to the industry."
"Our increase in used car sales resulted from processes that we began implementing at our dealerships over two years ago. This is a long-term strategy that involves the patient implementation of both technology and technique. It is satisfying to see these improved results in a challenging economy. Many of our stores have seen their used car volume double since they began implementing the various phases of the used vehicle playbook. We believe there are further improvements available to us as we continue to refine it."
Parts and Service - A developing story as margins begin to improve
Sonic's same store parts and service revenue for the second quarter of 2009 was down approximately 3.3% from the same period last year, reflecting continued pressure from consumer spending pullbacks. That notwithstanding, the gross margin in Sonic's parts and service business was up 50 basis points compared to the second quarter of 2008 and up 110 basis points compared to the first quarter of 2009.
Mr. Dyke stated, "The implementation of our operational playbook for parts and service is still in its infancy, but we are already seeing some of the results. We have added resources in key areas of this business and have introduced our dealerships to the first phase of our long-term strategy in this very critical segment of our business. Very similar to our used car strategy, we are able to see improvement almost immediately when these playbooks are introduced. Based on the improvement in the margin and the other early results, we are optimistic that this piece of our strategic playbook will be just as successful as those that are further along in their implementation."
Presentation materials for the Company's July 28, 2009 earnings conference call at 11:00 A.M. (Eastern) can be accessed on the Company's website at www.sonicautomotive.com by clicking on the "For Investors" tab and choosing "Webcasts & Presentations" on the right side of the monitor.
To access the live broadcast of the call over the Internet go to: www.ccbn.com or www.sonicautomotive.com
A live audio of the call will be accessible to the public by calling (877) 791-3416. International callers dial (706) 643-0958. Callers should dial in approximately 10 minutes before the call begins.
A conference call replay will be available one hour following the call for seven days and can be accessed by calling: 800-642-1687, International callers dial (706) 645-9291 Conference ID: 20547686.
About Sonic Automotive
Sonic Automotive, Inc., a Fortune 300 company based in Charlotte, N.C., is the nation's third-largest automotive retailer, operating 154 franchises. Sonic can be reached on the web at www.sonicautomotive.com.
Included herein are forward-looking statements, including statements with respect to implementation of operating initiatives and future profit potential. 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 annual report on Form 8-K filed May 28, 2009. The Company does not undertake any obligation to update forward-looking information.
Sonic Automotive, Inc.
Results of Operations (Unaudited)
(in thousands, except per share, unit data and percentage amounts)
Second Quarter Ended Six Months Ended
6/30/2009 6/30/2008 6/30/2009 6/30/2008
--------- --------- --------- ---------
Revenues
New retail vehicles $644,502 $940,704 $1,228,907 $1,811,642
Fleet vehicles 61,669 118,782 115,372 224,773
Total new vehicles 706,171 1,059,486 1,344,279 2,036,415
Used vehicles 361,452 346,650 668,944 686,748
Wholesale vehicles 30,685 74,835 64,257 151,383
Total vehicles 1,098,308 1,480,971 2,077,480 2,874,546
Parts, service and
collision repair 257,751 266,484 512,631 531,061
Finance, insurance
and other 36,552 49,145 69,361 96,096
Total revenues 1,392,611 1,796,600 2,659,472 3,501,703
Total gross profit 241,834 282,358 472,258 556,988
SG&A expenses (192,753) (219,622) (385,139) (436,386)
Impairment charges (3,793) (116) (3,825) (333)
Depreciation and
amortization (8,806) (8,270) (16,444) (15,277)
Operating income 36,482 54,350 66,850 104,992
Interest expense,
floor plan (5,156) (10,535) (10,045) (22,603)
Non-cash interest
expense, convertible
debt (3,643) (2,656) (6,262) (5,294)
Interest expense,
other, net (22,122) (13,804) (38,190) (24,944)
Other income, net 20 30 63 94
Income from
continuing operations
before taxes 5,581 27,385 12,416 52,245
Income tax provision (2,512) (10,954) (5,587) (20,898)
Income from
continuing operations 3,069 16,431 6,829 31,347
Discontinued
operations:
Loss from
operations and the
sale of
discontinued
franchises (4,168) (9,796) (6,833) (12,702)
Income tax
(provision) benefit 1,125 2,582 1,708 3,197
Loss from
discontinued
operations (3,043) (7,214) (5,125) (9,505)
Net income $26 $9,217 $1,704 $21,842
COCO Add-Back -
Continuing Operations - - - -
COCO Add-Back -
Discontinued Operations - - - -
Basic:
Weighted average
common shares
outstanding 40,968 40,432 40,536 40,603
Earnings per share
from continuing
operations $0.07 $0.40 $0.17 $0.76
Loss per share from
discontinued
operations ($0.07) ($0.18) ($0.13) ($0.23)
Earnings per share $0.00 $0.22 $0.04 $0.53
Diluted:
Weighted average
common shares
outstanding 41,604 40,645 40,974 40,857
Earnings per share
from continuing
operations $0.07 $0.40 $0.17 $0.75
Loss per share from
discontinued
operations ($0.07) ($0.18) ($0.13) ($0.23)
Earnings per share $0.00 $0.22 $0.04 $0.52
Gross Margin Data (Continuing Operations):
Retail new vehicles 7.1% 7.4% 7.1% 7.4%
Fleet vehicles 3.6% 1.4% 4.0% 1.8%
Total new vehicles 6.8% 6.8% 6.8% 6.8%
Used vehicles retail 8.0% 8.9% 8.6% 9.1%
Total vehicles retail 7.2% 7.3% 7.4% 7.3%
Wholesale vehicles (4.3%) (2.3%) (2.3%) (1.8%)
Parts, service and
collision repair 50.3% 49.8% 49.8% 49.6%
Finance, insurance
and other 100.0% 100.0% 100.0% 100.0%
Overall gross margin 17.4% 15.7% 17.8% 15.9%
SG&A Expenses (Continuing Operations):
Personnel $110,765 $125,322 $219,393 $248,669
Advertising 10,446 15,226 20,599 29,588
Facility rent 22,305 19,176 44,664 41,479
Other 49,237 59,898 100,483 116,650
Total $192,753 $219,622 $385,139 $436,386
SG&A Expenses as % of Gross Profit
Personnel 45.8% 44.4% 46.5% 44.6%
Advertising 4.3% 5.4% 4.4% 5.3%
Facility rent 9.2% 6.8% 9.5% 7.4%
Other 20.4% 21.2% 21.3% 20.9%
Total 79.7% 77.8% 81.6% 78.3%
Operating Margin % 2.6% 3.0% 2.5% 3.0%
Unit Data (Continuing Second Quarter Ended Six Months Ended
Operations): 6/30/2009 6/30/2008 6/30/2009 6/30/2008
--------------------- --------- --------- --------- ---------
New retail units 19,306 28,747 36,693 54,380
Fleet units 2,590 4,501 4,829 8,800
Used units 19,449 17,247 35,702 34,173
Wholesale units 4,895 9,554 10,802 18,923
Average price per unit:
New retail vehicles $33,384 $32,724 $33,492 $33,314
Fleet vehicles 23,810 26,390 23,891 25,542
Used vehicles 18,585 20,099 18,737 20,096
Wholesale vehicles 6,269 7,833 5,949 8,000
Other Data:
Same store revenue
percentage changes:
New retail (31.5%) (32.3%)
Fleet (48.1%) (48.7%)
Total New Vehicles (33.3%) (34.1%)
Used 4.3% (2.7%)
Parts, service and
collision repair (3.2%) (3.7%)
Finance, insurance
and other (25.3%) (27.6%)
Total (22.5%) (24.2%)
Balance Sheet Data:
6/30/2009 12/31/2008(1)
ASSETS
Current Assets:
Cash and cash
equivalents $5,163 $6,971
Receivables, net 185,473 247,025
Inventories 790,101 916,837
Assets held for sale 203,577 406,576
Other current assets 22,037 16,822
Total current assets 1,206,351 1,594,231
Property and
Equipment, Net 379,033 369,892
Goodwill, Net 402,999 327,007
Other Intangibles, Net 80,100 82,328
Other Assets 31,462 32,087
TOTAL ASSETS $2,099,945 $2,405,545
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Floor plan notes
payable $754,752 $921,023
Other current
liabilities 213,634 277,938
Liabilities
associated with
assets held for sale 79,517 199,482
Current maturities
of long-term debt 87,420 738,447
Total current
liabilities 1,135,323 2,136,890
LONG-TERM DEBT 644,260 -
OTHER LONG-TERM
LIABILITIES 99,823 71,132
STOCKHOLDERS' EQUITY 220,539 197,523
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $2,099,945 $2,405,545
(1) Restated for the adoption effects of FSP APB 14-1.
Reconciliation of Non-GAAP Information
(amounts in millions, except
per share data) Q2 2009 Diluted EPS
Income From Continuing
Operations - Adjusted $9.0 $0.19
Debt Restructuring and
Impairment Charges (5.9) (0.12)
Income From Continuing
Operations - GAAP $3.1 $0.07