Sonic Automotive, Inc. Reports Sequential Growth in Second Quarter Earnings
July 28, 2009
Continued Profit Improvement Driven by Rising Used Vehicle Volume, Parts and Service Margin Growth and Ongoing Cost Reductions
CHARLOTTE, NC – July 28, 2009 – Sonic Automotive, Inc. (NYSE:SAH) , 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.
