Sonic Automotive, Inc.

Good morning and welcome to the Sonic Automotive third quarter 2020 earnings conference call. This conference call is being recorded today, Thursday, October the 29th, 2020. Presentation materials, which management will be reviewing on the conference call, can be accessed at the company's website at ir.sonicautomotive.com. At this time, I would like to refer to the Safe Harbor Statement under the Private Securities and Litigation Reform Act of 1995. During this conference call, management may discuss financial projections, information, or expectations about the company's products or market or otherwise make statements about the future. Such statements or forward-looking and subject to a number of risks and uncertainties that could cause actual results to differ materially from the statements made. These risks and uncertainties are detailed in the company's filings with the Securities and Exchange Commission. In addition, management may discuss certain non-GAAP financial measures as defined by the Securities and Exchange Commission. Please refer to the non-GAAP reconciliation tables in the company's current report on Form 8K filed with the Securities and Exchange Commission earlier today. I would now like to introduce Mr. Jeff Dyke, President of Sonic Automotive. Mr. Dyke, you may begin your conference.

Thank you, and good morning, everyone, and welcome to Sonic Automotive's third quarter 2020 earnings call. I'm Jeff Dyke, the company's president. Joining me on the call today is our CFO, Mr. Heath Bird, our Executive Vice President of Operations, Mr. Tim Keene, and our Director of Financial Reporting and Investor Relations, Mr. Danny Weiland. This morning, we reported the highest quarterly earnings in our company's history, with adjusted EPS of $1.29, up 95% from the third quarter of last year. These record results were driven by increasing consumer demand for new and used vehicles, as well as improving rate of recovery in our parks and service business, continued growth in our F&I per unit, and a fundamental change in our expense structure. Our core franchise dealership segment performed very well during the quarter, reflecting steadily increasing consumer demand and margin improvement across all business lines. Additionally, the previously announced permanent SG&A reductions continued to drive increasing operating efficiency, and unprecedented bottom line profitability at the store level. Turning to Echo Park, revenues for the quarter were $385 million, or 15% of our total revenues, an increase of 23% on a year-over-year basis. Echo Park achieved all-time record quarterly retail sales volume of 15,127 units, up nearly 15% year-over-year. As we noted on our second quarter call in July, we opened our first delivery and buy center in Greenville, South Carolina, which continues to ramp according to our plan. In addition, we opened another retail store in Houston, Texas in September and our latest retail store in Nashville, Tennessee just last week. Before the end of the year, we expect to open two more retail stores, one in Plano, Texas, the other in Atlanta, Georgia, as well as at least one additional delivery and buy center. We remain on track with our Echo Park expansion plan and will continue to keep you updated on our path to $14 billion in Echo Park revenue by 2025. In addition to our exceptional store performance during the third quarter, we continued improving operating efficiency throughout our entire organization. Adjusted SG&A expenses as a percentage gross profit were 69.1%, down 760 basis points from the prior year. We continue to expect to achieve permanent SG&A expense reductions of approximately $7 million per month, or $84 million annually on a go-forward basis. In recent months, we have seen more car buyers open to a wider range of shopping options across the omni-channel spectrum. This includes increasingly utilizing a combination of online, phone, and in-person shopping to complete a vehicle purchase. Several recent studies support our belief that the vast majority of consumers prefer to begin the car buying process online, then visit a dealership to get access to support from knowledgeable associates, and then have the ability to physically shop large inventories, and finally, test drive the vehicle before purchasing. In addition, our guests continue to tell us that price and quality are the most important factors when selecting a used vehicle. This is exactly the value proposition offered by Echo Park, and we firmly believe that our pricing strategy, compelled with our hybrid approach between online and on-site, offers consumers the car buying experience they want, as evidenced by yet another record quarter at Echo Park. As we continue to provide our guests with additional buying options, this will accelerate our Echo Park network expansion plans, as well as enhance our guests' online retail experience at our franchise dealership websites, and EchoPark.com. Given that, we are pleased to announce today that we recently hired Mr. Steve Whitman, formerly of Hertz, the Hertz organization, as our new digital or chief digital retailing officer, and Mr. Steven Conrad, formerly with Bell Department Stores, as our vice president of e-commerce to oversee the ongoing development and future evolution of our omni-channel platform. Each of these individuals brings extensive online retail experience to our company and we look forward to their contributions in further improving our overall guest experience. As we move forward, we believe Sonic and Echo Park are well positioned for the future growth and success. Throughout the pandemic to date, our management team has taken the necessary steps to strengthen our operations and take care of the health and safety of our teammates and guests, while also positioning the company to benefit from the economy's eventual recovery. We believe the automotive industry is at an inflection point, and we intend to capitalize on this momentum with both Echo Park and our Sonic franchise dealerships. Now I'd like to take the time to thank all of our teammates at the franchise stores and Echo Park stores for their relentless commitment to deliver our exceptional guest experience while executing our safety protocols. I also want to thank our manufacturer and vendor partners for their unwavering support. This concludes our opening remarks. We look forward to answering any questions you may have.

It is time to ask a question. You will need to press star 1 on your telephone keypad. That is star 1 to withdraw your question. Press the pound or the hash key. Please stand by while we combine the Q&A roster. Just one moment, please. Your first question comes from Rick Stevens. Rick Nelson with Stevens.