Sonic Automotive, Inc.

good morning and welcome to the sonic automotive first quarter 2022 earnings conference call this conference call is being recorded today thursday april the 28th 2022 presentation materials which accompany management's decisions on the conference call can be assessed at the company's website at ir.sonicautomotive.com At this time, I would like to refer to the Safe Harbour Statement under the Private Securities and Legislation Reform Act of 1995. During this conference call, management may discuss financial projections, information or expectations about the company's products or market otherwise, make statements about the future. Such statements are 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 Exchange and Commission. Please refer to the non-GAAP reconciliation tables in the company's current report on Form 8-K filed with the Securities and Exchange Commission earlier today. I would now like to introduce Mr. David Smith, Chief Executive Officer of Sonic Automotive. Mr. Smith, you may begin your conference.

Thank you, and good morning, everyone, and welcome to Sonic Automotive's first quarter 2022 earnings call. As she said, I'm David Smith, the company's CEO. Joining me on the call today is our President, Mr. Jeff Dyke, our CFO, Mr. Heath Bird, our Chief Operating Officer of Echo Park, Mr. Tim Keene, our Chief Digital Retail Officer, Mr. Steve Whitman, and our Vice President of Investor Relations, Mr. Danny Weiland. Building on our record-breaking results in 2021, today we reported record first quarter 2022 revenues and earnings per share, driven by strong customer demand, the continued execution of our operating playbooks, and a team focus on accomplishing our strategic growth plans. We also continue to expand Echo Park's nationwide footprint and digital network while also strategically growing our franchise dealership network with our acquisition of Sun Chevrolet in upstate New York. This performance would not have been possible without the amazing effort and execution by our Sonic and Echo Park teammates. Congratulations and thank you all. We would also like to thank our customers, manufacturer, and vendor partners for helping us achieve another record quarter. Now let's briefly review our financial highlights. During the first quarter of 2022, Sonic delivered all-time record quarterly revenues and a 13th consecutive quarter of year-over-year EPS growth. On a consolidated basis, we posted first quarter revenues of $3.6 billion, up 29% from the previous year, and record first quarter EPS of $2.33, up 89% year over year. These exceptional results were driven by strong performance across our business amidst a challenging operational environment. We also continued to see further benefits from our initiatives to enhance operating efficiencies and permanently reduce expenses throughout our entire organization. As a result of these efforts, we reported record low first quarter SG&A expenses as a percentage of gross profit of 67.7%. And on a franchise dealership segment basis, this figure was 59.8%, a 1,060 basis point improvement year-over-year. Our team remains committed to optimizing our expense structure to drive long-term profitability improvements. Taking a look at the larger industry picture, we have continued to generate record results in spite of the lingering effects of the pandemic. with ongoing new vehicle inventory constraints, inflation, and supply chain issues. Despite these headwinds, we achieved record revenues and profitability for the first quarter as a result of persistent consumer demand, our targeted sales and marketing initiatives, as well as our improved digital channels. Additionally, as an organization, we continue to realize the enhanced operating efficiencies and cost management measures that we implemented during the height of the pandemic, which demonstrates the inherent strength and flexibility of our business model. Based on a positive operating outlook and continued execution of our long-term strategic growth plan for Sonic and Echo Park, we remain confident in our ability to reach our stated goal of $28 billion in total revenues by 2025. Looking at our franchise dealership business, first quarter 2022 revenues were a record $3 billion, up 30% from $2.3 billion in the prior year. On a same-store basis, franchise dealerships' first quarter revenues were up 5% year over year, while gross profit improved by 27%. Parts and service gross profit continues to improve, up 10% on a same-store basis with a 21% increase in customer pay gross profit. Same-store F&I gross profit was up 7% despite a 15% decrease in retail unit volume, driven by all-time record F&I per unit of $2,448 in our franchise dealership segment. We continue to see supply chain disruptions during the first quarter that limited new vehicle production and inventory levels. This contributed to a 15% decrease in same-store retail new vehicle unit sales volume, slightly better than the industry retail SAR decline of 11%. Offsetting the lower sales volume, same-store retail new vehicle gross profit per unit was $6,799, That's 134% year-over-year and in line with the fourth quarter of 2021, which typically represents our highest GPU quarter due to our luxury brand mix. On a trailing quarter cost of sales basis, our franchise dealership segment new vehicle inventory had approximately 15-day supply for 3,500 units, down from 13,200 units a year ago. Our franchise dealership segment used vehicle inventory had approximately 33 days supply, or 10,600 units, up from 9,400 units a year ago. Turning now to Echo Park, we posted record first quarter revenues of $625 million, up 23% year over year. In addition to solid revenue growth, we also continued the nationwide expansion of the Echo Park automotive brand, opening Echo Park locations in three new markets, since the end of 2021. Beyond expanding our fiscal footprint, in recent months, we have also grown Echo Park's digital network. As previously announced, during the first quarter, we launched our proprietary e-commerce platform, EchoPark.com, in select geographic markets. Since our last earnings call, we have continued to make substantial progress with the national rollout of this digital platform. As of today, the platform has now been rolled out to 80% of our nationwide traffic at ecopark.com. We continue to see positive early results and customer feedback from the new platform with a 30% increase in our website conversion rate and out-of-market buyers representing over 70% of our online sales. Given our success today with our expansion of Ecopark's nationwide geographic and digital network, We remain on target to achieve 90% population coverage by 2025. Upon reaching this coverage level, we continue to anticipate delivering 575,000 vehicles and generating $14 billion in annual Echo Park revenues by this same year. We remain dedicated to the growth and expansion of our unique pre-owned vehicle concept. Reflecting this commitment to Echo Park, we continue to invest the necessary human capital to support Echo Park's future growth. This includes the first quarter promotion of Mr. Tim Keene as Echo Park's first chief operating officer, and more recently, the appointment of Stephen Carvelli as chief technology officer of both Sonic Automotive and Echo Park. These and other recent C-suite hires at Echo Park represent our commitment to Echo Park's long-term success as a key part of our strategic growth plan for Sonic Automotive. Turning now to our balance sheet, we ended the first quarter with $785 million in available liquidity, including $486 million in cash and floor plan deposits on hand. Our consistently strong sales performance, cash flow generation, and balanced capital allocation strategy have all contributed to our solid financial position, allowing Sonic to return capital to stockholders by increasing our quarterly dividend by 108% and repurchasing approximately 1.7 million shares of stocks since the end of 2021. To that end, I'm pleased to report that our board of directors approved a quarterly cash dividend of 25 cents per share, payable on July 15, 2022, to all stockholders of record on June 15, 2022. In summary, our record first quarter results reflect strong consumer demand, the success of our targeted sales and marketing initiatives, our enhanced e-commerce network, our continued success in maximizing operating efficiency throughout our operations, and, of course, the unwavering dedication of our talented teammates. As we look forward, we remain committed to implementing our long-term strategic growth plans for Sonic Automotive and for Echo Park Automotive. By continuing to execute on this vision, we expect to realize further revenue growth and increased profitability while continuing to enhance our best-in-class guest experience, driving long-term value for our guests, our teammates, and our stockholders. This concludes our opening remarks, and we look forward to answering any questions you may have. Thank you.

Thank you. If you would like to ask a question, please press star, then 1 on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. If any time your question has been addressed and you would like to withdraw your question, please press star, then 2. We have the first question on the phone lines from John Murphy with Bank of America. Please go ahead when you're ready, John.