SONIC AUTOMOTIVE INC Q4 FY2024 earnings call

Teammate Satisfaction

• EchoPark automotive teammates were ranked number one pre-owned automotive dealer in guest satisfaction by reputation.com. Sonic Automotive franchise teammates set a second consecutive annual record in customer satisfaction scores.

Acquisitions

• Acquired the remaining 50% joint venture of Northpointe Volvo in Greater Atlanta, Audi New Orleans, and Motorcycles of Charlotte and Greensboro, collectively adding approximately $145 million in annualized revenues. Actively pursuing major acquisitions of new vehicle franchises in 2025.

Fourth Quarter Results

• GAAP EPS was $1.67 per share, and adjusted EPS was $1.51 per share (7% decrease year over year). Consolidated total revenues were an all-time quarterly record, up 9% year over year; consolidated gross profit grew 6%; consolidated adjusted EBITDA increased 5%.

Franchise Segment Details

• Generated all-time record quarterly franchise revenues of $3.4 billion, up 12% year over year. Driven by 13% increase in new retail volume, 5% in used retail volume, and 10% in fixed operations revenues. Fixed operations gross profit and F&I gross profit set all-time quarterly records.

EchoPark Adjustments

• Took steps to rightsize inventory at EchoPark, expecting used GPU to improve sequentially. Full year 2024 adjusted EBITDA was $27.6 million, achieving pretax profitability.

Power Sports Focus

• Continues to focus on identifying operational synergies within the current powersports network while fine-tuning operating playbooks, with a disciplined approach to expansion.

Balance Sheet

• Ended the year with $862 million in available liquidity, excluding unencumbered real estate. Board approved a quarterly cash dividend of $0.35 per share payable on April 15, 2025.

Franchise Dealership Segment

• Fourth quarter franchise revenues reached an all-time quarterly record of $3.4 billion, up 12% year over year. Driven by a 13% increase in new retail volume, a 5% increase in used retail volume, and a 10% increase in fixed operations revenues. Fixed operations gross profit and F&I gross profit also set all-time quarterly records, up 12% and 14% year over year respectively. New vehicle day supply decreased to 46 days from 57 days at the end of the third quarter. Used inventory day supply was at 31 days, within target range, and used GPU was stable sequentially at $1,396 per unit on a same store basis.

EchoPark Segment

• Fourth quarter adjusted EBITDA was $4.2 million, below previous guidance of $7.8 million. This was due to a $200 sequential decline in used GPU from the third quarter. Fourth quarter revenues were $506 million, down 9% from the prior year, while gross profit was $49 million, up 14% from the prior year. Retail unit sales volume for the quarter was approximately 16,700 units, down 5% year over year. On a same store same market basis, revenue was flat, gross profit was up 29%, and retail unit sales volume increased 4% year over year. Full year 2024 adjusted EBITDA was $27.6 million, up from a loss of $83 million in 2023.

Power Sports Segment

• Fourth quarter revenues were $30.6 million, gross profit was $7.5 million, and segment adjusted EBITDA loss was $1 million, in line with seasonally lighter fourth quarter expectations. Focus remains on identifying operational synergies within the current powersports network while fine-tuning operating playbooks.

2025 Plans

• Actively pursuing major acquisitions of new vehicle franchises. Provided limited financial guidance with variables affecting business including potential tariffs, shifts in electric vehicle production and demand, changes in the interest rate environment, and consumer affordability.

EchoPark Store Openings

• Intention to begin opening stores in the first or second quarter of 2026, depending on improvement in consumer affordability. Already own real estate and facilities, so opening stores would not be overly complex if market conditions improve.

Franchise Expectations

• Expecting new vehicle day supply to improve and pricing to come down, which should benefit gross profit per unit (GPU) in the franchise business.

• Used vehicle market challenges: Supply constraints and consumer affordability remain a challenge for the used vehicle side of the franchise business and EchoPark.
• Inventory Management at EchoPark: Over-forecasting demand in the third quarter led to aged inventory and lower than expected GPU in the fourth quarter.
• Macroeconomic Variables: Factors such as potential tariffs, shifts in electric vehicle production and demand, changes in the interest rate environment, and consumer affordability can significantly impact the business.

Q: John Murphy from Bank of America asked about M&A, valuations, regions, EV impact on GPUs, and EchoPark store openings.

A: Jeff Dyke responded on M&A saying multiples on luxury side are better, seeing more deals, targeting luxury and import brands across regions. David Smith added that strong customer satisfaction creates a strategic advantage. On EVs, Jeff Dyke discussed drag on GPUs and need for better manufacturer management of EV output. Tim Keane and Jeff Dyke talked about EchoPark store openings targeting first or second quarter of 2026 based on affordability.

Q: Rajat Gupta from JPMorgan asked about EchoPark volumes and parts and service technician impact.

A: Jeff Dyke mentioned same store same market volume growth at EchoPark, noting focus on rightsizing inventory earlier. Heath Byrd discussed that parts and service gross profit growth will benefit from technician hires, with mid single-digit growth guidance but upside potential.

Q: Bret Jordan from Jefferies asked about Powersports TAM and buying opportunity.

A: Jeff Dyke said focus is on maturing the playbook, made a small acquisition in fourth quarter, and is being cautious with acquisitions. David Smith emphasized focus on core businesses.

Q: Jeff Lick from Stephens asked about franchise vs EchoPark demand and stock multiple.

A: David Smith discussed strong performance numbers and wondered about stock multiple, noting confidence in continued growth. Danny Wieland mentioned float impacting stock trading.

Q: Chris Pierce from Needham and Company asked about EchoPark aged inventory, market stability, and SG&A.

A: Jeff Dyke said aged inventory was due to over-forecasting demand, Denver market is stable. Danny Wieland explained SG&A adjustments related to gains on property sales and noise in adjusted numbers