Used Retail Strength Pushes Sonic’s 1Q Performance
CHARLOTTE, N.C. — Sonic Automotive said it compiled strong first-quarter results with its retail used-vehicle operation leading the way.
Executives said Tuesday that during the first quarter, the company recorded net income of $4.15 million, up from $1.68 million a year ago. Adjusted earnings from continuing operations were $0.14 per share, compared to $0.10 per share last year.
Sonic explained that the adjustments dealt mostly with debt refinancing activities and mark-to-market adjustments on interest rate swaps.
Overall, Sonic also highlighted that its first quarter total revenue figure came in at $1.56 billion, compared to $1.38 billion a year ago.
The company saw particularly strong used-vehicle results, as their used-vehicle retail volume increased by 25 percent as compared to the same quarter last year.
Meanwhile, Sonic's new-vehicle retail volume also jumped by double digits. Jeff Dyke, the company's executive vice president of operations, indicated a rise of 10 percent from the first quarter of 2009 in this segment.
However, it was Sonic's performance in the used department that had Dyke expounding about how the company did during the first quarter.
"The retail gross profit generated by our used-vehicle department alone was up over 8 percent in the first quarter of 2010 compared to the same period last year. Our used-vehicle business continues to exceed our expectations as our stores realize the power of our operational playbooks," Dyke explained.
"Consistent with the expectation we communicated last quarter, our used-vehicle margins have contracted somewhat compared to the first quarter of last year as a result of the significant volume growth," he continued.
"Sequentially, our used-vehicle margins are in line with the last several quarters. It's important to remember as we continue to expand our penetration of the used-vehicle market that our volume growth generates incremental gross profit dollars in used, F&I, and parts and service," Dyke emphasized.
In regards to parts and service, Sonic executives also revealed that their first-quarter revenue in this area climbed about 3 percent over the prior year. They said gross margin was up 70 basis points at 50.3 percent.
"Our parts and service business benefited from the improvement in the general economic environment, the work associated with the various manufacturer recalls during the period and our continued rollout of our playbook for this area," Dyke shared.
"We are still in the early stages of our operational plan for our fixed operations departments and expect to see continued revenue and margin growth over the course of the year," he added.
Executives also mentioned that the company further strengthened its balance sheet during the quarter. They explained this was accomplished by issuing $200 million of senior subordinated notes to refinance a portion of Sonic's existing senior subordinated notes. The company pointed out the refinancing resulted in incurring interest expense on both notes for a period of time prior to the existing notes being retired in early April.
Company president Scott Smith attributed sales performances and current ledger conditions to the performance of Sonic's employees.
"We are very pleased with the way our operating initiatives continued to take hold this quarter," Smith shared.
"Our focus on associate satisfaction has led to all time low associate turnover which is resulting in better execution of our playbook process," he continued.
"We saw strong revenue growth in all departments which continues to demonstrate that our strategy is delivering sound performance as the automotive market continues to improve," Smith added.
Looking ahead, Smith continued to have a positive outlook about what Sonic's fortunes could be.
"The quarter got off to a slow start as our stores came out of a very strong December and as we continued investing in our associates, but profitability improved dramatically as we progressed through the quarter," Smith recapped.
"I have said from the beginning that this is a people business and we will continue to invest appropriately in the one asset that will drive our future growth," he went on to say. "We are on track to meet our profit targets for the year."