Sonic Q1 revenue up, net income down on costs for new initiatives

Sonic Automotive reported a 4.6 percent revenue increase in the first quarter, but a drop in net income mostly because of costs associated with two major initiatives that launched last year.

Net income for the quarter dropped to $14 million from $19.4 million a year earlier. First-quarter revenue was $2.2 billion, up from $2.1 billion. Sonic took a $3.8 million pretax charge for the One Sonic-One Experience no-haggle, fast-close initiative and a $4.9 million charge for EchoPark, the name for its standalone used-car stores.

Sonic leadership said the company is making progress but recognizes more work needs to be done.

"We have made a lot of progress in the first quarter of the year,” said Sonic President Scott Smith in a statement today. “Our Charlotte stores have migrated to our One Sonic-One Experience platform and we now have three EchoPark retail operating locations in Denver, with progress made to open an additional location by the end of 2015.”

‘Still a lot of work’

Smith said sales staff and customers are embracing the technologies and improved transaction processes Sonic put in place, but added, “There is still a lot of work to be done to ensure the long-term sustainability of these initiatives. The cornerstones have been set and we look forward to building upon these in the future.”

Sonic said new retail sales rose 4.3 percent to 31,334 units for the quarter. That fell short of the overall rise of 5.6 percent in U.S. new-vehicle sales. Sonic’s used-unit sales for the quarter increased to 28,135 from 27,657 for the same period last year.

Sonic’s gross profit in fixed operations rose 2.8 percent to $156.4 million. On a same-store basis, its finance and insurance gross profit per vehicle increased 4.2 percent to $1,260.

Acquisitions

The retailer is working closely with manufacturers to pursue possible open points and is watching for acquisition opportunities, Smith said during a conference call today.

“You’ll see us become more active in the acquisition arena. We’re currently looking at more dealers in the market,” he added. “Our balance sheet is in the best shape it’s ever been in.”

Sonic completed launches on its used-vehicle business, EchoPark, and One Sonic-One Experience late last year. It said EchoPark sold 660 units.

Faster closings

It introduced One-Sonic, One-Experience last summer at a dealership in Charlotte, N.C., then rolled it out to four more Charlotte stores in the fourth quarter. The nationwide rollout is expected to take all of this year and next, the company said. In Charlotte, market share against local same-brand dealerships is rising at three of them, said Jeff Dyke, Sonic executive vice president of operations, in a previous interview with Automotive News.

One Sonic-One Experience offers no-haggle pricing and has a goal of completing a purchase in 45 minutes or less with one sales rep using an iPad. Sonic is betting that by eliminating car-buying pain points, it will become a preferred place to shop and thereby gain market share.

Earlier this year, Sonic had said it would start expanding the initiative to the second market: Chattanooga in the spring, possibly May. But executives told Automotive News today that it would roll out just technology first in that market. That will happen starting in June or July. The rest of the initiative will be launched afterwards at an undetermined time.

Sonic plans to implement One Sonic-One Experience companywide in about 36 months, executives said during the call.

Used cars

The company also launched EchoPark. Sonic started by opening two neighborhood stores and a hub in the Denver area in 2014. EchoPark will feature a large hub store in each market with smaller neighborhood stores nearby.

The hubs will have about 300 vehicles in stock, Automotive News reported in August. The neighborhood stores will typically have fewer than 40 vehicles. Sonic aims to have the stand-alone stores in more than 50 markets across the country.

In the fourth quarter, Sonic will launch an EchoPark store in Dakota Ridge, near Denver. Another location is scheduled to launch in the Denver area during the second quarter of 2016.

“We don’t feel like we had any barriers to entry into this. This is something we’ve been working on the past seven years,” Dyke said during the conference call. “This is no experiment. We are rolling forward. We are meeting or beating our expectations.”

Launches in the Denver area, “other than [delays from] a few wintery storms in the area, have been a big success,” Dyke said.

Sonic ranks No. 5 on the Automotive News list of the top 150 dealership groups in the U.S., with retail sales of 135,932 new vehicles in 2014.