Sonic Automotive's Q2 net income surges 54%
Editor's note: Sonic reported net income of $22.8 million in the second quarter. An earlier version of this story incorrectly described the type of net income calculation used with that figure.
Sonic Automotive Inc.’s net income surged 54 percent in the second quarter to $22.8 million. The publicly traded dealership group posted lower new- and used-vehicle unit sales, but offset that by heightened cost controls, improved new-vehicle margins and gains in finance and insurance.
Revenue declined 1.7 percent to $2.38 billion.
“The automotive retail environment continues to demonstrate strength and sustainability,” said President Scott Smith in a statement. “Historic low interest rates and a fantastic product offering by manufacturers have supported customer demand for new and pre-owned vehicles.”
Jeff Dyke, executive vice president of operations, added that while the industry’s new-vehicle sales declined in the quarter, “new-car margins have stabilized and heavy new-car inventories from the first quarter are coming back in line with historical levels.”
On a same-store basis, Sonic’s new-vehicle sales fell 2.5 percent to 33,782 for the quarter, notably worse than the overall U.S. new light-vehicle sales decline of 0.3 percent. But gross profit per unit rose 4.1 percent to $1,949.
Gross profit per unit in F&I rose 6.1 percent to $1,345. On a same-store basis, it rose 5.7 percent to $1,342.
Sonic’s overall gross profit in fixed operations -- also known as parts, service and collision repair -- dropped 1.2 percent to $168.2 million.
On a same-store basis, fixed operations’ gross profit was nearly flat at $168.1 million compared to $167.8 million a year earlier.
Sonic, of Charlotte, N.C., reported used-vehicle retail sales from continuing operations for the quarter dropped 3.3 percent to 29,287. Gross profit per used vehicle dropped to $1,262 from $1,343.
But Sonic said its used-only EchoPark stores sold 1,136 vehicles in the quarter, up 28.9 percent vs. the year-earlier quarter.
Sales at Sonic’s EchoPark stores were so robust that EchoPark’s pretax loss was “narrowed by about $700,000” compared to a year earlier, said Smith during a conference call with analysts. He added that the original, flagship EchoPark store in Thornton, Colo., recorded its first-ever profit in the quarter.
But Sonic underbuilt one of the satellite stores in Denver, said Dyke. The store holds about 100 cars and Sonic needs it to hold 150.
“So that one is not coming along as fast as it should,” Dyke said.
Sonic opened two new EchoPark stores in Denver in June. It opened its first EchoPark store in Denver in the fall of 2014, adding two satellite stores months later.
As it opens more EchoPark stores around Denver and other parts of the country, it can lower costs by gaining economies of scale, Sonic executives have said in previous interviews. It will open two more EchoPark stores in Colorado next year, for a total of seven stores. It will break ground on building about two dozen more EchoPark stores in Texas and the Carolinas beginning late this year or early 2017.
Additionally, Sonic repurchased 759,056 shares of its stock for approximately $13.1 million in the quarter. During the first half, Sonic repurchased almost 10 percent of its shares outstanding as of the end of 2015.
Sonic ranks No. 4 on Automotive News’ list of the top 150 dealership groups based in the U.S., with retail sales of 138,129 new vehicles in 2015.
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