With more than five times fewer new vehicles on hand compared with a year ago, Sonic Automotive Inc. expects lower new-vehicle retail volume sales for the third quarter.
But the Charlotte, N.C.-based retailer still expects higher revenue and earnings, in part because of strong margins on used-vehicle retail sales.
Sonic had about 2,400 new vehicles in inventory at the end of the third quarter of this year, compared with about 12,900 at the end of the same period in 2020, the company said in documents filed with the U.S. Securities and Exchange Commission.
With the relative lack of new-vehicle inventory, Sonic said it expects to report lower new-vehicle retail unit sales volume for the third quarter. The company is set to report its full financial results for the period on Oct. 28.
At the same time, the low levels of new vehicles on its lots have caused average used-vehicle transaction prices and retail used-vehicle gross profit per vehicle to be "elevated above normal levels," the company said.
Parts, service and collision activity has continued to improve, and finance and insurance has been strong.
Sonic said cost-cutting measures implemented in spring 2020 continue to drive higher profits despite the shortage of new vehicles.
All told, the company expects revenue in the range of $3.0 billion to $3.1 billion for the third quarter, compared with revenue of $2.55 billion in the year-earlier period. Sonic anticipates net income in the range of $81.8 million to $85.6 million, compared with $59.8 million in the third quarter of 2020.
The earnings were below some analysts' expectations for the period. J.P Morgan's Rajat Gupta said in an analyst note that high wholesale prices are likely weighing on Echo Park, the retailer's used-vehicle stores that depend on auctions for inventory.
Meanwhile, on Wednesday the company announced a proposed private offering of $1 billion in senior debt notes due 2029 and senior notes due 2031.
The company said it plans to use proceeds from the offering, combined with other debt, to fund the pending acquisition of RFJ Auto Partners Inc., as well as to redeem outstanding senior notes due 2027 and pay related fees and expenses. The RFJ acquisition is expected to close in December.