Sonic Automotive Inc. announced that it is "considering a full range of potential alternatives" for its rapidly growing EchoPark brand of used-vehicle-only stores as the dealership group announced record second-quarter results Thursday.
Sonic said in a release that it has hired investment bank Lazard and U.S. law firm Kirkland & Ellis LLP as financial and legal advisers for what it is calling a "review of strategic alternatives" for EchoPark. One analyst covering Sonic speculated that the move could be precursor to a spinoff of the EchoPark business.
Soaring sales and revenue at EchoPark were a key highlight of Sonic's second quarter.
Revenue for the nation's seventh-largest new-vehicle retailer jumped 59 percent to an all-time quarterly record of $3.35 billion. Net income more than tripled to a record $113.8 million, compared with $30.8 million a year earlier.
"During the second quarter, our team continued to execute at a high level, driving record performance in our franchised dealerships and a fourth consecutive quarter of record revenue and retail unit sales volume for our EchoPark business," Sonic CEO David Smith said in a statement. "Given the increasing consumer demand we've experienced, our success in maximizing operating efficiency at our franchised dealerships and continued expansion of the EchoPark brand, we believe we can sustain our strong operating performance throughout the balance of 2021 and well into 2022."
Sonic's EchoPark stores generated all-time-high quarterly revenue of $595.6 million, soaring 89 percent. Used-vehicle sales at EchoPark jumped 61 percent to an all-time quarterly record 21,261 deliveries.
The used-only unit posted a pretax loss of $14.4 million which Sonic pinned on expansion-related costs and higher wholesale used-vehicle prices. Vehicles at EchoPark stores are typically priced below market, but the company said it priced vehicles at a premium in the quarter to help offset losses.
Sonic didn't provide in its statement possible outcomes of the EchoPark review but indicated the review is happening because of the unit's results since its 2014 launch.
"As a result of the success of the EchoPark strategy and our confidence in our runway for continued expansion, Sonic's board of directors, working together with financial and legal advisers, has initiated a review process to evaluate potential strategic alternatives for its EchoPark business," Sonic said in the release. "The company is considering a full range of potential alternatives with respect to its EchoPark business. No timetable has been established for the completion of the review, and the review may not result in any transaction."
J.P. Morgan analyst Rajat Gupta said in a note that the review "in our view hints at potential spin-off, and signs that profitability should inflect in 2022 making the business self-sustaining."
Sonic this month opened an EchoPark retail sales center in Marietta, Ga., northwest of Atlanta, and opened four EchoPark delivery centers in South Salt Lake City; Greensboro, N.C.; Louisville, Ky.; and Pensacola, Fla.
Sonic, which aims to expand EchoPark to 140 locations nationwide by 2025, now has 29 EchoPark locations overall.
Sonic President Jeff Dyke said in the release that the company is halfway through its nationwide EchoPark expansion plan for 2021 and that it expects to achieve "25 percent population coverage by the end of 2021 and 90 percent population coverage by 2025."
Sonic previously projected that EchoPark stores will account for the sale of 575,000 used vehicles and $14 billion in revenue annually by the end of 2025.
On Monday, Sonic made its first franchised dealership acquisition in nearly seven years when it bought Grand Junction Subaru and Grand Junction Volkswagen in Colorado. In late June, Sonic sold Momentum Volvo Cars in Houston.
Sonic shares closed Thursday's trading up 6.2 percent to $53.46.
Records: All-time records for quarterly revenue, income from continuing operations of $114 million and finance-and-insurance gross profit per vehicle of $2,214, among others.
Sales: New-vehicle sales climbed 53 percent to 30,488. Used-vehicle sales at its franchised dealerships increased 19 percent to 28,550. Used-vehicle sales at EchoPark stores jumped 61 percent to 21,261.
Same-store sales: New-vehicle sales on a same-store basis increased 55 percent to 30,488. That is higher than the 49 percent increase in U.S. new light-vehicle sales across the industry during the second quarter, according to the Automotive News Research & Data Center. Sonic's same-store used-vehicle sales at franchised dealerships rose 20 percent to 28,550. Same-store used-vehicle sales for EchoPark increased 16 percent to 15,382.
Sonic, of Charlotte, N.C., ranks No. 7 on Automotive News' list of the top 150 dealership groups based in the U.S., with retail sales of 93,281 new vehicles in 2020. It retailed 159,025 used vehicles for the same period, ranking it No. 6 on Automotive News' list of the top 100 used-vehicle retailers.