Sonic Automotive, Inc. (NYSE:SAH) 2023 Q4 Financial Report Call Record February 14, 2024
Sonic Automotive's profit fell short of expectations. Reported EPS was $1.63, compared to estimates of $1.8. Sonic Automotive Inc. was not one of the 30 most popular stocks among hedge funds as of the end of the third quarter (Please see here for the detail).
operator: Welcome to the Sonic Automotive Q4 2023 Earnings Conference Call. This conference call was recorded today, Wednesday, February 14, 2024. Presentation materials with management's discussion of the conference call can be accessed through the company's website at ir.sonicautomotive.com. At this time, I would like to refer to his safe harbor statement under the Private Securities and Litigation Reform Act of 1995. During this conference call, management may discuss financial projections, information, expectations regarding the Company's products and markets, and provide other comments. A statement about the future. Such statements are forward-looking and are subject to a number of risks and uncertainties that could cause actual results to differ materially from those described.
These risks and uncertainties are detailed in the company's filings with the Securities and Exchange Commission. In addition, management may discuss certain non-GAAP financial measures as defined by the Securities and Exchange Commission. See the non-GAAP reconciliations in the company's most recent report on Form 8-K filed today with the Securities and Exchange Commission. I would like to introduce David Smith, Chairman and CEO of Sonic Automotive. Mr. Smith, may we begin the meeting?
David Smith: Good morning everyone. Welcome to Sonic Automotive Q4 2023 Earnings Announcement. Joining us today is our president, Jeff Dyke. Heath Bird, our CFO. Tim Keen, Chief Operating Officer, EchoPark; and Danny Wieland, our vice president of investor relations. Early this morning, Sonic Automotive reported its fourth quarter and full year financial results. This included fourth-quarter total revenue of $3.6 billion and record annual revenue of $14.4 billion, up 3% year-over-year. Fourth quarter GAAP EPS was $1.11 per share, which includes the impact of non-cash impairment charges and tax items. Excluding these items, adjusted EPS was $1.63 per share, down from $2.61 a year ago, primarily due to continued normalization of new vehicle GPUs and higher interest rates.
We are extremely proud of our team's performance in the fourth quarter, and we are building a diversified business model to adapt to changing market dynamics in the short term, while positioning Sonic to achieve our long-term strategic goals. We continue to focus on leveraging it. We believe that strong relationships with our teammates, manufacturers, financing partners and guests are the key to our future success. We would like to thank them for their continued support. Next, let's move on to the trends for franchise dealers in the fourth quarter. New vehicle inventory levels continue to expand across our portfolio of brands, with 37 days of inventory supply at the end of the year, up from 33 days at the end of the third quarter and 24 days at the end of 2022. As a result, fourth-quarter gross profit per new vehicle continued to decline to $4,289 per new vehicle, consistent with prior guidance to end 2023 in the low-to-mid $4,000 range. Ta.
Although this steady decline in new vehicle GPUs should continue through 2024, we believe the new normal level for new vehicle GPUs will remain structurally higher than the historically pre-pandemic $2,000/unit range. Then I continue to believe. Additionally, our luxury goods-focused portfolio typically has low inventory-day supplies, and our luxury goods manufacturing partners are more effectively balancing supply than ever before, helping the industry as a whole. We have the potential to minimize new GPU compression relative to trends in , which will continue to benefit the profitability of our franchise business. . In the used car market, in the fourth quarter he fell three years, the wholesale auction price of cars fell by nearly 9%, but the average price of retail used cars fell by only 2%. Rising second-hand retail prices remain a challenge for consumers, and affordability is a growing concern in the current interest rate environment.
However, the downward trend in used car wholesale prices is positive for our business outlook and should be positive for affordability and used car sales volumes in 2024. A decline in lease commitments at our franchised dealerships continued to limit our used vehicle sales volume in the fourth quarter. Due to the seasonality of the used market, used retail GPUs have decreased to $1,443 per unit on a same-store basis. Our team anticipates that used car prices and sales volumes will normalize in 2024, and that we plan to increase used car inventory acquisition and retail sales in 2024 to drive the rise of this business segment. We remain focused on increasing opportunities. Despite rising consumer interest rates, our F&I performance remained strong, with same-store franchise F&I sales of $2,334 per unit in the fourth quarter.
Our franchise dealer F&I penetration rates have remained stable quarter-over-quarter, exceeding our previously announced guidance for full-year 2023 franchised F&I GPUs of more than $2,400 per unit and same-store franchised F&I GPUs of $2,411 for the full year. We achieved our goal. For comparison, our franchise F&I GPU for the full year of 2019 was $1,620, nearly $800 lower than current utilization, so we expect his F&I GPU to remain stable in 2024. Our parts and service or fixed operations business remains strong. Fixed operating gross margin for our franchised stores increased 7% year-over-year on a same-store basis in the fourth quarter, a record number, driven by 9% growth in our customer payments business. We are proud of our team's success in this area and believe there is still opportunity to optimize our fixed operations business by 2024.
Now let's turn to the EchoPark segment. EchoPark's revenue in the fourth quarter was $557 million, down 6% year-over-year, and EchoPark's gross profit in the fourth quarter was down 5% year-over-year, despite a significant year-over-year decline in store count. It achieved a record increase of $43 million. Over a year. Echo Park segment retail unit sales volume for the quarter was approximately 17,600 units, an increase of 1% year-over-year. However, on a same-store basis, EchoPark's retail sales volume increased 42% in the fourth quarter. As we discussed in our previous earnings call, we reduced our store footprint in Q2 2023, allowing us to better allocate inventory across our platforms, leading to unit sales growth in the second half of 2023, and GPU and a significant reduction in operating loss.
In the fourth quarter, the Echo Park segment had an adjusted EBITDA loss of $9.1 million, compared to a year-ago adjusted EBITDA loss of $25.4 million. Due to unique and continuing challenges to Northwest Motorsports' business model, in January 2024, we made the difficult decision to close the seven remaining Northwest Motorsports pre-owned stores in the Echo Park segment. This decision was not taken lightly, but was made to benefit Echo Park's path to near-term profitability and better align with our overall used vehicle strategy. Fourth quarter adjusted EBITDA losses related to Northwest Motorsports Group totaled $1.3 million. This equates to $1.3 million, bringing the Group's related full-year adjusted EBITDA loss to a total of $5.1 million.
We remain confident in our path to breakeven Adjusted EBITDA for the EchoPark segment in the first quarter of 2024 and positive Adjusted EBITDA for the EchoPark segment for the full year. Sonic's diversified cash flow and strong balance sheet have enabled us to withstand the challenges of the used car market over the past three years and sustain our long-term Echo Park plans. EchoPark's unwavering confidence in its future positions us as one of the few remaining national used car retailers, creating great opportunities for the brand in the future. As conditions in the used car market improve, we look forward to Echo Park's ability to resume disciplined long-term growth. Next, we move on to the powersports segment. Fourth quarter revenue was $27 million, gross profit was $7 million and adjusted EBITDA loss was $2.4 million.
Given the seasonal fluctuations in the powersports industry and our geographic presence with the Black Hills platform, our fourth quarter results were in line with our expectations. Looking ahead to 2024, we remain focused on identifying operational synergies within our current powersports network and are optimistic about future growth opportunities in this adjacent retail segment when the time is right. I will continue to think objectively. Finally, we turn to the balance sheet. The Company ended the third quarter with $846 million in available liquidity, including $374 million in cash on hand and floor plan deposits. The strength of our balance sheet enabled us to repurchase 3.3 million shares of our common stock in 2023 (9% of our outstanding shares at the beginning of the year).
At the end of the fourth quarter, our remaining stock repurchase authorization was $287 million, representing approximately 15% of our current market capitalization. Share repurchases are an important part of our capital allocation strategy, and we remain focused on returning capital to our shareholders through share repurchases, as liquidity and other capital needs permit. In addition, we are pleased to report that our board of directors has approved a quarterly cash dividend of $0.30 per share, payable on April 15, 2024, to all stockholders of record as of March 15, 2024. I'm glad. I would like to draw your attention to page 12 and page 13 of the investor presentation that we released this morning. There, we discuss the industry outlook for 2024 and provide limited financial guidance on certain metrics.
From a consolidated corporate earnings perspective, the decline in Franchise and Dealer segment revenues was partially offset by significantly improved performance in Echo Park, resulting in a return to positive adjusted EBITDA for the year, and a return to positive Adjusted EBITDA for the year, as well as a We expect profits to increase slightly year over year. . Although the financial outlook in the investor presentation is subject to inherent forecast risks and uncertainties, some of which are beyond our control, the indicators provided reflect Sonic's financial outlook for his 2024 results. We believe this could be useful for model development. Finally, our team remains focused on short-term execution while making strategic decisions to maximize long-term benefits, and remains focused on continuing changes in the automotive retail environment and macroeconomic backdrop. We will adapt.
Additionally, our diversified business model provides significant revenue growth opportunities for our Echo Park and Powersports divisions, offsets industry-driven margin headwinds that we may face in our franchise businesses, and allows Sonic's consolidation of We continue to believe that this has the potential to help minimize the downside to earnings relative to performance. time. We are confident that we have the right strategy, the right people and the right culture to continue to grow our business and create long-term value for our stakeholders. This concludes my opening remarks. We are happy to answer any questions you may have. thank you very much.
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