Sonic Automotive, Inc. (NYSE:SAH), one of the nation’s largest automotive retailers, today reported financial results for the third quarter of 2016.
GAAP Basis
Net income from continuing operations for the third quarter of 2016 was $19.0 million, or $0.42 per diluted share. Included in these amounts are net pre-tax charges totaling $3.7 million, or $0.05 per diluted share, consisting of fixed asset impairment charges (relating to a facility construction project and the abandonment of certain construction projects) which were partially offset by favorable storm-related physical damage and legal accrual adjustments. Also included in the reported amounts for the third quarter of 2016 is a net loss from operations related to EchoPark® of $2.3 million, or $0.05 per diluted share.
Net income from continuing operations for the third quarter of 2015 was $27.1 million, or $0.53 per diluted share. Included in these reported amounts is a net loss from operations related to EchoPark® of $2.2 million, or $0.04 per diluted share.
Adjusted Basis
Adjusted net income from continuing operations for the third quarter of 2016 was $21.2 million, or $0.47 per diluted share. Excluded from these adjusted amounts are the impairment of fixed assets, physical damage and legal adjustments discussed above (see attached tables for additional information and reconciliation of reported GAAP basis amounts to adjusted balances).
There were no adjusted amounts for the third quarter of 2015.
Commentary
Jeff Dyke, Sonic’s EVP of Operations, stated, “We had another record quarter in fixed operations, F&I and pre-owned, but did face headwinds during the quarter. Stop-sale vehicles, BMW brand performance and weakness in one of our most profitable markets, Houston, negatively impacted our results. Given BMW’s brand performance during the quarter and that BMW stores represent over 30% of our profitability, we were negatively impacted. We have absolute confidence in the BMW brand and are working with our partners at BMW to address this bump in the road, which we view as a short-term issue. We are making progress with our stop-sale inventory with less than 2,200 units on hand at the end of the third quarter of 2016 compared to nearly 4,700 units on hand at the end of the second quarter of 2016. Finally, we expect weakness to continue in the Houston market, especially in our high-line stores, through at least the end of the year as we believe the energy sector’s recovery may take time to gain some momentum.”
“Our One Sonic-One Experience (“OSOE”) stores are also making good progress and we plan to launch the technology in our first BMW store in the first quarter of 2017. The technology, pricing tools and OSOE playbook have continued to develop nicely and we are excited to see how these tools can be leveraged in a BMW retail operation. We are confident that the implementation of OSOE will greatly enhance our BMW customers’ buying experience as our EchoPark® stores and current OSOE stores boast some of the very highest social media reputation scores in the industry.”
Scott Smith, Sonic’s Chief Executive Officer, noted, “We continued to execute our long-term strategies during a challenging third quarter. Expansion of EchoPark®is continuing with two new stores operating during the quarter. We are very excited that combined, our original three stores generated positive cash during the third quarter. Our sixth Denver market store, located in Colorado Springs, will open during the first half of 2017. In addition, we will break ground on our first Texas locations in the first half of 2017.”
“We are also very excited to announce the progress we are making with our open-points. Our new Mercedes-Benz open-point in McKinney, Texas began operations during the quarter. We expect this store to contribute in excess of $100 million in revenue once it is completely ramped up. The Nissan open-point in Cleveland, Tennessee, with expected annual revenues in excess of $30 million, will open before the end of the current year. Lastly, our Pensacola Audi open-point broke ground during the quarter and is expected to open in the first quarter of 2017. Once fully operational, we anticipate this store will produce annual revenues in excess of $50 million. We continue to work with our manufacturer partners and anticipate further growth via additional open-points over the next several years.”
“Lastly, our commitment to return capital to shareholders continued during the quarter as we repurchased approximately 579,000 Class A shares for roughly $10.0 million and declared a dividend with an expected payment of $2.2 million. This brings our year-to-date annual return of capital to shareholders through stock repurchases to $97.5 million. Coupled with dividends declared during 2016 of $9.0 million, we will have returned over $100 million to shareholders so far in 2016.”
“Based on results experienced so far this year and uncertainty related to new vehicle margins in the fourth quarter, we are adjusting our earnings guidance range. We currently estimate diluted earnings per share from continuing operations for the fourth quarter of 2016 will range from $0.59 to $0.69 and $1.95 to $2.05 on an adjusted basis for the full year of 2016. This guidance does not include the effect of any amounts related to an anticipated settlement with VW expected to be finalized by the end of the year.”
Dividend
Sonic’s Board of Directors approved a quarterly dividend of $0.05 per share payable in cash for stockholders of record on December 15, 2016. The dividend will be payable on January 13, 2017.
Third Quarter 2016 Earnings Conference Call
Senior management will host a conference call today at 11:00 A.M. (Eastern) to discuss the quarter’s results. To access the live broadcast of the call over the Internet go to: www.sonicautomotive.com, then click on “Our Company,” then “Investor Relations,” then “Webcasts & Presentations.”
Presentation materials for the conference call can be accessed on the Company’s website at www.sonicautomotive.com by clicking on the “Investor Relations” tab under “Our Company” and choosing “Webcasts & Presentations.”
The conference call will also be available live by dialing in 10 minutes prior to the start of the call at:
Domestic: 1.877.450.3867
International: 1.706.643.0958
Conference ID: 96968408
A conference call replay will be available one hour following the call for seven days and can be accessed by calling:
Domestic: 1.855.859.2056
International: 1.404.537.3406
Conference ID: 96968408
About Sonic Automotive
Sonic Automotive, Inc., a Fortune 500 company based in Charlotte, N.C., is one of the nation’s largest automotive retailers. Sonic can be reached on the web at www.sonicautomotive.com.
