CHARLOTTE, N.C. — Sonic Automotive reported a 2.6% drop in same-store retail sales from a year ago, which totaled 62,496 units. Poor retail sales, however, were offset by year-over-year gains in F&I and significant growth in profit at the publicly traded dealer group's EchoPark locations.
The dealer group’s F&I profit per vehicle retailed (PVR) came in at $1,308 during the second quarter, a 2.9% boost from a year ago on a same-store basis. This boost in PVR, the group reported on Tuesday, helped grow total F&I gross profit 2.1% from a year ago to $84 million. Much of the growth in F&I, officials added, was credited to higher product penetration rates.
“F&I growth continues to remain strong, up 2.9% on a same-store basis despite a decline seen in overall retail unit sales. We were able to offset the effects of lower retail unit volume by increases in product penetration, particularly in the finance and service contract areas,” said B. Scott Smith, CEO, president and director of Sonic Automotive, during the group's earnings call.
Sonic Automotive sold 29,267 pre-owned units on a same-store basis in the second quarter, a 1.8% decrease from the year prior. The $37.7 million in gross profit generated by used-vehicle sales was 6.9% lower than the year-ago period. The group’s $1,288 in gross profit per unit represented a 5% decline from the same time last year.
Company officials attributed much of this decline to stop-sales on BMW and Honda models caused by the Takata airbag recall. Stop-sales on those models, officials added, were especially detrimental to the company — particularly for it’s used segment — because BMW and Honda comprise such a big part of the group's revenue. In the second quarter, BMW and Honda accounted for a respective 22% and 16% of the store’s revenue.
“It's a mixed bag … we're working very hard to get the cars out on to the frontline so we can reduce that extra 11-day supply that's sitting there. And it's affecting our volume,” Smith said. “If you think about it, we sell more [BMW] 3 Series than just about anybody and it's certainly by far the No. 1 volume vehicle for us followed by the Honda Accord. And both of those cars have been decimated by the airbag recall. So that certainly hurt our business. And we're working hard to overcome that.”
As for the company’s new vehicle sales, the 33,229 units sold in the second quarter represented a 3.3% decline from the year-ago period. Unlike the company’s used segment, the group’s new-vehicle segment realized an improvement in gross profit and gross per unit on a same-store basis. Total gross profit generated by new vehicles retailed came in at $65.7 million, a 1.3% gain over the same period last year. The reported $1,977 in gross profit per unit represented a 4.7% improvement over the year-ago quarter. The average sales price for new deliveries also grew, improving 3.1% to $38,215.
As a whole, Sonic Automotive’s franchised segment generated $2.35 billion in revenue and $350 million in gross profit during the second quarter, a respective 2.1% and 0.9% decrease from the prior-year period.
“The EchoPark segment, on the other hand, continues to grow. Retail unit sales from EchoPark improved 28.9%, which enabled gross profit to grow approximately $1 million,” Smith said.
EchoPark locations — the dealer group’s used-vehicle stores that incorporate a one-touch sales and F&I process — produced $29 million in revenue, a 40.5% improvement from the same time last year. Gross profit generated totaled $3 million, a 30.2% year-over-year improvement. Retail units sold totaled 1,136, a 28.9% increase from the year-ago period.
Although EchoPark locations did suffer a 17.9% decrease in gross profit per unit on a year-over-year basis, it also saw a 25.3% improvement in F&I PVR. Those stores averaged $1,140 per copy during the period. For the first time, Sonic Automotive also saw one of its EchoPark location turn a profit.
“Yeah, we're very excited. Thornton, which is our big hub [in Colorado] turned a profit for the quarter. That was our original store that opened up, and the other two stores that opened up originally are also certainly improving. Centennial (Colo.) is on its way there; cash flow, I think, it's close to being positive or positive,” said Jeff Dyke, executive vice president-operations.
With the two new locations the company opened up in the Denver, Sonic Automotive now holds five EchoPark locations in that market. The group has a sixth location slated to open at end of this year and new locations in the Texas and Carolinas markets slated to open in 2017.
Combining revenue and gross profit from both franchised and EchoPark locations, total revenue fell 1.7% from a year ago to $2.38 billion and gross profit dropped 0.6% to $353 million.
Dyke stated that the effect that cheap oil prices have had on the Houston market — which accounts for 21% of Sonic Automotive’s business — along with the poor highline sales coming from that market are two of the biggest points of concern for the company.
“Houston ... is struggling and really it's the energy corridor in Houston … and highlines. As you know, we have 19 stores there, and a lot of high line stores there,” Dyke said. "We are fighting the fight. When oil is high and things are rolling, you got wind in your sales. When it's not, you got a little wind in your face. But it's nothing that we can't overcome and haven't seen before and are adept at handling."