Report
David Whiston
EUR 850.00 For Business Accounts Only

Morningstar | EchoPark Is Main Attraction in Sonic's 1Q

We are not changing our Sonic Automotive fair value estimate following good first-quarter numbers. Adjusted diluted EPS from continuing operations of $0.39, up 50% year over year, easily beat consensus of $0.23. Revenue declined 0.5% to slightly miss consensus. Sonic showed the same trend that other dealers reporting so far have reported: Weak new-vehicle demand contrasted with improving new-vehicle gross profit per unit and strong used demand and profit growth. Sonic's new-vehicle gross profit per unit, up 10.9% to $2,135, is great to see because it means management is focusing on profit over volume. New-vehicle unit sales fell 14.6%, which did cause total new-vehicle gross profit to fall 5.3%. Used vehicles are in demand with American consumers due to vehicles coming off lease this year expected to peak and because automakers are pulling back on leasing to protect their captive finance arm residual value risk. Sonic's same-store used-vehicle revenue rose 14.8% and same-store used-vehicle gross profit increased 2.8%.

Sonic's longtime quest to become a major used-vehicle retailer is starting to take shape. The company's first-quarter results showed its stand-alone used business, EchoPark, reach a milestone with its first ever profitable quarter of about $200 million. Results would have been even better excluding a $1.9 million impairment charge. Retail units sold doubled to 11,051, and EchoPark's revenue increased 90% to nearly $250 million. Management expects EchoPark's full-year revenue to exceed $1 billion, which we think it will because that guidance is for the existing eight stores and there's likely to be one more opened this year. Management said EchoPark is done with the learning phase and ready for growth, which means opening for now a small number of stores in new markets rather than saturating any one area. Future openings are likely to include areas such as Los Angeles, eastern Florida, and Atlanta, with about 12 total stores by 2020.
Underlying
Sonic Automotive Inc. Class A

Sonic Automotive is an automotive retailer in the United States. The company has two reportable segments: the Franchised Dealerships Segment and the EchoPark Segment. The Franchised Dealerships segment is comprised of retail automotive franchises that sell new vehicles and buy and sell used vehicles, sell replacement parts, perform vehicle maintenance, warranty and repair services, and arrange finance and insurance products. The EchoPark segment is comprised of pre-owned vehicle retail locations that provide customers an opportunity to search the company's nationwide inventory, purchase a pre-owned vehicle, select finance and insurance products and sell their vehicle to the company

Provider
Morningstar
Morningstar

Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. The company offer an extensive line of products and services for individual investors, financial advisors, asset managers, and retirement plan providers and sponsors.

Morningstar provides data on approximately 530,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 18 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its investment advisory subsidiaries and had approximately $185 billion in assets under advisement and management as of June 30, 2016.

We have operations in 27 countries.

Analysts
David Whiston

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