Sonic Automotive Conference Call - Strong Results in a Tough Market

[XDCX]

After listening to the AutoNation and Lithia Conference Calls earlier this month, I was prepared for a somewhat depressing review/forecast of the Retail Car Market. I was pleasantly surprised - Sonic posted impressive results. :)

Like their peers, the Sonic Management Team indicated that the New Car Market was soft and they were expecting a difficult start to 2008 with improvement in the second half. They also reported that Gross Margin Percentages on New and Used cars continue to decline.

Listed below are some comments from the Conference Call that I thought were interesting:

Revenue, Gross Profit and Earnings per Share were all up in the Fourth Quarter
Used Car Revenue was up 19.3% for the Quarter - that's HUGE
Sales of Certified Pre-Owned Vehicles were up 18% for the Quarter
Sales of BMW CPO Vehicles were up 80%
Warranty Revenue from Mercedes Benz was down 23%
They have the lowest SG&A Costs among their peers
They feel that prices are too high to acquire more dealerships
They have been actively repurchasing their stockConcerning the last point, one of my favorite comments from the Conference Call concerned the decision to repurchase shares as opposed to buying more dealerships. One of the executives commented that it made more sense to repurchase their shares at a 6-7 post-tax multiple of earnings than to go out and pay 6-7 times pre-tax earnings for a new dealership.

Overall I was very impressed with the Conference Call. Given that they have dealerships in California and Florida there was very little conversation about the recession impacting their performance.

[XDCX]

I'd be remiss in reporting about the Sonic Conference Call if I didn't include a statement regarding the amount of time the Management Team spent talking about Employee Satisfaction and Training.

The Management Team indicated that their turn-over rate is at an all-time low, that 75% of their promotions were filled from within the company and that they've implemented a training and career-track program that will include every employee from the lot-porter to the CEO.

My favorite comment: They want to be the "Employer of Choice" for talented people in the Retail Car Business. :)

[cbubba7]

How can one company (Lithia) preach doom and gloom and their competition (Sonic) be up so much? Makes you wonder, especially in regards to employee satisfaction. Maybe other companies will stand up and take notice of success.

[SHACOS]

This is the same tone Lithia took when we were making money too. We had the AMP (Accelerated Management Program) back when we could afford to invest that type of time and money into our employees. I will say Sonic has the advantage with having a majority of their Stores as high end Stores.

[XDCX]

How can one company (Lithia) preach doom and gloom and their competition (Sonic) be up so much? Makes you wonder, especially in regards to employee satisfaction. Maybe other companies will stand up and take notice of success.

It's funny, it was about 10:00 last night and I hadn't listened to the Sonic Conference Call yet. I was thinking, "I'm tired and I'm really not in the mood to be depressed listening to a bunch of executives tell me how bad the car market is...."

I listened to the call anyway and I couldn't believe how positive the message was. Not only did Sonic post positive results in a tough market, they really seemed confident that they could adapt to the market and prosper.

I'll concede SHACOS point that many of their dealerships are High End, but many of those stores are also in California and Florida - markets that AutoNation told us were in a recession.