Sonic Automotive, Inc. Q1 2010 Earnings Call Transcript
Sonic Automotive, Inc. (SAH)
Q1 2010 Earnings Call Transcript
April 27, 2010 11:00 am ET
Executives
Scott Smith – President and Chief Strategic Officer
Dave Cosper – Vice Chairman and CFO
Jeff Dyke – EVP of Operations
Greg Young – VP, Finance
Analysts
Rick Nelson – Stephens Inc.
Marc Andre [ph] – Goldman Sachs
Ryan Brinkman – JPMorgan
John Murphy – Bank of America Merrill Lynch
Stuart Quan – Zander Capital
Derrick Wenger – Jefferies & Co.
Colin Langan – UBS
Presentation
Operator
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Good morning, and welcome to the Sonic Automotive first quarter earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer period. (Operator instructions) As a reminder ladies and gentlemen, this call is being recorded, today, April 27, 2010.
Presentation materials, which management will be reviewing on the conference call, can be accessed on the company’s Web site at www.sonicautomotive.com by clicking on the ‘For Investors’ tab and choosing webcast and presentation on the left side of the monitor.
At this time, I would like to refer to the Safe Harbor statement under the Private Securities Litigation Reform Act of 1995. During this conference call, management may discuss financial projection, information or expectations about the company’s products or markets, or otherwise make statements about the future.
Such statements are forward-looking and subject to a number of risks and uncertainties that could cause actual results to differ materially from those statements made. These risks and uncertainties are detailed in the company’s filings with the Securities and Exchange Commission. Thank you.
I would now like to introduce Mr. Scott Smith, Co-Founder and President of Sonic Automotive. Mr. Smith, you may begin your conference.
Scott Smith
Great. Thank you. Good morning, ladies and gentlemen. I am Scott Smith, the company’s President, Chief Strategic Officer and Co-Founder. Welcome to Sonic Automotive’s first quarter 2010 earnings conference call.
Joining me on the call today are the company’s Vice President, David Smith; Vice Chairman and Chief Financial Officer, Dave Cosper; our Executive Vice President of Operations, Jeff Dyke; Rachel Richards, our Vice President of Retail Strategy; and Greg Young, our Vice President of Finance.
If you please turn to the first slide. Today, I will discuss an overview of the quarter, and then turn the call over to Dave for a more detailed financial review. Jeff Dyke will follow Dave and give an update on our operational trends, and then I will summarize and make closing comments and we will open the call for your questions.
If you turn to the slide, Overall Results – Q1; at Sonic Automotive, we are building one of the best companies in America to work and shop. We have a culture focused on making associate satisfaction our number one priority. We believe that happy associates lead to happy customers and higher returns for our shareholders.
One year ago, in the first quarter of 2009, we launched a large-scale plan to improve communications with our associates and reduced our associate turnover. In 2008, our total annual associate turnover was 56%. Today, we are tracking less than 25% with our long-term goal of being less than 15%.
With lower turnover, our training and playbooks are gaining traction and our execution is improving. We ended 2009 with 83% of our dealership exceeding national averages for their respective manufacturers and customer satisfaction scores. Our goal is to have all of our dealerships exceed national average in CSI.
Operating results for the quarter continued to prove the validity of what we are doing at Sonic Automotive. Our overall revenue was up 13% with every one of our departments seeing increases year over year. Our new business, both volume and margin, was up nicely over the prior year as we saw an increase in the new vehicle SAAR environment.
New vehicle revenue growth was nearly 14%, was driven by 10% increase in volume and a 4% increase in the average selling price. Our used fit business continues to grow as our operational playbook continues to become an ingrained process in all of our stores. Used vehicle volume was up 25% over last year, and this is against comps that were significantly stronger than the rest of the peer group.
Our used to new ratio was at 1 to 1 for the quarter, a period where the new vehicle volume was also growing. Our parts and service revenue was up 3% with a 70 basis point improvement in margin, our fixed ops benefited from manufacturer recalls from the quarter. Our customer pay business was up approximately 3%, and Jeff will discuss further the trends in this area of the business.
I would remind you that we are in the very early stages of our playbook rollout for fixed operations, and we fully expect improvement in this area over the remainder of the year. David will have more color on our overall profitability and our SG&A levels, but I do want make a few comments briefly on our expense structure.
Majority of our SG&A-to-gross increase came in the variable compensation line. We indicated over the course of last year that we are approaching the business and our compensation practices differently than our peer group. You saw a slower-than-expected start to the quarter in January as we had a hangover from a huge December, but overall I'm very pleased with our performance as we saw our SG&A numbers come more in line with our expectations as the quarter progressed with over a 200 basis point improvement year over year for March.
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