Sonic Automotive, Inc. (

SAH

)

Q2 2011 Earnings Call

July 26, 2011 11:00 am ET

Executives

David P. Cosper – Vice Chairman and Chief Financial Officer

David Smith – Executive Vice President and Director

Jeff Dyke – Executive Vice President, Operations

Analysts

John Murphy – Bank of America Merrill Lynch

Colin Langan – UBS

Scott Stember – Sidoti & Company

Rick Nelson – Stephens Inc.

Clint Fendley – Davenport

Joe Overby – Auto Remarketing

Presentation

Operator

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Operator: Good morning, and welcome to the Sonic Automotive Second 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, Tuesday, July 26, 2011.

Presentation materials, which management will be reviewing on 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 Webcast and Presentations.

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 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 the statements made. These risks and uncertainties are detailed in the company’s filings with the Securities and Exchange Commission.

Thank you. I’d now like to introduce Mr. Dave Cosper, Chief Financial Officer of Sonic Automotive. Mr. Cosper, you may begin your conference.

David P. Cosper

Thank you. Good morning, ladies and gentlemen. I’m Dave Cosper, CFO of Sonic Automotive. Welcome to our second quarter 2011 conference call. Joining me on the call today are the company’s Executive Vice President of Operations, Jeff Dyke; our Executive Vice President, David Smith; and Greg Young, our Vice President of Finance.

Today, I’ll provide comments on our financial results, and Jeff Dyke will tell you about our strong performance in our operations. Scott Smith is on a plane returning from Europe. So, I’d like to turn the call over to David Smith to provide an overview for the quarter. David?

David Smith

Thank you, Dave, and good morning everyone. Our second quarter results reflected continuing recovery in the retail automotive sector, combined with our focus on further implementing our operating playbook strategy in every area of our business.

Our EPS from continuing operations was $0.37 per share. We saw strong growth across all of our business lines. Our new vehicle retail volume was up 15% over Q2 of last year, which again outpaced the industry growth. Even with some inventory challenges in our Japanese brands, our non-luxury import retail volume was also up 15%. Our used volume grew 11%, which marks the ninth quarter in a row of double-digit growth in this core area of our business.

Our Parts and Service business continues to grow steadily with revenue up nearly 6% over the second quarter of last year. SG&A as a percentage of gross profit hit 77.6% was a 230 basis point improvement over the second quarter of last year, as a result of strong gross profit dollar growth and our focus on following through on the commitments we made to you over the course of last year. Dave will have more color on the finalization of our credit facilities, but I do want to say thank you to all of our banking and manufacturer captive lending partners. With the new five-year credit facility in place, we have the financing and flexibility to continue our strategic focus of growing our base business, owning our real estate, and reducing our non-mortgage debt.

With that, I’ll turn the call back over to Dave to provide more color on the financial results. Dave?

David P. Cosper

Thanks, David. This slide shows financial results for the second quarter compared with the year ago. Revenue was just shy of $2 billion for the quarter, up 14% from last year and operating profit was $59 million, up 23%. We saw further improvement in our interest expense and I’ll talk more about our plans to reduce debt even more.

After-tax earnings from continuing operations were $22 million, more than double the year ago results, excluding the debt called premium from last year’s results, earnings were up 59%. As David mentioned, earnings per share from continuing ops was $0.37. There is a small loss in disc ops of $800,000 after-tax, primarily rent charges and sold stores, we have no stores for sale and no stores are included in discontinued operations.

As you’ll recall, on our last call, we held EPS guidance for the year at $1.18 to $1.28 notwithstanding the shortage of product from our Japanese manufacturers. We believe the impacts of the product shortages will be most acute in July and into August and then begin to improve. As a result, for now, we’re continuing to hold our EPS guidance at $1.18 to $1.28 a share.

Next slide, please. The slide shows our trend of cost performance. As David mentioned, we hit 77.6% SG&A to gross profit for the quarter, lowest level we’ve seen since early 2008 and of course the industry was much stronger then than it is today. You can see on the slide that our gross profit increased to $310 million in the second quarter, up from $266 million in early 2010, an increase of $44 million. Costs for that period increased $19 million, are only 43% of the increase in growth. We’re getting good leverage on our cost base.

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