Q1 2020 Earnings Call
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Yes.
Good morning, and welcome to the Sonic Automotive first quarter 2020 earnings Conference call. This conference call is being recorded today Thursday April Thirtyth 2020.
Situation materials, which management will be reviewing on the conference call can be accessed the company's website at <unk> IR Sonic automotive dot com.
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 projections information or expectations about the company's products or market or other otherwise make statements about the future.
Statements are forward looking and subject to a number of risk and uncertainties that could cause actual results to differ materially from the statements me.
These risks and uncertainties are detailed in the company's filing with the security in Exchange Commission.
In addition management may discuss certain non-GAAP financial measures as defined by the Securities Exchange Commission.
Please refer to the non-GAAP.
Reconciliation tables in the company's current report on form 8-K filed with the Securities and Exchange Commission yesterday, I would now like to introduce Mr. David Smith.
Sonic and Echopark, Chief Executive Officer, Mr. Smith, you May begin your conference.
Thank you very much and good morning, everyone and welcome to Sonic Automotive's first quarter 2020 earnings call.
Again on David's let's cover the CEO joining me on the call today.
The President Jeff Dyke, our CFO Heath Byrd in our executive VP of operations camping.
Today in addition to discussing our large from the first quarter 2020, ultra provide a business update with respect to the co. The 19 pandemic and our outlook for the remainder of 2020 and beyond.
After that we'll be it will be we'll be happy to take your questions.
We continued to see our record 20, not seen performance carry over well into the first quarter 2020.
Our earnings press release, and Investor presentation discuss our first quarter results in great detail.
Well, it's not our normal practice.
<unk> for more information on our operating performance in the first two months of the quarter before we begin.
Before we began to see the impact because of 19 pandemic on our business.
Then I'll talk about how that has changed in recent weeks.
During the first two months of 2020.
Same store total revenues increased 17% versus the comparable to more peering to 29 team.
Isn't barring an 11% increase in new vehicle unit sales volume.
27% increase in used vehicle unit sales volume and an 8% increase and fix operations revenues.
Additionally, echopark revenues grew by 61% in the first two months of the year and was on pace to retail over 16000 vehicles for the first quarter.
Well, we all know the world has changed dramatically since that time I think this information is very important does it speaks to the strength of our business and the momentum we carried over from 2019.
Sonic automotive and Echopark has been built for the long term.
We have a seasoned team that has already overcome prior historic challenges like the financial crisis or more than a decade ago.
Well the effect of the code 19 pandemic.
I had a sudden and severe impact on the global economy.
Our team and our business or in a position to recover quickly and continue on our path to achieving our long term goal $20 billion and total annual revenues this decade.
Of course, we cannot ignore the reality, we are facing in the near term.
Pandemic is having a widespread effect on the automotive industry as a whole.
On the parts suppliers to the Oems.
To the dealers and to the consumers.
Our team has been working day goodbye.
During all aspects of our business and making operational changes as necessary and we will continue to do so as the situation evolves.
As you know from the day to cope with 19 pandemic was declared many areas across the country and I can stay at home orders, which significantly reduced consumer traffic at our stores.
During this period, our overall vehicle sales volumes fell roughly 40% compared the prior year.
Customer facing parts and service gross profit decreased 15%.
During the same period and experienced nearly 40% year over year declines in early April that's more states declared stay at her waters.
In the past we closed the year over year vehicle sales declines have improved to roughly 30% with used vehicle sales being slightly more resilient the new vehicle sales.
Parts and service gross has also improved over the past week.
States begin to relax their state of waters.
Summers begin to return for delayed repair and maintenance work.
The Investor presentation, we posted yesterday includes several slides on our outlook for the rest of 2020.
Which we believe will recover to our original expectations sometime during the third quarter.
Now returning to the first quarter.
I'd like to briefly mentioned some operating highlights and other notable items which include.
All time record quarterly Echopark revenues of $332 million, which was up 33% from the first quarter of 29 team.
We also had record echopark retail volume of nearly 14000 units, which is up 27% from the first quarter 2019.
Yeah at Echopark segment income of 2.1 million, which was in line with the first quarter 20 not too.
Our franchise segment income of $22.8 million was up 9% from the first quarter, putting my team.
We had a 0.8% increase in franchise same store gross profit.
Despite lower vehicle sales volume.
Two point per cent decrease in same store revenue.
We had an all time record quarterly up in our gross profit gross profit per unit of 1800 $85 on a total saw on a consolidated basis.
Our adjusted as to you need to gross profit was 18.5%.
The first quarter 2020, well just 40 basis points from the first quarter of 29 team.
Our adjusted EPS from continuing operations 40 cents.
The first quarter 2020.
Pair to 39 cents for the first quarter 29 team.
A quick available liquidity is $418 million.
An increase from $311 million as of March 31st and up from 280 million as of December 31st 29 team.
As described in our press release during the first quarter 2020, we were required to recognize a non cash that's non cash goodwill impairment charge of $268 million as a result of the decrease in the company stock price to $13.28 on March.
31st due to the covert 19 pandemics effect on the overall stock market.
We note that this non cash impairment charges not indicative is not indicative of Sonics current financial position financial outlook.
Or long term prospects for French fries dealerships for Echopark.
For more information on our first quarter results.
Your press release, an investor presentation that were posted yesterday, and we will be happy to expand on that.
And the Q and a portion of this call.
What's most important.
At Sonic at Echopark is that we continue to ensure the health and safety of our guests and teammates since this pandemic began we've implemented processes to ensure that first responders and others responsible for providing essential services.
Tended to have access to state just straight for libel transportation.
In addition to the enhanced health and safety procedures described in our press release, we're also providing complimentary disinfection services for first responders and no contract vehicle pickup and delivery services for our service guests.
Many of our self departments have transitioned to a virtual no contact purchase experience.
Allowing our guest to complete a vehicle purchase from the comfort their own home and take delivery that vehicle and their driveway.
We recognize the importance of continuity and stability during these challenging times and we have put great thought into how we can best provide this for our guests our teammates and our business partners.
We continue to monitor new developments related to covert 19, NB ventral reopening of our nations economy on a daily basis.
While we have taken the actions necessary to managing short term challenges.
It's very important direct knowledge that we have always focused on a long term plan for our business.
When this pandemic first began sonic already had many of the systems in place to operate in the current environment.
We have executed our crisis preparedness plan, allowing us to migrate to a working structure that facilitates enhanced safety and productivity.
With all systems and operations functioning seamlessly.
In addition, we have taken prudent although some very difficult an unfortunate measures to fortify our business, while reducing our expenses to match the current environment.
This includes a 33% reduction current headcount.
Freezing of new hires reducing advertising other operating expenses.
Ensuring we have continued access to additional resources of liquidity and postponing certain capital expenditures.
Despite significantly reducing our planned capital expenditures.
We expect to be able to move ahead with some key strategic projects such as our new Echopark sworn Tampa, Florida, which successfully opened last week.
We also plan to open to more Echopark stores later this year, bringing our total to 12 locations nationwide by the end of year.
While we are focused on our capital expenditure levels near term, we continued to execute on our growth plans for Echopark and believe the low initial capital outlays and flexibility of the model will allow us to continue to grow as planned.
We have also taken several proactive steps to bolster our liquidity position.
Provide additional financial flexibility and shrink that our balance sheet, including drawing down $210 million of additional funds on a revolving credit facility in March of this year.
And maximizing availability under other borrowing facilities in order to prepare our business for the worse if needed.
Our liquidity currently stands as I mentioned, a $418 billion, which is up nearly 50% from the end of 29 team.
In closing, we are prepared to safely and efficiently operate in the current.
Garment and we've taken practical actions to position the business for the future.
We believe that we have the financial resources in place to manage these near term challenges.
And to quickly recover.
With normal commerce resumes as early as the third quarter of this year.
Lastly, before we go to questions I'd like to thank each of our teammates for their extraordinary efforts continued dedication and commitment to sonic and Echopark and to their fellow teammates into our guests.
We believe that our team will be able to manage through this challenge and emerged from a pandemic as an even stronger company M. team then we were before.
Special Thanks to our manufacturer partners finance partners and vendors for your unwavering support and teamwork.
This concludes our opening remarks, now and we'll be happy to take your questions.
To ask a question you want me to press Star one on your telephone.
In press the pound.
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Your first question is from Rick Nelson with Stephens.
Hi.
Good morning.
[laughter] covered them Ford counts are you guys aren't as her.
Just trying to build through our returns.
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Levels narrow July August or time frame.
No seems like where like reader.
Hi, unemployment or.
Potential for fewer miles driven or if you could you discuss factors.
Her dry or contrived airport care.
She with this is Jeff Dyke, we put together and we do this in a daily basis, it's a pretty fluid situation as you understand that we put together and update our forecast everyday.
And the good news is is that we have not yet missed one of our forecast numbers that we put together whether it's for new car ballgame used on the franchise side, the echopark volume or fixed operations.
That's all tracking along that guidelines.
The slides that we put together for you guys to take us out through the end of the year.
We believe that we're well positioned in particularly a decade park.
Our day supply both on the franchise, Saudi and I could talk is still sitting in the 30 day range like it was pre k. did and so as prices are dropping inventories are growing and all pricing model. We think we're well positioned to take advantage of that opportunity as it comes along.
And so while there or unemployment numbers out there that are sky rocketing.
That we've seen a we believe there our forecasts or accurate, but they are going to be updated daily.
And so what we plan on doing for the month of April for the month of make and for them up at June is we'll issue an 8-K and will provide those charts updated monthly for you. So you can see how we're tracking against.
Our forecast that we put out there, but we have a high level of confidence on where we are and like I said, we're tracking this daily yesterday. It was a great day for US we were actually up in new car volume over prior year were actually up at Echopark over prior year argues for volume was down about 4.9% and so each day. It just continue.
I used to get better you had started its and its you know across all of our business lines and it's just going to be a slow you up between now and the end of June and we're hopeful that by the time, we get to July there will be performing at or above the guidelines that we put out there for you.
Card carriage, though [laughter] will be helpful [laughter], David or the group or curios.
How are you see consumer behavior.
Turning to screen here on the others Harvard covert.
Put together a complaint I'm sorry.
Our interest, earning but [laughter], how do you see that consumer Uh huh.
Yeah, that's hard to though.
You know, it's it's Jeff again this is real interesting right now about 15% of our business, we're delivering at home and the no contact process from a sales perspective, both on the Echo Park and the Sonic solid and it's about 7% of our overall warranty and C.P.R.A. Ken.
Pickup and delivery for service and so we believe that it's going to be in that range for the foreseeable future maybe grow a little bit, but yeah. It's hard to tell the consumers still coming to the store to pick up a car and we've got a new content delivery process. It's a it's a dealership.
It all the dealerships for sales and service, but interestingly enough even doing pay that even during this time, the consumer still telling us what we want to come to the store to pick your car. It doesn't mean that were not offerings service to bring it to your home, we're offering that service free of charge across the board and it's still less than 20% in our on our sell side analyst.
And 10% on the service side, so it seems like the consumer still wants to.
Come to the store to shop, the vehicle looked at the vehicle.
I would get out of the house to be quite honest with you with all the stay at home orders have been in place. So I expect that you know I was hoping was weight was less than 2% far going indicated and so it's up significantly but I'm not sure Im sure that that's gonna grow more than that is we come out of this pandemic.
No no David Yeah, we've been looking out and we think that you know the the airline industry is going to take a little longer.
Recovered and people are going to be a little more hesitant to fly and I saw report yesterday, you think it maybe three years before the airline industry gets back to pre k. the levels and so and then number of other reasons. We think there's lot of people are going to want.
Transportation, rather than and they're going to want to drive rather than fly, but then also using car sharing services all that they're going to rather have their own vehicle. We think that that's going to be an interesting thing to watch and that a lot of people well just prefer to have their own car than than a lot of the discussion about that the whole world was going to <unk>.
Our sharing or we just don't believe that.
In regards he he just.
You know as Jeff mentioned about the home delivery and the pickup and delivery on service you know it's interesting that we haven't let a good prices did waged here and we've evolved and we do believe.
There is albeit it's the team less than 20% of our current customer base, but we are formalizing that service and so the future Sonic automotive, we will be providing that service of home delivery. If that is what the consumer wants to we'd be ball with and put that product.
Out there I'm just to add to our offering and working with Jeff again, one of the things that happened out of all this is we went ahead and launched our car cash half across the entire country in our car cash App is now representing almost 30% of our overall appraisals.
Which is fantastic right the consumers get their home appraising their vehicle and that surprised it's working out way better I didn't even anticipated shaped faster than it's been launched once a week ago Monday and already representing that much of our overall appraisal base. So we're very excited about that being part of the services that we offer.
To do home delivery, if it's needed.
Great [laughter] <unk>, Clair acquires echopark called terrible offerings.
[music].
Yes.
Okay Yeah.
Yes to clarify Rick that we prior to the crisis, we echopark did not deliver.
Exactly yeah.
So oh, Yeah, Hi, <unk> no final question on mode.
Head count reduction from Carter, you Creepers parents, [laughter], Paris, <unk>, GAAP collar terms or our headcount.
Robert.
The whole Horn mountain <unk> how much.
That reduction do you care to be permanent.
That's a great question up to 33% 1200, eight I think is the is the recent number they were those were terminated.
West or follow I'm, a little over 3000.
Right around 3000 total.
And when you look at what we think is gonna be permanent we saved anywhere between 14 and 15 million a month overall when you include advertising other loaner cars you name it the head count.
I think that number is gonna be somewhere permanent in the 7 million range, we're going to bring back all the full load the 1700, furloughed associates or teammates and that's not that's going to be a slow a drip it's going to be stuck between now we're starting something now and we think we'll bring back all of our furloughed associates by the end of June.
Great.
Thanks, Good luck.
Thank you so much.
Your next question is from <unk>.
The Morgan.
Hi, Good morning, guys and thanks for taking my questions I agree we really appreciate all the detailed a detailed church and the in the slide deck no or just based on your forecast you never for new used in fixed.
For two to answer the rest of the or.
And also you know given you've taken some permanent expense reductions.
What kind of edge you need to grow Spracklen level are you now anticipating what are your could you give us a range or in some sense was far where that could or would that could land.
And I'm sure.
I think it'd be helpful. It's I'll walk through you know where we are in how we relate now with the with the graphs that we've provided and give you sort of a walk of how we see Q2 coming out. So you start on slide 45 on the franchise new vehicle.
Units now keep in mind, we've not close out April but we wanted to give you an idea where we are all right. Now you know our April new units were down 40%.
Approximately 4700 units now you'll notice that the graph is at 41 66 give or take and so we actually are headed that forecast. This forecast was down approximately we did 10 days ago and that's precisely why we want to provide you updates as we close out the month do an 8-K. So did you have that so.
There were already ahead of that forecast and on the GPU were down approximately 300 per unit on the franchise news.
On slide 46 on the franchise used.
Actual down 30% year over year in April.
The graph and is basically indicating that so were in line with that forecast an upfront GPU is down about 8000 Bucks.
If you look at our ethanol.
The blended for new and used is off about $100.
[noise], but yeah. So this is Jeff one comment on the pre owned GPU, we as you know and we've talked about this a lot in our inventory management skill sets. We reached a strategically dropped out pricing about two weeks ago to blow out sitting inventory. So we didn't.
Have a bunch of water in the inventory coming out of the second quarter and showed a week if you'll see we went into coping with a 30 day supply on the franchise had approximately and we're still sitting in a 30 day supply, which positions us to be able to buy inventory at a much lower price and replace inventory to lower price. So.
This week as we come out of Canada, All Gpus will go up and we'll make up that definitely expect to keep inventory stale inventory just sitting with high prices to AOS made no sense. So we strategically dropped our GPU in order to do that.
And clean inventories up so we are sitting.
In great shape from an inventory perspective, which is key critical coming out of Colgate because of the supply demand, it's going to be on the street over the next few weeks maybe the next month beat you want to go back on to Slide if you look at slide 47. This is our echopark used units on for April were down about 30% year over year.
The graph illustrates they were down further so we're actually had of that forecast actually was about 2800. The graph indicates about 2300. So we actually are doing better than the grass in April again hasn't closed yet GP is down about the front ends down about.
700, and de Ethanizer component is down about 100.
So on Echo Park, we expect approximately 3 million dollar lawlessness the store level offer April but keep in mind as Threed for me in corporate expenses that are associated with Echo park as well and on the franchise level from a from a store level loss were expecting somewhere in the 12.
Billion dollar range. So when you look at April May and June loss of about 20 million for April may is going to be about half of that loss it'll be better.
Then in April and June back to profitability break, even a little better than that so that's how you guys. It shouldn't look it's a quarter and how we're building the quarter against these slides and then as we put the 8-K that each month you can see if we're trending ahead or below our original projections that we have on the slides today and we'll make that very clear.
So that you can easily gauge.
How we're producing against those forecasts.
Exactly.
Just to finalize that the you know indeed, a fixed yeah, we are down about 40% in April as.
Just a syndicated approximately $15 million store level loss and keep in mind. You know you guys have seen our liquidity number were very strong from liquidity standpoint.
Try to factor in our burn rate is basically that store level loss plus million Bucks and so were very strong from a liquidity standpoint, and as Jeff just mentioned as well.
Last week 20 million overall pre tax loss in April about half that in May and then breakeven or better in June is our forecast for Q2.
That does that that's amazing color are really appreciate that and then just just to go you know a follow up on Rick's question earlier.
Given right unemployment levels are and you know what what some forecast started out there for the rest of the ER and the fact that.
You are youre, reducing prices, you're going to use side to disappeared and rent dreaming is there any risk that.
It could have been some pull forward here in demand were yeah. There is there some rhythm doctrine that you see or are you feel pretty comfortable over the forecast right now no. We feel very comfortable with the forecast in particular with Echopark echopark could not be better positioned. This is the exact kinda position, but at echopark showing up.
Hi, Dan at low prices on on used inventory huge supplies of used truck inventory, especially in the one to four year old model and then our pricing structure remember we discount those prices for what we're buying and for all the way down we're selling and basically pauls and making our money in the economic side, our ethanol performance has been exceptional through this.
We set our highest ever not quarter ever and so when you when you add all that together, but the way that we manage inventory the way that we price having fresh inventory on the law versus having stale inventory since we got rid of all the inventory when you put all that together, it's nirvana for Echopark and used car business and the franchise side.
This is well, it's very difficult situation for our industry.
It's a silver lining because our business model thrives in this kind of environment as we come out of it and so its going to be a great right. Once we get through you know what quite honestly, which is a bit of a shift show in April and May.
Got it and then this is David Smith, and you Gotta keep in mind to the this the dark.
Our projections do not we don't.
Count any kind of government stimulus that may come about their center, there's a lot of discussion about that but our numbers do not reflect that so that would just be.
Icing on the cake, if we can get something like a cash for clunkers or something like that.
Got it got it.
So much where the dollar and best of luck I'll get back in queue. Thanks.
Thank you so much thank you.
Your next question is from our Mantis cabbages with Morgan Stanley.
Great. Thank you for taking the question.
Parts and services you know was a was underperforming due in use in January February then outperforming in March and you have it coming back to the original forecast a month later than the new and used in July can you walk me through the dynamics of parts and services why it underperformed in the first couple of.
On outperforming now and why it will take longer to get back to the original forecast.
Yes. Good question. So one of the things that we had done if you. If you really think about it all throughout 2019, we'd sort of lack of the industry in terms of our overall parts and service business and if you will see in the first quarter, RCP, and especially January and February our customer pay business in our overall.
Our gross for the business was really improving above what we have traditionally been running up 8% I think in total and maybe double digit up 12% in customer pay for the first quarter.
We believe that there's going to be okay. Good of a lag from.
Manufacturer production at Forbes.
Throughout this co good environment for the next 90 days or so and so with that being said, we think that there's another 30 days or so of last week with parts and service now there could be a build up there on we're ahead of our pace here. The last few days and so we'll see but we're trying to be conservative.
In terms of this model. So we don't put ourselves in a position, where we're giving yourself any more color that you know 60 90 days from now on adjusting if there hasn't been any major moves with Coca Cola <unk> with negative news and so it could come back or Memphis, a little sooner than that but all of our projections show that you know it's going to be it.
30 day lag in terms of the volume remember our overall volume numbers, we really or aggressive in terms of how we price, especially on the free on side and it just gives us a little faster be up on were not as aggressive on the part side in the surface out as we are on the volume side. So.
Could be a little faster, but those are our projections for now.
Okay and then the other question is.
With chronic viral being sort of an equal opportunity buyers with people staying home that you're getting new use and presumably our thought process here was parts and services as well just because of people aren't leaving their home, they're not leaving home.
What did you see that.
You know help drive that better than you know vehicle sales.
Maybe.
So if it.
Yes, it's certainly it's certainly could be there's in this tenant demand there as well so you might get a little spike is as we move forward.
There is also are pickup and delivery service how much of that ends up being a role in this as we move forward in the consumer gets a little bit more comfortable that cove, it's not a death sentence.
And they can actually kind of the store you know, it's it's a very fluid situation. So we are offering disinfecting services and doing a lot of things for the first responders and were fleet, we're giving free disinfecting services to drive traffic into our stores, let them know our brand let them know we are.
Welcome to Echopark side, and the grandchild side.
But again, it's a it's a it's such a fluid situation and that's why keep leaning back on our forecast. We're just taking data looking at where we are what we think's going to happen.
Opportunity, there, but right now and we'll update like I said, we see a case, we'll update you if it ends up being better than what we're forecasting that's fantastic.
Okay much appreciated.
[laughter].
Your next question is from John Murphy with Bank of America.
Good morning, guys and thanks for all the details is incredibly helpful. I just wanted to follow up on the UGI using it in pricing.
I mean for Echopark me, Jeff I get the idea that you kind of have.
Much faster sort of flywheel gear of more and more volume on the you cited is going to get a ton coming at you which is great. If your reasonably agnostic use equal pricing like you will be because you'll turn inventory quickly, but that pressure on on used pricing does have some really big implications for the new vehicle side, meaning the trading values are lower so more consumers rough.
So down on their loans, a residual assumptions are that much lower.
Our leases so it's tough to get people into new leases. So I mean, how do you how do you think about that pressure on used pricing.
Which undoubtedly will come we'll see how long that last before the new vehicle side of the business and I know, you're being pretty optimistic and I hope you're right about sort of the recovery in the third and fourth quarter, but just seems like the constant events, particularly as president musical pricing went limit that that recovery.
Let's break it down into two buckets, and let's look at Echopark force liberate echopark, 90% to 95% of our of our purchases were made at auction.
So that's just a built in dip down coming forward to have.
On the way we go Doug So so let's put echopark on the side movie ever to be Oh, yes, yes, there's going to be pressure I mean, the Oems have you know consumer sitting in.
And at least return vehicles that they're driving for free or half price when incremental 90 days, so there's going to be a glut of inventory coming off lease.
And that's a situation that we're going to have to deal with it is going to put pressure.
On used vehicle prices on trade valuations, but remember the manufacturers at some point gergen, they've gotten model. Your 19 model. Your 20 in model you were 21 coming they're going to close them real have you know model. Your 20, they're going to put a ton of incentives out there to blow that inventory out and they're not producing any calls right now and all I will give them a lot of credit in years past.
I would still be producing cars.
There are shut down and I think more than ever now they understand not the flood the market Nucor inventory coming out. So I think it's going to not be it's bad is a lot are predicting from a new car perspective, which will not make the used car pricing so bad right and so there's going to be support from the manufacturers.
Thing out of this I do agree with you a 100% there's got to be pressure on on used for valuations and I think the car model and puts us in a position to take advantage of that spoken to franchise side and on the Echopark side and really on the franchise side one of the things that we're learning as we lowered our prices.
On our freedom course franchise, and our volume spiked up I mean, when I tell you we lowered our prices on one day. The very next day, our volume started spiking up over prior year, it's staying there and and well a lot better than it was just not above prior year, it's a lot better than what we were trending because were down 40% to 50% now we're running down.
You know yesterday, it was 4.9% and shows.
Worrying about pricing goes towards maybe a little more aggressively on the franchise side as well to continue to drive volume and take advantage of the really improving effient high numbers. There we're seeing on the French on site and so I agree with you there's got to be pressure. There. We're gonna have to deal with it we're going to manufacture support BMW is out there with a zero point.
9% interesting certified units now that's helping out alone.
And so we're gonna have to deal with it wasn't as inventory in particular for the next hundred 2800, 80 days and they're going to be pressure there on margins.
We can't avoid Oh.
Okay, and then maybe kind of the other side of that is it's going to take some time to these guys to get up and running even if they were to start you know today.
Sort of your assumptions that it seems like you're going to have a one to two month running start ups clearing inventory on the new vehicle side before you start getting a lotta deliveries back in so I mean is there is there any point as you're thinking about this because you do have a reasonably optimistic outlook for new vehicle sales, where you think you're trying to figure out where at what point in time, you might end up being short.
I think inventory I know it sounds like an odd question at the moment, but if they're not turned on all the way on production and all the sudden your sales or rocking and rolling reasonably well you to clear out some of this inventory reasonably quickly and be caught short I know, it's a bizarre way to think about things, but that will be the other side equation. How do you think about that.
It's not bizarre in this matter, but one of things I'm worried about is that China is moving up.
In terms of their volume and there were several manufactured for just a lot of cars in the U.S. It go to China Theyre going to go there first.
And so.
It's a very very good smart question at the at the end of the day, we're sitting on an 86 day supply Nucor inventory at the end of March that day supply number just just by virtue of lower sales in April is going to be even higher I'm not so certainly we don't have enough nucor inventory now from a solid perspective to get us through.
And.
We'll have to kind of played out when by here right now based on how we're tracking every day, what we're selling versus prior year. Our models indicate what what's on that graph and it's a very fluid situation with what you're talking about and that's why we thought it was a really good idea. So why did you guys with an 8-K those charts each month. So can you.
You can't see yeah. These items came into play and the new car volumes actually lower because were short supply, which could be just if you say.
An unusual situation or no we actually had enough to supply to get us through and we're looking at or above our projections now.
Okay. That's very helpful. And this is just lastly on parts and service it sounds like at some point the deferred maintenance will come through you have a lot of debt batteries lot tires replace oil change the do is going to be a pretty big bounce at some point when it comes third or fourth quarter fully debatable, but if you think about your man's depend.
City at the moment and as you get into those moments when you're seeing this real bounce.
Where do you think the governor or don't limit on that capacity may be like we think about the third and fourth quarter and everything is working well can you handle up 10% same store on a year over year base or 15, or 20% and then as we think about this overtime, we have a ton of people at work now in the United States somewhat some who won't be higher back.
Can you retrain and have a better sort of pipeline of tax now that could help you ultimately really kind of makes this an even stronger secular story growing sparking service.
On the scope it.
Crisis, we're in.
Yes. So you know we were running up in that kind of range in the first quarter January February we're already up 12% in handling that easily we could we can handle the 20% increase.
And we can run multi shifts with a lot of things that we can do and be flexible all in our environment to handle that kind of increase so.
Im not too concerned about that yes, there was a tech shortage going into the killed it right. We could have hired another under technicians at Sonic and filled our base.
More and we're always alkar effects, the number one position that well trying to hire on a continuous basis. So.
It's certainly yeah, it will be a welcome.
I'm looking forward to the day that there is that many customers that are out there and we're certainly prepared to handle that kind of increased if it comes our way in this David Smith and since you guys you got to keep in mind, obviously is as its customers come in as we're talking about earlier, if they're not happy with the trade appraisals.
Good they're going as they're going to fix their car we've seen this in previous.
And the price is 10 years ago, where people were I think they didnt trader card and they're going to get in service we have that.
And obviously, there's a higher margin in that but I also think that people do understand because it's such a.
Global crisis, well known that people are understanding their cars are worth less which I think is reflecting in our in our appraisals number of trades were actually doing yes. He that's a great point, David just made if you look can you guys know we have our retail trade center and we're looking at appraisals everyday arc, our trade appraisal percentage right now or work.
For the month of April so far a month to date from this morning's report was 52.8%, but I've ever tank cars, we trade for 5.2 cars, that's really not that far below that we normally run which as you know from 55% to 60% and so you know the consumer is adjusting right and we're gonna have to adjust because there's going to be.
So many cars out on the marketplace. It if they're not going to trade there further going to fix it and we're just we're sitting in a great position and then there's echopark who buys all their cars at the auction at the lower prices and then like I've been saying all coal that's been a really let us take advantage of the marketplace. That's why we believe echopark is really in position maybe better than anybody.
Any other company out there to take advantage of.
This opportunity that's in front of us.
One quick last one on Oct. What you just said I mean, it is the physical up still much more valuable to the online lead because you have that ability to ship them from a new to use to maybe just servicing their vehicle I mean, as you think about them and you don't nationally when everybody go online because that fiscal up just gives you a lot more opportunity to work to customer.
Yes sure at the end of the then we'd like to have the customer before.
You know it's been it many times when a customer comes to the store and they look at one car and end up buying another and.
There's a lot of programs out there with the manufacturers from the BMW.
<unk>, 0.9% financing to the financing that they get owning a loaner cars that we sell you know kind on the new car side Theres all kinds of different things. So having them you know what the store is much prefer evil plot. Our system is flexible enough and we've really built a great no contact delivery process and we had the technology already to make that.
Happen.
Like with our car catch up that we can handle it if they if they want to be at home, we handle it either way, but unquestionably, we'd rather haven't come to the source.
Great. Thank you very much guys.
Thank you.
Your next question is from Michael Ward with benchmark.
Thank you good morning.
So one clinical signage what percentage of your.
Used vehicle sales at the franchise.
Segment or CPL.
It's low it's.
Less than 30% somewhere somewhere in there, 25% to 30% compared to 30%. Okay. No has historically been aggressive in sign ups on CPR vehicles.
No that's probably the first time I've seen and we really lobbies with BMW I've got to give them all the credit in the world.
They have done a fantastic job supporting their dealer body. That's the first time I've seen a 0.9 in a decade, maybe that kind of level and it just launched last Friday afternoon, I think across our auto 15, BMW stores, we done 50 to 100 somewhere in their sales that's going to grow rapidly as we.
Move through the next couple of weeks and so we're very excited about that remember there's a lot of off lease cars coming back a lot of BMW customers Mercedes customer still sitting in those awfully source of Europe. We're supposed to be returned 30 days ago, there's going to be a glut of inventory coming our way and any those incentives are going to help us retail those part yeah.
First retail deals can be better than your your best wholesale the only data that we that holds true for the retailers and the manufacturer. So the manufacturer they know they need to get us to take those off historic forces us sitting at that them to go to the auction and the more with programs. We can have like that the better off we're going to be.
And are you able to transfer if somebody brings into a BMW store.
Whatever Chevrolet are you able to take that Chevrolets trading Senator Chevy store for can be certified as a CEO vehicle.
100% in our systems actually this is we've had this or for well over a decade ours are our sonic inventory management system literally we'll look at a car coming in a Chevrolet coming in at a BMW store, California. It will add in transportation price all the cost the CPL costs in the system will all.
Them adequately move it to a shabby store, if we had the opportunity to make more grossing turned the corner faster. So that's that's all built into our system has been for a long time and we do that all the time.
So you should see that cptwo share ever used vehicle lines on the franchise side growth over the next.
It should if their programs out there to support yes right.
And this is David Smith and in that same vein. If there's if those vehicles that are getting traded in if they fit echopark bottle, we send their second park and Brian.
Okay. We pick we take all those cars that are booked four years old at Echopark and push them into Arsenal franchise stores, and that's where you've seen a lot of our lift last year on the franchise stores really growing from net hundred number per unit per month for rooftop up to 109, and we're in that ballpark a lot of that is because we take those two.
Rates that we don't sell at Echopark it pushed into our franchise stores.
And the Echopark side of it.
Based on your towards it looks like your inventories and very good shape relative to the to the industry and so you're going to have an opportunity.
East April May June probably.
Hi vehicles at auction at a much lower price or are you willing to trade margin gain market share for those echopark stores.
One thing.
Yes based on our ethanol performance 100 per se, but that's the whole model you got it right and so if we can you know blackcard thousand dollars cheaper, it's going to be priced a thousand dollars cheaper and we're going to gain that share and remember every one of those it goes out we're getting $21200 copy it up and I offer that included.
Makes it that makes a big difference that's why Echopark I mean, it's the model. What you. Just described that's why Echopark is sitting judiciously to come out of this and we think it's not just two or three months, it's going to it we're going to ride this way for a long period of time, because once you gain that share and they get to experience guest experience that's going to make a huge difference for us.
And this is David and one of things that we were seeing even before the pandemic was our ability to.
To expand Echopark and added at a much cheaper on number and investment than we were doing before and we're getting we think theres going to even greater opportunities in the future and you know you're looking at saving millions of dollars over our early echopark stores versus what we can.
Open at Echopark stores today, and then the timing it takes much much less time today to open at Echopark stores I didn't we first started so as you are some things that it's you'll be seeing as weak as we continue if you add onto that we're going to we're going to open at least two more stores as David said in his opening.
This year and those stores, a traditional echopark is $15 million to $20 million and Capex to open.
One of the stores that were opening is a store a facility that we already own that we've got a $2 million to $3 million that metric and so we're going to put in there in the stores going to just rocket right out of them right out of the shoes, we got another store that we own the will also open but it's a three to 4 million dollar investment.
And then there's a possibility of even getting a third one in late in the year. So we'll see kind of how all that goes and then we're trying to open.
Three to four stores for next year, and hopefully maybe more we'll see kind of how things how things progress.
I'll have to accelerate to get to that 24 store or 25 store goal right.
Oh, I'm, telling you and it's going to be a lot of Columbia there.
Absolutely. Thank you very much.
Thank you.
And as a reminder, ladies and gentlemen, if he would like to ask a question at this time simply press Star then the number one on your telephone keypad.
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We have an additional question in queue from Russia with JP Morgan.
Hey, Thanks for giving me back on the Q here just trying to.
A follow up question.
On the unit economics of the online sales forces the in store sales I mean, how different.
Total for where do you have seen so far in April and and also on the service I like how different are the margin profiles. Thanks.
Great thing, it's one of the things that we were concerned about us when you get on online sales what happens to your ethanol product sales and all that the great thing is there's been no difference we've been rolling right along our margins are the same so.
You know you add a little expense and for delivering the car, but we're figuring that into its becoming part of this sales associate or what we call an experienced got process. You know if they have to deliver a quarterly deliver the car taken nuber back.
And we follow all the social distancing, we disinfected par on site, we have a whole process that we go through in order to make that happen. So it's a true no contact delivery, including the paper work being done electronically. So the margins are there and that's a big learn out of this out of this crisis or that we were concerned about.
As we were contemplating moving more and more to doing some of those kind of things and doing online sales.
It just hasn't been a it has not been a detriment it's actually been the same as the buying a car in store and I think is a good point that we're not building a large expensive infrastructure for delivery, we're not buying trucks were actually utilizing as Jeff mentioned, you know the deep relationship with the sales associate they drive.
The vehicle over they do a no contact delivery and then they grew back so it's an incremental $20 to get them back to the store.
Got it got it and for the service side of things.
Hi, how are how are the economics on on the service and Fox Fox work.
It's the same for four or home service, Okay Yep, it's the same.
Got it.
This morning.
One last thing for online sale were getting about 90% of that transaction done in advance of the cost of even taking the car to the customer. So there's a lot of this stuff. It's done online that way ahead of time.
And there is some states it require still inc. The paper right. There is something that just have to be done the at Fedex until we get those walls changed.
Along with the transactions already completed so it's very seamless in how we go to market.
Got it that's Super helpful. Just one last one for me I mean on floor plan I mean, just given.
Where to LIBOR is right now and you know what the future curves are looking like like what.
What kind of Tailwinds are you baking in this year based on your.
Your sales forecast and the kind of inventory levels, you're gonna have to rest of year that will be all thanks.
Well, obviously, weve, where would you attribute that to keep the fed rates to near zero why bore is obviously correlated to that number and so we anticipate having continued to have a very low interest expense as it relates to poor plant and also because of our inventory capabilities. We run it's such a low.
Good day supply anyway.
But you know we buy the car transported recon it and sell it so fast that we're turning that inventory at Echopark 12 to almost 13 times a year, it's just flipping through and it's the same way. It's on it we literally are running sort of 20 day online supply and 10 day in recon in pipeline, if you will transportation of supply.
We stick to those guidelines very strictly that's why we're in such good position from an inventories perspective.
During the middle of all this while you see a lot of our competitors out there that 60, 70 80 day supply of inventory.
Just think but thats, a total train wreck and we just weren't going to allow that to happen our systems wouldn't allow that to happen inside of Sonic at Echopark.
Got it.
We are helpful. Thanks, Thanks for all the color on good luck.
Thank you.
Your next question is from Bret Jordan with Jefferies.
Good morning, guys think my Star one it right.
The question I guess I was having its.
Inventories depreciating in the volumes are down pretty dramatically. So maybe some of these independence or folks and a lot of inventory going to have it pretty rocky or do you think we come out of this with fewer total independent in a doors in the U.S vehicle space.
Beaming, meaning they're closing their doors, yes, yes, yes that this will put some people out of business or is this shaw, yes, not big enough or is there a business model flexible enough they survive it [noise].
Looking at the end of the day, if they got you never know if they ended up getting any SPJ money or not and that's that's a big deal the public the public's werent allowed to taking in the us Biennale SPJ money and so.
If they got the dollars inmates in the dollars the right way, maybe they can offset payroll that will eventually technology that they can use to depreciate inventory, but there's so much inventory out there in there. So many companies both public and non public that are just sitting on their inventory.
That there's going to be up it's going to be a great opportunity for us I'm, having a low day supply.
And it's going to be a big problem for a lot of dealers the mom and Pops are going to we're going to have issues. If they don't get any help that you're right. We're going to be a lot of door to close giving us more share opportunity. Yeah. This is Dan I guess.
Totally.
I agree with Jeff, There's there's no way that especially.
The next couple of months, what what we described is coming what we're dealing with here in the second quarter that there's there's going to be.
You know many dealers, who just won't be able to survive that.
It's interesting if you studied the data and we've got a ton of bids out there and we've really steady this data early on retail prices were going.
To try and offset margin walk to try and also volume loss and you just can't take your prices up in a pandemic liked assessors lunacy in the same way you can't just sit on inventory write that your poorest depreciating, it's like a banana right that that bananas running every day 5100 $175 today.
Whatever the number is it's running every day, if you're sitting on a huge creating a you're creating a bit bubble and you're going to have to pay for it at some point in time, we cleared the decks immediately into something we did you know several weeks ago, we cleared the decks immediately that put us in the position that we're in today and again, it's David and keep in mind, there were a lot of areas in the country.
It had to stay at home orders, where there were dealers who.
I had to shut their doors.
Where we.
We've been able to two while our business has been impacted greatly we continue to some business, where there's been a lot of source that were just absolutely 100% shut down who have been forced to hold on the inventory like Jeff was talking about and so there I mean, there's just no way, they're going be able to survive in as we come out of this our.
Question for US is about as strong as it's ever been it was we come out of this we do believe there's going to be submitted M&A opportunities for us to look at and further bolster.
Our goal of getting through the $20 billion in revenue prior to this decade ending.
Would your M&A focus beyond franchise or trying to buy more used capacity.
It depends on the opportunity that's a David that.
Yes, so its without.
About saying too much but there are certainly going to be.
Fantastic opportunities for franchise stores.
But you do have to look as I mentioned before we're getting better and that our team is getting better and better at opening these echopark stores very efficiently.
Yes, it's going to have to be a.
It's going to have to be an extremely rate deal on a franchise tortillas and to outweigh the ROI that we're getting on Echopark expansion.
The other thing too is real estate you know.
It could be a lot cheaper and that just further bolsters the margin and the return on Echopark and Echopark returns are a lot higher as David was saying that on the franchise side. So it really makes a great opportunity for us are going to be a lot of close franchise dealers out there that we can go and buy one of the stores that were looking at the opened this year.
Possibly is a franchise they went out of business and we're buying it you know what a great price. So those opportunities are going to be out there and we'll be in a position from our liquidity perspective to take advantage of that and while we [noise].
And while we ought we want to also make sure that we are clear though.
As we were saying that we're not going be distracted either we're gonna have if we come across fantastic deals that's great but to make sure that everybody understands it's not going to disrupt our growth of echopark and our rollout of that and it would be in addition to that.
Okay and then one last housekeeping question you guys had mentioned last week that your parts and service business that improved.
How what was it last week it wasn't I assume it was not up year over year, but could you maybe it was less down but could you tell us sort of how much it improved.
Yes, so in April we're off about 40%.
In those numbers now I think yesterday.
I'm getting some numbers that were down 30% to 35% somewhere in that ballpark. So it's improving every week.
And whats great is we're we're managing it by every morning, becoming a view our liquidity model and were made and we update the volume from the previous day in the grocery produced at a fixed and so we're looking at Wednesday versus Wednesday, Thursday versus there's a car we comparing sequentially week over week and that number just keeps getting better it's gone for being down 55 per se.
The being down 50 to being down 40, now in the lower Thirtyth and we expect that to continue right along the trend lines, if not better than what we put out there for you and total gross.
Total fixed rose same store due February was up 8.1% for the last 20 days of March impact.
Okay, great. Thank you.
And there are no for new best in class.
There are no further questions at this time.
Call back over to Mr., David Smith for closing remarks.
Wonderful. Thank you so much thank everyone for participating on the call every day.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
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